Starbucks goes Hollywood

StarbucksLast week, Starbucks announced its interest in a closer connection with Hollywood.  For starters, it will promote a Lions Gate film called Akeelah and the Bee in return for an undisclosed portion of the box office proceeds.

Hollywood is thrilled, I’m sure, at the prospect of a new marketing vista and the opportunity to reach the consumer in the uncluttered space of the Starbucks. 

But what’s in it for Starbucks? 

Well, there are those dreams of empire.  As Gray and Kelly of the WSJ put it,

Starbucks Corp., having conquered the coffee business and staked a claim in music, is setting its sights on Hollywood.

Starbucks is so very good at the coffee business that it must be getting restless.  Plus, Schultz has always insisted that he is in the "lifestyle" business and he recognizes Hollywood as the most important lab benches for cultural (and lifestyle) innovation.  This partnership is well advised.

And as the WSJ points out, with drive-through windows and breakfast sandwiches, Starbucks is now competing with McDonalds and Dunkin Donuts.  The Hollywood connection might be a useful point of difference.

Fair enough.  But I have a question.  What does this do to Starbucks as a "third space."  This was one of the great marketing accomplishments of our time: to see that there was the opportunity, the wish, for a space between work and home, and then to build it.  In effect, Starbucks was doing a little cultural innovation of its own.  North America has never been entirely comfortable with life in public.  Unlike the European cultures from which it sprang, public space in the new world was an excluded middle, not quite informal enough to give the comforts of home, not quite formal enough to be governed by the rules of work.  Hence, the drive through line…or, the restaurant in which we are aware of others only until conversation and the Bordeaux draws us into a world of our own.

Starbucks actually managed to build a third space, and then to monitize it.  Bravo.  How many of the success stories in American culture come from people who have the courage and smarts to give us cultural innovations of this kind?  (I give you the iPod, the Blackberry, the Coca-Cola Company, Nike, Sony, to name a few.)

So what happens to the third space when Starbucks "goes Hollywood?"  What happens when the third space fills us with DVDs and CDs, to say nothing of promotional messages on the sleeve of every coffee-cup. 

The WSJ sees a danger: "Starbucks could risk alienating customers or diluting the value of its brand if its promotions come on too strong."  And Ken Lombard, the man in charge of the Hollywood connection for Starbucks, does too:  "Our customers aren’t going to walk into their favorite Starbucks and suddenly feel like we’ve commoditized music and CDs."  Apparently, Starbucks will sell 20 or fewer titles at a time. 

But frankly, I am not reassured that Starbucks has thought through the potential danger.  (Just for starters, what the heck does Lombard think "commoditize" means?)  If I were a Wall Street analyst, I want to hear that benefit (new revenue streams, new connections to the beating heart of contemporary culture, new sources of interest in a Starbucks store) actually outweighs risk.  More precisely, I want to hear that the sacred ground of Starbucks retail is not going to be sacrificed in pursuit of a few extra bucks.  As it stands, this space has an interesting "hard to put your finger on" quality which I personally I like lot.  Shilling for Hollywood might give Starbucks a quality that’s really easy to put our finger on. 

What are the fundaments of the Starbucks brand?  It begins with the coffee.  It continues with the creation of a coffee connoisseurship that comes to us out of Venice (via Seattle).  But what is crucial here is what Starbucks managed to do with that retail space.  They gave it something.  And that something gives us something.  And they did such a good job here that not even the ubiquity of the Starbucks outlet (there are now 5,500 of them) has really damaged the magic of this space.  (In fact, it turns out that not even the now reliable truculence of the serving staff can damage the magic of this space.)

We are not good at thinking about how the Starbucks space creates value for the brand and adds value to the Starbucks proposition.  So it’s difficult for The Street to factor this in.  But when, as an investor, I pick up the Wall Street Journal, I want someone, preferably Lombard, to "run the numbers" here and reassure me that brand equity is in good hands.

As Katherine Stone put it rather nicely in a comment on this blog this morning, (referring to bad brand stewardship on the part of the Coca-Cola Company): "Here they go again siding with money over magic."  This is the story of American capital: corporations that build brands and then destroy them.  It is, to be sure, a death of a thousand cuts: a brand extension here, an ill advised partnership there.  It all seems like a good idea at the time.  But eventually the pursuit of minor profit sacrifices the real founts of value.  As Katherine’s remark reminds us, we understand more and more these days that the money comes from the magic, and that we "commoditize" this magic at our peril. 

What would it cost us in time, effort and investment to build a brand like Starbucks from scratch?  Could we build it from scratch?  Do we wish to put this accomplishment at risk?  Or, more exactly, when, where and how can we leverage the brand without diminishing it. 

For all I know, this Hollywood partnership may be exactly the right thing to do.  I guess what I want is the due diligence of a real analysis. 


Gray, Steven and Kate Kelly.  2006.  Starbucks Plans to Make Debut in Movie Business.  Wall Street Journal.  January 12, 2006. 

11 thoughts on “Starbucks goes Hollywood

  1. Eric

    Your comment about companies building brands only to destroy them made me sit up. I’m guessing that, in the average US corporation, a relatively small proportion of dollars are set aside for straight brand building activities. Most dollars, not surprisingly, are set aside for activities that return value to shareholders. This focus on earnings is evident in the quarter to quarter mentalities seen in most boardrooms. But, in working to please Wall Street, senior management loses sight of long-term goals, such as brand building and stewardship.

    I’m just guessing here, but might Starbuck’s earnings be reaching that magic plateau, where organic growth is harder, but pressures on earnings are greater? If that’s the case, watch for the great American sell-out of a great American brand…

  2. Chuck

    I think it premature to worry about Starbucks siding with “money over magic”. Starbucks has done an exemplarary job of creating interest in their CD offering. I sit in Starbucks daily and I find myself whistling to their tunes and hoping that they stock the current tape(CD)that is playing. Starbucks has managed their business well. I say, let Starbucks push the boundaries of opportunity.

  3. Daniel Rosenblatt

    Might is be simply that brands happen more than they are built, and that they are destroyed in part because those who own them don’t completely understand them. For example, I suspect the 3rd space aspect of Starbucks happenned because the space they made worked for that need and got take over for it. Some of why that space met the need wasn’t on purpose–for examply the smoking ban (at a time when that was just weird for a *coffeehouse*) might have come from connoisseurship not a desire to make a certain kind of space. I know from talking with a starbusks employee in about 1990, that at that point they thought only downtwon stores should be primarily about drinks, their idea was the neighborhood stores should get more than hal;d their sals from beans, something I doubt is true today. In general, when people succeed we (and they) tend to assume they knew what they were doing, whereas maybe the real trick for a successful company is to figure out what they did.

  4. Daniel Rosenblatt

    The first sentence of that last post should begin “”Maybe it is simply ….” Grant, feel free to fix this if the software lets you.

  5. Matt

    Integrating music sales is very different than doing cross-promotion with Hollywood. Music can be made part of the Starbucks brand image with relatively little difficulty or disconnect, because Starbucks can control the selection and aggregation in such a way as to prevent excessive interference with their existing brand. But inviting Hollywood into the game means that the Starbucks brand must necessarily become repeatedly subservient to a succession of doomed mini-brands.

    The moment Starbucks loses that unique brand identity, market share will begin to collapse, as millions of people spontaneously wake up to the fact that they’re paying extortionate prices for _bad_ coffee.

    They’re selling their soul, and they haven’t even negotiated favorable terms.

  6. Peter

    I wonder if part of the problem is that most of us, particularly us westerners, lack the courage to do nothing. Marketing and more senior managers feel they have to always be doing something, taking initiatives, creating partnerships, making changes, and so on, regardless of whether the actions concerned are beneficial (one can always make a good case for an action one has already chosen), or whether “leaving well enough alone” would be the wisest course.

    I am reminded of the Managerial Syllogism which a client once shared with me:

    1. The situation in the company is serious and so we must do something.
    2. X is something.
    3. So, let’s do X.

  7. Grant

    Eric, nice comment, thanks, when to we begin to see brand building as one of the processes by which we return value to shareholders, instead of something “long term” and somehow optional? Thanks, Grant

    Chuck, nice point, the music CD sales went better than I expected and it bodes well. For me, somehow, movies are more particular than music…perhaps because music can always be “just what happens to be playing” whereas a movie choice is more deliberate and therefore defining. Thanks. Grant

    Daniel, very interesting, perhaps the third space did happen be accident, with the Seattle trend running like a wave through the country filling up the “coffee houses” Starbucks just happen to have created. Talk about being in the right place at the right time. Talk about working the trend. But I think the term “third space” came from the CEO and that suggests that they had a deliberate idea here. Thanks, Grant

    Matt, brilliant, you make the argument better than I did, a failed movie will cost them in a way that a failed album does not, and I think this is back to that “just happens to be playing thing” whereas movies are more totemic, more definitional. Thanks, Grant

    Peter, this is really good (characteristically so), this is the cultural root of the inclination to meddle with perfection, there are careers to be made, newly minted MBAs have to make their mark, and so on. And in this view there is something exploitative about certain employees. They use the host for their own purposes. But, as you say, all of this is consistent with a larger cultural inclination, and we do not object. Thanks, Grant

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  9. David Sucher

    1. I find it unlikely that the “third place” aspect of Starbucks was accidental e.g. just filling up some unused space in a store. My own theory is that Starbucks executives observed (as customers as well as competitors) some extremely popular and profitable bakery/coffee houses in Seattle in the early 1990’s, as well as of course the many European coffee houses, and connected the dots i.e. saw that seating in a Starbucks would increase sales.

    2. The term “third place” was first set forth by an anthropologist in Florida, Ray Oldenburg.
    We should give Howard Schultz a lot of credit but not for that one.

  10. Constantinos

    In my opinion, the success of this will hinge very much on the way that it is executed at Starbucks. This includes everything from the movies that are selected and sold to the kinds of kiosks and displays that will be used. If Starbucks sticks to small, interesting independent films, and does it in a way that is, for lack of a better word, tasteful, they stand a much better chance of succeeding (financially, as well as enhancing the cultural experience). With music, they have struck a good balance between well-known acts and promote smaller, relatively unknown artists (like Raul Midon).
    It’s tempting to think of films/Hollywood as nosier, and even crass in way in this environment, but if they stick to smaller flicks, I think they can avoid being thought of as sell-outs.

  11. cynthia bates

    In 1989 urban sociologist Ray Oldenburg published
    “The Great Good Place: Cafes, Coffee shops, Bookstores ,Bars, Hair Salons (there you go, Big Hair), and other Hangouts in the Heart of a Community.”
    What he called “the core settings of informal public life”, and they had a consistent set of characteristics: neuttral ground, accomodating & accessible, unmpretentious, full of lively conversation, a social leveler,with a group of “regulars” and a kind of home away from home.

    Whether today’s virtual communities are true Third Places is debatable.

    He was very pre-Starbucks and referenced the famous coffee houses of London and Vienna wih their political and intellectual ferment.

    “the great good place” is the title of a work of the master himself, Henry James

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