A few days ago I listened to Horace Dediu’s Critical Path and it got me thinking that would governments be able to increase innovation and competition through more transparency in the economy. Dediu talked about the movie business in one the more recent shows and he stated it many times that it is very hard to analyse the industry at large as they do not provide any figures on how different players are doing.

Further into the podcast, he went on to explain the findings of his study and more specifically how movies are financed as well as how the accounting works in the industry. Having listened to his findings, I completely understand why there is so little innovation and disruption taking place in the industry.

The lack of innovation was put in concrete explanation in Fred Wilson’s blog post on AVC yesterday where he argues that scarcity is a bad business. He writes how he wanted to find something interesting to watch through many different legal movie services, but was unable to find anything worthwhile. In the end he had to resort to a “foreign rogue site”, as he put it.

The pretty stagnant state of innovation in the movie industry is very understandable. Firstly, the industry itself is very traditional and does not really reinvent itself all that often. The biggest changes in it have been in distribution and how distributors make money. Previously the companies who are in charge of movie screenings would make most of their money from theaters, but today they make a lot more money from other sources and theaters is just one stream among many others.

Secondly, distribution is usually done by only a handful of companies. The movie business is extremely concentrated when it comes to western movies at least. It is very much in the interest of these few companies to keep it that way. They don’t want anybody taking that opportunity away from them, even though it is becoming increasingly difficult to make more money.

Who loses in this scenario? The people working with movies as well as consumers.

From these perspectives I believe it would make sense for governments to improve transparency in not only in industries, but also in company finances. My hypothesis is that this would increase innovation and especially disruptive innovation in many industries.

The reasoning is quite simple. It is basically government supported market research for new companies, that wouldn’t have to cost an arm and a leg to get it. Governments in almost all countries collect the information today.

Finland and Sweden (I’m more familiar with these two countries regarding the matter) have a law in place that make company financials public. All limited companies have to report their financials to the government agencies as they close their books for the previous years. These financials are then publicly available to anyone who wants to look at them.

This may seem very socialist to many, but transparency in this sense is good. I have looked at tens, if not hundreds of companies and their financial records from Finland and Sweden to better understand how industries work. It is also a way to benchmark your own efforts against your competitors and how you are doing, financially at least.

The more you understand your competitors’ finances, the better you’re also able to understand the industry you’re in.

If this level of transparency would be made available to new startups and their founders, they would be a lot smarter in avoiding certain traps and potholes in their entrepreneurial journey.

For us at least, it has helped better understand startups and how they are doing. I’m sure the same would apply to founders of companies who look to disrupt more traditional industries.

And disruption in traditional industries would force companies to better serve their customers to keep ahead of the competition. Everyone would win; customers, stronger innovative companies and the government.

There are naturally opinions against this as well, but I feel the advantages would outweigh them in this regard.

Image by Emmanuel Tabard

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