A friend of mine who is a securities lawyer in New York worked on the 1985 sale of 20th Century Fox by Marvin Davis to Rupert Murdoch. He led a group of New York attorneys to Los Angeles where they spent weeks going over contracts for many Fox films. What they found was that with few exceptions there were no contracts. There were signed letters of intent (agreements to agree) for pictures budgeted at $20-$50 million but almost no actual contracts. Effectively business was being done, movies were being made, and huge sums of money were being transferred on a handshake. That’s how Hollywood tends to do business and it doesn’t go down very well with outsiders, so they for the most part remain outside.
Jump to this week’s evolving story about Intel supposedly entering with a bang the TV set top box business replete with previously unlicensed cable content — an Over-The-Top (OTT) virtual cable system. This was expected to be announced, I’m told, at next week’s Consumer Electronics Show (CES) in Las Vegas.
Forbes then had a very naive story about how Intel was likely to succeed where others (Apple, Microsoft, Motorola, Netflix, Roku, etc.) had already failed, with Intel’s secret sauce being lots of money (hundreds of millions certainly) to tie-up content.
Yet today Intel made it known there would be no such CES announcement at all and the Wall Street Journal says the problem is content licensing.
I’ll tell you the problem. It’s 1985 all over again and just like my friend the New York lawyer for Rupert Murdoch, Intel is no doubt learning that it is difficult to buy with certainly something that the seller may or may not actually own. Studios and networks are selling and Intel is buying shows they may not even have the right to buy or sell.
Remember how Ted Turner bought MGM then sold the studio but kept the movies so he could play them on WTBS? Something like that.
There’s no business like show business.
Hollywood is a company town that has its own ways of doing business. The rules are just different in Hollywood. Accounting rules are different, certainly. Avatar is the highest grossing movie in history, sure, but has it made a so-called “net profit?” Nobody knows.
Tax rules are even different for Hollywood. Personal holding companies are for the most part illegal in America, but not in Hollywood, where they have been around for 50 years and are called loan-out companies.
My point here is that when out-of-towners come to L.A. expecting to takeover the entertainment business with money alone, they are generally disappointed. Sony buying Columbia Pictures wasn’t the triumph of Japanese capitalism it was presented to be — it was a chance for the movie guys to steal from the Japanese.
When technology companies try to do business with the entertainment industry they are nearly always taken advantage of. Hollywood can’t help it. Like Jessica Rabbit, they’re just drawn that way.
Look at Intel and remember this is the company’s third such effort to get a foothold in the entertainment business, where technology companies tend to be seen as rubes ripe for plucking. Apple and Microsoft are right now trying to do exactly the same thing as Intel and they aren’t succeeding, either. Nor will any of them succeed unless they take a more enlightened approach.
My next column will spell out exactly how this could be done.
Brilliant! Tell us more.
Hollywood seems in love with residuals, because (1) Many in Hollywood go broke over and over, and thos residuals are the only way they can survive, and (2) residuals don’t have to convey ownership, they are just licensing fees. Oh, and (C) since no one really knows who owns what, residuals avoid that queestion deftly.
Are you going to tell us the solution is for Silicon Valley to create its own content? It would take 3 years max for us to forget all the crap on HDTV and get in love with whatever comes out of that.
Oh, and how on earth can anyone make money selling content if the Hollywood types are still convinced I’m going to pay half the price of a movie ticket for an in-home experience that is not half the theater experience? oh, wait. I’m not sure the theater is worth it. Popcorn or steak? $7 Diet Coke or my favorite microbrew? No babies fussing six rows back. Letting people bring infants into a theater is bad enough, but then letting them walk up and down the aisle to ‘settle down’ the young ‘uns is cheapening my full-price exprience. Please, tell someone how to change this. Please.
go to the movies later at night.
that’s at least one way to address the situation.
Our guide to enjoying Hollywood movies:
– Build a Home Theater and use NetFlix for nearly all movies (yeah, you have wait for em to become available on NF). Use Blu-Ray, not streaming – the quality is noticeably better.
– For movies that just scream out for a 500 foot screen (blockbuster action movies mostly, and, for us, selected 3D films – think Avatar), find a theater that isn’t in disrepair. Hint: The digital conversion craze requires theater owner to upgrade their facilities – no more torn screens or buzzing speakers.
– Wait until nearly the end of the movie’s theater run when most theater goers have already seen it.
– Go to the theater in the middle of the week (I like Wednesdays) and go to the first show of the day. This hugely minimizes the number of other people there.
– BONUS: Matinee pricing
– BONUS: Sit wherever you want (we center ourselves on the screen, vertically and horizontally)
– Don’t try to eat a meal at the theater, limit yourself to a drink and popcorn or candy. Yeah, the prices are outrageous, but you’re worth it.
We’ve been doing this drill for many years and we don’t feel deprived or cheated in any way.
Our guide to enjoying Hollywood movies:
– Build a Home Theater and use NetFlix for nearly all movies (yeah, you have wait for em to become available on NF). Use Blu-Ray, not streaming – the quality is noticeably better.
– For those few movies that demand a 500 foot screen (blockbuster action movies mostly, and, for us, some 3D films – think Avatar), find a theater that isn’t in disrepair. Hint: The digital conversion craze requires theater owner to upgrade their facilities – fewer torn screens and buzzing speakers.
– Don’t go until nearly the end of the movie’s theater run when most theater goers have already seen it.
– Go to in the middle of the week (I like Wednesdays) and attend the very first show of the day. This hugely minimizes the number of other people there. We are often alone in the theater.
– BONUS: The theater was cleaned last night and the bubblegum removed from the floor
– BONUS: Matinee pricing
– BONUS: Sit in the best seats (we center ourselves on the screen, vertically and horizontally)
– Don’t try to eat a full meal at the theater, limit yourself to a drink and popcorn or candy. Yeah, the prices are outrageous, but you’re worth it.
We’ve been doing this for nearly a decade and we don’t feel deprived or cheated in any way.
As always, a very insightful post. One minor correction. The character was “Jessica Rabbit”.
https://www.imdb.com/title/tt0096438/?ref_=fn_al_tt_1
I think you mean Jessica Rabbit.
Reminds me of the famous L.Q. Jones quote from the 1995 movie “Casino”:
https://www.hark.com/clips/qjlqmmntnf-your-people-never-will-understand
Let me guess, no exclusives, and everyone gets to pay Hollywood?
My buddy used to work in the finance department at Paramount. He liked to say (with irony) that his job was to “not pay people.” One of his responsibilities was to ferret out more costs that could be assigned to a picture to further reduce its profitability. For example, finding that there was $10,000 of marketing costs in Kuala Lumpur for the picture, or something like that. He also mentioned that the star of one of their top sitcoms got a raise (retroactively) in mid-season. The check for that “back pay” was cut and delivered the next day. But if you were NOT a star of a top sitcom, or Tom Cruise, or someone like that, you might have to wait months or years.
For a guy trying to retire, why must you continue to leave us with these cliffhangers? I hope when you do finally retire you leave us with a list of others we ought to be reading, not that they’d compare to you.
Your former boss Steve Jobs was an early and profitable investor in Pixar, yes? “He served as CEO and majority shareholder until Disney’s purchase of Pixar in 2006.” –
Was this another case of Steve being the exception that proves the rule? I agree with this blog post, Hollywood fleeces tech companies, uses them and casts them aside. Is Steve -> Pixar the model you are advocating for the rest of the Tech industry.
Because Mr. Jobs could do it does not mean the board at Intel can do it. You yourself said something similar.
I suspect Pixar was a much simpler organization compared to Disney, MGM or Fox. They’re not even on the same level given that Disney ( Movie, Theatre, TV, Home Video Production and Distribution) now owns Pixar (Animation Studio).
Look at the credits for movies produced and pay attention to the investment side . Also consider that the ‘actors’ in Pixar productions likely had much simpler contracts.
Slightly off subject but based on this article, ESPN is the most valuable channel on cable (not that I would know, don’t really give a s**t about sports). If any one is going to challenge cable, this is the golden ticket.
https://www.npr.org/2012/01/11/144959516/if-you-pay-for-cable-youre-a-hostage-of-sports
Look at it this way: if sports prgramming is cheap to produce and a high profit business for cable, the sports fans are subsidising all the other programming we do care about.
For archival purposes, you might want to fix this type-o: “to buy with certainly” was meant as certainty. Now I can get back to reading the rest of the article 😉
So, basically, Hollywood is a mafia?
Yes. That is why they are so shocked that when they ask for control over what crosses the internet, we resist them so harshly.
I really think that it would only be fair to expect that if Hollywood is requesting laws that curtail our rights, then maybe their rights to make whatever movie they want should be curtailed too. Something like if we ban guns for the citizens of this country like so many in Hollywood would like, we should also ban any movies that show guns.
Hollywood is facing a real eye opener with respect to the internet. On one hand it enables them to reach huge audiences and deliver content in creative and amazing ways. On the other hand, it doesn’t allow them complete control of the market such that than can charge exorbitant prices for their works. I have purchased literally hundreds of songs from iTunes because they give me what I want for a good value. I have never purchased/rented a single movie because taking into account the restrictions, ridiculous prices, and DRM involved, it is not at all worth it for me to do so. If they put their movies on Netflix, I’ll watch them and they can have my money, if they don’t I just won’t watch their movies, or I’ll buy blu-ray or DVD (hell the price is the same and I can control what I do with those formats — yes, I ignore the DMCA to do so). Hollywood, as much as they pride themselves on knowing what people like/want stedfastly are refusing to give people that. But we’ve seen it before, the technology that’s going to ‘kill’ Hollywood, always ends up being the technology that ends up making it more money. They just fight tooth an nail to destroy it first.
As much as I agree that DRM is a pain, especially when we can’t even use the stuff we paid for thanks to glitches and failures of the DRM technology, I have to acknowledge that Hollywood is one of the few exporters the US has left.
Hey Bob…
Back on another topic, I mentioned the licensing agreements tacked onto consumer-level cameras, prohibiting making “professional” movies. You called BS on me, but a week or two later I found the exact wording very early in the manual for my recent-model Nikon camera. It’s quoted later in that thread, but I’m not sure if you ever read that post. I can check tonight and re-post here if you’d like to see the exact quote, (again) though you may have/know a better way of searching your blog than I.
Nonetheless, that claim was not BS. When it comes to moviemaking capabilities, you haven’t bought your camera – you have licensed it, and that license has terms. Once you get to a “professional” Nikon, like the D4 those terms may change, and I don’t know what the terms would be for a D600 or D800, much less the D90, D3200 or D5100. (I’m walking “down the slope” from professional to consumer with these model numbers.) But clearly with the “enthusiast” P7100 there is that “no commercial use” clause present.
Since this is a “mafia” thread, I’m attaching this here. In some side of the Open Source world, the MPAA and RIAA are collectively known as the “MafiAA” with their intent to control all moneymaking on media.
Found this with Google:
https://www.cringely.com/2012/11/06/the-nanotech-replicators-are-coming/#comment-269991
Just admit it Bob, you’re never going to retire. You’ll be writing this column from your death bed and your final post will end with a cliffhanger for next week’s column.
“Personal holding companies are for the most part illegal in America”
No they aren’t – what you call “loan-out companies” are simply LLCs.
Doctors and lawyers also use LLCs to limit the liability exposure of their personal assets and to make it easier to deduct business expenses.
[…] Link. Cringely in good form. […]
“buy with certainly”
This is why I feel no guilt when I Bittorrent.
Bob, there’s a font issue with the site as all the headlines are scrambled. (Safari/OSX 10.7.5)
One irony is that many of the early Silicon Valley startups got going via handshakes and no actual contracts, so you’d think maybe the fit with Hollywood would be better than it is. Of course, Hollywood got about a 60 year head start on these kinds of deals so they play the game better than anybody else…
[…] steal his thunder here. But I would recommend you checking out his three part series. Part One. Part Two and Part […]
[…] has just finished his mini-series Silicon Valley conquers Hollywood 2013 (Setting the scene, There’s no business like show business, Think small, not big) with some great anecdotes on the highly irregular way Hollywood does […]
“The Street Where I Live” by Alan Jay Lerne says it well. Even Hollywood insiders are outsiders. Alan Jay Lerne made almost no money out of his profitable movie because there were so many inside deals by the Studio Companies that the profits almost went to losses. Thearters took half transport more duplication more.
Prehaps Hollywood is the model for Wall St?
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I am extremely inspired together with your writing abilities as neatly as with the structure on your weblog. Is this a paid topic or did you modify it your self? Anyway stay up the nice quality writing, it’s rare to peer a nice blog like this one nowadays..
[…] has just finished his mini-series Silicon Valley conquers Hollywood 2013 (Setting the scene, There’s no business like show business, Think small, not big) with some great anecdotes on the highly irregular way Hollywood does […]