Nice necklace, Buffy. Where’d you get it?
Some readers of my last column in this series seem to think it was just about the movie business but it wasn’t. It was about the recorded entertainment industry, which includes movies, broadcast and cable television, video games, and derivative works. It’s just that the movie business — like the mainframe computer business — learned these lessons first and so offers fine examples.
Whether from Silicon Valley or Seattle, technology companies see video entertainment as a rich market to be absorbed. How can Hollywood resist? The tech companies have all the money. Between them Amazon, Apple, Google, Intel and Microsoft have $300 billion in cash and no debt — enough capital to buy anything. Apple all by itself could buy the entire entertainment industry, though anti-trust laws might interfere.
Right now these companies are not trying to buy the entertainment industry but to buy access to content and audiences. Their primary goal is disintermediation of cable and broadcast TV networks. The vision held by all is of Americans sitting in our homes buying a la carte videos over the Internet and eating popcorn.
This is unlikely to happen simply because cable companies and TV networks aren’t going to hand over their businesses. If such a transition does take place, and I think it is only a matter of time before it does, the catalyst won’t be phalanxes of lawyers meeting across conference tables. When the real entertainment revolution happens it will be either because of a total accident or an act of deliberate sabotage.
With accidents so difficult to predict or time, I vote for sabotage.
But sabotage doesn’t come naturally to the minds of big company executives, or at least not executives at the companies I’m naming here. They are hobbled by their sense of scale for one thing. Big companies like to hang with other big companies and tend to see small companies as useless. When elephants dance the grass is trampled. Well it’s time for someone to pay more attention to the grass.
While Silicon Valley has more than enough money to buy Hollywood, Hollywood is unlikely to sell. And even if they sell, it’s unlikely Silicon Valley would get anything truly useful because they’d only be buying a shell. Networks and movie studios don’t typically make anything, they just finance and distribute content.
If you can’t buy Hollywood, then you have to steal it.
What makes Hollywood unique is its continuous output of ideas. When technology companies talk about gaining access to content what they really mean is gaining access to this flow of ideas. For all we might talk about the long tail, what defines Hollywood is new content, not old, with a single hit movie or TV series worth a hundred times as much as something from the library. Intel is having no trouble getting rights to old TV series, for example: it’s the new stuff that’s out of reach.
Amazon and Netflix have bought a few original productions between them but the economics aren’t especially good because they have to pay all the costs against what is so far a limited distribution outlet. These companies need to find a way to control more content for less money.
The trick to stealing Hollywood is interrupting this flow of ideas, not just for a show or two but for all shows, diverting the flow to some new place rather then where it has always gone. Divert the flow for even a couple years and the entire entertainment industry would be changed forever.
What if there were no new shows on CBS?
Here’s where it is useful to understand something about the finances of content production. This $100+ billion business (the U.S. Department of Labor says the U.S. entertainment industry pays $137 billion per year in salaries alone) is driven by cash yet there is very little cash retained in the business. While Apple is sitting on $100+ billion, Disney isn’t, because there’s a tradition of distributing most video revenue in the form of professional fees.
While workers in most industries think in terms of what they make per year, during the heyday of the studio system the currency in Hollywood was always how much any professional made per week. Today the entertainment industry often thinks of what someone makes per day.
The numbers are big, but not that big. George Lucas just sold his life’s work for $4 billion, which would make him a second tier tycoon in Silicon Valley.
The only person to ever extract more cash from Hollywood than George Lucas was Steve Jobs when he sold Pixar. Ironic. eh?
So the Hollywood content creation system is fueled with cash, but the pockets from which that cash comes are not very deep. Every production company — every production company — is two months or less from bankruptcy all the time. They create or die.
So here comes an Intel, say, looking to buy or license content for its disruptive virtual cable system. They attempt to acquire content from the very sources they hope to disrupt. “License us your content, oh Syfy Channel, so we can use it to decrease the value of that same content sold to Time Warner Cable.”
Am I the only one who sees something wrong with this picture?
Google has taken a somewhat more clever approach with YouTube financing 100+ professional video channels. But this, too, won’t have much impact on the industry since it doesn’t truly divert the content flow from its traditional destination to a new one. And at $8,000 per hour or less, YouTube budgets aren’t exciting many real players in Hollywood.
You get what you pay for.
If your goal is disruption — and that ought to be the goal here — then disrupt, damn it! Impede the flow of ideas. That means negotiating not with big companies but with small ones. Because the Hollywood content creation ecosystem is based on a cottage industry of tiny production companies where the real work is done. There is no mass production.
I happen to own a tiny production company, NeRDTV, which produces this rag and other stuff. I’ve laughed on this page from time to time at what my company is supposedly worth based on acquisition costs in Silicon Valley. I know my real value is much lower after negotiating with Mark Cuban who at one time was looking to put some money in this operation.
“It’s a production company,” Cuban said. “No production company is worth more than $2 million.”
And he’s right. By the time you separate the production infrastructure from the content it produces — content that is usually owned by someone else who pays for making it — all that’s left over is about $2 million in residual payments, office furniture, editing equipment, and BMW leases.
There are probably 1000 legitimate production companies in California and 2000 in America overall. If they are worth an average of $2 million each, buying them all would cost $4 billion.
So the cost of installing a valve on the entire content creation process for the $100+ billion U.S. entertainment industry would be $4 billion. Think of it as an option.
Or cut it a different way: $4 billion would buy a controlling share of every TV pilot and every movie in pre-production. Talent follows the money, so they’d all sell out.
This is a classic labor-management squeeze tactic from the early days of the labor movement and it works.
There are no anti-trust issues with buying $2 million companies or early investing in productions. They are beneath the radar at both the U.S. Department of Justice and the Federal Trade Commission. Nobody cares about small companies.
Something like this tactic is occasionally used in what’s called a roll-up, where borrowed or investor money is used to buy a basket of companies that are integrated then eventually sold or taken public. But that can’t happen here because of the sneaky anti-trust requirements. Apple, if it were to try this, would have to do it through a new content division or subsidiary.
Let’s look at a real world example of what I mean.
My little sister started an Internet business selling to consumers copies of jewelry used on TV shows. Her original idea was to go to the studios and networks and cut revenue sharing deals in exchange for exclusive licenses, but the studios and networks wouldn’t even talk to her. The deals were too small, the money not enough, they claimed, to even justify the legal expense. But most importantly they didn’t want to make a mistake and set the wrong precedent. No precedent was better than a bad precedent.
Undeterred, my sister took a different approach very similar to the one I am presenting here. She found that the jewelry used in TV shows typically came from a separate wardrobe budget and each such budget was controlled by a wardrobe mistress. If the wardrobe mistress could get jewelry for free then she wouldn’t have to buy it or rent it with that part of the budget falling to her bottom line. Unspent budget = profit. So my sister cut her deals not with the studios or networks but with the wardrobe mistresses — eventually more than 40 of them. Nearly every U.S. primetime TV show used her jewelry with not a penny going to the networks and it was all perfectly legal.
If Seattle and Silicon Valley make a frontal attack on Hollywood they’ll fail. But if they undermine the current system by bribing the peasants, they’ll succeed for a tenth the money they’d have lost the other way.
Will they follow my advice? Probably not.
Your sister is brilliant! You have good thought too, of course, but man that’s great as she’s making a go of it directly. Wow 🙂
“The vision held by all is of americans sitting in our homes buying a la carte videos over the Internet and eating popcorn.”
Does morality never get in capitalism’s way!
How is sitting about eating junk food going to help halt the american obesity epidemic? If it doesn’t help, it hinders. If it hinders, it’s wrong and immoral (a lot of you here may have to look up the word immoral). If it’s wrong and immoral it should not be tolerated. (Sometimes this feels like explaining things to 5 year olds.)
Then imagine Bob said “The vision held by all is of americans sitting in our homes buying a la carte videos over the Internet and exercising on a treadmill.”
Feel better now?
Good one Frank … LOL
/applause
Actually, popcorn, sans butter, is pretty harmless in regards to wait gain. Very few calories.
Yeah but it’s soooo boring. I watch my movies with a bottle of 1994 Warre and a slab of Roquefort. It takes years off my life but boy it feels good.
ps. Contrary to popular belief, port is a cleansing drink; you just need to be sure of drinking at least half a bottle of it to avoid a hangover in the morning.
Finally. A kindred spirit. Cheers, David Stewart, wherever you are.
Whose morality? Yours? “Should not be tolerated”? “If it doesn’t help, it hinders.” Hinders what? The Greater Good of the Protestant Work Ethic? That everyone should be mindless automatons slaving away for someone else’s benefit?
Who are you to try to legislate morality? If people want to sit around choosing their own entertainment and eating junk food, it’s absolutely none of your damn business.
By the way, you’re focusing on one snowflake and missing the avalanche.
How can any production company (NerdTV) be worth only $2M? In the case of NerdTV, the content is from Bob’s brain. When a show is “produced”, it has to come from somewhere. They would be buying any content that came forth from him.
This is like saying Apple is only worth the patents, buildings, T-shirts, and store laptop supplies. Do you not count the synergy of all those brains that output code every day? If every coder at Apple quit today, are you saying the value Apple would remain constant (or rise due to no salaries to pay)?
You can separate anything and everything until all of the pieces look worthless (carbon, oxygen, hydrogen, trace minerals), but this is not how we value a 2,000 year old redwood.
You’re dead on in one respect: there is value in the synergy. It’s called the Brand Equity. It’s the warm-and-fuzzy feeling people have about you, the confidence in the sum being greater than the parts.
Now, of the top-20 shows on network television, can you tell me the production houses behind them?
Can you tell me which distribution company was behind each of the top-10 movies?
The fact that a reasonably aware normal human being cannot speaks to the low Brand Equity for those production houses.
No, and I also can’t explain why there are 9 different “Produced by XYZ” credits for the average movie today.
@gymbo, because of personal services contracts, a longtime staple of this business. mentioned earlier. for instance, Starry Felician is under contract to Weasels LLC. Hunk Dudely is under contract to Slicks, Inc. if you want a movie to star those two, Weasels and Slicks have a production interest and a bale of cash due. likewise director Gott Imhimmel.
or put another way, Universal and Disney co-released “Who Framed Roger Rabbit” because it had to be done that way to use all those cartoon characters cross-licensed.
Hunk Dudely is consistently overlooked at Oscar time.
Hence the preponderance of bumpers and trailers for production houses on most major TV shows these days… as a consumer of “niche” TV, I’m pretty aware of who makes it.
I was, just last night, composing a letter to one of those production houses because a show I really liked was cancelled _before_ it even officially aired in my country.
There’s no way as a consumer to say “I love it, take my money and make more”.
I’m not sure I exactly love the idea of Intel, Apple, Amazon, Google etc making a grab for the distribution side of things, but probably it can’t get any worse….
You missed the point: In order for a production company to make money it must produce. And then continue to produce new stuff continually. Where as Apple can – and does – produce new items AND THEN sell millions of them. Apples sales as well as the other stuff is what makes Apple valuable. Bob on the other hand is only as valuable as his next project that will drive revenue.
Can you really buy those 2000 legitimate production companies? Or are many really shell corporations. Any idea how fast small companies go under, sell out all of their assets, and then within a few weeks the same people and same assets are a new production company… Someone trying to buy out those production companies might find them melting in their hands and flowing through their fingers. Perhaps a better means would be to forget the companies and buy the equipment.
Then buy the MPEGLA patents. (That one is still open.)
OTOH, many of us would say that Hollywood doesn’t generate that many new ideas these days, considering the prequels, sequels, comic books, computer games, theme park rides, and even board games getting turned into movies lately. My diagnosis would be that Hollywood has gotten infected with too many “professional managers”, who don’t really understand the business and want to go with “safe”.
The movie theater industry is only $20 billion.
You could buy all the movie theaters for about $10 billion.
Bad move. The cinema chains have no control over anything, and pay higher and higher fees to show worse and worse movies, which they pass on to grumpier and grumpier patrons. I suppose a monopoly would give you some clout for a year, but what’s to stop someone from opening a rival across the street? You can’t buy a patent on cinemas.
That sounds like how we end up with “Batman VII” or “Planet of the As” (use any appropriate noun); all foolish dross.
Wow. Bob. I’m gonna miss you when you are gone. Very interesting.
So your proposal is, essentially, for Silicon Valley to contract directly with the produiction houses to create new content, which is distributed more efficiently (cheaper and/or more conveniently) to us, and cut out traditional Hollywood distibution that has no incentive to serve us any differently then they have for decades. OR, Silicon Valley creates their own production houses, distributes the product, bypassing even the production houses in Hollywood.
And does the talent care? So long as they get paid? I see hope here. Of course, give me compelling product, and i’m in. So when does Silicon Valley dip its toes in and, for instance, buy up Battlestar Galactica and put it back into production? Or As The World Turns? Or ‘V’? Seventh Heaven? All sorts of bankable content dying to be put back into production – stuff being cancelled all the time. I think I’m seeing the birth of short-run serials, like NBC’s Revolution and V, didn’t quite make it in broadcast, but an Internet channel could deliver these cheaply, and revenue comes from where, advertisers AND subscriptions? Your sister got past the paradigm by solving the real problem. So what’s the real problem with video content?
ps – in the real estate industry, especially residential and big comercial construction, the developers (contractors?) aren’t worth a dime if there is no project to build. They pitch projects or develop the plans for the pitchers, get paid no matter if the project actually turns a profit, but are gone in 60 seconds if the construction market dries up. Which it does occasionally. And they magically come back when construction recovers. But no one has found a way around them, just different ways to attract capital and buyers/tenants/homeowners. Any of the big bunch you mention can easily fund an all-out production of ANYTHING they care to, even as outlandish as serial episodes of Asimov’s I,Robot or Foundation books, or the Dune series, any of several others that would work for years at a time. Drop them on us on schedule, and it’s a lot like the online gamers breathlessly waiting for the next set of mazes and monsters to shoot up. Why there isn;t something like this on Steam already is a matter of lack of vision. Right?
This analysis has many problems.
First, why should the goal be disruption? Disruption for its own sake makes no sense and shareholders would rebel, which matters in Silicon Valley because stock is used so heavily for compensation. The goal is and should be investing at high returns. The reason why none of these companies will take your advice is because you offer no plausible path towards high returns.
Second, the $4b number for buying 2000 production companies ignores two massive additional costs. First, in any roll-up the asking price for companies starts going up. Second, the big expense would not be buying the production companies which you rightly note don’t have any assets, the big expense would be FINANCING THE PRODUCTION. That number would be closer to $20 billion per year. And to what end? Disruption for disruptions sake? What problem would be solved? A better user guide? More programming on demand? What would be the revenue model to get a return on that $20b?
Great point. Also, just about every production company making content worth buying has a first look deal in place with a major studio that gives the studio first rights of refusal on any project they try to get made.
Not as many as you’d guess have such deals but I get your point. However in this scenario they’d be asked to put up or shut up on the entire production slate from every such company. With very few exceptions they’d pass on all the deals since the total budgets would drown the studios or networks.
Wow Bob, Besides being a go-to guy for the internet, digital world, and IT, you have a mastery of corporate finance. Take that from a corporate banker.
I’ll miss you, but at least I can follow you on LinkedIn!
I think the problem is that many of the production companies wouldn’t sell for $2Million. You didn’t did you?
Your sister did not do the roll up thing. She went to people and eliminated a cost from their budget. Great idea and the thinking small is an overlap with your approach but she’s not buying a company, she’s eliminating a cost from someone who controls a budget.
I was willing to sell fo a lot LESS than $2 million (and still would if you have your checkbook handy) even though by Huffington standards I’m supposedly worth $10+. I’ve written about this before if you want to search. Some would cost more and most less. I just grabbed $2 million as an average.
This is essentially the model Hollywood had 40-50 yrs. ago right after the studio system died. All of the truly great films in the second golden age of Hollywood were spawned under these same pretenses. Guys like Bob Evans always rolled the dice and produced and distributed under Paramount some truly wonderful inventive films and gave a lot of really talented people a place in the industry as well, opening the door for a lot of creativity that is lacking today. Today, Hollywood thinks in terms of “franchising” everything. It would be nice to see the pendulum swing the other way again so, that I could enjoy more than one or two movies a year (at best) and return to the likes of the late 60s thru early 80s of having way more choices than I had time or money. Let’s hope you’re right, Bob!
Very good article! And good comments too!
I believe we will see some changes in the industry in the years to come! But, isn’t there a risk for the IT Companies to go too far away from their business?
Engineers and moviemaking people are quite different. Professional managers have taken the high management seats in the entertainment industry in the past years and we have seen a lot of the “same again” – remakes and parts II and III, and IV and so on, due to their willingness of not to take risks.
I wonder how the engineers (and finance people) of Silicon valley will deal with 2.000 movies and TV writers and producers…
Talent follows the money, so they’d all sell out.
Case in point: Matt Damon
He’s a talented actor who just launched a new movie aimed at hurting American oil production … and his movie just happened to be financed by a wealthy Middle Eastern royal family.
I think Hollywood and the entertainment industry are ripe for disruption. They’ve been stagnant far too long.
Syriana
https://www.aljazeera.com/news/americas/2013/01/2013132255769130.html
Jason Calcanis proposed this on This Week In Startups a long time ago. Why not have Netflix sponsor, buy or finance a couple of promising films at Sundance or some other early stage film festival. That is how Miramax got started doing their costume dramas.
As you say, it only takes one big hit financed and released on Netflix or Amazon prime. (Downton Abby?) One big hit or geeky nerd fan favorite and the content creators will follow to the outlet that provides and makes money.
So, yes, I think you are correct that this will happen. As usual, it will take longer to develop than the forward thinkers on your blog believe. Just remember folks, you heard it here first.
Little sister had a good idea. Of course, the idea seems to be pretty much the same as a very old one, often used in TV and movies, called product placement.
What a great article.
If Google buys Firefly, I would absolutely watch it. Six seasons and a movie?
Yes! Firefly!
Firefly…mmm.
This idea is a winner.
Trouble is, the movie killed off a pretty good chunk of the crew. They’d need to “reboot” the storyline so that the movie didn’t happen.
Sadly, a series restart would it be pretty much impossible unless you’re willing to replace almost every cast member who has moved on to bigger/better/different things.
Tech companies trying out TBS’s model of ownership of some production companies with homerun broadcast shows, and willingness to buy shows/production companies like Cougar Town when ABC cancelled it as a second-tier of content might be a more likely/less disruptive transition.
Yeah, there are a couple of problems there. Nathan Fillion talked about putting together a deal to buy the rights to Firefly, and Joss Whedon basically said, “Love you brother, but I don’t want anyone else owning my ideas.” Plus, Fillion is working on “Castlel”, Gina Torres is working on “Suits”, Booker and Walsh were killed off. So, if they were going to try to use the same characters they’d have make it a prequel. And it might be hard getting all the actors clearance from current contracts, or a production window that magically lined up with the other series’ hiatus.
And if you didn’t use the same characters, what would be the point? You’d have to create a new set, and you’d want Joss Whedon to do that. But you might have noticed, he’s kinda busy. “The Avengers” has earned about $2 billion world wide; there’s a lot of projects bidding for his attention.
If they ever =did= reboot the series or make another movie (and Joss or a trusted associate like Tim Miner) are involved, count me in. But I don’t hold much hope.
Your sister is so smart! will she be taking over the blog when you retire? 🙂
but hope you never retire
Eric
My sister sold the jewelry business and now make quilts — more quilts than you can ever imagine. There’s a link on my homepage.
Years ago I did an internship at a company that made a few tv shows. Depending on which line a call came in they would answer as a different company. I doubt if all of them together were worth 2 million. Of course, they would sell you the worthless ones and keep the ones that have value. You would end up with 4 billion dollars of worthless companies. Taking your idea a bit further it’s not the production companies that make the films, but the film makers. So you would be better to hire hundreds of writers and directors, etc. Studios used to do that but they stopped because I guess it was too expensive. It would be hard to make money. With google or intel their goal is probably to get people to use their hardware or software so they aren’t really trying to buy Hollywood.
Why not buy distribution rights to a major sport?
Or maybe every major sport.
College football. Be able to watch any college football game. With alumni so distributed, you should be able to get a bunch of people to use it.
The problem with live sports is that there is nothing so perishable (aside from a hotel room night or airline seat) as a live sporting event after the fact. Something Bob alluded to in one of the posts in this series. It’s the one reason why ESPN alone is worth a really big chunk of change. Most sports fans do not want to see a sporting event on delay; they want to see it as it happens.
yeah, sorry, your sister is smarter.
I just started my production company and I wouldn’t sell out for even a million bucks and I don’t own anything.
I want to be famous more than rich. Hollywood has a track record and if I get something on the Oprah channel at 3 a.m. that’s better than on the Google or Apple or Intel network in prime time.
So…. you either need a “Dr. Horrible” on one of the the alternets, or sabotage.
Sabotage would work.
Just have Apple or Intel say to the Unions of Hollywood that they like Unions (very hard to do in Apple’s case). Offer double rates. Set up a strike.
Fascinating! I guess it makes sense as part of a long term strategy for someone just starting out, but I’m 45 years into this career so of course what you propose makes little sense to me.
Another alternate route would be the method that Amazon has been using in the ebook marketplace with the Kindle Direct Publishing model. Give the creators an easy way to directly publish their works and allow them to retain the bulk of income from their sale. After running for less then 5 years, and despite a monopolistic agreement among most of the major traditional publishers, there is a thriving community of successful authors that won’t touch the kind of traditional deal that publishers have offered for decades. While there is a vast amount of low quality material, there are quite a number of very successful authors and a search/review ranking system is exactly within Silicon Valley’s strengths.
To some degree, YouTube is already starting down this path as well with their YouTube Channels. With any success of something like GoogleTV, this starts bypassing the Hollywood gatekeepers just like Amazon bypassed print publishers.
This has been the Internet dream since the mid-90s and hasn’t worked yet unless your name is Glenn Beck.
Beck isn’t even a good example as he built his band on Fox before moving on line.
What happens when the good guys own all the production? Aren’t we still stuck with the ISP cartel for getting it to our homes or mobile devices?
Amazon, debt-free? Pretty sure that’s not the case. I believe they had a bond issue not too long ago for a few billion dollars…
So if Amazon, Apple, Google, Intel, Microsoft, Netflix etc…. pool together and create a “United Internet Motion Pictures” 100 times the size of the “YouTube Professional Video Channels” and make sure that the grass gets fed, Silicon Valley can wrestle creative content from the studios. Seems plausible. Silicon Valley have often collaborated for mutual benefit. This would lower entry barrier for production and distribution and democratize content creation.
They would need to do the same with sports to wrestle it away from ESPN and the cable companies.
“Amazon, Apple, Google, Intel, Microsoft, Netflix pool together” — is a rather huge hypothetical Pick two.
[…] This is a pretty interesting question that Cringely addresses. I won’t steal his thunder here. But I would recommend you checking out his three part series. Part One. Part Two and Part Three. […]
The above situation reminds me of the 1970’s, when Australian media entrepreneur, Kerry Packer (who also had a rich, successful Dad like Rupert Murdoch*) transformed the game of cricket – literally. Rather than buying the national cricket boards (a bit like trying to pay the networks for content they don’t make), or trying to buy the teams (a bit like buying the production companies – sort of), he bought a critical mass of the top international players – this is very much like Bob’s suggestion to buy up the writers and directors who work for a pittance.
Kerry Packer also revolutionised the rules of the game of cricket. Once he had bought the players, he also found a shorter, more media friendly form of the game (“only” 1 day and 50 overs per side long, as opposed to 5 matches of 5 days EACH – which could end in a draw regardless of how much the other side was winning by if 1 side is not dismissed twice). This “one day” form of cricket has itself been supplanted some 30 years later by an even shorter form of the game called 20/20 (twenty overs per side) and the Indian entrepreneur that financed the revolution again won the day by paying the least well-paid of the cricket milieu – not the cricket administrators nor the cricket team owners, but the players.
I agree with Bob. If even one of the big tech co’s were to offer a critical mass of writer/directors/actors bribe money to join the Internet bandwagon, so long as the tech companies could offer the viewing audiences something better than what they already have (video on demand anyone?), then it should be possible to disrupt the ‘movie’ industry.
*Incidentally, Rupert Murdoch did a similar thing with Rugby League and Rugby Union, with less success, but still enough success to have forced the incumbents into major concessions. Player salaries were increased significantly, but costs were kept down because the so-called “Super League” only employed a couple of full-time staff and a handful of part-time referees.
Economist Thorsten Veblen proposed this for technical workers back in the 1920s biut it didn’t work then because of the high capital costs of industry and then because of today’s outsourcing. But applied to a cottage industry like Hollywood where the value really does lie in the minds of the creators who all want to live in Santa Monica it would work a treat.
Just to follow on from Kerry Packer’s creation of World Series cricket, it should be recognised that the players who jumped ship risked destroying their careers over it. If Packer’s format had failed, the Australian players (at least) would have been unlikely to ever play international cricket again.
They agreed to change – and apparently quite quickly too – because they were so poorly paid. So if you wanted to refine the Cringely Strategy further, you’d look to grab the lowest paid people who are still critical to the production of content. To this end, I’d say if (say) Apple started a production house and bought out all the best writers, they’d easily have a stranglehold on the production of those new ideas. Hollywood would adapt, but not too quickly, which would give those writers time to create incredible content that would draw the talent.
I don’t pretend to understand the software business, but it seems to me Hollywood is basically in the software business. So a Silicon Valley takeover shouldn’t be that difficult. It’s all just bits. And the talent in both cases walks out the door every evening. Herding cats, and all that. Of course BigCo’s have taken over software companies in the past only to discover they have an empty shell. But it’s a problem that’s been addressed before. Don’t cheat the talent, they will eat out of your hand.
Production companies don’t own anything, and possess no unique kind of access to talent or ideas. Ideas and talent go to production companies because that’s the structure (assisted by agents and managers).
Buying all of them is impossible, and maybe unnecessary. For a lot less money you could buy 25% of them, merge them into a huge agency, and change the rules of engagement. For example, offer better percentages in contracts, and better terms of licensing and ownership. Spend 20M on PR announcing that your mega-production company has the best deals in town and pays top dollar for new ideas and content.
The talent and ideas will jump ship immediately, and the rest of the production companies will either die because they can’t compete with your margins, or sell out to you for pennies on the dollar. The few who survive will not be a threat. With the majority of the idea/content/talent pipeline, you’d be the biggest player in 6 months.
The Hollywood old guard would survive on their existing properties and deals for a year, but as has been pointed out they are always 2 months from bankruptcy. With a war chest of a few billion in cash, the new mega-production company would outlast them all, or buy them once their stock tanked.
Come on, Apple/Google/MS. Do it. Do it. Kill Hollywood. The movies and TV will only get better.
(Ok, maybe leave HBO alone. They’re pretty good. )
“Come on, Apple/Google/MS. Do it. Do it. Kill Hollywood. The movies and TV will only get better.” IIRC, the only two things that MS and Apple agree on is that MS has no taste and Google is the enemy. I’ve been watching TV since the fifties, and the only problem I see is the greater selection of channels and types of content makes it a little more work to find the best stuff. But the best stuff today is generally better than the best of the 80s which was also better than the best of the 50s. There is always room for technical improvements (like time and place shifting, 4K screens and content to go with the larger displays). In that regard, until the world becomes one giant Gigabit LAN, Internet delivery is a step backward.
Ok, I was being hyperbolic. I don’t actually have an issue with the totality of content, which is indeed quite diversified if you know where to look, but rather with the shocking inefficiency of the process. Having worked in Hollywood (at the bottom) I can attest to Cringely’s basic premise that it’s an architecture that is ripe for disruption and inherently anti-creative. To quote William Goldman, “No one Hollywood knows anything. Never forget this.”
Also, see my earlier comment that Apple/MS/Google are never going to work together. But the idea that one or two could buy out/undersell/revamp the production process (which is different than the studio process, btw) is quite valid. The improvements in TV in the last decades are not because of the Hollywood structure IMO, but despite it.
The afore mentioned Mark Cuban seems to be running up a very good track record with his Magnolia Pictures and Landmark Theater chain. Like the Weinsteins, the movies with his company’s name attached are uniformly good.
Sorry, Bob, but I think that this is already going on, but with different players. HBO already produces quite a few shows and tonight I seen advertisements on CBS for two new shows “only on Showtime”. If they get a few million more customers to pay a subscription in order to see one of these series,many will stay on past the end of whatever they signed up for. Looks like a better financial model than pop up ads, such as you have forsaken.
Secondly, if there is any business that counts on hype to bring in the customers more than the entertainment business, I can’t imagine what it is. Do any big tech companies really know how to do that? Oh yeah, Like a Microsoft product introduction? Ha, ha. When I go to the theater, I’m practically drowned in previews of upcoming films. Who’s likely to sit through that at home?
“…what defines Hollywood is new content, not old…” Then why is Mickey still copyrighted? Out of a hundred television channels, at any time, how much programming is broadcast that is not a rerun, news, weather or reality TV?
The networks are resting on their laurels. If silicon valley stole their talent, the proles would hardly notice.
“how much programming is broadcast that is not a rerun, news, weather or reality TV” I manage to find about 2 hours per day of prime-time entertainment that is none of those. That’s quite an accomplishment considering I also avoid si-fi, horror, fantasy, sports, education, documentaries, and comedy. And I can do it year-round, relying only on analog cable channels, since I don’t want a cable box. The trick is to plan ahead, using internet-based TV guides, and record those 2 hours at least a day before you watch them. OK, many movies/shows were previously aired but it’s not a rerun to me if I never saw it.
Two hours? That is an accomplishment! That leaves 22 hours of programming achieved with minimal effort from content providers. It is hard to compete with that.
Movies/shows previously aired but not seen by you only count if you are still locked into the old paradigm of waiting for a broadcast to occur to be able to watch it. The new paradigm is for a show to be created, put in the cloud, and then watched by whoever, whenever.
So 100 channels * 24 hours = 2,400 hours of programming. You watch 2 hours. So you only need 2 / 2,400 = 0.08% of a channel. Imagine the bandwidth savings!
I did not mean to imply that the programming I choose to watch is the only worthwhile content. Some people actually watch QVC or it wouldn’t exist. Same for all the genres mentioned in my previous post. All it takes to find out how unique your own taste is is to become aware of stuff others watch. All I’m saying is the diversity of content requires us to search hard for the stuff we like and record it when available. I’d rather do that than pay extra to have it custom sent to me “on demand”.
This article is genius. I have already passed it around LA. Already had several positive responses.
Hollywood is a cabal. Like ALL cabals, it can be broken. You don’t even need to own them 100% or completely disrupt the model. Buy 51% of Bad Robot say, let it go 1st run on major distribution, sell yourself the non-theatrical or syndication rights, pay the talent 5% more than they get now throughout.
You can’t grow more writers – they keep trying every 5 years or so. If you got this right you would be flipping the content level – the networks would have content on the level of current youtube channels (which are actually pretty effing terrible), you would have the A content.
It would cost 20-30B over 5 years, but would decimate the cable business. Which you then purchase for a song. The ‘people’ Silicon Valley constantly send here just like going to lunch. And wearing very expensive jumpers.
Murdoch got it. You really want to punch TV in the nuts? Buy a major sport. Roll the BIG dice. That’s what he did. He realised very quickly where must-see TV lay. The problem isn’t figuring out the model – the problem is finding a tech company with the balls to go for it.
Why doesn’t Netflix or Hulu or Amazon or Google just go to someone like Chuck Lorre (who seems to have created all the top shows on CBS) and offer him more money to create shows for them?
I really enjoyed your Silicon Valley / Hollywood series!
Happy New Year!
Peace and prosperity to you and your family!
Roll up all the small companies, recapitalize and then sweat bonds and stocks til the cows come home. J.P Morgan and friends did just that when they put together U.S. Steel, Rockefeller did it when he built Standard Oil, Durant and Smith did it to build General Motors. A couple of Silicon Valley billionaires could do it again, maybe with Apple or Intel as a silent partner sharing the risks and rewards. If it worked out, they’d end up as rich as Buffet and immortalized like the robber baron capitalists of a century ago.
Trouble is, anyone can start up a production company in the time it takes to register a name. The producers will take the Silicon $’s, then go off and start new companies. No one really makes any money out of the entertainment biz except for the top 1% of talent and a few executives. These guys have been seperating suckers from their money for nearly a century, CV are just the latest batch!
“No one really makes any money out of the entertainment biz”. That statement could be made about any business since it depends on your definition of “money”. Obviously most in the business are making a living or they couldn’t afford to stay in the business.
Don’t forget to kill all the TV stations. There simply isn’t any good reason for them any more. Once upon a time there were these things called ‘radio waves’ that were divided up somewhat by physical region and a lot by government regulation; because they were in restricted supply and big demand they had value. TV stations paid money for them and so had to buy stuff to broadcast. As an aside they became editorial controllers of what was available to view.
Then came cable, which could have ignored the TV stations and bought content straight from the producers but instead screwed up and just reinforced the station hegemony. When technology allowed for many more channels they made things even worse by making up hundreds of pointless ‘channels’ specialising in reruns of… junk.
Why can’t we have a system whereby producers produce and nice big servers serve? In the middle you can allow editors or curators or whatever you want to call them; choose to watch/subscribe to “Big Daves All-Boxleitner Sci-Fi’ where you find connections to the program files for your aTV or whatever. Maybe Big Dave collects subscription fees directly or maybe he in turn subscribes to a service that handles it for him. Perhaps you subscribe to ‘The Whole Thing’ and are allowed to watch absolutely anything at any time.
I cant see any difference between buy from content from a cable company (HBO/Showtime) and Apple/MS/Google?
I’d still need to subscribe to more than one service to have all these shows delivered, they would probably still be content bundling Apple (itunes) = Disney , Google (play) = Miramax (for e.g.). I can’t see Google or MS cross licencing their content to Apple and vice versa.
I have used Amazon prime and netflix and hulu and itunes and still find theirs content I still cant access
Bob, re-read what you just wrote. So what if you bought ever production company in America for $4B. All you would have is a bunch of production scaffolding. The creativity resides in people’s heads, and there is a good reason it’s a cottage industry and not an assembly line – they don’t like working for bosses.
Back during the dot com boom I knew of a software company that went public and the newly rich owners bought up the movie company that made Slingblade. The people in that company took their new money and went away to other things. The once newly rich former owners of the software company were left with nothing at all. Easy come, easy go.
Bob,
Don’t buy the production companies. Instead, hire people who can develop a good working relationship with the top talent and can choose worthwhile projects. Then get the financing and develop your own entertainment projects. Be sure to pay the talent what they are worth and treat them well.
Hi Bob
You could use network theory to find the right production companies to buy and “money ball” for talent, wouldn’t need to spend all the money to go after the hubs and switches in Hollywood.
Thanks for the moneyball clue. From the wiki: “Sabermetricians argue that a college baseball player’s chance of MLB success is much higher than a traditional high school draft pick.” http://en.wikipedia.org/wiki/Moneyball . All I can say is “duh”. You want to judge a candidates suitability for a given job after they are mature enough to know their own goals, interests, and abilities.
I can see it now: Apple is going to start a rival league to the NFL and hire away all of the best players.
Love SMG. What a honey!
??? http://en.wikipedia.org/wiki/SMG
SMG? http://en.wikipedia.org/wiki/SMG
http://en.wikipedia.org/wiki/SMG Which one?
Buying production companies is not useful unless the people who produce the content stick around. The problem is analogous to the battle between British and Japanese motorcycles. British manufacturers would not supply dealers who also sold Japanese bikes. Finally a few of the largest British bike dealers got together and started selling Japanese bikes simultaneously. The British manufactures could not afford to cut them all off and their ability to keep Japanese bikes out of the same showrooms that sold British bikes was over. If a content producer makes content for those outside the Hollywood/New York system, they will not be allowed to work inside the system where virtually all the money is today.
As TV viewership has decreased advertising revenue has increased because advertising is better focused and produces more actual sales. Networks are able to backup dump trucks full of money to content producers front doors and make them do what they want. Since the alternative content channels do not yet have a business model that produces significant cash flow they are not yet real alternatives. Even though the networks still have the money to produce content, we are seeing the effects of competition already. I have noticed that the censorship that Chuck Lorre complains about on his site has lightened. The networks realize that if they push as hard as they have been able to in the past they will drive their “talent” to the new alternatives.
Eventually a few of the brightest and best writers, producers, and directors will bail on the networks as the dealers did on the the British motorcycle industry and there will be a sudden and catastrophic end to network and cable company dominance.
Everything you say is true, especially the hedge word “eventually”. Many of us still need the cable companies and networks as a superior delivery mechanism to the current internet. With the advent of 4K TVs, there will be more demand for 4K content. Movies are already made and delivered to movie theatres in 4K. As people go for bigger screens or just want to sit close to smaller screens, the desire for 4K will grow. Current internet bandwidth limitations (including caps and cost factors) as well as the current buffering problems make it even worse for high-bandwidth content. Of course downloading for later playback will help the internet situation, but so far content providers have been avoiding that out of fear of “loosing control” of their content.
[…] 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 […]
[…] 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 […]