Being an amateur writer I've got a bit of interest in Hollywood these days. So you can imagine my delight when I saw that one of my favorite blogs had a very informative article about it. Mark Andreessen explains the situation and sites his predictions for the potential outcome. Here's the highlights:
Rebuilding Hollywood in Silicon Valley's Image
Last week I posted a rather pointed polemic titled "Suicide by strike" in which I argued that the big entertainment companies were acting suicidally in picking a fight with the writers at precisely the wrong time.
In this post, I more dispassionately outline my theory of why that's the case, and what I think may happen next.
The writers' strike, and the studios' response to the strike, may radically accelerate a structural shift in the media industry — a shift of power from studios and conglomerates towards creators and talent.
First, some context. In Hollywood, the talent — actors, directors, writers — is unionized, and those unions engage in old-fashioned collective bargaining with the studios, also known as "the Man". That collective bargaining establishes the economic framework by which most of the talent gets paid.
Last week, the writers' union — technically unions, but I'll use the singular form for simplicity — went on strike for the first time since 1988 after an acrimonious breakdown in negotiations with the studios over a new deal.
Significantly, the actors' and directors' unions are due to renegotiate their deals with the studios soon as well; some people in Hollywood believe that the studios are being deliberately hostile to the writers in order to send a signal to the actors and directors to not expect much.
The writers are on strike primarily over the terms by which they get paid "residuals", or ongoing payments, for various forms of distribution of television shows and movies. In a simplified nutshell:
- Due to amazing historical circumstances around the birth of the VCR in the early 1980's, television and movie writers are currently paid approximately 4 cents for each DVD sold — bearing in mind that the average sale price for a DVD is over $10, and the cost of manufacturing a DVD is less than 50 cents. The writers want that residual rate doubled to 8 cents per DVD, and the studios are refusing.
- Currently, writers are not paid for Internet downloads via online video stores like iTunes and Amazon Unbox. The studios want to extend the current 4-cent DVD residual formula to Internet downloads; the writers are holding out for more.
- The studios are refusing to pay residuals on Internet streaming of television shows and movies — even when that streaming comes from their very own web sites and contains revenue-bearing commercials. The studios call all such streaming "promotional". The writers are howling with outrage that if the studios themselves are streaming complete TV shows containing commercials, that's clearly not just "promotional". The writers have a good point.
Taken on their own, these issues are most likely negotiable and solvable. However, trust between the two sides seems nearly nonexistent; the writers feel like they have been repeatedly burned by the studios over the last few decades; and the studios may well have a vested interest in beating up the writers in order to motivate the actors and directors to not push too hard in their upcoming negotiations.
And so, the writers are on strike.
What happens if the strike continues for months?
Movie production will apparently be largely unaffected for quite a while; the movie studios have stockpiled scripts and are continuing to shoot new films.
Television, however, is a very different picture.
Scripted television production is already all but shut down. Most late-night talk shows are shut down. Most remarkably, many comedy and drama series are either already shut down or will be within the next several weeks…
What are the probable long-term consequences of an extended strike?
First, ongoing alienation of a new generation of TV viewers.
The music industry's war on digital distribution over the last 10 years, starting with their assault on Napster and continuing to all the present-day RIAA fiascos, has permanently alienated an entire generation of consumers, who are now voting with their wallets and not buying music. They're still going to concerts, buying artist merchandise, buying video games that contain lots of music, even voluntarily paying Radiohead directly for free album downloads — but mainstream recorded music revenue is dropping like an anvil in a Bugs Bunny cartoon, with virtually no hope of recovery.
The TV and movie industry has already been conducting their equivalent war on digital distribution; as a result, most of the new consumers — kids, college students, young professionals — view iTunes and Amazon Unbox downloads as "too little, too late" when it comes to giving them the ability to watch what they want, when they want, on whatever device they want.
I think the TV and movie industry is at a turning point — they could repeat the critical error of the music industry and permanently alienate their customer base; or they could get it together and create viable models for the future that make consumers happy and make money.
Second, driving consumers even faster to the new range of activities they can engage in.
We all know the list: the Internet, social networking, user-generated content, blogging, video games, mobile phones, you name it. All the activities that consumers have discovered and adopted since the last writers' strike in 1988, that they just love, and that have already been siphoning away time, attention, and money from TV and movies even without a strike.
Obviously, the less scripted television and film content that's being produced, the more alienated consumers will shift over to all the new activities — and the less likely they will ever go back.
Third, and most significantly: catalyzing faster development of new business models for entertainment media.
The Internet has already been forcing a rethink of the structure of the media industry, particularly for entertainment. The strike is kicking that rethink into high gear. Here's why:
The studios have rationally exploited their bottleneck status to demand ownership of the creative product. Writers, actors, and directors don't own their output; the studios do. As a consequence, talent gets paid like hired guns, not owners. As a consequence of that, talent bands together to form unions — actors', directors', and writers' unions — and engage in adversarial collective bargaining to try to extract a share of the ongoing economics of their output. Hence the residual system that's in dispute today: 4 cents per DVD.
Let's contrast all of that to the Silicon Valley model.
In Silicon Valley, there are many companies, large and small, that create, market, and distribute products — and more such companies all the time. In fact, there is a whole industry — the venture capital industry — devoted to creating as many new such companies as possible, as rapidly as possible.
In Silicon Valley, creation, marketing, and distribution of a compelling new product is not very expensive. And with the Internet, marketing and distribution costs drop nearly to zero. Most successful Internet companies, large and small, use free viral marketing techniques and never run ads. And the whole concept of distribution costs goes away when everything is digital — the next set of bits costs nothing to manufacture.
In Silicon Valley, the creators of the product — the talent — are owners: owners of their product, and owners of their company. In fact, the entities that finance the companies — venture capitalists, private equity funds, the public stock market — want the creators to be owners: in a world where there can be many companies, the best creative talent will be drawn to the situations in which they will be owners, and will be compensated as owners. Because of that, in technology, creators get paid like owners. Therefore, there are no unions. There is no reason for the creators to unionize — they would be negotiating with themselves. The concept of residuals does not exist — they'd be paying themselves. And alignment of interests between creators and financiers is near-perfect.
I believe the entertainment industry is in the early stages of being rebuilt in the image of Silicon Valley…
For the Full Article (Which I Highly Reccommend) go to: http://blog.pmarca.com/2007/11/rebuilding-holl.html