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 As talks restart in an attempt to end the US Writers Guild strike, commentators are discussing whether the dispute will drive more writers and talent out of the studio system and onto the web. It is one thing to win a doubling of DVD royalties, from four cents to eight, and a share of web advertising, as with TV (the main WGA demands); but another altogether to actually own, or co-own the show or film you devise and write.
"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."
Marc Andreesson
Marc Andresson, who founded Netscape amongst other ventures, is arguing that the film industry needs to rebuild itself on a model closer to that used by startups in Silicon Valley. Here venture capital companies will normally back talent with a good idea, and leave them running the company with a big share, perhaps over half, of the profits.
There's a certain over-simplicity in the argument, which sidesteps independent financing where VCs rarely, if ever 100% or even part finance film. While the next eBay may be able to prove itself through a demo site, few hit films or shows are identifiable at script stage. But the arguments are otherwise convincing, and echoes some of the notions in my essay - the Internet as the Seventh Major Film Studio (PDF download) - which argued that all filmmakers and artists using the  web for fundraising, marketing, casting, production or distribution, etc are effectively members of a single vertically integrated virtual studio conglomerate/co-op, spanning the world. Furthermore, the principles of the open source/dotcom/Silicon Valley world, make that virtual studio far more cooperative, supportive and talent/idea driven than traditional studios.
Both Scott Kirsner and LA Times picked up on Andreesson's blog (reprinted below) with much support, arguing writers need to become entrepreneurs and ditch the industry standing between them and their audience, much as CASHMusic (see below) is trying to support for the music world. In fact the shifts of the music industry, which online seem to be a few years ahead of film, are worth studying.
Blog B-Side recently outlined, with examples, five models the music industry could adopt to survive as a business in the 'binary economy' - free (music as loss-leader), pay what you want, pay-by-popularity, subscription and tax- all of which could be reapplied to the film world, with a bit of imagination. Most significantly all of these models can be (and already are) facilitated by technology, allowing artists to connect with (and earn from) potential audience directly, without needing to go through a studio machine.
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.
How long will the strike last?
Nobody knows. The strike of '88 lasted for up to five months. Some
people in Hollywood think this strike could last until June 2008 or
beyond. Or perhaps it gets settled tomorrow.
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. Why? Two reasons: first, television shows often don't
have scripts in hand for more than a few weeks of filming at any given
time. Yes, Virginia, the writers of "24" really don't know how it's
going to end when they start filming a new season. Second, many
television shows are run by so-called showrunners who serve as both
writers and producers; many showrunners are now refusing to work
altogether -- and the studios are already threatening to sue them for
refusing to honor their producing contracts, further fraying relations.
If the strike continues into next spring, you won't see new episodes
of most scripted TV shows past Christmas -- you'll see reruns, and
reality TV. Some people on Hollywood think this could permanently kill
many of the shows currently on network TV -- i.e. they may never start
back up. (MTV's "A Shot At Love with Tila Tequila" will, however, be
unaffected.)
If the strike continues too far into next spring, it will also
disrupt the production of pilots, which will mean that there won't be
any new shows for the fall 2008 TV season, which means you might not
see new TV programming other than reality shows until 2009. 2008 may
be, quite literally, a dead year for TV.
OK, now let's get into my theory of how this may play out...
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 where things
could go either way -- 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.
The situation already wasn't looking too good, but the one even more
effective way to alienate viewers than attacking their viewing options
is to actually kill the programs they are watching.
Which is what an extended strike will do.
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.
Here's where things get really dramatic.
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 classic Hollywood economic model is built around the
existence of a few very large companies -- studios -- that dominate
production, marketing, and distribution. This has been the economic model since the birth of the entertainment industry, for fundamental reasons.
- Historically, marketing and distribution of entertainment
properties has been extremely expensive. Running big nationwide ad
campaigns and getting distribution into TV networks or movie theater
chains is expensive. And production has also been very expensive. Only
a small number of very large companies can afford to be in the business.
- Because of that, those few very large companies -- studios
-- have been bottlenecks. If you are talent -- writers, actors,
directors -- you have to deal with the studios because otherwise you
can never bring anything to market.
- 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.
- Therefore, there are no bottlenecks. Many companies, large
and small, can afford to be in business -- can afford to develop new
products and bring them to market, market them and distribute them. And
nobody can really block you.
- 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.
What would a new entertainment media company, producing original content, look like in the age of the Internet?
- Starting from the end of the process: you know distribution
is now nearly free. Put it up on the Internet and let people stream or
download it.
- Marketing is also free, due to virality. Let people email
your content to their friends; let people embed your content in their
blogs and on their social networking pages; let your content be
searchable via Google; let your content be easily surfaced using social
crawlers like Digg. All free.
- Production is very cheap. Handheld high-definition video
cameras cost nearly nothing. You can do almost every aspect of
production and post-production on any Mac. Hell, you can even score an
entire movie for free -- there are hundreds of thousands of bands on
the Internet who would love to have their music embedded in a new
entertainment property as promotion for the bands' concerts and
merchandise.
- The creators of the content are the owners of the company.
The writers, actors, directors -- they are the owners. They have a
direct, equity-based economic stake in the company's success. They get
paid like owners, and they act like owners.
- Financing is straightforward: venture capital, just like a
high-tech startup. We live in a world in which financing a high-quality
startup is simply not difficult -- not for a high-quality technology
startup, and increasingly not for a high-quality media startup. Modern
financiers love being co-owners of a new company with the talent that
will make the company successful -- and that's how it will happen here.
This is not a difficult thing to envision. And in fact, it's already happening. Will Ferrell's Funny Or Die,
in which I am a minority investor, is one early existence proof of this
model. And there are a ton of other such new companies either already
underway, or currently being incubated, or currently being negotiated.
And in fact, there are a lot of historical precedents even in the
media industry for the model of talent as owners, going all the way
back to the original United Artists in 1919. Some of those precedents
worked great -- George Lucas, for example. Some flamed out. Of course,
they were all up against the bottlenecks.
But here we are, living in a world in which the bottlenecks have suddenly become irrelevant.
I don't think there's any question that this is the logical model to
pursue in the age of the Internet -- the age of free distribution and
marketing.
Suppose the writers' strike continues for months to come -- and even
beyond that, suppose the actors or the directors also go on strike. In
such a scenario, it is hard to see how many companies based on this new
model won't be created extremely quickly -- after all, if you really can't work for the Man, why not start your own company, if you can?
And if you are a primary creator in Hollywood, the model for starting your own company is suddenly becoming very clear.
Which brings me full circle to why I'm even writing about this topic in the first place.
As consumers -- even alienated consumers -- it would be sad to see
the TV shows and movies we love not get made during a protracted
strike. And certainly many people throughout the extended ecosystem of
the entertainment industry -- most of them not rich and not famous --
will suffer financially.
However, in the event of a long-term strike, out of the ashes of the
traditional model would -- I believe -- come the birth of certainly
dozens, maybe hundreds, and possibly even thousands of new media
companies, rising phoenix-like into the global entertainment market,
financed by venture capital, creating amazing new properties, employing
large numbers of people, and rewarding their creators as owners.
As an entertainment consumer, I'm ready for it, and I suspect you are too.
Hollywood, rebuilt in Silicon Valley's image.
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