I Love L.A., Part 2
by Kara Swisher
Posted on December 21, 2007 at 3:37 PM PT
So, I am back in Los Angeles today, part of my ongoing quest to make sense of the wrenching changes facing the entertainment industry in the face of the continuing pummeling by the digital tidal wave.
I just had a bracing lunch with Ross Levinsohn, former Fox Interactive Media head and newly minted investor, where we talked about his recent efforts to invest in digital media and communications with his partner, former AOL head Jon Miller.
More on that chat next week, including a video with the voluble Levinsohn about his new venture, in which he is seeking to bridge the gap between the Silicon Valley and Hollywood (good luck with figuring out that old Gordian Knot).
But–all mythical legends aside–someone has to, and anyone interested in the tech business in the years ahead has to understand the stakes and challenges ahead for Hollywood.
That’s because the intersection of that industry and tech is one of the more important stories going forward, especially since their fates are inextricably linked to each other now.
As is clear from the current writers’ strike, which is destabilizing Hollywood further, the heart of the issue in the battle here centers around the best way to make a success out of digital entertainment, both in terms of audiences and monetization.
So far, there has been very little true success to point to in the monetization arena, as neither user-generated nor professional content really makes the kind of dollars Hollywood moguls are used to.
The problem, of course, is that the way the industry has done business is seriously flawed for the new medium–it’s high cost, process-intensive and slow-moving, as well as full of gate-keeping mechanisms that funnel talent rather than expand it.
In the risk-to-reward ratio, Hollywood still wants much too much reward for very little risk.
In fact, the very cliche of Hollywood–jockeying for primo tables at restaurants in a bizarre pas de deux of status–still feels deeply true here, all speaking of exclusivity, back-room deals and a lot of self-dealing.
Now, Silicon Valley has definitely got the self-dealing thing down, but the more open and more widely distributed system is more flexible and open to inevitable failure that is sure to be part of the landscape ahead.
The problem? Techies still know next to nothing about content. Sure, they have proved they can create a popular widget (I am sorry to say, but whoop-de-doo on that score). Sure, they can do social networking. And, yes, they know how to make all the tools that are part of this important ecosystem.
But when it comes to figuring out content that will work on the Web that consumers will love and advertisers will pay for, such innovation simply will not come from Silicon Valley.
Luckily for both the tech industry and Hollywood, there is only one thing that counts–use of the Internet is still growing exponentially, as consumers shift to digital everything from analog.
I always joke that “the kids sure love it,” when someone pooh-poohs the lunacies of Web 2.0 (and there are some definite lunacies to be found, to be sure).
But in every important category–especially video–the trends are all headed in a very promising direction and one that both tech and media must keep heading in or suffer the consequences.
How hard that will turn out to be remains to be seen. But, remember, the Gordian Knot was solved in a rather dramatic way by Alexander the Great, with one fell swoop of a very sharp sword, which changed an intractable problem instantly.
Or, as they say in the movies: Cut!
Comments
I posted a Larry Lessig video today where is says that this stuff should be more free. Techcrunch has an article about the Richter Scales furor where also it says more free.
More free and more money don’t go well together unless the intermediaries such as labels or studios get squeezed down. That seems to be the tone of this article.
I like Kara’s article and will a thought tomorrow.
Posted by Tom Reeves at December 21st, 2007 at 8:39 pmWrote out a commentary of Kara’s article on my blog (www.pwnership.com). The gist of my comments:
Network content is much messier. Much closer to music than to movies. Especially since Networks do not routinely offer to sell their content in a manner to limit the incentive to violate copyright. By doing so, networks impeach the notion of honor-bound reciprocity – “if you like, you should pay.”
Consumers substitute Cheap for Expensive. Easy for Difficult. Honorable behavior for morally ambiguous. The torrenting or YouTubing of network content is a) cheap, b) easy, and c) morally ambiguous. This combination beats either the networks desired outcome a) unavailable immediately after broadcast, or their generic offering b) expensive, and difficult to watch.
All of this writing ignores the essential fact that intermediaries get too much of the pie. Effective competition will challenge the status-quo. The internet facilitates distribution. Competition wants to be free. Content, not so much.
Posted by Tom Reeves at December 22nd, 2007 at 7:43 am“The problem? Techies still know next to nothing about content. Sure, they have proved they can create a popular widget (I am sorry to say, but whoop-de-doo on that score). Sure, they can do social networking. And, yes, they know how to make all the tools that are part of this important ecosystem.
But when it comes to figuring out content that will work on the Web that consumers will love and advertisers will pay for, such innovation simply will not come from Silicon Valley.”
Kara,
Posted by Jack Sullivan at December 23rd, 2007 at 10:02 amYou seem to forget that the “techies” have children. Give me five months to finish school and appease my father, a couple months more to run my year-old video production company with financing, and then it will be my pleasure to prove you wrong. The children of the dot-com era will solve your problem – promise. We have the ears of our VC fathers, but the minds of the digital generation.
Hollywood doth resist change. But
the time has come to spread the wealth.
The internet is opening up (formerly )closed markets, to more competition and new distribution models.
This will be no different for Hollywood, than it has been for Music, as bandwidth increases.
(Good example is Wall Street–which is embracing digital, faster than most)
Every industry is going through the change, like it ,or not.
The people have spoken, and they want their voice to be heard, their creativity to matter -Not being dictated from someone living in a fantasy world, out of touch with 95% of the free worlds, real world, lifestyle- calling all the shots at what people will read,hear,watch.
People will control more of what they spend their valuable attention on. Get used to it.
The old gatekeepers in industry that are resistant to change, will die off and be replaced with those that “get it”. But that change will com.
Most layers of Hollywood mgmnts teams, should retire gracefully now anyway, in my opinion. The trend of product out of Hollywood has suffered terribly from a stale inertia, and bloated, out of date, cost structures and business processes.
(When is the last time you saw people in Hollywood senior management getting “laid off”? )
Another guess, with the new platforms that are being developed, dont be surprised if the revolution comes from someplace other than California…Its a big country/world out there.
No one geographical area has a lock on content/creativity in this new world. Thinking so implies a disconnect.Especially as distribution costs continue to drop.
My guess is that includes pricey Silicon Valley VC, business models, as well.
Posted by dax mar at December 24th, 2007 at 2:24 pmdax touches on the most important piece missing, user control of the medium. Tivo, YouTube — these were just warning shots across the bow. This segues to the very definition of digital entertainment.
The digital entertainment monetization you seek has rested in (user controlled) gaming for sometime both on the creative side and in the emerging advertising side. 9 million people a month in the USA subscribe to WoW.
This is the tip of the new entertainment iceberg. The entertainment generation is being raised on Webkinz and Club Penguin. TV and Movies have competition on a scale unimaginable ten years ago. Take a look at where entertainment time is being spent. The audience has spoken.
Posted by Jonathan Mendez at December 25th, 2007 at 9:42 amTo me, Hollywood has at least one important thing that almost all of New Media lacks: scale.
Our society is willing to pay a little bit at a time for a piece of entertainment. Hwood has made this work. They can live with a customer paying a few dollars, e.g. ticket price, because the Hwood business model is built to scale. A few dollars per customer multiplied by a few tens of millions of customers equals a ton of money. Certainly enough to pay for the production costs and the eight failures that come along with the two successes.
The New model for media, in my opinion, so far lacks this necessity or a worthy replacement for it. New media can be produced at a considerably cheaper rate than Hwood content. Even so, new media still needs to be able to pay itself a living wage or at least pay its production costs. New media is using an advertising model to generate income. This is STILL a SCALE-centric proposition. A few thousand people viewing a bit of snack-video content on the web is not going to pay for that content. It is certainly not going to encourage the creator to keep doing it. New media still needs a few MILLION people to watch the content in order to generate the income from a ppv or ppc income model.
Hwood has mastered a business model that aggregate customers, avoids fragmentation, and makes discovery fairly easy. This model also has immense cash flow and a pretty slick marketing and advertising arm. The New media world has very little of the above business attributes.
New media lives on the internet, which is a VERY BIG place. Web surfers can go anywhere their personal interests want to go. And they do. A few people at a time into a few hundred million niches. Virtually none of those niches can support themselves off of the income from a niche viewer base.
The scant few New media successes, in my opinion, are achieving success because they have found or spent their way to a position in the marketplace that benefits from SCALE.
I think over the next few years we will see a proliferation of content and producers. Following that will come a shake out period where the VAST majority of the producers will drop out as they start to realize they can’t make enough money to survive. I think the “players” that remain will come to look much like Old media does now. Masters at scale. Business-first. Old rules still apply.
Jack Sullivan seems pretty confident in his New Media stance. I wish him the best in his efforts. But I hope he posts again after a few years of trying to make money, beyond the VC injections from his rich Dad. New media is still a tough business with all of the same problems that Old Media had to solve.
Posted by Jeff Bach at December 26th, 2007 at 9:36 amTom:
I am arguing that studios and labels should be squeezed down!
Posted by Kara Swisher at December 26th, 2007 at 3:23 pmTom:
Content might not want to be free, but consumers want it to be, so Hollywood needs to figure out another game.
Posted by Kara Swisher at December 26th, 2007 at 3:24 pmJack:
I look forward to it! And no dumb widgets please!
Posted by Kara Swisher at December 26th, 2007 at 3:25 pmDax:
“The people have spoken, and they want their voice to be heard…”
Exactly!
Posted by Kara Swisher at December 26th, 2007 at 3:26 pmJonathan:
I think WoW is a great example of where it is all going.
And, as a parent of two boys, 2 and 5, I know the trends after spending way too much time on Webkinz!
Posted by Kara Swisher at December 26th, 2007 at 3:28 pmJeff:
I do think you are right that scale is critical and there is a lot to be said for the Hollywood machine and how it works.
But as more consumer attention is splintered, new media must find a way to tap into that trend to make money.
Posted by Kara Swisher at December 26th, 2007 at 3:31 pmre: this notion of scale -
Maybe scale is not quite the right word for what I am thinking. Maybe a “complete support-side infrastructure” better fits what I’m thinking of…
I agree wholeheartedly that techies , in general, know nothing about business. In addition, they tend to know very little about sales as well. The problem is that New Media people tend to know nothing about tech or sales.
What Hwood and Old Media have and what very little of the New Media world has is the business infrastructure necessary to get the content discovered, find the ad network, manage the day to day of a production company, maintain a flow of fresh content, yada yada yada, and survive.
Someone needs to make the phone calls and build the relationships so that the ON Networks, aka aggregators, and the Eisner / Vuguru entities of the world know that the content exists.
Having a sales person with contacts so that phone calls and emails are answered is HUGE. That person costs money and that person wants their money every two weeks. The New Media world tends to have not much money and little cash flow.
This media stuff just will not work on a SCALE large enough to support it as an ongoing entity, in my opinion, without a solid business infrastructure supporting it. The part that will work is a “one and done” style of production, because everybody that enters can get their first piece up and going. We see this mostly as the snack video that sits on YouTube. They then run out of steam and limp back to Mom and Dad’s house to lick their wounds.
I like the Gordian knot solution you wrote of. Really hope something like that emerges. Until that fresh business model is present and mature, the media that survives will look much like current old media does, because at the end of the day we’ve all got bills to pay and mouths to feed. Making snack video for YouTube just won’t cut it. Making Prom Queen apparently isn’t cutting it either. Revenue enough to survive on needs to come from somewhere and right now it is nowhere to be found…..
Posted by Jeff Bach at December 28th, 2007 at 11:16 amJB
P.S. There are exceptions and some do make it. JibJab is one example of New Media that seems to have the necessary mix of media content and business infrastructure to make a go of it. I’ll bet SCALE is at the heart of what they do.
Jeff:
All good points…and, like a great Hollywood film, the suspense of what is going to happen is killing me!
Posted by Kara Swisher at January 4th, 2008 at 9:59 am