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Summary:

Silicon Valley startups may be trying to free the entertainment industry from Hollywood’s death grip. But anyone who wants to kill Hollywood deserves a history lesson in its tenacious will to survive. Screenwriter Steven E. de Souza and Scripted.com CEO Sunil Rajaraman explain why.

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A few weeks ago, we both read an article by Paul Graham, rallying Silicon Valley to “kill Hollywood.” And indeed, many companies in Silicon Valley are trying to free the entertainment industry from Hollywood’s death grip. But anyone who wants to “kill Hollywood” deserves a history lesson in its tenacious will to live.

Hollywood has risen from the dead time and again, and it will continue to do so no matter who tries to destroy it. Let’s take a look a closer look at Hollywood’s many reincarnations.

Hollywood 1.1 (Thomas Edison), c. 1900-1913
  • Root business: Manufacturing cameras and other film equipment. In the beginning, films weren’t so much entertainment as fodder for Thomas Edison’s New Jersey-based patent and hardware business, Edison Manufacturing Company. Edison entered the content business simply to create demand for his projectors and cameras (he owned most of the patents). Just as today’s technology moguls use every trick in the book to crush nascent competitors, Edison similarly used patent law to drive out upstarts, whose non-Edison equipment violated Edison’s legal stranglehold. Early filmmakers fled the East Coast for Southern California as much for the distance from Edison’s patent enforcers as for the sunshine.
  • Target demographic: Professionals and prosumers
  • Killed: When Edison Manufacturing Company’s patents expired in 1913
  • Driven by: Hardware and infrastructure
Hollywood 1.2 (Adolph Zukor), 1913-1949
Hollywood 1.3 (Lew Wasserman), 1949-1964
  • Root business: Advertising and promotion. In the 1950s, former agent Lew Wasserman turned television into the largest portion of the Hollywood promotion machine — advertising sales fueled Hollywood 1.3’s motor. Broadcasters competed for higher ad dollars from sponsors, whose only metric was the number of eyeballs watching the shows. What remained of the motion picture business became the summer blockbuster (“Ben-Hur,” Cinerama films,  “Jaws”, etc.) and foreign fare.
  • Target demographic: Couch potatoes and cineastes
  • Killed: Still alive, if not robust, and coexisting with subsequent iterations of Hollywood (sort of like when Neanderthals walked the earth with Homo sapiens)
  • Driven by: Content
Hollywood 1.4 (VHS), 1975-present
  • Root business: Consumer electronics. The ability for consumers to watch content at home was allegedly going to destroy the motion picture industry. And in a preview of SOPA and PIPA, the studios tried and failed to have VCRs outlawed or crippled. In the end, the VCR became Hollywood’s main source of revenue for decades. A lot of crappy straight-to-video movies were made as a result, pushing quality content to the back burner.
  • Target demographic: Consumers
  • Killed: Still alive, though in its dotage
  • Driven by: Hardware and infrastructure
Hollywood 1.5 (Ted Turner), 1976-present
  • Root business: Cable. Turner’s realization that a physically wired nation offered an end run around expensive VHF licenses seems like a no-brainer today. “Narrowcasting” replaced broadcasting, but narrowcasting had its own poison pill. Smaller slices of the pie meant less money to spend on the ingredients for great programming. This began a race to the bottom in production costs. Compare the typical Hollywood 1.2 soundstage (say, a routine MGM musical with Technicolor consultants, lavish costumes and giant camera cranes) vs. the Jerry Springer set.
  • Target demographic: Advertisers
  • Killed: Still kicking, but YouTube and other user-generated content platforms are slowing it down
  • Driven by: Hardware and infrastructure
Hollywood 1.6 (The rise of Netflix), 1997-present
  • Root business: Streaming video. Worried that Netflix was going to destroy the industry, the studios and mainstream Hollywood were up in arms when it debuted. Instead, even though streaming revenue passed DVD revenue in 2010, the industry has come back stronger than ever. Hollywood proved it has the whip hand when it pulled a few streaming licenses from Netflix and sent its stock into a tailspin.
  • Target demographic: Consumers
  • Killed: Not yet, but individual content creators (HBO via HBO Go, for example) still control Netflix’s fate
  • Driven by: Content
Hollywood 2.0 (The YouTube generation), 2010-present
  • Root business: User-generated content
  • Target demographic: Peers
  • Killed/shelf life: TBD. In this iteration of Hollywood, anyone with a Canon 550D can — theoretically — make a decent independent movie. Narrowcasting is going to a whole new level with fans creating entire web shows devoted to their favorite stars’ performances. The race to the bottom in production costs continues, but quality content remains sparse. Perhaps unintentionally, the YouTube generation is proving that quality content matters, and Hollywood productions trump home productions.
  • Driven by: Content

The Phoenix is the architect of its own immolation, and — if past is prologue — things are about to get hotter for Hollywood. But what will emerge will — once again — be a newer and stronger beast. Ironically, the very thing that makes YouTube and other UGC sites fantastic may be their undoing: rights issues. Filmmakers are willing to do whatever it takes to make it big — including giving away content for free, or insanely cheap, for the chance to be produced. That model is not sustainable, and the ultimate beneficiary is — surprise, once again – Hollywood.  Hollywood controls distribution, and if quality content comes cheaper, all Hollywood is doing is lowering its cost basis, and getting more filmmakers to compete for access to its distribution.

Until Silicon Valley gets into the content business en masse, which it likely can’t (due in large part to talent issues), Hollywood will retain its power. Netflix has made strides here, but YouTube, Amazon and other upstarts have a long way to go if they want to change 100 years of ingrained consumer behavior.

With credits that include “Die Hard 1” and “Die Hard 2,” “48 Hours,” “Commando” and “Tomb Raider,” Steven E. de Souza is one of a handful of American screenwriters whose movies have grossed more than $2 billion worldwide. He has also produced more than one hundred hours of network television.

Sunil Rajaraman is the co-founder and CEO of Scripted.com, a marketplace for businesses to hire freelance writers. Scripted began as an offshoot of the popular screenwriting and crowdsourcing site, Scripped.com.

Image courtesy of Flickr user greyloch.

  1. Right now young people watch more minutes of video on youtube, than in cinemas/on TV.

    In 20 years cinemas will be like theaters today – the entertaiment of the past, still there, but not as massively popular, as it’s now. And TV will be no more. People will just watch whatever they want, whenever they want on their computers or phones.

    Already many of my friends (20-30) don’t have TV in their homes, when they want to watch something, they watch it on computer.

    Hollywood has better marketing, stars, and law. Consumers are no longer on their side.

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    1. “when they want to watch something, they watch it on computer”

      ..but what is it that they want to watch? The screen could be different, but studio-made content continues to hold the edge.

      Secondly, watching a movie has been a socializing experience. Amateur content is mostly consumed on personal devices – and not part of a (physical) social experience. I don’t see people giving up on (physical) social meetings and consuming (studio-made, social) entertainment in entirely singular situations..an example would help: How many of us would watch a blockbuster movie like Avatar on an iPad exclusively and not in a cinema? What would the next generation of dates look like? Meeting on (some kind of) FB? Hangingout at a +? Tweeting together?

      The dotcomguy was a nice experiment, but would the entire society turn into dotcomguys and gals in the coming decades?

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  2. Robert Mudgett Saturday, March 3, 2012

    Economists use the 100 year rule: if a good has lasted for more than a 100 years (cars, bicycles, books), then it will probably be around for the long run. Could it apply to Hollywood? Looks like it.

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  3. This is a great article, and really shows how and why content will continue to reign in the post-cable era. Companies like Scripped.com and Scripted.com are positioned well to take advantage of this growing need for high quality writing. Nice content here too, guys!

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  4. saidimu apale Saturday, March 3, 2012

    Great article!

    Though I gotta say a lot of this looks like it came straight out of Tim Wu’s “The Master Switch” (http://timwu.org/). A little nod in his direction wouldn’t have hurt :)

    It is amazing that Hollywood refuses to die. Perhaps it requires judicial action to break it up just as happened to two other infamous monopolies that refused to die (AT&T/Bell and Standard Oil).

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  5. Almost every example given here was simplistic, distorted, plain wrong. Just one example: that Hollywood feared that Netflix would destroy it. In fact to help its growth, every major studio except Paramount entered into revenue sharing deals with Netflix a dozen years ago allowing Netflix to get copies of DVDs for a few dollars each instead of over $15 a disc. This allowed Netflix, then still losing money every month, to turn profitable, to its advantage and to the studios.

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  6. Joey Spanjers Sunday, March 4, 2012

    Interesting article. Some very valid points. However with major disruption on the horizon in advertising, content, and distribution this chapter will be different. As TV shifts from broadcast model to a two way street; a savvy, connected consumer will have more influence on how and what content reaches them.

    The danger of someone having a 5D is not that they are an immediate threat to major content creators but rather threaten the existence of gut-check gatekeepers. Content creators already work 6 days a week for less and less money on projects that they typically aren’t passionate about. With new avenues for distribution, lowered barriers for entry, and means for monetization; true content creators and storytellers will find new ways to sell, market and distribute their content.

    Final note, just because someone’s parent can afford to send them to film school doesn’t mean they’re a storyteller either.

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  7. Good article. I would say that the cited death of the Edison years were a bit premature. Just like the USA government busted the hegemony of Paramount and pals in 1949, they busted Edison’s trust in 1917 (the Motion Pictures Patents Company). In both cases, it laid the groundwork for minorities and a greater plurality of voices to create content for distribution. The impact of this cannot be overstated.

    Schmüdde
    http://www.schmudde.net
    http://www.directingfilm.net

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  8. How do you consider youtube to be hollywood and not silicon valley?

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  9. Well, that wasn’t the spirit of the Y-combinator piece. Of course Hollywood will persist, like a rash. But the platform itself is moving elsewhere. Frankly, if YouTube is seen as some kind of substitute for “Hollywood”, then the minds of the children are in far worse shape than I thought.

    What Y-combinator was talking about was a new business to take over the old, honest-to-God Hollywood. One that would totally change the distribution and financing of Hollywood movies, not the pictures of cute cats on YouTube.

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  10. Soledad Song Monday, March 5, 2012

    There is no strong, networked community of actors, writers, photographers, directors, costume-makers, musicians… or support for them in the South Bay. Why would they move there? Don’t forget that “content” = creativity. San Jose/Palo Alto is for geeks and VC oligarchs. Even the best, most logical and diligent, IT engineers feel stifled there and flee for San Francisco for culture and humanity.

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  11. The future is already in the making. It is called LANTAWOOD, the movie industry of the South.

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