Hollywood & Silicon Valley: Conflict and Convergence

(excerpt)
by Joey Tamer and Lonon Smith

The 800-pound gorilla, they say, sits where he wants. If all the industries that are feeding their multimedia child carried the same economic baggage, then potential conflicts between music and publishing would carry the same weight as a business model disagreement between software and television. But in the multimedia world, King Kong wears a silk warm-up jacket (a gift from a producer friend) with Hollywood written in sequins on the back.



The real conflict, the one only beginning to be felt, is going to be between Silicon Valley in its broadest definition and the Hollywood film industry, especially at the major studio level. It's not just that these two players have particularly bad manners or such varied origins these misunderstandings are inevitable. It's that Hollywood takes financial risks like none of the other industries.

It spends millions and millions of dollars on its product. It's a town where, with the right script, director and stars, a script budgeted at $80 million or more is "do-able." None of the other multimedia industries comes close. The advance and royalties paid for even a guaranteed best-selling book by an Anne Rice or a Tom Clancy don't compare to even the average budget for a Hollywood film. The top recording artists may make as much as a top movie star, but the ultimate risk on any given record is much less. Even in television, economies are strict and unsuccessful shows get canceled. In Silicon Valley, a $2 million investment can create the "killer app," the software application that makes millions. The same amount can barely create a low-budget film. But Hollywood is a gambler's town. Only film risks tens of millions of dollars, knowing that any film can bomb.

Hollywood's approach to the consumer and the channel respects their power and works to attract and hold their attention in a way never known in Silicon Valley. Hollywood is the master of packaging, pitching, pre-selling and merchandising to the consumer. Hollywood has learned to work with other industries--toys, consumer electronics, video, audio, book publishers and others to create ancillary merchandise and media to package with its products to extend their life and reach to the consumer.

Hollywood will find its position with Silicon Valley too. Hollywood's approach to CD-ROM titles is to treat them as ancillary merchandise, extending an existing franchise, series, star or branded character to a new technology platform and its consumers. Spending a million dollars or so to create an ancillary product that reaches the consumers of a new technology platform, a product that will move on the tremendous wave of marketing which pushes the primary product, is a straight-forward expenditure in Hollywood. And ultimately, from its control of the channels and consumer awareness, it creates the price points, "windows" of product release, the production values and marketing budgets required to create the highest return on investment.

The day any of the other industries plays for stakes as high as those Hollywood bets, they'll find their conflicts heat up as well. The earliest sign was at the Summer Consumer Electronics Show in 1994, when Disney threw a $1 million "coming out" party for the Sega game version of Disney's The Lion King movie. The Silicon Valley community was visibly shocked. It is culturally significant that virtually none of Disney's technology partners, who would benefit from the party, would agree to any financial participation with Disney in it. "We don't do that kind of thing to launch a product," they all said, in one way or another. "Oh, we do it all the time," said the gorilla, moving to the best seat in the house.

Silicon Valley would like Hollywood to show up with money, as we mentioned earlier, but then they'd like Hollywood to go away. Hollywood won't--and, if push comes to shove over some creative, marketing or licensing decision, the gorilla is going to win.

Hollywood is a town based on relationships. The grand gesture is a Hollywood stock in trade. Silicon Valley treats people well but with a difference. The first will send its most valued talents across the country in a company jet. The software companies are more likely to give equity in the company, a different gesture that can make somebody a millionaire.

The impulse always is to try and change the other guy or imagine that he will come to his senses and realize our business model is the logical one. Hollywood denizens who think this have never had "techies" snub them for pitching them vaporware. Conversely, Silicon Valley should remember David Putnam, who took over Columbia with the intention of fundamentally changing the studio system--and who left town unemployed shortly thereafter.

The differences between the two towns is as much style as it is substance--and both can kill a deal. Money is the mother's milk of all projects, but in Hollywood, as we said, all the money is spent before anyone knows if the product is going to sell. Therefore it sees its primary resource as the distribution system, and so respects the channels and their access to the consumer.

The two communities have entirely different ways of developing wealth as well. Hollywood's basic approach has been to get a great deal on a big movie and take that to the bank. It's what drives the studios' blockbuster mentality, the desire to have a huge hit with every film instead of building a library of lower-cost, "evergreen" films. This "hit" mentality also explains the huge launch budgets and the way ancillary products such as toys, stuffed animals (what the industry calls "plush"), videogames, video, audio soundtrack CDs and CD-ROMs have their release timed and manipulated. It's the same model used for releasing hit games on CD-ROM, which can sometimes cost as much as a low-budget, independent film.

The problem arises when one industry tries to do business with the other. The conflict is not just cultural, but lies in each industry's value systems and goals. Because Hollywood never thinks in terms of long-term equity, production companies in Hollywood are vehicles established to do individual deals (i.e., one picture at a time) like a high-funded start-up geared to cash in within a single year. It's a mindset that affects how deals are put together, and explains why entertainment companies understand the changing deal structure of multimedia so well.

The collision with Silicon Valley is inevitable, where building a company that will continue to create unique products and wealth is the goal. There is nothing worse in Silicon Valley than a technology company that is a "one-trick pony," unable to create a second product as successful as its first. This is the ultimate disparagement among techies who consider it a criticism of the company's creative prowess. This is why venture capitalists will invest in multimedia companies, but not in titles or films. And why the costly film model is too high a risk for them.

We can see why the Hollywood-Silicon Valley convergence comes with so many sharp edges, especially in the high-budget arena, but we've focused on their particular skirmishing in depth because it's the significant conflict in multimedia. Having done that, we can't let it overshadow the fact that independent film production, television, music and books are very much a part of this mix.

The creative, looking for a publishing/production/recording deal for his idea or finished product, will find a deal structure most closely approximating that of book publishing. The creative will pitch a concept, show a sample of the work, and ask for an advance.

After submission of the gold master (the finished product in music and multimedia, equivalent to an answer print in film or a manuscript), the publishing company presses and releases the product into the market, and takes full control of its marketing and sales and distribution.

Multimedia per se isn't going to change the studio system, the ancient book publishing trade or the established music industry. Only market forces (anything from a truly innovative entrepreneur to new technology) can bring change. But multimedia, as a separate medium, in searching for a business and production model that crosses the boundaries between the established industries, needs to draw from the various models and precedents carefully.

The convergence will focus on some intersection of these models, creating a hybrid. The hybrid will bridge film, television, music and books. It applies broadly, with small variations, across the entire spectrum of entertainment industries.

Now we will see products designed to use the tools and capabilities of multimedia in a new way, a reconception of the product influenced by the teamwork and talents of writers, composers and film producers, as well as the technologists. We will experiment with a new form of art and technology, and from that experimentation will create a new vision. And from that new vision will come unique forms of teaching, entertaining and communicating.

The risk of being a developer or an author is minimal compared with becoming a publisher or indie producer who can fund and acquire and market and distribute product. In all industries, distribution is second in importance only to good original material: the manuscript, the composition, the software, the title or the script. And the breadth of distribution committed to the product represents its potential value and indicates its return on investment.

Packages and deals will be constructed prior to product development, sometimes prior to scripting or storyboarding. And money will change hands before a single line of code is written.

We must learn the language of all four industries, their histories, their inter-competitiveness and their power. The future success of multimedia depends on pushing the envelope in three areas: technology, production and creativity. The industry needs technically-minded creative people along with creatively-minded technical people to make this new media flourish.

The misunderstandings and struggles for control aren't about to go away. It just helps to have a little perspective. That may mean a little family conflict, but it also is a place to draw strength and inspiration, not just from one history but from many. And then we have to see down how many avenues multimedia can be taken. We need to remember the early film veterans who worked for Hales Tours and showed travel films in train cars. They had never heard of virtual reality, but those men in their way were its pioneers. Because they not only delivered the illusion to their patrons of going somewhere new, they helped take us all there by pushing a technology to see where it would go.

No one ever said inventing an art form for the 21st century would be easy. It comes with a lot of bad ideas, technological and creative, that have to be waded through to get to the good ones.

And it takes dreams. Dreams that mix technology with creativity, and move it from silver screen to silver disc to satellite dish to satellite TV. Describing Hollywood's attraction earlier, we said that no would-be starlet ever took the bus to the big city hoping to make it big in "multimedia."

But she will.

Excerpted from:
Convergence: Constructing Media Deals in Multimedia, Film, Television, Music, Books & Software by Joey Tamer and Lonon Smith. Book available from the author ($35) at joey @ joeytamer.com (www.joeytamer.com); 310.245.5310. Joey Tamer consults to CEOs and their investors to increase valuation, ROI and market dominance in their technology and Internet companies, and to reinforce the due diligence on potential acquisitions and investments. Lonon Smith is a veteran screen and television writer, as well as a former fellow in screenwriting at the American Film Institute's Center for Advanced Film Studies.


Joey Tamer refines the vision, strategy and success of companies -- 
Fortune 1000, capitalized start-ups and investment fund.

www.joeytamer.com    (310) 245 5310   joey @ joeytamer.com