Business Blog: Hoover’s Business Insight Zone

Thanks to Marc Andreessen, I came across this great piece from Patrick Goldstein of the L.A. Times:

Come on, writers, script your futures
The Big Picture: As the writers strike enters its third week, I think the future belongs to a tantalizing new hyphenate: the writer-entrepreneur.

. . . “The studios have got to be hoping that this idea about being entrepreneurs doesn’t sweep over the TV show runners, because once you start seeing really good production values on the Internet, I mean, what does Larry David really need HBO for? This is all everybody is talking about on the line. They’re not talking about healthcare. They’re going, ‘Wow, is there a different way to get our movies and TV shows made?’ ”

. . . “Writers who create something rare — a story with great, original characters that movie stars will cut their price to play — have a real value,” says Mandate production chief Nathan Kahane. “But that value doesn’t get unlocked in the studio system. If writers are willing to share our risk, then we’re willing to give them a lot of control and share in the profits too.”

This kind of entrepreneurial formula couldn’t have existed in the era when the studios had a stranglehold on every facet of the business, notably talent, money and distribution. But those days are gone. The stars became free agents long ago. In the last few years, with billions of private-equity dollars flooding the business, the studios have lost their lock on financing too.

All that’s left is marketing and distribution. It’s hard to equal the way studios launch their summer popcorn extravaganzas with a $40-million marketing blitz. But as more entertainment migrates to the Internet, where distribution is basically free to anyone with a computer, the studios will lose that monopoly as well. If the last couple of weeks are any indication, with clips from out-of-work comedy writers popping up every day, the Web could be littered with new must-see video sites by Christmas.

Various things can scramble a monopoly, starting with antitrust actions by the government, e.g. the Standard Oil case, or the breakup of the old vertical integration in which the movie studios also owned movie theaters. But government actions can usually be undone — just witness the different ways that the Clinton and Bush administrations have handled Microsoft. Labor actions like the current writers’ strike, or the repeated strikes by the Major League Baseball Players’ Association, can have profound effects, too.

But the thing that will really scramble a power relationship is technology, which is exactly what we’re seeing now. And all this cheap digital-video equipment seems to be working together with the phenomenon of independent wealth looking to bankroll movies. There have always been rich individuals underwriting films, but now the environment is such that some of those backers are willing to underwrite films totally outside the studio system.

The studios aren’t going to go away overnight. The trend Goldstein describes is about films with budgets below $30. That being said, though, independents can even make the big special-effects-driven blockbusters, as we know from the examples of George Lucas and Peter Jackson, who have succeeded in going their own ways and making tons of money working in parallel with — but hardly in obeisance to — major studios.

So, to echo Goldstein and Andreessen, here’s a memo to studio executives: prepare to be disintermediated. The sweep of technological history is not on your side.