Recently Ari Emanuel stopped by the Valley to drop some knowledge upon us hapless clowns. For those unfamiliar, Ari is a bit of a bad ass down in LA (Ari from Entourage is modeled after him) and he’s shown a lot of entrepreneurial spirit in a town that typically doesn’t reward that sort of initiative. One of the main points of his talk was the relationship between Silicon Valley (ye olde big pipes of technology) and Hollywood (provider of all things content). Ari’s point was simple: pipes aren’t very valuable if there isn’t anything to fill them with. Ergo, Hollywood is a deeply important piece of Silicon Valley’s success.
Eh…I’m gonna disagree here. Hollywood has the option to be integral to Silicon Valley’s success, but it’s not a required relationship.
The Value of Content
Once upon a time, I used to believe in the oft heard phrase: “Content is king.” It was only natural to view things that way — you often do when it’s the studios paying for your 6 minute increments. I think there’s an addendum most people in “the industry” would add to that phrase: “Great content with high production values is king.” This phrase is emblematic of a deep belief that the relatively small set of companies in the business of creating blockbuster content are essential ingredients to any platform looking to entertain people. It’s a sweet thought, and it was probably true at one point. But things change.
Historically, content has been significantly constrained by the limited distribution options available. Television, radio, books, newspapers and movie theaters were basically the only places where people could access content. The limited shelf space and the costs associated with distributing that content meant that each piece of content needed to capture significant revenue to be viable. A television show couldn’t survive on a few thousand viewers, it needed millions to be a going concern. Capturing that type of number required a tremendous investment in production values in order to make the content sufficiently differentiated and appealing to a maximum cross-section of the population. Same goes for books, newspapers, video games and so forth – each has a long distribution pipeline with numerous middle men. Content needed to kick ass to survive.
But you know what? That’s not the case any more. Nowadays, content can be distributed at extremely low costs and may become viable with the smallest of audiences. The natural corollary is that this content is sustainable at much lower levels of investment. YouTube, Twitch.tv, ebooks publishers and app platforms are all examples of the burgeoning trend toward low-cost distribution and the associated expansion of low-cost content. Interestingly, each of the platforms have largely been successful without the participation of mainstream media. But why?
The Old Way of Doing Things
I often think it’s because sophisticated content creators are used to creating content designed for everyone. They have very little experience in reaching down to micro-trends in media consumption because there just isn’t sufficient revenue to be had there. The low-cost platforms have provided the distribution outlet for any number of smaller content creators that are perfectly willing to capitalize on these tiny audiences. Think of a YouTube channel like Machinima, which has grown into hundreds of millions of views on the back of short clips of video game play. This is one example of many: the rise of eSports on Twitch, the alternate news consumption on Twitter, the 600k+ apps on iOS. Traditional media has no significant stake in any of these, yet they are tremendous entertainment time sinks. High quality content is simply not required.
Furthermore, quality content is certainly impacted by these trends. Already we see a decline in television consumption among those under the age of 35. The simple fact is that younger users are perfectly fine with getting their entertainment from non-traditional sources, and catered niche content can be a compelling lure compared to generalized mass market fare. When the voices speak directly to a person, they inspire far greater loyalty, even if they’re creating “inferior” content in terms of production values. I think it would be crazy to say that Machinima hasn’t taken at least some viewing time away from G4 – the simple fact is that people can get the EXACT content they want at any given time. Hollywood content is one option among many alternatives.
The availability of choice can fundamentally undermine the traditional content creation model. Hollywood still makes use of the high cost distribution platforms, but as they come under increasing competition from niche alternatives, there’s a real question of how they should adapt. They’ve invested in the tentpole mentality, and that’s a far cry from a few dudes filming their cats. They can scoff at the low resolution kitten, but maybe they should pay more attention to the millions of views. It should concern sophisticated content creators that the first piece of billion dollar content to come out of mobile was made by a small developer game based in Finland.
So how do they take advantage of these platforms? Frankly, I think they could probably capture the top slots on a lot of the newer platforms if they were willing to sacrifice a few sacred monetization models. Historic deal structures (massive guarantees, restrictive exclusivity requirements, etc.) are probably not going to work out. Instead, there will need to be a movement toward free options and a willingness to play ball on new platforms (even those just starting out). Their goal should be to bargain away an element of control in favor of gaining ubiquity in the marketplace.
If they’re willing to play ball, then they can turbocharge the new platforms and form a symbiotic (if dysfunctional) relationship not unlike the cable ecosystem. If not, I get the feeling Silicon Valley is gonna do just fine without them, which is a shame, because I really like Game of Thrones.
JM: I’m a little late to reply, but to my mind this is a tale of two parallel philosophies each finding success, and believing that that success means the other approach is wrong. I see this a lot, it’s like the blinders that direct a horse to walk in one direction, but in this case the blinders are success. To my eye, the big steps to an audience have been reduced to a graceful ramp. This allows vastly more ideas to test at market, on their own merit, and then become eligible for big Hollywood-style machinery.
First, I believe Ari is solely talking about film type tech start ups. Or at least I hope he is. Oracle obviously wouldn’t survive without Hollywood.
Second, I do believe that most “high quality” content will come out of Hollywood. Why? The ecosystem is in place. You don’t just grab a camcorder and go. You’ve got a variety of roles you need to help make that successful, and the highest concentration of those types is in Hollywood – for that industry. It’s the same that most finance is in NY, federal govt in DC, and most tech is in the SF Bay Area.
Lastly, I think this quote is dead on:
“One day they’re going to figure out that they’re just big pipes, and they need premium content,” Emanuel said, referring to Silicon Valley tech companies.
Except, it’s not the SV Tech companies he should be directing that at. It should be the cable tv/internet providers. Content owners will start shipping content straight to the user because of that beautiful thing called the internet. It’s why Comcast bought NBC.
As they become nothing more than internet providers, they could be viewed as a public utility provider. They don’t want that.
I’m not sure if he was directing that solely at film tech startups, but I’ll cop to not knowing the precise context of the comments. I will say that many have argued about the essential relationship between Hollywood and Silicon Valley in the past and those comments generally didn’t have a film tech caveat.
I expect that high quality content will continue to come out of Hollywood, but I’m not sure high quality content is an essential part of entertainment consumption any more. I think many people can and will continue to enjoy quality content, but I also things like Lolcats, eSports, or a variety of niche YouTube channels will gain greater and greater market share among younger audiences. Niche content of lower production values seems to be a very powerful opportunity.
Could not agree more with your point regarding the traditional distribution outlets. We’ve already seen the outcome of distribution disruption (poor, poor Blockbuster), and I expect this sort of pressure will be exerted on just about every traditional distribution platform (cable, movie theaters, etc.).
The comment Ari made was more about internet piracy and security. In the broader conversation he brings up SOPA, which he agrees was misguided, but ultimately he is arguing that Silicon Valley needs to be an active participant in regulating the illegal distribution of content. Yes, the distribution models are changing and yes, Hollywood has yet to figure out how to adapt and monetize these new methods – but Silicon Valley needs to understand that it can’t be so blase about the rights of content creators. If someone wants to upload a video of their cat to YouTube and allow anyone to view it, fantastic. But if HBO spends a lot of time and money to make Game of Thrones, which is part of the reason people like it as much as they do, they should have the right to determine what price they are going to charge people to watch it, and how they are going to make it accessible to its viewers. Otherwise you’re going to have to watch the last books made by a guy with a camera, a lot of cats, and too much time on his hands. aka Shawn Foust.
The sad thing is that I’m already subscribed to doods with cats.
It seems to me that protection and primacy of content are two separate concepts that happen to interact with each other. My view is that the primacy of content, mainly high quality Hollywood content, is under attack by the new distribution options. These distribution options create a very real possibility that Hollywood content will no longer be the centerpiece of entertainment consumption as low cost niche alternative spring up (like Machinima).
Hollywood’s insistence on historic models of protection is a key element to the fading power of its content. I strongly believe it is better to barter some control over the content away if it gains you ubiquity on the web. You can’t expect to make cable-esque revenue per user on the web, but that’s fine since there is a significant opportunity to gain a far broader audience that you can monetize at lower levels. Resisting new distribution models hasn’t served the music industry particularly well, and the RIAA has little to show for rigorous enforcement efforts.
Things like SOPA just aren’t going to be sufficient to get the type of protection Hollywood is looking for. Regulation lags technological advancement by a decade or more. By the time the ink dries, technology has already moved past the traditional enforcement mechanic. Any legislation that would be able to adapt to technology advancements would almost certainly be burdensome and overbroad.
I just don’t see an alternative. The trends is younger audiences are all indicating some alarming trends, and I don’t think you can effectively resist it. Technology significantly undermined the music industry, and film/tv was only spared at the time due to bandwidth constraints. A similar disruption is probably inevitable.
I agree that big Hollywood has to change their monetization / distribution models, and it hasn’t figured out the solution. But it will, and if the past is any indication they’ll make a lot of money on it (The advent of TV at first killed movie business, but then TV business made tons of money. Home video seemed to be death knell, then it made tons of money for the studios. Repeat with DVDs.) It takes big business a minute to adapt, but it will. I’m less concerned with that. What I’m talking about, and what I think Ari was talking about, is piracy.
I think the music industry is an interesting case study with this – and so much of it is cultural. When Napster first came out, we were all like ‘yay free music!’ and people used it like crazy. Finally the government stepped in and started regulating illegal downloads, and most people stopped getting them for free. Is pirating totally dead? No. But iTunes is incredibly successful and the music industry wasn’t totally lost. People are also making money in live shows, vinyl is making a comeback, and some would argue the industry is getting more diverse because it’s more accessible.
Similarly, there needs to be a cultural shift that says film piracy is wrong – that’s what they were trying to do with SOPA (albeit very poorly) – it’s not about whether Hulu vs. Netflix vs. Amazon is the best way to distribute content, it’s about the websites that offer films and tv for free meaning that fewer people are buying tickets at the theater, renting it (whether it’s Blockbuster or Netflix or wherever), or buying DVD/BluRay/VHS. There hasn’t been that reaction from the regulatory agencies to make people realize there are consequences to downloading a movie illegally. And that needs to change.