Introduction
There are many ways to approach studying the business of mass market entertainment. Approaches in material I’ve recently read ranged in focus from a business history of American movie studios written for a popular audience (Epstein, 2005), to sociological perspectives on the culturally transformative nature of creative work (Peterson, & Anand, 2004), to business case studies of prominent entertainment companies (Pisano, & Wagonfeld; Rivkin, & Meier, 2005).
All of these readings have focused on the unique aspects of culture industry. To be sure, as a business culture production sits in a unique spot in society. The mechanisms of creating and distributing cultural goods at any given time and place have not only been similar to, but sometimes have been identical with, the mechanisms for creating and distributing political and religious power. They all deal in display and performance, content creation and content distribution. This contributes to the enormous stature culture production holds in our society.
What I wonder is if sometimes we take this exceptional aspect of culture production too seriously and expect that since it is a unique type of business, the business practices at successful companies in the industry must also be unique. This thought cropped up a number of times during my reading.
The Know Nothings
Consider the use of the term “risk” to describe the business practices of movie studios. It shows up repeatedly in the readings. Epstein in particular uses the word frequently in his early chapters as he describes the sums of money involved in Hollywood deals – they are large in movie production, but enormous when it comes to mergers and acquisitions or launching new distribution channels.
Gladwell, building on a study by Villette and Vuillermot, looked at the steps Ted Turner took in creating his media empire. While the common perception of Turner’s rise is that he frequently gambled it all on high risk deals, Gladwell concludes that at every step of the way Turner was in truth highly risk-averse. Why he succeeded was that he was able to see how little actual risk there actually was in his maneuvers, which gave him an advantage of asymmetrical information. (Gladwell, 2010). While Gladwell uses the term “entrepreneurs” to describe the subjects of his article, they actually began with a considerable advantage of capital over a bootstrapping startup (Robles, 2010), making their situation more closely match the head of an established culture producer.
At the beginning of his career, when Turner purchased a money-losing TV station, his advisors were opposed to the move even though Turner structured the deal in such a way it cost him no money down. Turner recognized that unused stock in the billboard company he had inherited could provide low-cost promotion for his new TV property. So, not only did the deal not deplete his cash, it also gave him a low-risk use for wasted resources that carried with it the possibility of a high payout.
The managers of culture production have to balance these sorts of cross-channel deals all the time. What they, and Turner, understand is that “high risk” is not necessarily synonymous with “high stakes.” By spreading the risk around, they can mitigate the damage of any particular investment going poorly. The considerations that factor into this mitigation are beyond complex.
For example, in chapter 5 of The Big Picture, Epstein looks at the financial statement of the Walt Disney Company in 2000. This was of personal interest to me as in August 1999 I had left my job at a Disney Internet subsidiary. Epstein describes how Disney “… managed to remove from its books the massive losses incurred by its Internet operations by spinning them off as separate businesses and issuing a new class of stock for them to its shareholders.”
(While there’s undoubtedly truth to Epstein’s take, there’s also truth that when my employer, Starwave Corp., was purchased by Disney and then used to purchase Infoseek, Disney found itself with a lot of employees holding stock options as part of their compensation. At Disney itself, stock was only granted to Vice Presidents and above, which had unintentionally resulted in a proliferation of Vice Presidents. When I found myself a Disney employee, the company could not take away my options in Starwave and expect me to stay, nor could they convert them to options in DIS without reworking their entire corporate compensation plan. Unfortunately, promoting me from Senior Associate Producer to Vice President wasn’t even considered, but they did create a separate business holding to which my option grant was transferred.)
In the assigned readings, both Epstein and Goldman (1983) describe the social aspects of Hollywood mogul culture. Goldman’s description of United Artists optioning the book Thy Neighbor’s Wife, not because they intended to make it into a movie, but to bolster their prestige as players stands out. But the game Gladwell describes Turner and other entrepreneurs playing is perhaps far shrewder. By downplaying the low risk of his high stakes deals and bolstering his image as a risk taker, Turner executed a sleight of hand that multiplied his asymmetrical advantage by discouraging others from examining his real motives and spotting what he saw.
While Goldman is certainly right that when it comes to individual culture products “nobody knows anything,” the business of culture production succeeds or fails in the aggregate. If in any given year a studio releases six movies to theaters, it does so in the expectation that not all will succeed and the hope that a couple of them will be runaway successes that can absorb the sunk costs in the others. For any given movie, the risks are indeed very high, but if the executives have read the market right the aggregate risks are actually more contained than we might think at first look.
Factor in the advantages to be gained from encouraging a perception of risk-taking, and now the social aspects of Hollywood deal-making begin to look as deliberately obfuscated as Disney’s accounting. Maybe the real reason nobody knows anything is because everyone is working very hard to not know anything. The lack of information is not purely due to the vagaries of the entertainment audience, it’s the prestige currency on which the industry itself depends.
Vive Le Roi (Dans Le Chateau)
Arguing by analogy can sometimes be an effective way to make a point It’s not clear that arguing with an analogy is equally as useful, but as a side thought I’d like to try. I’ve long been exposed to managers of media properties quoting Redstone’s “Content is King” formulation (found in Epstein, but also inescapable in the media business zeitgeist). But identifying the King didn’t seem to help these managers come up any actionable content strategy.
A king by himself has no power. Murdoch touched on that when he crowned Distribution queen (Epstein). But he didn’t get the relationship quite right.
Content is King, Distribution is the Castle.
The Castle is the seat of power and whoever possesses the seat of power is by definition King. Like the reign of a king, the audience experience of content is temporally bounded. During the experience, a single piece of content holds the castle of distribution, and for that time that content is King. Whether it is a good king or a bad king makes no difference – what matters is that by sitting in the castle it wears the crown. If it is a bad king, then it will be deposed and some other content will take possession of the castle.
The digital age brought about the end of the feudal age. The castles have lost their importance and cities no longer cluster inside the shelter of their walls. The power of the king has been greatly diminished and much of it is now wielded through a form of representative democracy in which elections run constantly and terms of office can end at any time.
The major players in the culture industry struggle to play an influencing role in the democracy, without relinquishing the trappings of power. As always, the stakes are high and therefore the risk is as distributed as possible. But now the reward is distributed too. The only logical way to maintain power in this age is to step out of the castle and try to dazzle as many cities, towns, and hamlets as possible into joining a confederation with a mogul at its head.
References
Epstein, E. J. (2005). The big picture : the new logic of money and power in Hollywood / by Edward Jay Epstein Random House, New York
Gladwell M., The Sure Thing, The New Yorker, January 18, 2010, 24-29
Goldman, W. (1983). Adventures in the screen trade. New York: Warner Books.
Peterson, R, & Anand, A. (2004, March 17). The Production of culture perspective. Annual Review of Sociology, 30, 311-334.
Pisano, G., & Wagonfeld, A. B., (2009). Warner Bros. Entertainment [case study]. Boston: Harvard Business Publishing.
Rivkin, J. W., & Meier, G., (2005). BMG Entertainment [case study]. Boston: Harvard Business Publishing.
Robles, P. (2010, January 14). Gladwell: entrepreneurs are predators, not risk-takers. Econsultancy: Digital Marketing Blog, Retrieved from http://econsultancy.com/blog/5245-gladwell-entrepreneurs-are-predators-not-risk-takers
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