Behind the Hollywood Strike Talks

It's all about business models. The Internet and digital media are changing the landscape of the movie biz and both sides should seize the opportunities

by Henry Chesbrough

On a recent talk show, well-known film producer and former Sony Pictures Entertainment Chairman Peter Guber described the Hollywood screenwriters' dispute with the movie studios, which could lead to a strike at any moment, as a "jihad" over the distribution of future revenues from digital media. Certainly. a strike has the potential to affect thousands of people and cost the industry millions of dollars. The last such strike, in 1988, resulted in losses of $500 million, according to some sources.

What makes the often fractious negotiations particularly interesting this time are the underlying business-model challenges confronting both sides. Business models enable companies (and organizations such as the 12,000-member Writers Guild of America or the Alliance of Motion Picture & Television Producers) to create and capture value. Once established, successful models often take on a life of their own. This can lead to inertia, and a prevailing model can drift out of alignment with the future needs of an industry.

That's what has happened here. The traditional business models of both sides worked well when there were a handful of movie studios and three major TV networks. But now everyone can be a writer or a producer, and every computer is potentially a studio, able to create and publish content. More than 1 billion people on the planet are connected to the Internet, a healthy portion of them via high-speed broadband.

Who Benefits from Online Exposure?

Much of the conflict in Hollywood today comes from the emergence of online distribution of entertainment content by studios to viewers over a wide range of Internet-enabled devices such as mobile phones and computers. These innovative media lie outside the domain of the screenwriters' previous contract with the AMPTP (which was pretty much restricted to TV and theaters), so they feel that they are not earning as much as they should from the new value streams.

For their part, producers argue that there's no money in supplying either promotional materials (movie trailers or segments from TV shows and movies) to online media. And while big media companies seem keen to protect their copyrights on the one hand—see the ongoing discussions with YouTube (GOOG)—they are also quick to point out that they often don't receive acknowledgment, and certainly don't get payment for intellectual-property rights from sites such as YouTube, MySpace (NWS), or Facebook. If no one makes any money, what's to share?

Each side has a point. The studios are not (yet) receiving any significant new revenues from these online forms of distribution. They want greater insight into what kinds of revenues might be forthcoming before they commit to giving away a healthy portion of them to the screenwriters. But the screenwriters are right in that new value streams are being created, and they ought to be able to participate in them. Given the decades-long life of these contracts, the screenwriters know that waiting for another round of negotiation would be waiting far too long. Reinvention of business models—on both sides—is crucial.

A Community of Ideas

As it happens, consensus between the studios and the writers is not even necessarily the biggest challenge each faces. Much of the new online entertainment content is not coming from professional writers or producers at all. Rather, as others have noted, it is coming from users and user communities that stimulate one another to create content. Doubtless, many are not paid-up members of the Writers Guild or the AMPTP.