Behind the Hollywood Strike Talks

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And, as Eric von Hippel of Massachusetts Institute of Technology writes in his recent book, Democratizing Innovation, users often do not share their ideas in exchange for compensation, at least not directly. Rather, they want to proclaim their skills, to see what others might do with their idea, and to look at what further ideas might be shared in return. Contracts are not involved.

If I were advising the screenwriters, I'd be thinking hard about this trend. It cannot be stopped, certainly not by a new contract. Instead, the screenwriters could insist on full attribution and recognition for the work they do, since that work is likely to be reused and recombined in other ways later on. This is quite in keeping with the ethos of online communities.

Increased Imitation and Parody

But they should be careful not to make the royalty per "play" too high. That would simply inhibit the broad distribution of work at a time when broad distribution is available like never before. And they should keep the compensation formula simple: Anything complex would stifle the creation of business models that earn a return, and would anyway be defeated by the accounting "innovations" of some studios that will attempt to avoid the letter of a contract.

For the studios, there is also good and bad news. The bad news is that the clutter that goes along with the marketing of new entertainment will only increase. Costs of building compelling stories through traditional approaches (such as a TV script brought to full studio production) are also rising. And anything that is successful is likely to be quickly imitated—or parodied—and posted online, making it challenging to make a decent profit off the original.

The good news for the consumer is the proliferation of channels. And now there are tools and technologies that help consumers easily and publicly express what content they find most valuable, tools such as Digg.com. Monitoring the research, rather than fighting it, could help reduce guesswork for both screenwriter and studio, and increase the commercial success rates of both.

Online on the Sidelines

As Walt Disney Co. (DIS) has demonstrated so vividly, the most successful entertainment properties have a very long tail, to use Wired Editor Chris Anderson's term. Content can be repackaged and sold for decades. Disney has even created value streams by producing brand-new content based on old movies, such as Cinderella III: A Twist in Time. And other studios' movie franchises have provided opportunities for fresh profits, such as the recently launched online game based on The Lord of the Rings. Content can be a gift that keeps on giving.

How this will shake out in the negotiations between the screenwriters and the AMPTP is hard to say. Both sides need to change some strongly held business models to seize new opportunities—a process that has many risks, but potentially lucrative rewards. However, if Hollywood cannot rise to the challenge, the independent, online creative communities stand ready to pounce. The one thing that seems sure is that neither side has a choice.

Henry Chesbrough is Executive Director of the Center for Open Innovation at the Haas School of Business at UC Berkeley. He is the author of Open Business Models: How to Thrive in the New Innovation Landscape (Harvard Business School Press, 2006). He is an authority on open innovation, open business models, and open approaches to intellectual property management.