Hollywood relishes historical revisionism. It not only informs the imagination of its storytellers, but recasts the reputations of its players. Take Michael Ovitz: The überagent known as the most powerful man in Hollywood became a pariah without portfolio after failing as president of the Walt Disney Co. It's not a pretty story, but then these aren't pretty times. Ovitz can expect company.
Before today's moguls join the fallen, however, let's understand why. Let's appreciate the inexorability of their demise before revisionism consigns them to the has-been dustbin. It won't be the character flaws ascribed to Sumner Redstone when, inevitably, he relinquishes control of CBS Corp. and Viacom Inc. It won't be familial infighting behind the breakup of the global media-and-entertainment empire assembled by News Corp. chief Rupert Murdoch. And, regardless of what critics say, it won't be financial engineering that finally catches up with Liberty Media Corp.'s John Malone.
What does them in will be much more pedestrian. It will be you and me and our increasing participation in digital diversions. "It used to be 'Let me entertain you,'" says Blake Warner, a managing director in software, media and telecom investment banking at Thomas Weisel Partners Group Inc. "But now it's 'Let me provide you the tools to customize your entertainment consumption.' "
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This rejiggering of consumers' approach to media and entertainment
couldn't have more profound consequences. For starters, to participate
in the new order at all, content must make itself available in the
so-called on-demand environment. "It has to be available when I want
it," Warner says, "as opposed to my having to architect my life around
any one broadcast I particularly want to see."
Moreover, rather than generate buzz through paid advertising and
other one-way blasts of information, content will be increasingly
reliant on communications flow. This is a new aspect of social media,
which, in turn, is an update of the social network. "MySpace
isn't just social networking anymore," Warner says. "Sure, the
social-networking content is still there: the pictures of people, their
stories and all that self-expression. But now these sites also serve up
blogs, pull in news feeds and provide ways for friends to keep up with
friends."
How consumers organize their social media determines their
communications flow. And the fact that they've been spending more time
online than in front of television sets since the summer of 2007
suggests their communications flow is already removed from traditional
media. So, too, are the means of monetization. In fact, in terms of
compensating content providers, online media is as disorganized as
offline media is organized.
This will change with time and experimentation as advertisers pursue
audiences online. (That vice-presidential candidate Sarah Palin's
interview with Katie Couric of CBS News attracted 4 times as many
viewers online as it did on TV has given the pursuit a sense of
urgency.) Yet it could take decades, to paraphrase NBC Universal Inc. CEO Jeff Zucker, before the analog dollars commanded by content providers stop being converted into digital pennies.
Make no mistake; those pennies already add up. The Internet
Advertising Bureau tallied $21.2 billion in domestic online ad revenue
for 2007, third behind $31.2 billion for TV distribution and $48.6
billion for newspapers. But disparate growth rates moved Veronis Suhler Stevenson LLC
to predict in August that broadcast TV will surpass newspapers as the
largest U.S. ad medium in 2008, only to find itself surpassed by
Internet ad spend in 2011.
Online's emergence as an ad platform is siphoning billions of
dollars from traditional media and, as a result, upending business
models that have enriched not only the moguls atop traditional media
but also their many minions and middlemen. As Dennis Miller, a
traditional-media veteran before becoming a general partner at Spark Capital
a few years ago, puts it: "You can no longer afford to pay
disproportionately high wages to executives, agents, and talent -- other
than a few proven winners. Costs could be reduced 20% across the board
at all major media companies and intermediaries without causing a
single disruption. And since they aren't good candidates for a
government bailout, they'd better clean their own house first."
These insights are already borne out by wholesale layoffs at Viacom
and NBC Universal this month, not to mention cutbacks at newspapers for
years. The downsizing will continue, per force, until cost structures
at media-and-entertainment companies are as compressed as those in two
other sectors undergoing wrenching transformation: automobiles and
financial services. Granted, media and entertainment may only have
reached a tipping point -- versus flash points for the other two -- but
that's because consumers tend to be creatures of habit when it comes to
media usage. Bankers who lose their jobs won't even think about buying
a car. But they'll still read The Wall Street Journal.
The recession will accelerate this transformation, forcing
bankruptcies and restructurings in areas of media and entertainment
considered, until recently, inviolate. "Distressed debt and vulture
equity are going to be the market's primary drivers for a couple of
years," says Miller, who nonetheless remains sufficiently optimistic
about the future to regard the imminent shakeout as "a kind of
cleansing."
Innovation, meanwhile, will proceed undeterred. That's mostly
attributable to the peculiar mindset of entrepreneurs, who continue to
dream up and obsess over inventions in every phase of the economic
cycle. They'll see to it that Web 2.5 arrives on schedule, regardless
of whether the sector it arrives in is still restructuring itself and
its balance sheets. "Smaller will be better in this new world," Miller
says.
Although Miller believes a couple of traditional-media conglomerates
will "effectively morph" into Web 2.5 enterprises -- after all, much of
media and entertainment will remain hit-driven, requiring all the
resources that hit-making machines need -- he doubts these survivors
will like what they see. Barriers to entry will have fallen beyond
recognition, while distribution models will have abandoned their
historic fixation on protection.
"It's going to be difficult for the DNA of existing media companies
to assimilate the very different DNA of media consumers in the future,"
the venture capitalist says.
Even if the moguls undergo the psychological makeover necessary to
compete in a Web 2.5 world, they'll wind up hampered by their own
organizations. For these are their creations or their reflections --
that's why they're moguls -- which also makes them Emersonian: "Every
great institution is the lengthened shadow of a single man." The forces
of nature who cast the lengthened shadows may be nimble enough to
change themselves. But that doesn't mean underlings they installed as
proxies can do the same. Starting anew seems easier by comparison.
Entertainment academic Neal Gabler, on parsing Ovitz's failure 12
years ago at Disney, attributed the former agent's earlier status as
the most powerful man in Hollywood to the breakdown of the studio
system. Its demise shifted power to talent and, by extension, its
agent. "So long as talent could set the terms," Gabler wrote in The New
York Times, "Ovitz was a player."
Another paradigm shift coincided with Ovitz's joining Disney. Gabler
called it "merger mania," citing Disney's acquisition of Capital
Cities/ABC Inc. and Seagram Co. Ltd.'s taking over MCA Inc. "No matter
how much money the stars got, talent was becoming a smaller part of a
larger whole. The stakes of the game had risen, with multinational
conglomerates owning everything from TV networks to magazines to amusement parks."
Whatever prescience Ovitz had about this shift did him no good. "He
apparently assumed that the techniques he had used as an agent and
mediator could simply be redeployed in the corporate setting, that the
entertainment business was still a people business where swagger and
sass were more important than politesse and where a dream was worth a
thousand M.B.A.'s," wrote Gabler, who noted Ovitz's comeuppance set off
a revisionism Hollywood hadn't experienced since gleefully recasting
the reputations of first-wave moguls such as Harry Cohn, Louis B. Mayer
and Jack Warner.
The implications of Hollywood's going digital are greater than those
of its studio, talent and conglomerate eras combined. A new order is
coming, one that takes power away from the conglomerate and puts the
consumer in command. And it's coming with such celerity and certainty
that Gabler's next mogul installment must surely be close at hand.
Comments
Last week the headline read "The Penny Stock Club"; this week it's "The Last days of the Moguls." No quarrel with either story or headline. Surprisingly, in examining the demise of twentieth century media, no one has taken a close look at what The Washington Post did several years back that has sustained them ever since: they got into online postsecondary education with the acquisition of Kaplan University.
Kaplan's revenue and profitability have been a god-send for The Post. And with the current economic situation, Kaplan and its for-profit brethren have been one of the good-news stories of Wall Street.
Although The Post might not have looked at things the way I do as a hybrid businessman-educator, its decision to participate in the rapidly growing online eucation business was certainly prescient. And how do I look at things? Well, for one, I look at media companies for their most valuable asset, which is in my opinion access to the public. I don't look at hard assets as a mezzanine lender might - if there are any of those still around - but look at their avenues of communication and, thus, the ability to influence a large number of people.
So, you say, do I propose that these media companies take a cold war, Pravda-type approach to influence the public? No. I think a far better use of this influence is to provide information and services that will offer hope and opportunity to a great number of people.
For exmple, during recessions people tend to go back to school to attain or finish a college degree. Doing so gives them hope and instills pride, two things that people need during tough economic times. But how would this benefit media companies, you ask.
Students, particularly adult college students, are a sought after demographic group. They are sticky, which means they keep coming back to their online classroom. This makes them a great audience for advertisers. You get the picture?
In conclusion, it's my somewhat knowledgeable opinion that media companies suffering in this market disruption phase should look at strategic relationships with, or acquisitions of, postsecondary education companies. Deals such as I suggest would most likely result in a rising stock price as they would provide a much needed light at the end of the bailout tunnel. And the resulting enterprise would serve stakeholders well, including investors, students, and the general public.