Netflix, YouTube, Hulu: Why Hollywood resists disruption.

Hollywood Is Just Like the Roman Empire—but Not for the Reasons You Think

Hollywood Is Just Like the Roman Empire—but Not for the Reasons You Think

Forecasting today’s biggest business and tech trends.
Feb. 11 2014 4:17 PM

Why Hollywood Resists Disruption

It doesn’t fight off invaders. It sits down and does business with them.

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And Netflix is the most successful of the horde. Content hubs like YouTube and Hulu have yet to make a serious impression in the entertainment ecosystem. YouTube announced a premium subscription service in May of 2013. For monthly fees between $0.99 and $7.99, subscribers get access to special content by the same folks who put out YouTube videos for free. It’s way too early to tell how successful the subscription service will be. But so far, the lack of chest-thumping press releases speaks volumes.

To be fair, Google is investing heavily in ad sales efforts on YouTube, and industry analysts believe those efforts are paying off handsomely. But so far, at least, YouTube has had no breakout premium hits of the kind that sell subscriptions en masse. And in general, its viewership doesn’t appear to be affecting TV ratings. Consumers watch YouTube in addition to movies and TV, not to the exclusion of them. If and when YouTube launches the next Breaking Bad, it’ll probably be a Hollywood production. Google has not been shy about spending $300 million on the A-list establishment, inking exclusive channel deals with known commodities like Ashton Kutcher, Flo Rida, and Jay Z. And Google is rumored to be signing a distribution deal with the NFL. (Google spokespeople officially shrug off the NFL rumor, though its persistence might indicate some substance.) If these partnerships bear out, they’ll be fantastic for viewers like us. But in many ways, they’ll represent a not-so-tacit admission that premium entertainment, of the kind companies pay hundreds of millions of dollars to get access to, still rules the digital age.

Without question, technology has changed entertainment, irreversibly, and mostly for the better. But the shows we love are still made by the companies people love to hate. They will be for many decades to come, because Hollywood understands something very few of its would-be usurpers do: Production of premium shows requires institutional know-how, enormous reserves of capital, and vertical integration. As an idea factory, Hollywood enjoys the advantages of a Chinese manufacturing mega-center: all the parts for all the products are made in the same place, by companies connected closely to one another, and often owned by the same entities.


It’s possible for competitors to displace one or more of these parts. Netflix may seize control of distribution; YouTube may swallow advertising; one or more startups might innovate on low-cost video production. But no single competitor, let alone a connected ecosystem of competitors, is set to reverse-engineer the entire production web: the script development, the talent, the shooting, the editing, the distribution, the titling and scoring, and so forth. It’s not because nobody can, but because replacing all of these things in-house is wildly inefficient.

For the time being, the most effective way to make premium shows and movies is to pay the big agencies and production companies. These two pieces of the entertainment puzzle, above all others, are more relevant today than they ever have been. In a world where anyone can become a viable distributor, and plenty of would-be distributors can pay top dollar, the companies who can package talent and production stay in the picture. Their buyers might look different, but they’ll still make their sale. Agency prices are high, and climbing higher still. So long as they maintain centralized control over in-demand talent, they’ll dictate the terms of any deal with any partner.

Hollywood won’t be disrupted, so much as refocused and rebranded. In aggregate, the entertainment industry will shrink—but that’s assuming you look at the industry as it exists today, with all the same players involved. A more accurate view is to see the industry as we saw the Roman Empire: whenever invaders conquered portions of its territory, they tended to settle down and do business. Sooner or later, the lines between barbarian and citizen started to blur. And for the sake of convenience, everyone called himself a Roman.

In the end, Rome wasn’t conquered; it essentially split apart and distributed itself. Hollywood will do the same. It will go open-source: raising money from around the world, selling services and talent to anyone and everyone, distributing through diffuse channels, and producing content in all forms. Hollywood’s gates won’t be breached. Hollywood will throw them open.

Jon Nathanson is a technology columnist, startup investor, and strategy consultant in San Francisco and Los Angeles.