Dear Hollywood: Resistance is Futile

It’s sort of fun watching the battle of the titans for the all or some of Warner Brothers Discovery. Having to choose between the Trump-adjacent Ellison family at Paramount and the soulless data-driven wonks at Netflix is entertaining. But it doesn’t matter which company buys Warner Bros because the future is already set and obvious. If you live and work in Hollywood, you will do better by accepting it than resisting it.

The entertainment industry is now ruled by technology: Netflix, YouTube, Amazon, Apple. Even Paramount will be a tech company, since it’s now run by an individual who grew up in Silicon Valley at the knee of Steve Jobs and Larry Ellison.

I’ve been investing in media technology for 30 years but even before that, I was one of the first “victims” of technological change: I spent the previous 20 years before becoming a VC as an editor in the magazine industry. When I became a venture capitalist in 1996, the writing was already on the wall for magazines and newspapers, although the captains of those industries hadn’t acknowledged it - yet.

I know how this goes: once technology takes hold, the changes it produces are inevitable are inevitable. That happened in print journalism first. Indeed, since my last editorial job was as editor in chief of InfoWorld, a weekly news magazine covering the tech business, it was obvious when the original Internet started to take hold in 1994. If your job was to sit in front of a computer, why the heck would you prefer to wait to get the news printed and delivered to you through the US Postal Service?

An aside: After we obtained the URL InfoWorld.com, we introduced it as InfoWorld Electric. I’m not saying we had a clear understanding of the ultimate outcome; instead we rethought of it as a different product than the print magazine. We learned pretty quick that it was actually a different and better way to deliver the information, even if the business model was much worse. And I learned the lesson about how technology doesn’t wait for anyone.

When I became a venture investor in the last four years of the 1990s, the next business to be taken over by technology was the music industry. I invested in three music-related companies while I was at New Enterprise Associates: FullAudio (music rental), Garageband (consumer music discovery) and HiWire (streaming radio) between December 1999 and February 2000. While I didn't actually make money in those companies, I was a participant in the incredibly fast dissolution of the recorded music business. (Yes, I did review Napster as an investment but couldn’t make sense of the business case. I also learned a related lesson: The first mover isn’t always the one to lead the charge!)

In that same period, I also invested in internet banking (Home Account), digital photography (Fotiva), and digital magazine distribution (Zinio). One of my first investments was in TiVo, the precursor to streaming television. In other words, released from the constraints of being an employee of a publishing company, it was obvious to me that the internet would roll through every media industry and transform it into something different.

The last major media industry to be transformed by the internet is the movie and television business. And the only reason it was the last to go was that the original internet was too slow to distribute video entertainment in real time. Yes, there were plenty of video-related companies started in the 1990s (including YouTube and Netflix), but dial-up internet wasn’t robust enough to provide a satisfying user experience. Indeed, people sometimes forget that Netflix started by renting DVDs by mail and didn’t offer its first streaming service until 2007 and didn’t introduce its own shows until 2015. Most of the video related content before then was called UGC (user generated content), including YouTube which started before smart phones had real cameras built in.

In the intervening 15 years, we got high-performance, broadband internet service so it was feasible to store movies and TV shows in the cloud and deliver them in real time. Fixed, high-speed internet service is now better than or equal to satellite or cable delivery in the developed world.

Is it any surprise that the companies that dominate both the delivery and production of movies and television are the cash-rich, technology first companies like Apple, Amazon (which bought MGM), Google (YouTube), and, of course, Netflix.

What is about technology that once it gets its teeth into a legacy business, resistance really is futile? A sub-text that sheds light is: Why is that the waves of technology have almost exclusively started in the United States? The answer: Capitalism combined with innovation. In the case of Hollywood, the production and distribution of movies and television have been transformed to the point, that the legacy system is in the rearview mirror.

PS: Yes, I decided to publish this newsletter on the same day that Netflix and Warner Bros Discovery defend their proposed merger in front of U.S. Senate Judiciary Committee. If you want to watch the whole 2-hour proceeding, follow this link. Just don’t expect anything new or informative!

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