Hollywood needs to face the music

One of the most spectacular industrial transformations, and political fight, will the metamorphosis of commercial entertainment in the coming decade. Hollywood's business models were built in a world of fixed, physical media (LPs), and closed networks (tv), and location based entertainment (movies.) All of this is changing, as entertainment becomes part of the digital Internet. The economics of fixed, physical media are changing: CDs are already becoming unnecessary and DVDs will follow--all this content will be available over the network. The current advertising business model (i.e. commercials) made possible in closed, analog networks will change. And the movie theater has, quietly, declined dramatically as a part of Americans' lives over the past 50 years, and that trend will not abate. This doesn't mean the end of the entertainment industry--far from it--but it means the end, soon enough, as we know it today. Large, oligopolistic cartels are poor innovators, eschew risk, and tend to use power, political and legal, to forestall change, rather than eat their own young. Hollywood is no exception. (For a clear example of how Hollywood does this, see this piece on their attempt to institute a "broadcast flag.")

If history is a guide, the entertainment industry's efforts will be successful in the short term, but fail in the long term--new competitors will emerge, delayed, and ultimately some will be formidable. Some in the cartel will fail, while most will adapt and survive. Entrepreneurs have been trying to invent new business models for entertainment, and have largely failed to date--some because their models didn't work, others because they were squashed by Hollywood, and their henchmen in Washington. But the struggle will continue, and the spoils will go to the entrepreneurs who get it right.

See this piece in today's Wall Street Journal. Excerpt:

We're the first to stand up for intellectual property and copyright laws, and we sympathize with the industry's attempt to enforce them. But that doesn't change the reality that technology is making it easier for people to ignore them -- and that sooner or later the record industry will have to adapt its business model to this new world.

To date, the industry's only response has been to send battalions of lawyers to sue anyone with the odd MP3. What it is rapidly finding is that there aren't enough lawyers' fingers to plug all the digital holes. The studios shut down Napster, and promptly got in its place Kazaa, Morpheus and other music-sharing programs. You'd think by now they would know how futile it is to try to wipe out the new technology. Over the years, studios have fought everything from tape recorders to VCRs, only to have no choice but to accept their existence and belatedly figure out ways to profit from them. The industry would do better to work on ways to give consumers reasons to buy, rather than steal, their music -- whether it be for low prices, ease of use, added value or free goodies.