Cringley on Disrupting Hollywood: Steal the future!

As I’ve noted, Robert Cringley is writing a series of articles on how “Hollywood” (the studios, network broadcasters and cable companies)  might be disrupted by “Silicon Valley” (i.e. Apple, Amazon, Google, Netflix, et al). He notes the exact same problem that Intel (and everyone else) in disrupting Hollywood: that incumbent content controllers don’t want to disrupt their own very profitable existing ecosystem for an uncertain future.

He’s completely right, and comes to much the same conclusion I did in 2009: the solution is to bypass the current gatekeepers and go directly to the program creators. I suggested that Apple – with then only $40 Billion in the bank compared with $120 Billion now – could easily fund the entire film and TV production. Cringely calls this sabotage, when the direct approach won’t work.

The trick to stealing Hollywood is interrupting this flow of ideas, not just for a show or two but for allshows, diverting the flow to some new place rather then where it has always gone. Divert the flow for even a couple years and the entire entertainment industry would be changed forever.

What if there were no new shows on CBS?

Essentially he’s suggesting what I did, but with the additional step of Apple (or other party, perhaps even a conglomerate of Silicon Valley players) could simply buy the current production companies that feed the TV and Cable system now. That’s the produce we like to watch. First he notes the difference between Apple’s retained cash and Disney’s:

Here’s where it is useful to understand something about the finances of content production. This $100+ billion business (the U.S. Department of Labor says the U.S. entertainment industry pays $137 billion per year in salaries alone) is driven by cash yet there is very little cash retained in the business. While Apple is sitting on $100+ billion, Disney isn’t, because there’s a tradition of distributing most video revenue in the form of professional fees.

Cringley quotes Mark Cuban about the value of production companies (at the time applied to his own NerdTV):

“It’s a production company,” Cuban said. “No production company is worth more than $2 million.”

Even George Lucas sold his entire life’s work for $4 billion. Peanuts to Silicon Valley. MGM last sold for $3B. If we extrapolate out that there are 2000 or so companies that account for the production of most Film and TV that we watch (both Network and Cable)  then:

So the cost of installing a valve on the entire content creation process for the $100+ billion U.S. entertainment industry would be $4 billion. Think of it as an option.

Or cut it a different way: $4 billion would buy a controlling share of every TV pilot and every movie in pre-production. Talent follows the money, so they’d all sell out.

He contends that $2 million purchases would not attract anti-trust attention but then says it would be a anti-trust problem for Apple.

Apple, Google, Netflix and Amazon are all intent on disrupting Hollywood. If the current middlemen don’t “play ball” then I see no other path than that they be taken out of the equation now their historic necessity has gone.

Update: Even Microsoft are looking for original content for their X-box network.