

"Big Content" Is Strangling American Innovation  - cwan
http://blogs.hbr.org/cs/2011/03/big_content_is_strangling_amer.html

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warfangle
They always have.

The Edison Company used its patent portfolio to keep people away from owning
theaters and importing European films.

Paramount, MGM, etc, were considered independents back then and fought back
furiously. Then they consolidated vertically to own the theaters as well as
the production, which opened the pathways for censorship (the Production Code)
- when you only have to influence two or three companies, it's easier to get
your way when you threaten a flat-out religious boycott.

NBC killed FM radio in the 30s by way of the FCC: it only came into its own in
the late 70s.

NBC killed TV in the 30s by way of the FCC: it only came into its own after
the technology had advanced enough that NBC and the other big radio players
could continue their vertical monopolies in the new space.

Bell Labs killed a nascent answering machine in the 30's - of course, back
then, it was the size of a refrigerator. It used magnetic recording. The next
people to use magnetic recording was 3M decades later.

To cover this stuff in depth, read Tim Wu's "The Master Switch."

~~~
dantheman
IIRC Bell Labs killed their own invention, I think that's fundamentally
different than the other cases.

~~~
warfangle
True, it didn't fit the rest of the list. They did do a heckuva lot to keep
people from competing with them - and to prevent better technologies from
coming along (as otherwise mentioned, acoustic couplers. fax machines also fit
in there).

Bell also had a nasty habit of - when forced to compete by the government -
physically sabotaging interconnect points.

~~~
dantheman
Agreed, I was just pointing out the difference -- I was in no way defending
what they did.

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arctangent
The "Big Content" problem is a classic example of the short term thinking that
is inevitably brought about when human ambition meets current methods of
compensation (i.e. pay).

It's in the interest of all kinds of managers to drive up favourable results
in the short term so that they can achieve their next promotion and/or receive
benefits from any stock options they hold (which typically vest on very short-
term timescales compared to, say, the length of technological cycles).

Inevitably this leads to those managers seeking local maxima (i.e. sub-optimal
tactical revenue generation) rather than more global maxima (i.e. more optimal
structural changes to bring about increased revenue generation in the long
term) which will take longer to become profitable than the individual is in
their post to receive the credit for those decisions.

The problem is apparent in almost all forms of human interaction, to the
extent that it is probably deeply-rooted in our fundamental psychology. We all
prefer the quick wins to the bigger wins that can be achieved by deferring
immediate gratification. (There's a relatively famous study which shows that
unattended children will often eat a cookie even when they know they will get
two cookies if they leave the cookie alone until the researcher returns in a
few minutes.)

So I guess it's important that we realise that this is a deep problem and
think about what (if anything) could be done to solve it. I suspect that it's
actually near-impossible to change the behaviour of powerful individuals
within an organisation in any meaningful way, and that having an external
entity usurp the established order is about the best solution that can be
achieved. (I assert that this is true on an individual level within
organisations and also when considering organisations as a whole.)

It may turn out that this is (in general) a more efficient way to seek global
maxima than to wait for a particular entity to alter its behaviour. It would
certainly seem that competing entities with different strategies would be so
numerous that better strategies are more likely to come from without than
within...

------
solson
Questions I have frequently pondered are...If one could as easily replicate
and distribute physical products as we can digital products, what would that
do to creativity and innovation?

Say you you could make infinite cheap copies of a car or a TV, would anyone
make a better one?

With the elimination of scarcity what would we do with all our stuff and our
free time? Would we sit around and turn into blobs or would we make things
better just for the joy of it? Just for the recognition?

Isn't it apparent that IP laws/copyright in the digital age are just a way to
impose artificial scarcity where it no longer exists naturally?

~~~
jonnathanson
Here's the problem: scarcity exists on the creative side of the entertainment
business, but it's scarcity by way of cost-prohibitive access. What's scarce?
Access to $20MM-a-movie actors and $8MM-a-movie directors. Access to $200MM
productions. Access to creating the "tentpole" movies and shows that result.
All of these things require outrageous amounts of capital, and they're all
dependent on the ability to monetize the end result by many multiples of
production and advertising costs by way of theatrical distribution, DVD sales,
licensing and merchandizing, and various other derivatives of the original
work.

At least one major revenue stream, DVD sales, is collapsing steadily. This
leaves box office and derivatives and licensing. Derivatives have never been
huge business, or at least not a sturdy enough pillar to bear the weight that
DVD sales have borne. And licensing has always been mere icing on the cake,
except in the case of titles perfectly suited to it (such as Star Wars).

As the downstream revenue sources dry up, so too will the big production
dollars, and so to will the scarcity of access to "Hollywood-quality"
creative. At least for most companies.

What's going to happen? One theory is that we're going to see some sort of
price discrimination at the box office. Big tentpole movies cost more to make
than do lower-budget romantic comedies, for example, and so tickets to
Transformers XXIV will cost more than tickets to Generic Sandra Bullock /
Jennifer Aniston RomCom. (Arguably this is already starting to happen, if you
consider 3D to be a price discrimination mechanism. Whether by intent or by
accident, it functions like one).

Another theory is that we're going to see a hollowing out of the middle tier
of the film and TV businesses. You'll have giant studios making giant movies,
and you'll have tiny indies making tiny movies. But there will be no middle
ground, because it will no longer be profitable.

All of this assumes, of course, that production costs hold steady or increase.
And so long as there are folks out there willing to pay $20MM for a single
actor or $8MM for a director, they will. But the bottom might drop out of that
market eventually, too. Or it might stratify dramatically as outlined in the
previous paragraph.

~~~
cageface
This point isn't made often enough. The bits of a film or record aren't
scarce, but the talent, focus, inspiration and dedication it takes to make
arrange those bits are all too scarce. Sit through the entire end credits of a
Pixar film and ask yourself if such films would exist without the "artificial"
scarcity of copyright paying all those salaries.

~~~
hxa7241
This is a seemingly persuasive argument, but it does not really work. It is an
argument that makes us smaller than we are.

It asks us to compare what we have with nothing at all. Of course it is easier
to think of what we have -- it is right in front of us. But the alternative is
not nothing, it is to create something new. And it is not beyond the wit of
humans to do exactly that. (And is not one of the quite orthodox appreciations
of capitalism that it spurs innovation?)

When a real physical constraint is lifted -- i.e. everyone can now communicate
and copy as much info as they want -- the thing to do is spend effort
inventing ways to realise this advantage. You do not spend effort inventing
ways to _stop_ using it, as the content corps want to -- it is perverse
really, is it not? it is a _degenerate_ economy that does that.

~~~
cageface
Unfortunately many of us really _are_ are quite small. There are far too many
people out there who are all too happy to enjoy the work of others without
feeling any obligation to compensate them for it. I like the Netflix
subscription model but a $9 a month subscription isn't going to fund an Avatar
or Toy Story 3.

~~~
theflyingswami
Keep in mind that's, $9 x 20+ million subscribers a month.

~~~
cageface
I'm a big fan of Netflix but that means that Netflix grosses less in one month
than it costs to make _one_ movie like Toy Story 3.

~~~
WalterBright
We may see a crash in the salaries paid to actors and directors.

~~~
cageface
And animators, and modelers, and shaders, and special effects technicians, and
the engineers that write the software they use, and the sysadmins that support
their networks etc. The names on the movie poster are the tip of the iceberg.

~~~
atleta
It's not the number of contributors that count but the total cost of their
contribution. That tip actually costs a lot. The good old Pareto rule may well
apply here as well. But however it is, if the market doesn't pay for it, then
it's not needed. Also if the market is only willing to pay a fraction then
there is probably a need for some innovation so that they can cut the costs.

~~~
cageface
I worked at Pixar from 2000-2010 and I can tell you that a really good
director definitely earns his/her salary. A good director can mean the
difference between a bad, overbudget film and an on-budget success. You're
going to have a lot harder time cutting costs than you might think too.
Salaries dominate the budget of films like Avatar and Toy Story 3 and the kind
of talent it takes to make those films can't currently be had for less. Maybe
you don't care if films like that disappear from the market but you should at
least acknowledge that _is_ what will happen if DVD and ticket sales continue
to slide. None of the alternatives currently on the table compare.

------
haberman
"I say to you that the VCR is to the American film producer and the American
public as the Boston strangler is to the woman home alone."

\--Jack Valenti, president of the MPAA, 1982

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NHQ
Does anybody any HBR know how to write a clear headed statement? You can tell
by the little mistakes that the writer is not thinking hard enough, and only
writing to flex. Lines like this, for example: "Now, in the past, these
efforts might have impacted technology that only involved the consumption of
movies and music."

Now! In the past! Together at last!

