Frenemies

Hollywood’s writers and actors are on strike. As I’ve written before, their leaders have picked the wrong moment to cast themselves in a working-class drama. In sum, they have little leverage, as there are too many of them and the strike is a gift for studios looking to slow the arms race of the streaming wars and recalibrate costs for a leaner business cycle. Yet while the writers and actors are naive, the studios may, in the end, prove to be bigger fools. Their mistake is a familiar one, personally and professionally: the failure to discern among allies, competitors, and enemies.

Real Enemy

The studios’ real enemy isn’t a pair of naive, shortsighted unions, or one another, or streaming. Their antagonist isn’t even TikTok, though the short-video company will be happy to absorb the additional viewing hours once people have to adjust their habits. (Pro tip: Late-night TV will soon be a shadow of itself as consumers find substitutes.) The enemy is the same enemy the rest of media, and retail face, Big Tech. Specifically, in this case, Big Tech AI offerings that will digest content (at zero cost if they have their way) and wedge themselves between the consumer and repurposed content.

The writers and actors should get credit for identifying the threat AI presents. However, their demand for an extended pause in adopting the technology has been achieved a total of zero times by labor. Case in point: The teamsters and UPS came to an agreement before a walkout, because 1) they had leverage; UPS would have begun hemorrhaging cash vs. stockpiling it (as Netflix has done) in a strike; and 2) their demands were reasonable, raising hourly wages by $2.75 and installing AC in trucks. If the Teamsters’ requests mirrored the WGA’s, the demands would have been a pause on autonomous driving research and a mandate that all trucks have three drivers in them. Also, and this is a key point, the delivery business needs more drivers, and Hollywood needs fewer writers/actors/execs.

The focus of the WGA, SAG-Aftra, and the studios should be capturing compensation for the coal powering these AI plants and demanding IP protection for their digital twin(s). (More on this later.) Their thinking is too small. The real threat is not studios using AI, but studios being replaced by AI. If you think the studios are mendacious, let me introduce you to ground zero for … mendacious fucks … Big Tech.

To appreciate how precarious the studios’ position is, consider what they actually do. It’s not making movies and TV shows. Writers, actors, directors, and an army of skilled laborers do that. Promotion and distribution are still studio functions, but they rely heavily on the internet and third-party cloud providers. No, the primary function of the studio in today’s ecosystem is to allocate capital to projects that offer the greatest ROI. This means having a stomach for losing capital. A lot of capital, in the hope that one hit will pay for all the misses. It’s venture capital with better-looking people and worse traffic.

Filmed entertainment is ruinously expensive. It takes a special kind of edible to pile Benjamins and light them on fire greenlighting Pete Davidson in Marmaduke ($50 million budget, $800,000 in box office, 0% on the Tomatometer). One signal capital allocation is the primary function for Hollywood studios is how easily Big Tech muscled its way in. Nobody brings a taller pile of Benjamins, or a stronger stomach to risk it, than Big Tech. Apple, Netflix, and Amazon now dominate Hollywood. And what did they bring? Cheaper capital.

A decent, if crude, algorithm for economic security is to find the biggest pile of money and stand as close to it as possible. The writers/actors and studios need to stand closer to the Big Tech pile. The numbers here are unfathomable. But … let’s fathom. If you stacked the cash on hand of AAPL/NFLX/META/GOOG/MSFT in $100 bills, it would reach 262 miles into orbit. Low Earth orbit satellites would collide with the stack, as would the International Space Station. Meanwhile, Paramount’s stack  ($2 billion or about 7,500 feet) wouldn’t crest LA’s San Gabriel mountains.

As long as creating this content costs megayacht money, the competitive set for the studios will be relatively limited. The reason the writers and directors are standing in front of Loews instead of making Marmaduke 2 is they need the studios, which is to say they need access to the things only the studios can/will pay for: soundstages, cameras, special effects, and one another. The emerald sanctum level 9,000-light tier isn’t going to unlock itself — Tom Cruise doesn’t work for free.

But … ChatGPT will.

The Universal Substance

The secret to the greatest creation of shareholder value is simple: Tech inserts itself between consumers and content.

This often means creating a layer of innovation on top of other people’s content. In the 1980s and ’90s, aggregating millions of individually meaningless credit card transactions gave direct marketers visibility into consumer spending patterns, letting them target consumers with unprecedented precision. In the 2000s, tech repeated the trick with voting data. Google, Yelp, and Travelocity all do something similar. They alloy disparate and independently valueless pieces of data into something worth more.

I’ve been on both sides. Earlier in the Internet era, when Google’s mission statement was “Don’t be evil” and people believed this bullshit, I sat on the board of the New York Times Co. I made a scene at my second board meeting, urging the company to shut off access to Google, band together with other publishers, and protect the one thing we had: differentiated content. Nobody listened, I was politely ushered (i.e., kicked) off the board, and Google (followed by Facebook) proceeded to eat the publishing industry like a snake swallowing a mouse … after suffocating it slowly.

The newspaper industry is a shadow of itself and dependent on the kindness of strangers who are billionaires. The result: The number of journalists has been cut in half, and the number of PR comms professionals working at Big Tech has increased sixfold. The ratio of bullshit/spin to journalism has gone the wrong way by 12x.

Tech has reconfigured the barriers for retail stock market investors, purchasers of used goods, and amateur filmmakers and musicians. Tech is both a universal solvent — it dissolves  barriers — and a universal alloy, solidifying new, more powerful ones. It’s a universal substance, practicing a metallurgy bordering on alchemy. I’m not entirely sure what the point of this paragraph is, but it felt poetic. Edibles.

First They Came for the Writers

Just as the writers’ union has miscast itself as the Knights of Labor, studio heads are deluding themselves believing they are the Rockefellers and Morgans of the era, astride global empires that will benefit by replacing people with machines. The truth is, both are Native American tribes, feuding and weakening one another as European settlers lay in wait for their ultimate slaughter. And the studios have paved the way by converting their business into something that runs on the regurgitation of pre-existing IP, which is AI’s best trick.

Netflix is an outlier. Thanks to its access to foreign and nonunion content, its deep library of existing content, and disinterest in late-night content, the company is hoarding so much cash it’s considering stock buybacks. Disney and Paramount, dependent on ad-supported and linear content, are deluding themselves if they believe they have shared interests with Netflix. Note: Netflix isn’t just a studio, but a tech firm.

What Can Be Done?

You can’t stop the universal substance, but you can direct it and insert yourself in between Big Tech and how it makes money. If the feuding Hollywood tribes want to participate in the next generation of the entertainment business they need to stand on the things they share, the stuff they can realistically defend. The characters, stories, icons — the brands they have built up in our collective consciousness. I’m not a fan of doing business through lawyers — it’s generally a value and innovation destroyer to rely on the legal process — but see above … slaughter.

The studios, in cooperation with the writers and actors they depend on, ironically, to make their business cost prohibitive, should hire competent, aggressive law firms and send very serious letters to every tech company with a large language model (LLM). Then sue them. Meanwhile, hire a slightly less aggressive law firm to start forging joint rights agreements (studios and actors/writers) that lock down the IP of digital twins (actors and their characters). License to LLMs limited rights to crawl their content and provide studios/labor persistent rights to any revenue the LLMs produce. Finally, hire likable lobbyists to push Congress for accommodations in the law that better protect IP and limit the freedom of maneuver for AI companies.

One area of opportunity is the Section 230 liability shield that protects social media platforms and other online publishers from liability stemming from the user-generated content they distribute. In my view, we should remove Section 230 protection for AI-generated content.

To date, the strike reflects that neither the studios nor the unions understand the technology. They are laggards: Barry Diller is rallying publishers (including the NYT) around a lawsuit, book authors and programmer have filed class actions over the scraping of their content, Getty Images is suing the makers of AI image generator Stable Diffusion, and Shutterstock cut a deal with OpenAI. The unions’ demonization of studio heads makes for good TikToks, but it misses the larger point.

Sabotage

The unions are obsessed with how much money the studio heads make. Yes, Bob Iger will make $27 million this year, vacations on yachts, and wears a lot of cashmere. But Tom Cruise made $100 million from Maverick, and he’s a Scientologist. There are too many actors, writers, and studio execs for an industry that cannot sustain current spend and has attracted the great white shark of business, Big Tech. Bob and Tom are allies, not enemies. The real nemeses are in San Jose and Redmond.

Too often, we sabotage our own happiness letting familiarity and dysfunction turn allies into perceived enemies. We inflate our contributions to a relationship, while diminishing the other party’s. We let familiarity and contempt best our shared history. Your spouse, your parents, Republicans and Democrats, other Americans, other democracies, writers and studios. All allies. We’re in this together.

Life is so rich,

P.S. In this week’s Office Hours edition of the ProfG Pod I answer questions on Apple’s investments in health care, private schools, and teaching your kids about social media. Listen here.

P.P.S. Missed my talk on AI with Gary Marcus this week? Watch the recording here. And if you want to learn to set an AI strategy, join our upcoming Generative AI Business Strategy workshop for $250.