I've already explained why I think the TV writers were striking over the wrong issue. Even though it's easy to feel sympathy for the writers (and to dislike the studios who certainly have a long history of not playing fair), the unintended consequences coming from the now completed deal will cause harm to the industry over the long term. By trying to get a cut of internet usage on top of existing deals, the writers have just made it more expensive for the entertainment industry to adapt to the internet and more difficult for them to experiment with different business models -- even if the deal terms aren't as complete as the writers were originally demanding. Part of the reason the recording industry is having so much trouble adjusting to the modern era is that there are so many different royalties, making it nearly impossible to do anything new or innovative -- even if the end result would be more content and more money available for participants. There's a reason why most businesses work with pay-for-hire arrangements rather than royalties. It makes the process much more efficient and allows the company producing the product to have more flexibility in trying to sell the product. While it may seem like a victory for the writers, by limiting what mainstream content producers can do to adapt to the internet, it merely opens up more opportunity for others to route around this deal and do something more innovative, leaving the big studios that employ these writers in the dust.

The LA Times reports on ongoing negotiations between writers and venture capitalists to create Hollywood startups. Apparently "dozens" of Hollywood writers are looking to launch companies that would allow them to produce video content that would be distributed directly to fans on the web. We've noted that there are already a number of companies pursuing this strategy, and with thousands of talented writers sitting idle, this is an ideal time to start more of them. In the long run, these kinds of startups will ensure writers get compensated fairly because it will give writers who feel they're under-compensated an exit option. On the other hand, the LA Times makes clear that writers jumping into alternative business models may find that the reality of Hollywood startups to be a culture shock. A lot of successful online content outfits tend to be shoestring operations, and it's likely to take a few more years before the bulk of viewers make the switch to Internet-based sources of information. Writers used to the relatively large budgets and large audiences of Hollywood studios may find it difficult to adjust to being at a web startup that no one has (yet) heard of. This may explain why in a town with ten thousand writers, only "dozens" are looking at the startup option. On the other hand, those writers with an appetite for risk or a thirst for creative control may thrive in an environment where they call the shots and reap a much larger share of the rewards if they succeed.

Marc Andreessen points us to a great article by the LA Times's Patrick Goldstein exploring the rise of alternative business models in Hollywood. Rupp points out that the most successful filmmakers in Hollywood—Steven Spielberg, Peter Jackson, John Lasseter, George Lucas—have worked outside the traditional studio system, starting their own companies and producing great movies without constant meddling from studio bosses. He notes that venture capital has begun flooding into Hollywood, allowing more and more creative types to bypass the studios and get financing for their creative projects directly. And, of course, the Internet will soon make it radically easier to market and distribute independent films. Probably the most important point Goldstein makes is that going outside the studio system isn't just about making more money. An even more important consideration for many writers is maintaining creative control. Those big studio budgets can come with a lot of studio meddling in the finished products, and studio executives are often bad judges of what makes a good movie. Here, too, there are parallels to Silicon Valley's startup culture. Larry and Sergey famously tried to sell their search technology in the late 1990s, only to find that the incumbents thought that nobody would be interested in a better search engine. Luckily, they had no trouble raising venture capital and launching their own company. By the same token, the next time a writer gets fed up with the studios mangling his scripts, perhaps he'll have the opportunity to prove he can do it better by raising some venture capital and producing the movie himself.

A lot of people seemed to be interpreting my post about the writer's strike a couple of weeks ago as taking the studios' side. That wasn't really my point. I don't know enough about the details of writers' compensations structures to have any opinion about which side is being more unreasonable in the dispute. Rather, my point was that a protracted strike is going to hurt everyone in Hollywood—studios and writers alike. There's a very real risk that a protracted strike will create an opening for outsiders to attract viewers who would otherwise be watching Hollywood fare, and that at the end of the strike a lot of those viewers might never come back. That would hurt the studios the most, obviously, but it wouldn't be good for the writers either.

Two recent stories illustrate the sort of threats Hollywood is facing. First, the New York Times profiles some of the many online video startups that have sprung up in the last couple of years. These sites develop a variety of different types of content and are built on a variety of different business models. Some are producing "webisodes": scripted, episodic video programs. Others are creating low-budget comedy clips to spread virally. For example, this silly clip of Will Farrell arguing with a 2-year-old has apparently racked up nearly 50 million views. At the opposite extreme, TechCrunch reports on Blowtorch, which has raised $50 million in venture capital to launch a new low-budget movie studio. The company plans to produce movies for about $5 million each, and has lined up 600 theaters near college campuses to show their movies. They're planning to solicit short films on their websites, and show the best short films on the big screen before their movies. It is, as TechCrunch puts it, "a movie company that is thinking like a cable channel": providing users with content whenever and whereever they want it, instead of trying to force users to watch content on the studio's schedule.

Now, it should be emphasized that it's far from certain that any given company will succeed. A lot of the content on these sites isn't that great. But with so many companies trying so many different approaches, it seems likely that some of them will create some hits. And if the flow of new content from Hollywood dries up, that's obviously going to create a huge opening for these sites. And once one of these companies creates a loyal following, Hollywood is going to find it awfully difficult to lure them back.