Can Movies Be Financed Like Tech Startups?

from the venture-capital dept

I wrote last week about the perversity of having a one-size-fits-all contract in an industry that's becoming more diverse and dynamic by the month. Netscape co-founder (and now Ning co-founder) Marc Andreessen made some similar comments last week, but today he's gone further and pointed out an interesting alternative model for organizing the movie industry. He points out that a fundamental weakness of Hollywood's traditional model is that everybody works for a small number of big, bureaucratic studios that hire all the necessary talent and oversee production, distribution and marketing. He points out that this leads to talent getting paid (and behaving) like hired guns. Because they don't share much in the profits, they have little reason to go above and beyond to make the production a success. And if they feel they're getting a raw deal, they don't have a lot of options since there aren't very many studios to choose from. So they go on strike seeking a bigger share of a shrinking pie, instead of looking for ways to make the whole pie bigger.

The technology industry is different. If a talented employee at Microsoft or Yahoo doesn't feel he's getting compensated fairly, he doesn't go on strike. Instead, he proves his point by starting his own company. Employees at small Silicon Valley firms are often given significant equity in lieu of other compensation. The ones who get in early at a really successful startup get filthy rich. As a result, they're part owners of the companies they're working for and they act like it. There's much less friction between management and labor in Silicon Valley because almost anyone who wants to can become part of management by starting a new company or joining a company already in the early startup phase. "Labor" and "management" aren't two separate categories, they're often the same people at different stages in their careers. Andreessen persuasively argues that a similar model can work for Hollywood. Two of the traditional functions of the studios, distribution and marketing, are rapidly being displaced by Internet-based distribution and viral marketing. The equipment required for producing high-quality video is falling quickly in price. The main thing that's still expensive is labor, and that can be had the same way it's obtained in Silicon Valley: by raising venture capital and paying talent partly with equity. A lot of talent will likely be willing to accept a smaller paycheck in exchange for a significant share of the profits from a successful film. And a lot of investors will jump at the chance to be business partners with talented (and maybe famous) actors, writers, and directors. It certainly sounds like a more productive model than the protracted strike we're facing now.

Filed Under: hollywood, movies, ownership, silicon valley

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  1. identicon
    Anonymous Coward, 13 Nov 2007 @ 2:52pm

    Actually, movies...

    ... are financed like startups. There is a whole investment banking industry that acts like VCs and a movie's 'executives' (producer, director, stars) are compensated like startup executives, as a percentage of revenue. The people in the guilds are more like the network tech contractors, movers and electrical contractors who don't get any equity.

    You didn't honestly think that movie studios actually put up all the money for a movie, did you?

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