Thursday, December 13, 2007

The Writers' Strike: Inertial Guidance in Action?

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As I write this, the Writers Guild of America strike against the Association of Motion Picture and Television Producers has been going on for more than five weeks. Production on most scripted television shows has stopped; all but a few of the late night talk shows have been in reruns since the strike began. Motion picture production is still continuing, although a number of films have been postponed.

I've read the WGA's proposals and the producers' counterproposals, and frankly, I don't see anything in what the WGA is asking for that will dramatically impact either the producers' profitability or their ability to do business, on the Internet or anyplace else. Of course, with negotiations coming up with both the Directors Guild and the Screen Actors Guild, the producers don't want to set precedents that will cost them far more money if they make similar concessions to those unions.

Even if the producers manage to beat back the WGA, there's no guarantee that SAG, which has far more power, won't ask for the same things, and put the producers right back to where they are today. Iin fact, the situation will be even worse, with all production suspended. So, why aren't the producers trying to get a compromise with the writers now?

In my opinion, the reason is that this is the way that the producers have always dealt with the writers, and they're not going to change, even though it's clearly in their best interest to do so. This is inertia. We've seen the effects of inertia on American business many times before:

  • The consumer electronics business was once dominated by U.S. companies. After World War II, Japan had a reputation for making shoddy products, and U.S. manufacturers discounted their ability to ever compete effectively. Of course, we know what happened--the Japanese flooded the world market with superior products at low prices. Rather than aggressively lower their own cost structures and improve quality to compete with the Japanese, U.S. manufacturers sued, charging that the Japanese were dumping color televisions in the U.S. at below their cost. Some Japanese manufacturers were penalized, but ultimately, all the U.S. consumer electronics companies were either acquired (for example, RCA by Thomson of France, Motorola Quasar by Matsushita of Japan and Zenith by LG Electronics of South Korea) or went out of business.

  • The U.S. was also once the world leader in steel production, but by the mid-1970s, management had completely lost control of costs. In some cases, steel was being manufactured in plants with furnaces that were over 100 years old. The Japanese entered the U.S. market with better products at a lower cost, and as with consumer electronics, rather than build new plants and renegotiate labor contracts to get costs down, U.S. steelmakers sued to keep the Japanese out. That strategy worked for only a short time, and in the early 1980s, the U.S. steel industry collapsed. A handful of companies survived and built plants that could compete, but the Rust Belt was decimated. Whole towns looked like a neutron bomb had exploded--the buildings were still there, but the people were gone.

  • The recording industry is "circling the drain." Rather than respond positively to the advent of MP3s and file sharing, they chose to sue their own customers, charging them with piracy. They're still making only half-hearted attempts to come to terms with this new environment.

The motion picture and television companies have generally done a much better job than the recording industry in adapting to the Internet, but their arguments about not yet understanding the value of Internet content are just silly. Viacom is suing Google for one billion dollars for unauthorized use of their content, and NBC Universal removed its content from iTunes because it wasn't making as much money as it thought it should, but both companies are pleading ignorance about the value of Internet content.

Marc Andreessen thinks that a long writers strike could result in a Silicon Valley-style economy in the entertainment industry. I don't think that the strike by itself will precipitate that outcome, and the film industry is incredibly resilient--the major studios "melted down" in the 1950s with the one-two punch of the advent of television and the loss of their theater chains, but they still survived. Nevertheless, the major media companies are going down the same path as consumer electronics, steel and music. By the time they stop suing people and "taking their ball away," and start making the radical changes to their businesses that will be needed for survival in the 21st Century, it will probably be too late. We're nearing the point at which the "wire" used to get content, whether it happens to be cable, twisted pair, fiber or wireless, will be completely unimportant. Physical media (CDs, DVDs and the blue laser bombs,) for all intents and purposes, will go away. Content will be consumed any time, anywhere. User-generated content will become a permanent, and major (if not dominant) part of the media landscape. Self-distribution will be the norm rather than the exception.

The major media companies are at a crossroads, one that will be exacerbated by probable back-to-back strikes by writers and actors. I honestly think that there are some senior managers in these companies who don't have their heads in the sand, and who, if given the chance, could help their employers make the next evolutionary step. Whether they're given that opportunity is an open question.

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