The Creators
Chapter 2 of my ongoing book review of "The Big Picture: The New Logic of Money and Power in Hollywood", by Edward Jay Epstein
SUMMARY: A behind-the-scenes odyssey into the world of the Hollywood motion picture industry examines the complex ways in which the major entertainment empires—Viacom, Time Warner, NBC/Universal, Fox, Sony, and Disney—make their money, profiling the individuals who created these vast conglomerates and the various ways in which Hollywood has evolved to survive financially (Taken from Amazon.co.uk)
The studio system eventually perished and it was replaced by the global media conglomerate model. The box-office stopped being the main source of income for the movie studios and licensing deals became the norm. Movie stars, who were previously locked on seven-year contracts, were now able to negotiate deals and go to the highest bidder. But who was responsible for it? Well, Epstein names seven men who contributed significantly to the task. At the top was Walt Disney, "the principal architect of the new studio system" (p. 29). Lew Wasserman (The Insider), Steve Ross (The Magician), Akio Morita (The Engineer), Rupert Murdoch (The Revolutionary), Sumner Redstone (The Lawyer) and David Sarnoff (The Delivery Boy) complete the list.
Disney was able to establish himself as a pioneer due to one fundamental reality: He was an outsider and "[…] chose not to become part of the studio system or even join the Motion Picture Association" (p. 31). Ironically, by bypassing Hollywood, he created greater wealth and eventually replaced the system. He identified children as a lucrative source of income and he licensed his characters to other companies. For instance, "[a]s early as 1932, he licensed Mickey Mouse to watch manufacturers—and then to book publishers, clothing companies, and toy manufacturers" (p. 32). And television became his ally, not his enemy.
Lew Wasserman’s role (The Insider) was securing talent. He became president of Music Corporation of America (MCA), one of the biggest talent agencies in the industry. By taking advantage of the resolution of the antitrust suit levered against the studios, he aggressively targeted the movie business and exploited the percentage deal (instead of a flat fee) and packages (selling talent in groups instead of individually). Through several business deals, he also managed to turn the company into a full-fledged studio.
Enter Steve Ross (The Magician). Among other things, he also saw the benefit of owning a studio to license its film library, but his contribution made a great impact in the area of interactive cable service. He envisioned a world where "there would be no videotapes, no video stores, no returns, no inventory, and, most important, no intermediaries" (p. 46). Spookily similar to what TV networks like Netflix do today. Home Entertainment became a cash cow for the 'New Hollywood'. That’s where Akio Morita (The Engineer), excelled. His company, Sony Electronics, made possible the Walkman, the CD, and the home video recorder (the Betamax), "engineering the digital platform for the DVD, digital television, and the game console" (p. 57).
Rupert Murdoch (The Revolutionary) came to the movie business later in life. He started in the newspaper business but quickly expanded it, jumping to television broadcast via satellite and owning a movie studio to fill his TV stations with programming. In the process of creating his media empire, he basically broke the structures of power. Although the chapter only sketches the notion of it, one of the big challenges was to convince people to pay for watching TV when they were accustomed to do it for free. In the grand scheme of things for 'New Hollywood', Murdoch’s greatest achievement seems to be on the distribution side. He created the means to deliver content to consumers on a global scale.
Sumner Redstone (The Lawyer), who was part of a small family business of drive-in theatres, won a major battle against the big studios for the right to project first-run titles. He broke the implicit 'exclusivity deal' that big theatre chains enjoyed based on scale. Independent theatre owners rewarded him by making him the president of the National Association of Theatre Owners. Another company, Time, which was then in the process of merging with Warner Communications, basically owned a monopoly on the pay-television business. Using his legal expertise, he broke it as well. Two of his major contributions were the development of the revenue sharing model between studios and rental stores and the paradigm of "selling audiences to advertisers". Epstein comes to the conclusion that, "[f]or Redstone, viewers were the means, and advertisers were the end" (p. 74).
Lastly, David Sarnoff (The Delivery Boy) was a pioneer in linking movies and home entertainment. He suggested that music could be sent wireless to households, followed by news and other programming. By 1927, he foresaw that talkies would eventually replace silent movies and that Hollywood studios would have to buy sound equipment. He licensed a process called Pallophotone, which recorded sound on movie film. To take advantage of his company’s assets, he was involved in creating the last major movie studio in 1928, Radio-Keith-Orpheum Pictures, or RKO.
As it turns out, Sarnoff was more interested in technology rather than movies, so he sold the controlling interest of RKO and turned his eyes to television. When all the infrastructure was finally in place, RCA introduced the "first commercial TV set, which had a twelve-inch screen and cost $650 (then about half the price of an automobile)" (p. 78). In short, movies will provide content for audiences’ entertainment and TV stations will 'sell' those audiences to advertisers and make a profit. "[I]t was the nationwide delivery system of broadcast television that Sarnoff pioneered that enabled those who followed him to build the enormous entertainment empires of today" (p. 79).