The Other Labor Crisis

The most frightening thing facing Hollywood today is not the WGA strike.

The most frightening thing facing Hollywood today is a highly untrained work force.

Unless and until Hollywood workers at all levels are prepared for the digital transformation of entertainment, we will suffer missed opportunities, inefficiencies, diminished revenues, obsolete employment categories and, ultimately, thousands of lost jobs.

We all feel the thumping footsteps of the digital revolution each day. You can't avoid it once you accept it.

  • Music. This is the horror story, the nightmare. Global music sales have by some reports dropped by 49% since 1997. The music business as we knew it has evaporated. Sales of CDs in the U.S. have slipped from $13.2 billion in 2000 to $9.2 billion in 2006 (that's down 30%). As of June 2007, overall CD sales have plummeted 16% for the year so far--and that's after seven years of near-constant erosion.

  • Movies. Whether you think the motion picture business has thrived or survived for the past 10 years, it is axiomatic that the DVD is to thank for any success. It has been a profit center for every movie company, providing predictable strong margins in a notoriously unpredictable world. Now we know that technology will eventually make the DVD obsolete. While it may take a while for streaming and download-to-own markets to become efficient, consumers will be able to get any movie any time on any device -- there will be no need to buy or rent a DVD any more. While the media companies will figure out ways to monetize downloads, the profit margins just are not the same as with the DVD.
  • Television. Our One Screen (TV) World is becoming a Three Screen (TV, Internet, and Mobile) World. The $65-$70 billion per year US TV Ad market is under attack from digital advertising migrating to the internet and mobile. Studies show that people are spending 25% of their time on the internet and yet only 9% of the ad-spend has moved to broadband. And mobile has not really started penetrating the ad market yet. You don't need to be a futurist or have a crystal ball to predict where the dollars are heading. This obviously creates enormous pressure on traditional television platforms, both broadcast and cable. As in music, no one really seems to know what to do.
  • To make matters worse, there is an elephant in the room: Google. It has already figured out digital distribution in a more economic and pervasive way than any traditional media company (so has Apple, by the way). Via YouTube and its other divisions, it is developing and refining ways to make money on entertainment and Wall Street, at least, buys what they are doing. Google is currently valued at over $200 billion dollars -- compare that to the Walt Disney Company at $65 billion. Now Google is working out the last piece of the entertainment puzzle: content. Once it does, it could be game over.

    The "Case Study" of the Advertising Business

    I recently attended the Google Zeitgeist Conference and while I was there took in a panel discussion which centered on a presentation by Robert Greenberg, founder and president of the advertising agency RGA. Bob's presentation was entitled "Talent Crisis" and in it he explained that while digital advertising is growing in every possible way, the ad industry's ability to employ skilled workers to handle the tasks involved in creating digital campaigns is reaching crisis proportions. To meet the booming demand, a functioning agency needs internet designers, technologists, data analysts and mobile specialists of all kinds to staff the work. But there simply are not enough of these folks to go around in today's marketplace. Compounding the problem, the schools are apparently still training students to enter a traditional ad world -- one in which an elite group of executives and companies make commercials for the traditional outbound, interruptive mass media campaigns. People responsible for hiring will privately tell you -- and this is not limited to advertising -- that once an executive is set in his ways in the traditional world, he or she isn't of any use at all to the digital side.

    The Training Crisis

    In truth, our own version of the talent crisis in the advertising business is the thing we have to worry about the most. My assessment of the entertainment business is this: The heart of Hollywood is not ready for the digital transformation which is shaking the ground under our feet. As remarkable as this may seem given what has happened in the music business and the explosion of Google and YouTube and itunes, it is true. This is a giant disconnect. It is a grand self-deception.

    The companies which make up Hollywood -- the studios, the networks, the production companies, the talent agencies, the management companies, the law firms, the finance groups, the marketing firms, the PR firms, the facilities providers -- are all well aware of the digital transformation and most are trying to do something to address the situation. The problem is that there is a tremendous lack of meaningful action in the heart of these companies. Each company, by and large, has a "Digital Group" or "Digital Division" or, in some cases a few "Digital Guys." These groups are usually made up of people not from the center of the business. Their training and background is different than Hollywood executives and, to be blunt, they are powerless within the arrangement structure of our studios, networks and talent agencies. The core people in our business -- the people who facilitate the development of material into motion pictures and films, the people who cast the actors and hire the directors and set the budgets -- are not paying attention in the right way to the changes that will soon recalibrate everything we do. The heart of Hollywood is not paying attention to this thing and it will soon reach a crisis.

    It is true that people who make content have for a very long time believed that others will find a way to distribute their material so long as it is "quality." I've been told many times: "there will always be a market for good stories." The Business has been able to absorb every type of emerging technology, more or less, since the studios came into prominence in the early part of the last century. After denying television for many years, the Business absorbed it and the movies survived. When video came along, executives ignored it until it could not be ignored anymore and the Business absorbed it. Some believe that Hollywood will always be able to deal with new technologies in the same fashion and the "stuff" that is going on now will fall into the same pattern.

    But this strikes me as worrisome historical arrogance which threatens the very existence of Hollywood. If you have ever hit "send" you ought to be able to realize that we can no longer make these assumptions -- especially at the leadership level of these companies. In the film and television and allied businesses, we will wake up one day soon and find ourselves untrained for the very jobs we do right now. We are not that different from the advertising or music businesses and we need to not kid ourselves that we are. The ability to create, market and distribute entertainment through various digital media will be what our jobs require. Right now, most of us are not able to do that. If you doubt that this spells trouble, go look for a record company executive. If you can find one, I bet you they will confirm this fear.

    What to do

    Here's where to begin: We all have to be digital.

    Hollywood companies need to embark immediately on a re-training effort. The executives who occupy the core of Hollywood need to be instructed on the primacy of digital issues. They need to learn the platforms; they need to learn the capability of the emerging technologies to transform their product. Again, this does not mean that companies need to start or bolster their "digital groups." That is not the point. The point is that the main people -- starting at the top -- need to understand that a sophisticated understanding of the changes being brought about by technology are fundamental to their jobs going forward. There can no longer be a distinction within companies of employees who work in the "digital group." Everyone needs to be digital. At our law firm, we are requiring that everyone views digital as a part of their practice, not as some sidebar or developing trend. There are no "new technology" or "new media" departments or practice areas into which things must be directed. Digital is ubiquitous and everyone has to incorporate it into their life and practice and learning.

    Each company in Hollywood needs to do the same thing in its own way. If we don't there is sure to be a labor crisis which makes the current one look quaint.

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