The Golden Age

Under the so-called studio system rampant during the Golden Age of Hollywood, movie stars like Bette Davis, James Cagney and Olivia de Haviland battled in courts across America against the system of exclusive contracts that gave them neither choice in the type of films they starred in nor residuals; that allowed studios to punish behaviour they did not approve of either by forcing bad roles on stars or renting them out to other studios and keeping the money; and in some cases even denied them the right to marry for fear it would diminish their sex appeal. Injustices were rife: in 1932 James Cagney was making $500 a week while co-star Edward G Robinson was making 10 times as much.

What had begun as a speculative entrepreneurial exercise had become a horizontally integrated oligopoly with no tolerance for creative differences, with the studios acting like mini dictatorships in the face of known and limited competition, and enjoying so much autonomy that if a movie did not work they would remake it. While the system worked and worked well, there were some obvious downsides.

"In its vertical integration it was pure 19th century capitalism," McElroy says. "The advantage was control, and the disadvantage was that they were in complete control. They controlled all thinking, everybody was pointed in the one direction, and so when jeopardy faced them, they tended to ignore it and shrug it off because of group-think."

Like those who come together to work on IT project teams, most people working in Hollywood have always been what today are described as knowledge workers, from cameramen to editors to musicians: all are creative and capable of creating or being part of the creation of new copyright. The group-think fostered by the studio system did its level best to stifle such creativity. So when sound first arrived the moguls dismissed it as a likely dead-end. When television, then colour television arrived, they tried to ignore both. When labour became restive they attempted to harass the recalcitrants out of their jobs or out of the state; they blackmailed people and fought them in the courts.

"With this group-think, all of them came to believe that they were invulnerable, and of course as a result they were vulnerable. They couldn't meet the challenges of change," McElroy says. "So when, for example, some of the actors started to resist the concept of total control of their output and their life and went to court, the moguls were caught short. The moguls ultimately lost and control over their key assets, particularly their actors, was diminished or in fact severed."

The studios suffered a number of body blows to their total control in a relatively short period of time. They lost control of labour as the Teamsters union was discredited, lost control of talent as Personal Term contracts were outlawed, and lost control of exhibition in the face of antitrust action by the US government - all at a time when new competition was arising in the form of television and the era of the Hollywood agents, managements and lawyers was beginning.

The moguls and studios responded by gradually rebuilding the model: shedding staff, real estate and equipment, outsourcing all production, slashing overheads and shifting their profit centres from production into distribution and overseas, all the while diversifying into theme parks, broadcast and cable TV networks, video stores, books, retail, radio, newspapers and the like. So, from running effectively a perfect primary producer-to-retail model, where studios made the film, distributed the film and exhibited the film, controlling all the major steps along the way, they were forced to divest themselves of the ownership of the theatres: the exhibition. When a primary producer who is also a wholesaler is no longer a retailer, then the power equation shifts dramatically, McElroy says.

The theoretical Hollywood Model today is dramatically different. Capital investment risk is quarantined by outsourcing production and financing it on a project by project basis: putting together a team for a particular task, hiring equipment, offices and talent, then at the end disbanding the team and closing it down. The result is finite demands, theoretically finite costs and zero holding/carrying/future costs in an area that shares with IT the challenge of costing/budgeting for something that has never been built before.