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Why Every Business Will Be Like Show Business

There are "knowledge value" industry concentrations other than Hollywood -- the New York financial markets, Silicon Valley's high-technology sector, and Japan's automotive industry among them -- but none as successful or as illustrative of the shift from one kind of industry structure to another. In just the past 16 years the number of entertainment-related companies in Southern California more than tripled, and nearly 95,000 of the industry's workers are freelancers or are employed by companies with fewer than 10 people. Those small entities offer a huge range of products and services, from unique theatrical lighting and set design to animation and software for digital images, not to mention numerous customized business services.

In contrast, there are only 19 entertainment companies in all of California that employ as many as 1,000 people, and they're mostly the remnants of the old studios and large production companies. In today's Hollywood those studios provide back-office support for the region's elite production teams, helping to coordinate advertising, financing, and, most important, distribution.

"Hollywood is not the big studios anymore," observes Michael Storper, a UCLA professor and expert on the industry's structure. "It's a collection of small and medium-sized firms -- independent producers who come together and actually make films project by project. Very little filming is actually done by the big studios themselves."

For Hollywood producers like Merrifield, and for the industry as a whole, learning to bring together the best possible film and television specialists on a project-by-project basis yields several concrete business benefits.

It means that each job can be staffed with the talent most suited to its demands, rather than with the talent that, at a conventional company, is already on staff and must be adapted to a variety of jobs even if the fit is poor. It means bureaucracy and overhead are minimal, since there is no lasting organization to maintain. And it means that long-term risks and their costs (layoffs, for instance, or other personnel-related problems) are reduced, since there is no long term -- just a team assembled for a finite period and then disbanded.

Taken together, such consequences of the network system are likely to yield higher quality and lower costs. In Hollywood that approach is made possible by the huge concentration of specialists, ensuring that virtually every need can be met by some individual or independent company in the region.

Of course, there are some daunting consequences of this here-today-gone-tomorrow production strategy. For example, like many of the vendors he hires, Merrifield himself is an individual entrepreneur. He works not for Warner Bros. or even directly for the cofinanciers of his current project, New Regency Productions, but for a temporary entity called Free Willy Two Inc., which actually is responsible for making the film. When Free Willy II is finished, Merrifield, like virtually everyone else involved, will be out looking for a new film, television show, or commercial production to work on.

"This is a totally temporary corporation," Merrifield explains as workers touch up the artificial ocean bottom behind him. "After this, everyone goes back to finding another job."

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The Way We Were
How the marketplace made Hollywood do it
In the past year's hype about the so-called information superhighway, most media coverage has concentrated on the marquee names, studio chiefs, and heads of large cable operators and technology and phone companies as if they were the dominant forces shaping the entertainment industry.

And 40 or more years ago, they would have been. Back then seven major studios dominated movie production and controlled distribution in many markets. Films were produced largely in-house by permanent staffs of artists, writers, editors, lighting technicians, and props makers, all ruled by domineering and often-flamboyant studio chieftains.

Up to the 1950s, in fact, there were few better examples of vertically integrated, mass-production industries in the world than filmed entertainment. Far from attracting customers on the basis of product uniqueness, the studios -- like their counterparts in autos or steel -- sold their products by the foot, churning out formulaic cinematic entertainment through the movie houses they exclusively controlled.

All that changed as Hollywood experienced a series of dramatic market changes. The first blow was a major antitrust case in 1948, which forced the studios to loosen their iron grip on the nation's movie houses. Exhibitors were free to demand better and more interesting films from their suppliers -- and they did.

By the 1950s, new competitors emerged to meet that demand. Europeans, in particular, began to offer quality films for worldwide audiences. Some, like François Truffaut and Federico Fellini, would become known as great masters of the medium, but many others simply made standard Hollywood-like films -- such as the "spaghetti westerns" of the 1960s -- using low-budget European locations and crews. Suddenly, the once-semimonopolistic, sedentary film market erupted into a hotbed of competition, driving down the margins for cookie-cutter filmed products.