By late last year there were clear signs that the old studio system was not just changed but possibly doomed altogether. The announcement of a new alliance by three of the industry's creative giants -- record promoter and former agent David Geffen, director Steven Spielberg, and former Disney executive Jeffrey Katzenberg -- shook the multibillion-dollar corporate owners of the major studios to their foundations. In the starkest terms, the move by the three showed to what extent the studios could become empty vessels, whose direction and value were determined by the people who understood the new Hollywood network economy.
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Being There
Why where your company locates matters after all
It's not an accident that the new studio of the "dream team" -- as the three powers are collectively known -- will be located in Los Angeles. At a time when conventional wisdom suggests that companies would do better to locate far from urban areas (or anywhere they wish, for that matter), the predominance of the Hollywood entertainment complex highlights the importance of location for companies in any highly networked, high "knowledge value" industry.
Hollywood's entertainment-business concentration has produced remarkable economic results even during the 1990s recession. In defense-cut-devastated Los Angeles County, home to 92% of the nearly 370,000 people directly or indirectly employed in the California entertainment industry, the number of production companies grew at a 10% to 12% clip from 1991 to 1993. The industry improved sales by 7% in 1993, despite the continued economic weakness in such key overseas markets as Europe and Japan. Entertainment also is one of the few American industries in which U.S. competitiveness is virtually unchallenged, with total net exports of more than $3.5 billion.
The extraordinary density of the crafts companies within Hollywood, note UCLA professor Storper and other experts, goes far toward explaining why U.S. entertainment products enjoy such extraordinary global success. Over the past two decades, in fact, Hollywood has all but crushed its chief European and Japanese rivals -- to a degree unimaginable in other key industries -- dominating major markets from Britain and Japan to Hungary, Brazil, and Turkey. When it comes to exports, show business is second only to aerospace: foreign sales now account for more than one-third of all revenues for U.S.-based entertainment companies and could make up fully half the industry's sales by the year 2000.
Given Hollywood's huge success in world markets, it's not surprising that many regions and countries have sought to blunt or break up what is widely perceived as its entertainment hegemony. The most quixotic efforts have been made by French bureaucrats who seem to compare Hollywood's dominance -- American films accounted for 8 of the top 10 films and 40% of French box-office receipts in 1993 -- to the German occupation of the country during the Second World War. So bitter are the French that one top producer, Daniel Toscan du Plantier, joked that the January 1994 L.A. earthquake was a sign that God was taking France's side in the dispute.
Yet it's unlikely that even another 6.8 temblor would save other markets from Hollywood's reach. France's real problem is not so much American "cultural imperialism" as its inability to compete with Hollywood's combination of technical and artistic specialization and well-oiled collaboration.
Hollywood's success has significance far beyond entertainment. The same traits that enable entertainment companies to survive in one of the world's most demanding urban environments -- flexibility, specialization, continuous learning, and intercompany cooperation -- also characterize the growth sectors in other urban economies.
Computer companies in Silicon Valley during the 1980s faced a challenge similar to the one that Hollywood fought off during the 1960s. In their case, it was Japanese corporations, ones with deeper financial resources, that took over the manufacture of garden-variety microchips. Recognizing that facing off directly against the Japanese, and later Korean, manufacturers would prove suicidal, the valley's diverse companies learned to work together to produce highly specialized systems and components. And their efforts have led to a remarkable American resurgence in an industry in which many experts considered the Japanese juggernaut all but unstoppable.
Similar patterns can be found in a host of other industries. During the past decade, for example, U.S. automakers found that their focus on building in-house mass-production capabilities had eroded both their quality and their responsiveness to customers. Today they now buy up to 80% of the value of their cars from specialized, independent vendors -- an almost complete reversal from their historic procurement practices. Steel, textiles, and even agriculture and business services also increasingly exhibit the specialization and project-by-project collaboration essential for modern, successful high-wage industries.
The advantages of specialized-skill concentrations explain how Southern California has withstood the constant attempts by regions such as Arizona, Texas, Toronto, Florida, and North Carolina to lure away key parts of the industry. Those regions' packages of tax breaks, subsidies, and nonunion labor made some inroads on the percentage (though not the total amount) of on-location filming in California in the early 1980s but failed to halt the increased concentration of major preproduction and postproduction work in the state. Separated from the center of information and creative exchanges, companies outside Hollywood generally have more trouble remaining on the cutting edge of business practices and technical virtuosity that's critical to success.
Although any real estate mogul or government bureaucrat with money can build a soundstage and pay people to act on it, it still requires thousands of craftspeople and the coming together of unique companies and individuals to make an industry. In fact, Hollywood's network concentration has become so powerful that since 1985 the proportion of films shot partially or entirely in California has actually risen, from roughly half to around two-thirds. Nearly 75% of the state's film shoots take place in Los Angeles. California now accounts for roughly 60% of all the country's film-related jobs and has more than four times as many industry workers as its biggest rival, New York, and nearly 30 times as many as its much-ballyhooed competitor Florida.
