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Why Every Business Will Be Like Show Business

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.

Even newcomers to the entertainment battlefield -- such as the Japanese -- still most often choose to locate in Southern California for their expansion into the industry. Giant companies from the very European countries whose politicians and artists seek protection from Hollywood also invest hundreds of millions in the California industry.

That's true not only for conglomerates such as Matsushita and Sony but also for entrepreneurial ventures. Steve Michaels, chief executive of 525 Post-Production, based in California, a fast-growing entertainment unit of the London-based Virgin Group, says there's no real alternative for anyone who wants to make movies, videos, or commercials in the big time. Indeed, 525, which recently opened an office in Mexico City and has a sister unit in London, views its foreign relatives in Hollywood not as competitors but as sources of business development that educate other markets about Hollywood's resources and then serve as a conduit for work to go back into the region.

"A lot of markets have tried to pull work away from Los Angeles and have creative people and tremendous assets to offer in terms of location," notes Michaels, whose company has grown in seven years from 6 employees to more than 100. "But there's such a tremendous base of entertainment in Los Angeles that people have whatever resource they need at their fingertips. You can have a flying pony for a half day if that's what you need."