Net upsets everything, expert sez

Hollywood studios cannot afford to wait before exploiting the potential of the Internet for delivering movies and other products to theaters and homes, a panel of economists and analysts concluded Friday in a conference on the California economy.

“The Internet upsets just about everything, even the major players,” said Harold Vogel, president of Vogel Capital Management and for 17 years an entertainment industry analyst at Merrill Lynch. “Warner Bros., Paramount and Fox are not going to suffer in the near term, but you have to question whether their systems can remain in place.”

In a panel titled “Entertainment & Technology: Convergence and Change,” held as part of an all-day conference at the Milken Institute in Santa Monica, Vogel said the distribution systems of the majors “have been around a long time, since about 1915,” which he called “an inefficient way of doing things.”

Near-term threat

One of the impending threats to the studios, he went on, is the possibility that, with the advent of broadband capabilities, “you can distribute movies on the Internet in two or three years,” which could lead to an even greater proliferation of films produced and marketed cheaply by small companies.

Internet companies themselves, he predicted, will undergo enormous consolidation, with many acquisitions and perhaps fewer successful IPOs.

“There’s going to be blood on the streets,” said Vogel, a chartered financial analyst. “It’s a revolution we haven’t seen in our business lives.”

But Andrew Setos, an exec vice president of News Corp., dismissed the notion that conglomerates with interests in Hollywood have anything to fear from Internet start-ups. He reminded the audience that, in the 1930s, radio and, later, television, were as innovative as the World Wide Web is now.

“Every new technology that gets introduced has allowed creatives to produce new forms,” said Setos, who was instrumental in founding MTV and Nickelodeon in the early 1980s. “We should not think of ourselves as being in some revolutionary new time. We’re just going faster than we used to. It’s not something that an established company should be threatened by.”

Whatever happens, California — which houses the lion’s share of both the entertainment and high-tech industries — should zealously guard its hegemony, the panelists agreed.

“There are going to be a lot of other places that are going to want a piece of this business,” said moderator Joel Kotkin, a fellow at both the Pepperdine U. Institute for Public Policy and the La Jolla Institute. “It’s a mobile industry. The more digital it becomes the easier it will be to move.”

Referring to the problem of production flight from Hollywood, Kotkin said in jest, “the Canadian peso is a powerful weapon.” There are many producers, he said, “who will sacrifice convenience — even sacrifice quality — to get a better deal on price.”

Hollywood is not just up against Canada. Sanford Climan, managing director of Entertainment Media Ventures, a venture-capital fund, and a former exec at Universal Studios, said the entertainment industry is “competing with anything that is seeking the attention, the money and the free time of the consumer.”

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