Dealmakers: Disney’s Alan Horn, Microsoft’s Nancy Tellem Discuss Future of Entertainment

The habits of Millennials is driving how Hollywood produces and distributes entertainment

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Walt Disney Studios chairman Alan Horn and Microsoft’s Nancy Tellem may work in different parts of the entertainment business, but the veteran Hollywood executives agree on one key thing: The industry needs to embrace technology or risk losing the Millennial audience.

Horn called the decline of homevideo “painful” during Variety’s Dealmakers Breakfast on Friday at the Four Seasons Hotel in Beverly Hills. He added that Disney, along with most studios, need to “embrace technology” and foreign territories to make up for lost revenue.

Tellem, who started developing a slate of original series to launch on Microsoft’s Xbox video game consoles in 2012, said the technology industry is starting to understand the value Hollywood offers in selling its electronics devices.

“We’re in this amazing time where these two worlds (of Hollywood and technology) are coming together,” Tellem said. “It’s only now that we’re getting comfortable with each other. Everyone recognizes how important content is in device adoption. There’s always talk about what apps are available on your phone or what apps you can get. It can be an incentive to buy something or not to buy something.”

She said that Hollywood must now also realize the opportunities that mobile devices provide content producers.

“I started when we had three networks and dictated what the audience would watch and when they would watch it,” Tellem said. “Millennials are now dictating what we’re doing. I prefer a more passive experience, but this new millennial generation are multitasking and leaning in. They want the option to watch when they want to watch.”

But that’s also meant balancing the type of films that get made.

“The international market wants (to see films that have) size, scope and scale,” Horn said. That often means making big-budget movies. “It drives us to support the tentpole philosophy,” with Disney especially relying on its in-house stable of powerhouse brands like Marvel, Pixar and now Lucasfilm to deliver franchise films.

Horn said that while it’s challenging to do business in many international territories, China can’t be ignored because “one of every five people on the planet is Chinese. We have to be there. These international territories translate into revenue streams for us that makes being in the movie business worth it.”

With budgets escalating to $200 million or more, “you have to put a period behind every word: It’s. 200. Million. Dollars,” Horn joked. “Relating to this stuff is hard, so I often say it’s 600,000 dinners at your favorite restaurant for four with your favorite bottle of wine.”

While Hollywood and Disney have toyed with the idea of narrowing the current distribution windows, Horn said Disney is “committed to the windowing we now have,” but said it’s up to the exhibition biz to improve the experience of watching movies in theaters. “It’s incumbent on exhibition to make the experience as exciting as the movies.”

Tellem was attracted to joining Microsoft after monitoring how content was changing websites and how young people interact with it while at CBS and the CW. “I was always looking for the next thing,” she says. “Technology and the transition that was taking place was incredibly interesting to me. It’s very exciting for me to be in this position right now and see how the business model evolves and how content evolves.”

With 48 million Xbox Live subscribers on more than 72 million Xbox consoles around the world, Tellem has a large base of viewers to put her first shows in front of. Tellem is developing shows for Xbox as owners of the company’s consoles spend more time-consuming video content than playing video games.

The hard part for her has been to explain to Hollywood just where Xbox fits into the new world of digital platforms.

“We aren’t Netflix, we aren’t Amazon, we’re a different animal,” she said. “We’re neither or we’re a little like them. It all depends. The lack of black and white and this is the template and this is what we’re following is very difficult. As we continue to do deals everyone’s going to get more comfortable.”