Disruptive Startups Create Parenting Issues for Hollywood Studios

Awards season is upon us, and the studios’ pulse rate always quickens amid the maze of parties, celebrity screenings and Q&A sessions. But while Hollywood is partying, are the studios’ corporate parents sharing the buzz?

To the CEOs and their banker friends, owning a studio is a mixed blessing. Time Warner’s movie division has been a headache this year, Paramount’s very quiet filmmaking arm has not eased the negative PR pressure on ailing Viacom, and Sony is still recovering from its email melodrama.

While today’s corporate hierarchs show relative disinterest in the Oscar rituals, a generation ago, CEOs like Steve Ross and Charles Bluhdorn personally hosted Oscar events and helped shape campaigns. Studio employees of that era, if they were guild or Academy members, were instructed how to cast their votes. At that time, of course, the studios were key profit engines of the corporation. For some of today’s congloms, movies are a fringe business. At Viacom, Paramount’s $205 million operating profit seems puny against its parent’s $2.4 billion net income.

One Wall Street source put this question to me at lunch the other day: Do the multinationals regret having bought into the movie business? In the Economist this week, the lead editorial framed the interrogative in an even broader context: In an era when disruptive companies like Uber and Airbnb are stealing the show, is the traditional concept of the “company” something of an anachronism?

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“The insurgent companies are pioneering a new sort of company that can do a better job of turning dreams into businesses,” the Economist, a conservative magazine, declares. In doing so, they are establishing a new link between ownership and responsibility.

The problem with the giant corporations is that is they are dominated by “largely anonymous owners, most of them represented by fund managers whose main interest is to buy and sell shares.” The corporate model supposedly was enhanced in the 1990s when managers were incentivized to think like owners, says the Economist. The scheme backfired, however, when managers distorted the new rules to massively boost their personal incomes.

The upshot: The key rule of corporate survival today is to manipulate the numbers rather than to grow the markets The trend to misstate and manipulate corporate earnings, for example, has reached “a contagion” level, according to one report cited by the New York Times last week. Over a 12 year period, the study showed, when one company misstated its numbers, all of its rivals in that field promptly followed suit.

In questioning the role of the corporation, the Economist is not endorsing a murky, Bernie Sanders-like version of socialism. Rather, it asks whether better ways are evolving to manage people and ideas — a question relevant to Hollywood, whose future depends on embracing new technologies and unleashing new energies. Arguably these objectives face obstacles in the traditional corporate structure.

“The new high-potential startups go by exotic names such as unicorns and gazelles and create new companies fueled by coffee and dreams,” says the Economist. “They are pioneering a new organizational form.”

At this time of year, when awards are being dispensed, Hollywood might look fondly on unicorns and gazelles if they could help propel some better movies.

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