Hollywood and Silicon Valley: A match made in data heaven?

Why two of California’s biggest exports have an increasingly ‘tight’ relationship.
12 September 2019

Apple Computer Campus under Construction in Cupertino, Silicon Valley. Source: Shutterstock

Hollywood and Silicon Valley always had a close relationship. It’s been particularly evident on the VFX side. After all, Pixar was a spin-out overseen by Steve Jobs. More recently, The Lion King reboot was essentially “filmed” in 360-degree virtual environments. And even on the financial side, film producers Megan Ellison and David Ellison have delivered hits by leveraging their family’s Oracle Corporation wealth.

But the industry connection goes beyond that. With the emerging interdependency of investments, creativity, technologies, and outcomes, you could say that Silicon Valley and Hollywood are getting married.

The high-tech delivery of entertainment content naturally led to more robust digital analytics. This, in turn, inspired data-driven ideation, strategizing, and marketing. New, shared tools are expanding, inspiring, fundamentally altering, and, yes, even compromising craftsmanship.

Even though these industry centers exist within the same state, the preponderant state of mind has always been somewhat different. Whereas tech startups often call for a fundamental rethink of failure, with mantras such as “fail harder” and “move fast and break things” spurring their iterative development, Hollywood studio execs routinely put projects into turnaround to avoid disappointing outcomes.

In some instances, they do this merely to reset the development slate of a predecessor and connect their own reputation to the outcome, a far cry from the selfless programmers who ask their colleagues to critique timeboxed code as a matter of process.

Drawing a parallel

Today, the major film studios are obsessed with tentpole movies to such an extent that they aim to create not franchises, but cinematic universes. It’s impossible not to see parallels when looking at the Bay Area venture capitalists and their preoccupation with the financing of potential unicorns.

To be clear, businesses in all industries aspire to maximize their profits, but it’s a question of how, of risk, and of increments. The neglect of non-unicorns and non-universes creates an opportunity for others to capitalize. Prominent lawyer David Boies co-founded Boies/Schiller Film Group with the specific “goal of financing and producing mid-level wide release films, filling a void created when Hollywood studios began focusing primarily on big budget tentpole films.”

Again, we can trace this status quo back to a technological catalyst. The internet made global distribution and marketing easier. Hollywood narrowed its focus to visual, more international storytelling.

But technology also made independent film production and distribution more accessible.

Over ten years ago, some authors and strategists suggested that the future of entertainment would depend more so on niche markets than megahits. This was known as the “long tail” strategy. It became apparent that technological advancements dramatically increased the variety of content and would continue to do so, with user contributions on YouTube serving as a prime example.

But some people disputed the hyperbolic claims made by “long tail” proponents. The creation of niche content outpaced rates of discoverability and tail exploration. Academics at Wharton Business School examined the levels of demand and concluded, “We find no evidence that niche titles satisfy consumer tastes better than hit titles and that a small number of heavy users are more likely to venture into niches than light users.”

With AI now playing an increasingly capable role in content creation, targeting, and discovery/recommendation mechanisms, levels of demand and corresponding business strategies may need to be reevaluated yet again.

Commercial interests

Many business people in different industries have ample reason to pay attention to what is happening in Hollywood. They advertise their products in TV commercials and YouTube pre-roll ads. Even product placement is an expanding market, topping US$10 billion for the first time in 2018. The expansion of OTT (Over-the-Top) options for consumers also represents expanded opportunities for brand integrations. Some academic analysis even suggests that product placement is more effective than traditional TV advertising.

OTT services are very popular with consumers. They’re also appealing to corporations, for a different reason:

Netflix has achieved a level of vertical integration that old Hollywood studios lost way back in 1948 through United States v. Paramount Pictures, Inc. Studios like Disney are now regaining control over distribution through digital.

Nick Nelson, the head of product innovation at OWNZONES Entertainment Technologies and former head of product creative at Netflix, told me that the media sometimes portrays Netflix’s massive spending and debt as a negative thing, but he views it as an intelligent data play. “One of the biggest things that they do so effectively is to collect data on a level that I’ve just never seen any company do,” he said. By funding a broad slate of original content with different, unique properties, the company can collect data on how those things perform.

“They’re amassing a competitive advantage with a ton of data around how different content plays in every country in the world,” said Nelson. He mentioned that additional OTT advantages could be gained by connecting data from the customer acquisition and marketing funnel with the consumption data behind the paywall of the product.

Of course, Netflix is not the only game in town. The bundling of diverse services introduces other layers of strategy. For example, Amazon Prime Video augments Bezos’s business operations because it captures and retains more Prime subscribers and increases the likelihood that they will partake in additional, completely different forms of e-commerce. This means that entertainment loss-leaders might be more permissible. But how long will all this last?

New opportunities for monetization

The conspicuous rise of multiple video streaming services, including Apple TV+, could frustrate consumers because their preferred shows may exist in different walled gardens. If they only have the budget to afford one subscription, they may resort to piracy for the other content. This problem was also identified over ten years ago but a solution was never quite found.

I still remember the beta testing phase of Hulu. A wide array of initial partners across production, distribution, and advertising aimed to do something together because they knew they had to do something. Their collaborative effort was supposed to deliver unprecedented reach and protect content from piracy by establishing a central point of aggregation.

However, entertainment industry developments, major acquisitions, and consumer behavior made that original goalpost less desirable and relevant.

“If the market fragments, if everyone creates their own SVOD app, if every single aggregation play that used to exist becomes its own fragmented catalogue, then yeah, I think piracy will go up,” said Nelson. “I think that people will find ways to get that content if the market doesn’t make it easy for them to access.”

However, there are also new opportunities for IP monetization as a result of a more tech-infused entertainment industry. Consider branded apps, for instance.

Amit Halperin, VP, Head of Brand Solutions at ironSource, told me, “Great ideas translate across platforms, and mobile games are a great canvas for showrunners and producers to extend their stories to audiences on mobile devices. Stranger Things is a great example — a search in the Apple App Store turns up an official app but also a number of developer-made ‘tribute’ games and apps based on the concept. The flip side is that we can see how some mobile properties have become so big that they moved onto other screens, like ‘Angry Birds’ and ‘Candy Crush.’ Hollywood should be working much more closely with developers to build audiences and effectively monetize intellectual property.”

Tackling conflicts

Despite all the disruption happening on the technological side with new OTT services, partnerships, and data plays, executives and investors shouldn’t underestimate the significance of labor disruption.

Creatives are the lifeblood of the entertainment industry. Silicon Valley can outsource certain programming jobs and automate aspects of customer service with relatively little friction but Hollywood’s movies and shows are specific creative and cultural expressions. The fact that the ATA (Association of Talent Agents) and WGA (Writers Guild of America) are now suing each other is not a minor footnote.

As the industry charts a pathway forward, it needs to figure out how it’s going to deal with packaging, conflicts of interest, credit protections, and residuals. Executives can perpetually roll out shiny new technologies and rearrange content across on-demand libraries, but these labor issues still require meaningful discussion and resolution. After all, an empty or static streaming service is worthless.