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Make Hollywood Great Again
FTC Chair Lina Khan talks to Hollywood strikers. Meanwhile the Writer's Guild, and the chattering class in Tinseltown, begin calling for the break-up of the studios.
Welcome to BIG, a newsletter on the politics of monopoly power. If you’d like to sign up to receive issues over email, you can do so here.
Today I’m writing about how an industry and community wakes up. There’s a lot of cynicism and resignation about whether ordinary people can actually do anything about what feels like an out-of-control society. But the truth is, we can. What’s happening in Hollywood, slow and halting as it might be, shows how.
I’m drawn to this topic because the Writer’s Guild of America West, whose members have been on strike for more than 100 days, just called for the break-up of the movie studios. The WGA isn’t alone; some serious money people are extremely angry with entertainment CEOs. More broadly, the awakening of Hollywood is a great case study of what anti-monopoly politics looks like.
“We need people going back to the movies,” said Matt Damon, one of the stars of Christopher Nolan’s three hour biopic Oppenheimer. “This is what Hollywood should be able to do,” he added, which is to “put really good movies that are very different in the movie theaters in the same weekend.”
For a few moments last month, the success at the box office of both Barbie and Oppenheimer helped calm the roiling waters in Hollywood. The cultural buzz of the nation revolved around the creative visions of two film directors, and everyone was not only talking about some movies, but paying money to see them.
This success overshadowed other, structural problems that have fostered a sense of hopelessness in the industry. Writers and actors are both on the picket lines; the last time there has been such a double strike was 1960. A sense of gloom pervaded TV and movie creators over the past five years, and artificial intelligence is terrifying many of them. “I don’t know that these are professions that will allow people to come to Los Angeles,” said one city councilperson.
It’s easy to focus on the strikes and think of it as a labor story, but that’s a mistake. Box office revenues are down 20% from 2019, the comparable pre-pandemic moment. The number of released films is also down. In the first six months of 2023, 45 movies came out, vs 57 four years ago. Disney’s stock has lost a quarter of its market value over the last five years.
Most of the public noise during this period of chaos is coming from the more labor oriented activist-types, but behind the scenes, the serious financiers and producers are worried as well, because the ability to actually make money by making and distributing films and TV shows is falling apart. There were supposedly many reasons, such as cultural fragmentation, technological disruption, and the elitism of the industry. Hollywood was just the buggy whip industry, and consolidation in the face of such unstoppable forces was inevitable. The strikes represented a moment of desperation, a last gasp without an end game.
But now that the buzz over Barbenheimer has died down, something new is emerging to replace that sense of resignation. People all over Hollywood, from executives to directors to writers to union officials, are starting to talk about the problem of monopoly, and linking the crisis in their industry to consolidation. It’s not hope, exactly, because politics is quite ugly and no one is naive about that, it’s just a recognition that they face a discrete and understandable problem of market structure, and not the titanic unconquerable forces they had been led to believe.
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If you looked closely, or even not so closely, it wasn’t that hard to see the signs of an industry in crisis due to monopolization. Since 2019, I’ve been tracing these symptoms. In my first piece on the industry, The Slow Death of Hollywood, I pointed out that the end of antitrust enforcement and rules separating out production and distribution had fostered consolidation in all sectors of the industry. When studios started putting their own stuff on their own streaming services, they lost their feedback loop from the audience that used to come from ticket sales or ratings. Consolidation eroded the market signals that connect audiences and creators, and in doing so, turned a high-wage and high-profit business into a low-wage and low-profit business of Marvel and Star Wars franchises.
Netflix was the pace-setter in the streaming era, and its goal was to raise prices after acquiring enough market power, which it has done, as well as reduce compensation to creators. This transformation was temporarily masked by an artificially high level of investment in content, a rush to stake out market power in the streaming land grab. But fundamentally, Netflix was actually breaking the markets that made Hollywood function by de-linking payment for content with popularity of that content.
From the late 1990s to the earlier 2010s, Disney CEO Bob Iger built an empire through acquisitions and coercive business practices, and then later in the decade, followed Netflix in implementing below-cost pricing to juice its streaming service. He overruled his subordinates, who actually wanted to make money instead of putting their content into an unprofitable streaming service. This was foolish. “The fact that Disney Plus makes it impossible to measure value coming out of each division,” I argued at the time, “shows that the breakdown of the price system and potential below cost pricing is likely eroding value.” Time Magazine then chose Iger as its businessman of the year, which I thought was silly.
Over the course of the next few years, the symptoms worsened, because policymakers continued to make pro-consolidation decisions. In 2020, Trump got rid of the Paramount Decrees, and his antitrust chief, Makan Delrahim, noted all the new competition in the industry as showing how guardrails against vertical integration were no longer necessary. He sort of praised and sort of mocked the all you can watch flat pricing of Moviepass as “great socialist scheme accidentally implemented by very confused capitalists,” instead of recognizing that underpricing and bundling to acquire market power is a sign of ill-health. These anti-market arguments didn’t get a lot of notice at the time, but they indicated that the people making policy were akin to children playing with dynamite.
By the time the strike started, a lot of people in the industry understood, at least latently, the arguments put out by the anti-monopoly movement. What the writers were doing wasn’t just demanding more pay, they were demanding an end to the top-down control that had taken away their relationship with the audience. One picketer, in the first few days, noted that the strike is “about the whole corporate dominance of America.” And why wouldn’t they understand this dynamic about corporate power? The breaking of the studio system through antitrust and government rule-making is a key part of Hollywood history.
This awakening is happening through a mix of intrinsic interest from the community, and via signals from policymakers. A little over a year ago, WGA board member Adam Conover spoke at the Federal Trade Commission listening forums on mergers, so the conversation between L.A. and D.C. over monopoly has been happening for some time.
On Wednesday, Federal Trade Commission Chair Lina Khan went on the Ankler, a popular industry podcast and newsletter, and discussed how she was paying attention to the strikes in the industry and what they indicated. Earlier, Khan had gone to the picket lines outside The View studio in New York City, noting that the industry had a series of red flags suggesting the market structure was broken. She noted the separating out the studios and theaters, as had been done in the middle of the 20th century, “created a healthier ecosystem than a situation where you have a handful of gatekeepers.”
Khan’s appearances were key signals from policymakers to the industry that there is a broader recognition of the problems they are facing. Most think there’s a level of sophistication to Hollywood, that stakeholders there obviously know what’s going on in their own industry. But even sophisticated businesspeople often don’t see the water they are swimming in, and don’t actually know the laws undergirding their industry dictate parameters for what goes on. They think the decision-makers are Ted Sarandos of Netflix and Bob Iger of Disney, not lawmakers or judges writing the rules for the market.
Indeed, when I reported on monopolization in cheerleading, that’s what I found. Before the arguments about monopolization and antitrust, no one had helped these parents, event planners, gym owners, and cheer teachers understand that their plight wasn’t just some whiny griping, but was in fact a broader experience shared by chicken farmers, aerospace engineers, app developers, pharmacists, and most people who work for a living. They didn’t know that there are laws in place to stop monopolization. Once they did, there was an attitude shift, and the antitrust suits, and new competition, started. There’s an empowering feeling in realizing that one must act in concert with others, act politically, to structure commerce in a fair way.
Hollywood, like most of America, has a history of acting to ensure it has creative and commercial liberty. And gradually, those civic muscles are returning. The Writer’s Guild, which is heavily involved in contract negotiations to end the strike, just put out an impressive paper calling for more antitrust action. Titled “The New Gatekeepers How Disney, Amazon, and Netflix Will Take Over Media,” the WGA recommended not only blocking future mergers, but suggested a vertical break-up of the industry, demanding “new rules against anti-competitive self-preferencing behavior or rules requiring a certain level of independent content on streaming services.” That’s a big deal, it is uncommon for labor unions to try and restructure their industry in any way other than simple wage hikes. Yet the WGA just did that, and did so by attacking the idea of vertical integration, which is considered among economist to be mostly virtuous.
The WGA report got coverage in the trade press, and on CNBC.
It’s not just the WGA. The anti-monopoly chatter is picking up across the board. The creator of AppleTV’s Dickinson, Alena Smith, described the consolidation problem in an essay that went viral in the industry. And entertainment lawyer Miles Mogulescu published a piece in the LA Times on consolidation and the strikes. I want to quote from it at length, because Mogulescu provides a useful link between labor demands and a healthy industry market structure.
For most of the first half of the 20th century, the major film studios controlled both production and distribution. The Justice Department sued the studios under antitrust laws to break up these anticompetitive entities. In 1948, the Supreme Court ruled against the studios, requiring them to divest themselves of their movie theaters if they wanted to continue in the production business.
Shortly thereafter, theatrical films began to be aired on television with no additional compensation for creative talent. This led to the strike by both the Writers Guild of America and the Screen Actors Guild in 1960, the last time the two struck simultaneously.
After a months-long standoff, a historic compromise was brokered by Actors Guild President Ronald Reagan (still a moderate Democrat) and MCA/Universal head Lew Wasserman. It established residuals for post-1960 films. The studios also contributed millions of dollars to a pension fund for talent and established new health and welfare protections.
The result was an industry ecosystem in which creative talent and technicians could earn a decent living and studios could be economically viable. The separation of the means of production and distribution stabilized the industry, allowing it to become one of America’s most culturally and economically important contributions to the world.
With modifications for new technology like home video and pay TV, this ecosystem has survived until recently. Now, streamers, by controlling both content and distribution, have great power to cut compensation and alter creative rights. This is an unsustainable economic and cultural model.
It’s hard to see how the strikes can be settled equitably and a relatively fair system restored without again invoking antitrust laws to force giant entertainment companies to separate production from streaming distribution.
There’s a bit of a repeat happening here, since the vertical integration of the studios and the labor actions today mirror what happened decades earlier. Indeed, it’s clear to everyone, even Wall Street, that the studio streaming business model is actually terrible. The studio leaders are beginning to feel pressure to negotiate an end to the strikes, because the amount of money at stake just isn’t very significant, and they themselves are lavishly overpaid considering the thin profit margins they are now bringing in. In fact, shareholders seem angrier at the CEOs than they are at the strikers.
There are signs that investors aren’t happy about the way things are going. In May, Warner Bros. Discovery shareholders nearly voted down Zaslav’s $39.3 million compensation package for 2022, which passed with just over 50% approval. And a month later, Netflix stockholders voted to reject co-CEOs Ted Sarandos and Greg Peters’ pay packages of $40 million and $34.6 million for 2023. It’s a nonbinding decision, however, which can be overruled the next time Netflix’s board meets.
People tolerated executive overcompensation for a simple reason - CEOs presided over highly profitable enterprises. But over the last few years of poor performance, and now with the strike, these leaders have lost their moral authority. Indeed, a new anti-monopoly consensus is developing in Hollywood, which is a highly influential and politically connected place.
That said, what they are going to find is that the antitrust laws, while certainly critical, have been enfeebled by the courts. And either Congress will have to act, or judges will have to change their minds, or both. Indeed, if you look at an antitrust suit in an adjacent industry, Microsoft buying video game publisher Activision in order to create a similar walled garden arrangement as that of Netflix, you can see exactly that. The judge, Jacqueline Corley, in ruling against the government, quoted extensively from economics scholars on how “vertical integration creates efficiencies for consumers.” Corley did not know that vertical mergers had ruined Hollywood, or other industries such as pharmacies and live music venues, because no one told her in language she understands. And no one has told Congress either.
But just as the conversation is changing in Hollywood, that’s starting to shift everywhere, across many different industry sectors, and among a good number of elected leaders and policymakers. It’s easy to be cynical, and many are. But the truth is, we haven’t really been asking our elected leaders to break up monopolies, and so our politicians are, in a sense, responsive to that non-request. But as America actually starts demanding a return to its anti-monopoly heritage, like Hollywood is beginning to, those elected leaders and judges standing in the way, well, they won’t be able to resist for much longer.
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