Saturday, January 07, 2006
Hollywood as the standard business model?
Hollywood, the often derided place of supposed decadence and depravity, may be the inspiration of the future of American business. Let's look at how Hollywood works. A large of number people migrate to California hoping to enter the entertainment business. These people work for nothing for years in order to get an opportunity to perform in a film or other production. Those who are successful, albeit not many people, tend to very well, while others that have paid their dues by working for free get admitted into one of a few unions that provide some semblance of a guarantee of work.
As such, we have a few people who control the money to produce content, a large number of talented resources looking for the big opportunity, and a small number of people selected who are provided with an opportunity to increase their wealth. The challenge is that once someone is selected, the balance of power changes. However, the folks with the financial resources still increase their wealth because increasing their wealth is typically linked with increasing the wealth of the talent.
There is more to Hollywood, but we basically have three layers of people: producers who find money, directors to organize team to deliver product, and actors/staff who do all of the work. Is this so different from what is happening in most corporations? A small number of people have most of the control and reap most of the benefit, a larger number of people are responsible for delivering work product, and the majority are doing the work. The historical difference is that employees had pension plans, health care, job security, and development opportunities. Today, none of these benefits is ensured, and most of the onus is being placed back on the employee.
In the new world, people doing the work can no longer afford to be beholden to poor project managers and ill-conceived projects. Visibility is needed to allow people to decide where their efforts will be best rewarded. Most firms try to hide this sort of information, but that is no longer a good strategy.
Do you think American business is going to go "Hollywood?" If so, let me know. If not, why?
As such, we have a few people who control the money to produce content, a large number of talented resources looking for the big opportunity, and a small number of people selected who are provided with an opportunity to increase their wealth. The challenge is that once someone is selected, the balance of power changes. However, the folks with the financial resources still increase their wealth because increasing their wealth is typically linked with increasing the wealth of the talent.
There is more to Hollywood, but we basically have three layers of people: producers who find money, directors to organize team to deliver product, and actors/staff who do all of the work. Is this so different from what is happening in most corporations? A small number of people have most of the control and reap most of the benefit, a larger number of people are responsible for delivering work product, and the majority are doing the work. The historical difference is that employees had pension plans, health care, job security, and development opportunities. Today, none of these benefits is ensured, and most of the onus is being placed back on the employee.
In the new world, people doing the work can no longer afford to be beholden to poor project managers and ill-conceived projects. Visibility is needed to allow people to decide where their efforts will be best rewarded. Most firms try to hide this sort of information, but that is no longer a good strategy.
Do you think American business is going to go "Hollywood?" If so, let me know. If not, why?
# posted by John Dohm @ 9:35 PM 
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This is also the drug dealer model (see Freakonomics). In that model not only is the labor effort concentrated at the bottom level so is the majority of the risk (getting shot/arrested) from which the kingpins who survived the climb to the top are able to isolate themselves. Although it is still the kingpin's capital that is risked to buy in bulk for distribution by the self-employed street dealer. Like Hollywood the street dealer is willing to take those risks because of the size of the reward for reaching the top ("becoming a star").
In Hollywood the "money" takes a huge risk, the talent does not since the talent is paid even if the movie flops and the "suits" lose their shirts.
In business the bottom level doesn't risk any loss. They go to work for a wage, do their hours, collect their check and go home. The top level, i.e. the owners/founders, risk actual real money with the hope of a return but no guarantee. Why? Because of the perceived size of the possible reward. The government recognizes the size of that risk and to encourage putting real assets at risk they offer the incentive of a low tax on capital gains to increase the size of the reward.
So what is the optimum model to align the interests of owners, managers and workers? What if each had an equal risk/reward equation? I risk my money to make the movie, you volunteer your talents as a director, someone volunteers to act and then we all share the results good or bad. Sounds like a dot.com start-up comp plan doesn't it.
As a side note, pre-Obama the bankruptcy of a company would mean the loss of all outstanding wages owing and the loss of all capital risked by the shareholders and the loss of capital loaned by creditors. Now, a bankruptcy means a capital loss to the shareholders and the creditors but no loss to the employees.. whose wages continue being paid by taxpayers and who are handed the assets formerly belonging to the shareholders and creditors. Imagine the chilling effect this will have on investment and lending to large unionized companies in swing states.
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In Hollywood the "money" takes a huge risk, the talent does not since the talent is paid even if the movie flops and the "suits" lose their shirts.
In business the bottom level doesn't risk any loss. They go to work for a wage, do their hours, collect their check and go home. The top level, i.e. the owners/founders, risk actual real money with the hope of a return but no guarantee. Why? Because of the perceived size of the possible reward. The government recognizes the size of that risk and to encourage putting real assets at risk they offer the incentive of a low tax on capital gains to increase the size of the reward.
So what is the optimum model to align the interests of owners, managers and workers? What if each had an equal risk/reward equation? I risk my money to make the movie, you volunteer your talents as a director, someone volunteers to act and then we all share the results good or bad. Sounds like a dot.com start-up comp plan doesn't it.
As a side note, pre-Obama the bankruptcy of a company would mean the loss of all outstanding wages owing and the loss of all capital risked by the shareholders and the loss of capital loaned by creditors. Now, a bankruptcy means a capital loss to the shareholders and the creditors but no loss to the employees.. whose wages continue being paid by taxpayers and who are handed the assets formerly belonging to the shareholders and creditors. Imagine the chilling effect this will have on investment and lending to large unionized companies in swing states.
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