Hollywood How To: Why Hollywood as We Know It Is Already Over

With theater attendance at a two-decade low and profits dwindling, the kind of disruption that hit music, publishing, and other industries is already reshaping the entertainment business. From A.I. Aaron Sorkin to C.G.I. actors to algorithmic editing, Nick Bilton investigates what lies ahead.

A few months ago, the vision of Hollywood’s economic future came into terrifyingly full and rare clarity. I was standing on the set of a relatively small production, in Burbank, just north of Los Angeles, talking to a screenwriter about how inefficient the film-and-TV business appeared to have become. Before us, after all, stood some 200 members of the crew, who were milling about in various capacities, checking on lighting or setting up tents, but mainly futzing with their smartphones, passing time, or nibbling on snacks from the craft-service tents. When I commented to the screenwriter that such a scene might give a Silicon Valley venture capitalist a stroke on account of the apparent unused labor and excessive cost involved in staging such a production—which itself was statistically uncertain of success—he merely laughed and rolled his eyes. “You have no idea,” he told me.

After a brief pause, he relayed a recent anecdote, from the set of a network show, that was even more terrifying: The production was shooting a scene in the foyer of a law firm, which the lead rushed into from the rain to utter some line that this screenwriter had composed. After an early take, the director yelled “Cut,” and this screenwriter, as is customary, ambled off to the side with the actor to offer a comment on his delivery. As they stood there chatting, the screenwriter noticed that a tiny droplet of rain remained on the actor’s shoulder. Politely, as they spoke, he brushed it off. Then, seemingly out of nowhere, an employee from the production’s wardrobe department rushed over to berate him. “That is not your job,” she scolded. “That is my job.”

The screenwriter was stunned. But he had also worked in Hollywood long enough to understand what she was really saying: quite literally, wiping rain off an actor’s wardrobe was her job—a job that was well paid and protected by a union. And as with the other couple of hundred people on set, only she could perform it.

This raindrop moment, and the countless similar incidents that I’ve observed on sets or heard about from people I’ve met in the industry, may seem harmless and ridiculous enough on its face. But it reinforces an eventuality that seems both increasingly obvious and uncomfortable—one that might occur to you every time you stream Fringe or watch a former ingénue try to re-invent herself as a social-media icon or athleisure-wear founder: Hollywood, as we once knew it, is over.

In the mid-90s, the first time I downloaded an MP3, I realized that the music industry was in grave trouble. People who were my age (I wasn’t old enough to legally drink yet) didn’t want to spend $20 on a whole compact disc when all we coveted was a single song on the album. Moreover, we wanted our music immediately: we preferred to download it (illegally) from Napster or eventually (legally) from iTunes without the hassle of finding the nearest Sam Goody. It turned out that this proclivity for efficiency—customizing your music and facilitating the point of sale—was far from a generational instinct. It explains why the music industry is roughly half the size it was one decade ago.

These preferences weren’t confined to music, either. I also felt the raindrop moment firsthand when I began working at The New York Times, in the early 2000s. Back then, the newspaper’s Web site was treated like a vagrant, banished to a separate building blocks away from the paper’s newsroom on West 43rd Street. Up-and-coming blogs—Gizmodo, Instapundit, and Daily Kos, which were setting the stage for bigger and more advanced entities, such as Business Insider and BuzzFeed—were simultaneously springing up across the country. Yet they were largely ignored by the Times as well as by editors and publishers at other news outlets. More often than not, tech-related advances—including e-readers and free online blogging platforms, such as WordPress and Tumblr—were laughed at as drivel by the entire industry, just as Napster had been years earlier.

Of course, the same logic that had decimated music would undermine print publishing: readers didn’t want to travel to a newsstand to buy a whole newspaper when they were interested only in one story or two. And, in so many cases, they really didn’t care all that much whose byline was at the top of the piece. Subsequently, newspaper advertising revenues fell from $67 billion in 2000 to $19.9 billion in 2014. Meanwhile, the same pummeling occurred in the book-publishing world. Many consumers didn’t want hardcover books for $25 when digital versions were available for $9.99. An algorithm generally provided better suggestions than an actual in-store clerk. And consumers never had to leave home to get the book they wanted. Amazon, knowing this, eviscerated the business. While print sales have finally leveled out (largely through a reliance on science fiction and fantasy), the industry has seen sales fall precipitously over the past decade.

Hollywood, these days, seems remarkably poised for a similar disruption. Its audiences increasingly prefer on-demand content, its labor is costly, and margins are shrinking. Yet when I ask people in Hollywood if they fear such a fate, their response is generally one of defiance. Film executives are smart and nimble, but many also assert that what they do is so specialized that it can’t be compared to the sea changes in other disrupted media. “We’re different,” one producer recently told me. “No one can do what we do.”

That response, it’s worth recalling, is what many editors and record producers once said. And the numbers reinforce the logic. Movie-theater attendance is down to a 19-year low, with revenues hovering slightly above $10 billion—or about what Amazon’s, Facebook’s, or Apple’s stock might move in a single day. DreamWorks Animation was sold to Comcast for a relatively meager $3.8 billion. Paramount was recently valued at about $10 billion, approximately the same price as when Sumner Redstone acquired it, more than 20 years ago, in a bidding war against Barry Diller. Between 2007 and 2011, overall profits for the big-five movie studios—Twentieth Century Fox, Warner Bros., Paramount Pictures, Universal Pictures, and Disney—fell by 40 percent. Studios now account for less than 10 percent of their parent companies’ profits. By 2020, according to some forecasts, that share will fall to around 5 percent. (Disney, partly owing to Star Wars and its other successful franchises, is likely to be a notable outlier.)

Show business, in many ways, has entered a vicious cycle set off by larger economic forces. Some 70 percent of box office comes from abroad, which means that studios must traffic in the sort of blow-’em-up action films and comic-book thrillers that translate easily enough to Mandarin. Or in reboots and sequels that rely on existing intellectual property. But even that formula has dried up.

Chinese firms, including Dalian Wanda, are rabidly acquiring companies such as Legendary Entertainment, AMC, and Carmike Cinemas, a smaller theater chain, with an apparent goal of learning how Hollywood does what it does so China can do it better. As The Wall Street Journal reported last summer, more sequels bombed than did not. Fortune called it “a summer of big flops.”

MGM’s Ben-Hur, which was produced by Mark Burnett, cost $100 million and yet grossed only $11 million in its opening weekend.

But the real threat isn’t China. It’s Silicon Valley. Hollywood, in its over-reliance on franchises, has ceded the vast majority of the more stimulating content to premium networks and over-the-top services such as HBO and Showtime, and, increasingly, digital-native platforms such as Netflix and Amazon. These companies also have access to analytics tools that Hollywood could never fathom, and an allergy to its inefficiency. Few have seen the change as closely as Diller himself, who went from running Paramount and Fox to building his own tech empire, IAC. “I don’t know why anyone would want a movie company today,” Diller said at Vanity Fair’s New Establishment Summit in October. “They don’t make movies; they make hats and whistles.” (Half of the people in the audience, likely representing the tech industry, laughed at this quip; the other half, from Hollywood, cringed.) When I spoke to Mike Moritz, the iconic venture capitalist, backstage at the event, he noted that a nominal investment in a somewhat successful tech company could generate more money than Hollywood’s top-grossing movies. “In my mind,” he said, “Hollywood is dying.”

II. Here Comes Facebook

Part of the problem, it seems, is that Hollywood still views its interlopers from the north as rivals. In reality, though, Silicon Valley has already won. It’s just that Hollywood hasn’t quite figured it out yet.

When Netflix started creating its own content, in 2013, it shook the industry. The scariest part for entertainment executives wasn’t simply that Netflix was shooting and bankrolling TV and film projects, essentially rendering irrelevant the line between the two. (Indeed, what’s a movie without a theater? Or a show that comes available in a set of a dozen episodes?) The real threat was that Netflix was doing it all with the power of computing. Soon after House of Cards’ remarkable debut, the late David Carr presciently noted in the Times, “The spooky part . . . ? Executives at the company knew it would be a hit before anyone shouted ‘action.’ Big bets are now being informed by Big Data.”

Carr’s point underscores a larger, more significant trend. Netflix is competing not so much with the established Hollywood infrastructure as with its real nemeses: Facebook, Apple, Google (the parent company of YouTube), and others. There was a time not long ago when technology companies appeared to stay in their lanes, so to speak: Apple made computers; Google engineered search; Microsoft focused on office software. It was all genial enough that the C.E.O. of one tech giant could sit on the board of another, as Google’s Eric Schmidt did at Apple.

These days, however, all the major tech companies are competing viciously for the same thing: your attention. Four years after the debut of House of Cards, Netflix, which earned an astounding 54 Emmy nominations in 2016, is spending $6 billion a year on original content. Amazon isn’t far behind. Apple, Facebook, Twitter, and Snapchat are all experimenting with original content of their own. Microsoft owns one of the most profitable products in your living room, the Xbox, a gaming platform that is also a hub for TV, film, and social media. As The Hollywood Reporter noted this year, traditional TV executives are petrified that Netflix and its ilk will continue to pour money into original shows and films and continue to lap up the small puddle of creative talent in the industry. In July, at a meeting of the Television Critics Association in Beverly Hills, FX Networks’ president, John Landgraf, said, “I think it would be bad for storytellers in general if one company was able to seize a 40, 50, 60 percent share in storytelling.”

It would be wrong, however, to view this trend as an apocalypse. This is only the beginning of the disruption.

So far, Netflix has merely managed to get DVDs to people more quickly (via streaming), disrupt the business plan of the traditional once-a-week, ad-supported television show, and help solidify the verb “binge” in today’s culture. The laborious and inefficient way shows and films are still made has not been significantly altered. That set I visited in Los Angeles with its 200 workers wasn’t for an NBC or FX show; it was actually a production for a streaming service. The same waste and bloated budgets exist across the entire industry. To put the atrophy into perspective, a single episode of a typically modest television show can cost $3 million to shoot and produce. By comparison, a typical start-up in Silicon Valley will raise that much to run a team of engineers and servers for two years.

But all those TV workers feel as if they are in safe harbor, given that the production side of a project is protected by the unions—there’s the P.G.A., D.G.A., W.G.A., SAG-AFTRA, M.P.E.G., and I.C.G., to name just a few. These unions, however, are actually unlikely to pose a significant, or lasting, protection. Newspaper guilds have been steadily vanquished in the past decade. They may have prevented people from losing jobs immediately, but in the end they have been complicit in big buyouts that have shrunk the newspaper industry’s workforce by 56 percent since 2000. Moreover, start-ups see entrenched government regulation, and inert unions, not so much as impediments but as one more thing to disrupt. Uber and Lyft have largely dominated unions and regulators as they have spread around the world. Unions did not impede Airbnb from growing across American cities. (The company has 2.3 million listings in 34,000 cities.) Google, Facebook, ad-tech giants, and countless others have all but stampeded demands for increased privacy online from groups such as the A.C.L.U. And that’s just to cite the most obvious examples. In the 1950s, the movies were the third-largest retail business in the U.S., surpassed only by grocery stores and car dealerships. Look what Silicon Valley has already done to the other two sectors.

At the heart of the disruption is the most profound element of Hollywood: the theater. Just as customers now generally eschew albums for singles (or streaming services such as Spotify), and hardcovers for more economical e-books, we will eventually stop going to the movies, which are already expensive, limiting, and inconvenient. Instead the movies will come to us. If the industry continues the process of “windowing” (in which studios wait weeks, or sometimes months, to release a film that has already been in the theaters onto other platforms), people will continue to steal a movie they want to see, or they’ll simply stop watching them altogether. (In 2015, the top films in theaters were illegally downloaded more than half a billion times.) Meanwhile, consumers will continue to opt for other forms of entertainment, such as YouTube, Netflix, and video games, or turn to Instagram or Facebook.

And it’s only a matter of time—perhaps a couple of years—before movies will be streamed on social-media sites. For Facebook, it’s the natural evolution. The company, which has a staggering 1.8 billion monthly active users, literally a quarter of the planet, is eventually going to run out of new people it can add to the service. Perhaps the best way to continue to entice Wall Street investors to buoy the stock—Facebook is currently the world’s seventh-largest company by market valuation—will be to keep eyeballs glued to the platform for longer periods of time. What better way to do that than a two-hour film?

This might begin with Facebook’s V.R. experience. You slip on a pair of Oculus Rift glasses and sit in a virtual movie theater with your friends, who are gathered from all around the world. Facebook could even plop an advertisement next to the film, rather than make users pay for it. When I asked an executive at the company why it has not happened yet, I was told, “Eventually it will.”

III. A.I. Aaron Sorkin

The speed with which technologies can change an industry today is truly staggering. Uber, which is eight years old, is worth more than 80 percent of the companies on the Fortune 500 list. When Silicon Valley goes after a new industry, it does so with a punch to the gut.

Hollywood executives may invoke their unique skills, but engineers are unlikely to see things quite that way. We generally assume that artificial intelligence poses a risk to lower-skilled jobs, such as trucking or driving cabs. But the reality is that the creative class will not be unharmed by software and artificial intelligence. Researchers at M.I.T.’s Computer Science and Artificial Intelligence Laboratory are looking at ways to teach computers how to corral information so as to perceive occurrences before they even happen. At present, this application anticipates events that will move markets, or monitors security cameras to help emergency responders before something tragic occurs.

But there are other applications for these kinds of technologies, too. If you could give a computer all the best scripts ever written, it would eventually be able to write one that might come close to replicating an Aaron Sorkin screenplay. In such a scenario, it’s unlikely that an algorithm would be able to write the next Social Network, but the end result would likely compete with the mediocre, and even quite good, fare that still populates many screens each holiday season. The form of automation would certainly have a massive impact on editors, who laboriously slice and dice hundreds of hours of footage to create the best “cut” of a film or TV show. What if A.I. could do that by analyzing hundreds of thousands of hours of award-winning footage? An A.I. bot could create 50 different cuts of a film and stream them to consumers, analyzing where viewers grow bored or excited, and change the edits in real time, almost like A/B testing two versions of a Web page to see which one performs better.

Actors, in many ways, have been disrupted for years—from the reliance on costumed superheroes to the rise of C.G.I. filmmaking. Many agents whom I’ve spoken with already seem to know this and have moved their portfolios away from Hollywood to include, among others, clients from professional sports. There is a reason we see so many once promising actors, from Jessica Alba to Kate Hudson to Jessica Biel to the Mowry sisters, looking to re-invent themselves in new careers during their 30s and 40s, once their prime. The future augurs less of a need for actors other than, despite Donald Trump’s puerile objections, the Meryl Streeps of the world.

Kim Libreri, who spent years in the film industry working on special effects for films such as The Matrix and Star Wars, predicts that by 2022 graphics will be so advanced that they will be “indistinguishable from reality.” In some respects, that is already on the verge of happening. If you watched Rogue One, you will have noticed that Peter Cushing appeared as one of the main actors in the film, which was shot last year in London. Cushing, who died in 1994, was (mostly) rendered in C.G.I. The same was true for Princess Leia, played by the late Carrie Fisher, who has a cameo at the end. The C.G.I.-enhanced version of herself hasn’t aged a day since 1977. “While stars used to be able to make a movie, now they can hurt it,” one Hollywood producer lamented to me. His outlook resembled Moritz’s: “The movie star, like everything else in Hollywood, is dying.”

IV. The Audience Wins

In all of these instances of technological disruption—A.I., C.G.I. actors, algorithmic editors, etc.—there will be the exceptions. Like everything else involving money and creativity, there will indeed be a top category—those who have great, new, innovative ideas, and who stand above everyone else—that is truly irreplaceable. (Indeed, this has proved to be the case in music, journalism, and publishing.) There will be great screenwriters and even great actors. The real winners, however, are the consumers. We won’t have to pay $50 to go to the movies on a date night, and we’ll be able to watch what we want to watch, when we want, and, most important, where we want.

And while Hollywood could take control of its fate, it’s very difficult for mature businesses—ones that have operated in similar ways for decades and where the top players have entrenched interests—to embrace change from within. Instead, one can imagine the future looking something like this: You come home (in a driverless car) and say aloud to Alexa or Siri or some A.I. assistant that doesn’t exist yet, “I want to watch a comedy with two female actors as the leads.” Alexa responds, “O.K., but you have to be at dinner at eight P.M. Should I make the movie one hour long?” “Sure, that sounds good.” Then you’ll sit down to watch on a television that resembles digital wallpaper. (Samsung is currently working on flexible displays that will roll up like paper and could encompass an entire room.) And you might, through the glory of A.I., be able to watch with your spouse, who is halfway around the world on a business trip.

There are other, more dystopian theories, which predict that film and video games will merge, and we will become actors in a movie, reading lines or being told to “look out!” as an exploding car comes hurtling in our direction, not too dissimilar from Mildred Montag’s evening rituals in Fahrenheit 451.

When we finally get there, you can be sure of two things. The bad news is that many of the people on the set of a standard Hollywood production won’t have a job anymore. The good news, however, is that we’ll never be bored again.