The Hollywood Strike & The Myth of Disruptionimage
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The Hollywood Strike & The Myth of Disruption

"This is a moment of history. This is a moment of truth. If we don't stand tall right now, we are all going to be in trouble."

That's what Fran Drescher, the President of SAG-AFTRA, said to the 160,000 actors and performers in the union as she announced they were joining the 20,000 writers of the WGA on strike against the major motion picture studios.

And she's right; this is a moment of history.

For the first time since 1960, both unions are refusing to work - bringing Hollywood to an absolute standstill. And they're demanding similar things from studios that their predecessors did 63 years ago: increased pay, fair residuals, and stable healthcare benefits.

But this time around, there's also a new item on the negotiation table: AI. Members of SAG-AFTRA and the WGA are demanding clear guidelines and protections regarding how AI will be used and how that use will affect their livelihoods.

However, this demand is not because AI is "disrupting" the movie and TV industry - although it has the potential to. Instead, this demand to control how AI is adopted is due to the massive disruption the industry has already experienced from a different technology: streaming.

And in this article, I want to tell you the story of how streaming disrupted the entertainment industry; the story of how short-sighted media executives cannibalized their own business; the story of how TV production started resembling an assembly line; and the story of how the blind adoption of this new technology sparked the largest labor strike that we've seen in America since the turn of the century.

Let's get started by understanding where streaming began...

📀 The death of the disc.

In January of 2007, after a decade of doing mail-order DVD rentals, Netflix launched "Watch Now" - a product allowing users to stream 1,000 titles of Netflix's library directly to their computers.

This was an extremely risky move for Netflix. They had gone public in 2002 pitching investors that they could beat Blockbuster by reducing operating costs and not managing physical stores. However, this new streaming product completely uprooted that idea.

Licensing fees, server infrastructure, technical talent - all of these things were (and still are) incredibly expensive. So much so that Netflix went from making ~$17 million per quarter in operating profits to operating at a significant loss.

But the operating losses didn't matter to them. Profitability and sustainability were no longer a concern. Their goal was to amass market dominance as quickly as possible and monopolize this new industry of video streaming. This is the moment that Netflix shed its identity as a home-rental company and rebranded itself as a Silicon Valley startup.

Over the next decade, Netflix invested heavily in engineering, customer acquisition, and play-over-air licenses with movie and TV distributors. Backed by bullish Wall Street tech investors, Netflix spent billions of dollars to studios for the ability to stream high-demand, binge-able properties like The Office, Lost and Scrubs.

And at the time, these deals made studio execs love Netflix.

"What's not to like?" a Disney executive told Paul Bond at The Hollywood Reporter in 2011. "They're another buyer, even for stuff that others don't consider terribly valuable."

And that's true. Netflix bought play-over-air licenses for old movies and shows that historically were only sold for rent or retail. So, executives saw Netflix as an amazing supplement to their declining at-home movie business.

But these fat checks from Silicon Valley made them willingly blind to the fact that streaming was actually cannibalizing the most lucrative part of their business: cable TV.

📺 Cut the cord.

Today, we think of cable as clunky, boring, unsexy technology. But the cable business was one of the most profitable industries of all time and was the backbone of media in America for four decades. It was so lucrative for two reasons: bundling and advertising.

Bundling is the process of integrating a bunch of products with varying quality or demand and then selling them as one product. In the case of TV, a cable bundle consists of ~150 channels: 80 that you'll never watch, 40 that you might find interesting, 20 that are good, and the 10 you actually wanted when you signed up.

And by selling the 10 channels people actually want to watch with the 80 they'll never watch, cable companies could charge consumers more. As Doug Shapiro puts it...

"The pay TV business has been such a great business...because people were effectively paying for products they didn't consume". - Doug Shapiro

By bundling themselves together, networks and studios created a kind of cable cartel. They controlled the market supply and operated in a system where they made more money together than individually. They simply licensed their content to the cable company, the cable company packaged those licenses up, and they charged consumers ~$50-80 / month to watch TV.

But bundling is only one aspect of the money machine that was cable TV. Because networks and studios made a whole lot of money once they were in the homes of Americans through advertising.

"14 minutes and 32 seconds of advertisements per hour." That's the standard for cable TV. That meant 25% of the time consumers spent watching TV was monetized. So, even after making money with the initial licensing deal on the frontend, production companies continued to make money from their content on the backend.

And it wasn't just content owners who got a cut of this advertising revenue. The cast and crew of shows also saw this money in the form of residuals - or a percentage of profits anytime a show or movie they worked on was played. This "cut of the deal" for actors and writers was an outcome of the last Hollywood strike in 1960.

Bundled and ad-supported cable TV was the money printing machine that bolstered the entertainment industry for nearly 50 years. And overvalued, cash-rich, tech companies - with the help of greedy, short-sighted studio executives - completely dismantled that machine in a single decade.

And what do they have to show for it? Well, a shiny new machine that's worse for the industry in almost every way...

🫠 Streaming: unbundled, unlimited, and unmonetized.

Cable TV was one of the most profitable businesses of all time because of its ability to charge higher prices for access to content through bundling and its ability to monetize the consumption of that content through advertising. Streaming did the exact opposite.

Streaming "unbundled" TV. It curated selections of premium network shows and movies, and then gave consumers unlimited and unmonetized access to that content...for a cheaper price than cable.

Anyone in their first year at business school could see how this new streaming model made significantly less money for everyone in the industry. And experts within the TV industry were sounding the alarms that studios were letting in a Trojan Horse.

"Even though it has a detrimental effect on their business, [the studios] keep feeding [Netflix] content." Richard Greenfield, Managing Director BTIG

So, why weren't these executives paying attention to these warnings? Well, because between 2007 and 2017, Netflix's stock price grew by 4,000%. Wall Street investors had flooded Netflix with cash. And with that cash, they were able to pay multiples more for licensing deals than TV distributors.

They were following the blitzscaling playbook - spending more than their competitors to squeeze them out of the market. They were paying so much more up front than traditional TV distributors that Phil Kent, the CEO of Turner Broadcasting Systems at the time, said:

“We’ve been telling our suppliers — the various studios that we buy from — that in the future, [Netflix streaming deals are] going to have a significant impact on what we’re going to be willing to pay for programming or even bid at all.”

These studio executives were blinded by the mass amounts of money coming to them from Netflix that they didn't stop to think about how much money they were going to lose by moving away from the pay TV model. To them, these streaming deals were too good to pass up; but they were actually too good to be true.

Once Netflix had "disrupted" the industry, made consumers expect more value for less money, and crippled their pay TV competitors by convincing consumers to cut the cord, they started utilizing that market leverage.

Netflix started renegotiating deals with studios with more favorable terms; they made themselves less reliant on licensed content by producing their own shows and movies; and they started moving into international markets.

At the same time, cable TV subscriptions and advertising rates started to fall as people continued to cut the cord. Content producers, writers and actors realized they were receiving less money in TV residuals. And when executives and talent began getting residual checks from streaming services like Netflix, they realized they amounted to next to nothing because Netflix doesn't run ads.

Whereas a residual check from cable used to average between $1,000 and $10,000 dollars, residuals from Netflix amounted to ~$30 dollars for hit shows like Orange Is The New Black.

In their quest for disruption and growth, Netflix had shrunk the entire market. Again, media financial analyst Doug Shapiro puts it well...

"No one really knows what the 'steady state' margins will be on the streaming video business...but the unavoidable answer is that the total profit pie will be smaller."

By the time studio executives realized that they had made a horrible mistake, it was too late. They had welcomed Netflix into their castle and like a bull in a China shop they had destroyed the riches of cable TV.

And with this realization, the cable cartel collapsed, factions formed, and a resource war over marketshare began. And like most wars, this one cost a lot of money and was waged by working class people who wouldn't see any of the spoils when the dust settled.

🪖 The Streaming Wars

From 2017 to 2020, an arms race occurred in Hollywood as studios spent billions of dollars raising armies of engineers, product managers and a whole lot of SCRUM consultants to build their own Netflix clones.

And although these keyboard mercenaries got the job done, online video streaming infrastructure and technical talent are both very expensive to operate and maintain. So, to be profitable, studios also needed Netflix level subscription rates.

This meant to attract subscribers, these new streaming services needed to produce more content of better quality for less money. And to make this happen, Hollywood studios industrialized the process of TV production at the expense of the writers, actors, and crews that do the actual work.

In the time of cable TV, shows were released episode-by-episode over the course of ~22 weeks. In that system, all aspects of production happened concurrently: writers wrote episodes while actors and crews filmed episodes. So booking a recurring spot on a show usually meant having a paying job for 7-9 months.

But when studios moved to the streaming model, things changed. Studios started prioritizing the production of "limited series" - shows with less than 12 episodes in a season - so they could produce and market more titles without needing to produce as many episodes per season. Studios also started releasing full seasons for people to "bingewatch" instead of airing individual episodes over the course of 3-5 months.

Shorter seasons generally meant shorter jobs for actors, writers, and crew members; but releasing seasons all at once also meant the holistic process of concurrent production was no longer necessary. Production now operated more like a factory floor: the whole show was written, then shot, then edited, and then released.

So for writers, working on a show now involved writing the entire series in 7-9 weeks and then being out of work while the show was in production. For actors, it meant shooting entire shows in 3 months. And for crews, it meant constantly building up and tearing down productions with long hours and very little breaks.

And since more shows were being produced solely for streaming, the residual checks that used to sustain casts and crews in off-seasons were further decimated. Workers in the industry were now in a constant cycle of being overworked and then out of work with no guarantee of stability or fair compensation.

The icing on the cake of all these changes? Well, it turns out that streaming subscribers aren't interested in paying for more than 2-3 services. So most of these platforms - including those with massive properties like Disney+, Peacock and Paramount+ - are still losing hundreds of millions of dollars a year.

Which means all this useless war did was flood the market, commoditize TV content, and further the fracture of the entertainment industry at the expense of those that do the actual work of making it entertaining.

And that's why the members of SAG-AFTRA and the WGA are striking. Because, like Fran Drescher said, this is...

✊ A moment of truth.

Right now, corporate executives in the entertainment industry are telling themselves and their shareholders a story about streaming. A story where this technology enabled more content to be produced and marketed with increased efficiency. A story where this technology is helping reestablish the extremely profitable past of TV. A story where the adoption of this technology was inevitable and so is technology like AI.

They're telling this story because they need it to be true - so they can believe they are the heroes that are "revolutionizing the industry".

But this story isn't true. And right now, 200,000 people are on strike in an attempt to force these executives to stop living in a delusion and face the facts:

That in the past 15 years, blitzscaling startups like Netflix undercut an industry without thinking about the effect that would have on real people's lives; that short-sighted studio executives who scrambled to copy them further destabilized and shrunk the market for movies and TV; and that in the face of this technological disruption, actors, writers, and crew members all saw worsening wages and working conditions - even as the stock prices of these companies went up.

That's the true story of streaming.

The members of SAG-AFTRA and the WGA are trying to get studios to, as Fran Drescher likes to say, "wake up and smell the coffee". They are demanding their fair share of this new, smaller pie of profits; and they are demanding some control and transparency over how new technologies like AI affect their industry in the future; because when left in the hands of corporate leaders and startup bros, the adoption of new technology doesn't seem to go well for working people.

And in that way, I believe this strike is a moment for us all to "wake up and smell the coffee".

It's a moment for us to start asking questions about why new technologies are adopted, who benefits from that adoption, who is forced to adapt to that adoption, and how that enforcement effects the lives and livelihoods of real people.

It's a moment for us to realize that we've been told a story about technology that does not serve our society...

👨🏻‍💻 The Myth of Disruption.

The myth of disruption is a powerful, useful story. It tells the tale of the small, scrappy startup, David, knocking down the big business, Goliath, with brain, not brawn. It represents new technology as David's slingshot - a simple tool under his complete control. And it shows the impact of this new technology, the shot, absorbed only by Goliath and the ground he crashes on.

This myth is constantly elevated and promoted in popular culture by the tech industry because two parties benefit from its belief.

The first is venture capitalists who profit directly from technology that undercuts competition and dismantles entire industries. This myth, along with the myth of technological determinism, allows them to believe they're backing the underdog. It allows them to see established businesses as fat villains and not see the people who are crushed when those villains fall.

The second is the engineers and founders that develop new technology. The myth of disruption allows us to believe that the effects of our work are isolated and under our control. The myth enables us to ignore the possible ethical and social consequences of the products we produce and treat our office, garage or laboratory as a sandbox where we get to play with power - unencumbered by the weight of responsibility.

The myth of disruption allows individuals and companies across the tech industry to disregard the real social consequences of technological development. It allows us to ignore or exploit the truly outsized impact we have in society.

And that's dangerous.

Right now in theaters, there is a story being told of a man who believed in the myth of disruption. He believed that by creating a new weapon - infinitely more powerful than David's slingshot - he could end a terrible war. And he did. But in the process, he took part in the murder of over 200,000 men, women and children.

Inside and outside Hollywood, we are all storytellers; and the stories we tell and choose to believe shape what we do and who we are. The myth of disruption is a simple story we have been telling for the past 40 years that we can no longer afford to believe.

I think it's time we tell a new story about how technology is adopted, how it is regulated and controlled, and how it is developed in order to minimize harm and maximize gain for the benefit of society as a whole.

Because, "If we don't stand tall right now, we are all going to be in trouble".

Until next time.


If you liked this article, please consider making a donation to the Entertainment Community Fund - a non-profit organization that provides financial assistance to film and TV workers during strikes.

Also, early readers have asked me to comment on the role consumers played in the disruption of the media industry by streaming. "Are we at all to blame?"

Obviously, consumer behavior is what drove the advent of streaming. People were fed up with the bundling strategy of the cable cartel and took the opportunity Netflix provided to pay less for something they deemed more valuable.

However, I think it is a red herring to place the responsibility for the displacement of workers and the disruption of industries on consumers. Consumers can't be blamed for the behavior of consumption. That's what our economy is set up for us to do.

It is the responsibility of companies to take care of their workers and produce products that benefit society. It is the responsibility of governments to keep companies accountable to that responsibility.

"Vote with your dollar" is a way for companies and governments to place the blame for the negative externalities of unchecked capitalism on us. The increasing pressure we feel as consumers to take over the responsibilities for protecting workers or our environment by buying ethically and sustainably made products is because both of these institutions are failing us.

So, we don't need to "vote with our dollar". We need to vote.

Drew Lyton
Drew Lyton
Monday, August 7, 2023

I'm a software engineer, ex-founder and writer who cares deeply about creating a better relationship between technology and society. I'm currently writing a book about early stage entrepreneurship.


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