Liu 1 THE DOMINATION OF HOLLYWOOD: OWNERSHIP CHANGES AND PRESENT-DAY IMPLICATIONS Ashley Liu TC 660H Plan II Honors Program The University of Texas at Austin May 19, 2020 __________________________________________ Alisa Perren Radio Television Film Supervising Professor Jonathan Cohn Finance Second Reader Liu 2 ABSTRACT Author: Ashley Liu Title: The Domination of Hollywood: Ownership Changes and Present-Day Implications Supervising: Alisa Perren, Radio Television Film; Jonathan Cohn, Finance Over the past century, the ownership of film and television companies has transferred from small-scale, private independent operations to large, often publicly held multimedia conglomerates. What does the ownership landscape for media corporations look like now? How does the current ownership landscape, in which telecommunications and technology companies are more actively involved, impact labor relations and the development of streaming services? This paper seeks to answer the questions above. The first question addresses the historical factors that drove the industry into its consolidated state; it also pertains to the ownership structures of individual media conglomerates, which currently operate across different media sectors. The second question addresses two direct implications of recent ownership changes: heightened labor tensions between the Hollywood writers and their talent agencies, and the traditional media companies’ efforts to join the streaming space to compete with technology companies such as Netflix and Amazon. Liu 3 Table of Contents Introduction ........................................................................................................................... 4 Evolution of Ownership in Filmed Entertainment .................................................................... 6 Early years of cinema (pre-1920s) .................................................................................................... 6 The studio system (1920s – 1948) .................................................................................................... 7 Fall of the studio system (1948 – 1960s) ........................................................................................... 9 Deregulation within markets (1960s – 1980s) ................................................................................. 10 Integration of markets (1990s – 2010s) .......................................................................................... 13 The modern landscape of filmed entertainment ............................................................................ 16 Conflict of Interest Between WGA and Talent Agencies ........................................................ 20 Private equity in Hollywood ........................................................................................................... 20 Private equity buyouts of talent agencies ...................................................................................... 23 Conflicted representation: affiliate studios .................................................................................... 25 Conflicted representation: packaging fees ..................................................................................... 28 Past lawsuits .................................................................................................................................. 31 CAA and Head of Class ...................................................................................................................................... 31 CAA and The Walking Dead ............................................................................................................................... 31 WME and Who Wants to be a Millionaire ......................................................................................................... 32 ATA’s response to complaints about affiliate studios ..................................................................... 32 ATA’s response to complaints about packaging fees ...................................................................... 34 The ongoing legal battle between WGA and ATA ........................................................................... 36 Impact of the boycott on writers: increased disparity and loss of status ......................................... 40 The Growth of DTC Services and the Race for Content ........................................................... 44 Competitive advantages from the tech sector ................................................................................ 44 New mode of vertical integration in legacy companies .................................................................. 47 New entrants in the increasingly saturated SVOD landscape .......................................................... 49 Focus on content ownership .......................................................................................................... 54 Implications on original production ................................................................................................ 55 Conclusion ............................................................................................................................ 58 Works Cited .......................................................................................................................... 59 Biography ............................................................................................................................. 67 Liu 4 Introduction The U.S. filmed entertainment industry consists of the production, distribution, and consumption of motion pictures and television; it generates more than $104 billion in annual revenue and institutionalizes talent to produce creative visual content.1 Over the past century, the ownership structure of filmed entertainment evolved from independent studios to transindustrial conglomerates. A rich pool of scholarship discusses the historical factors that contributed to the industry’s structural integrations and diversifications: William Kunz, Robert McChesney, Jonathan Hardy, and Jennifer Holt are among the scholars surveying these historical changes. However, there is a scarcity of literature that connects the ownership structure of the filmed entertainment industry to its present-day implications. This paper will first trace the historical ownership context and then discuss the modern ownership landscape of the industry. It will also address how recent changes are impacting labor relations and business models, especially in relation to streaming media. In this paper, ownership will be consistently used as a framework in order to clearly illustrate the concentration of power in the production and distribution of visual content. The filmed entertainment industry is extremely complex and continuously merges across traditional media barriers—it would difficult to directly make cross-sectional or time-series analysis on individual companies or even individual industries. The first section will examine the historical highlights of ownership changes in the industry and the political and socioeconomic influences behind them. The second and third sections will make the causal connections between 1 PwC. Filmed Entertainment: Key Insights At A Glance. 2019. https://www.pwc.com/gx/en/global- entertainment-media-outlook/segment-insights/assets/PDF/filmed-entertainment-key-insights-at- a-glance.pdf Liu 5 the modern industry’s “super-owners” to their impacts on labor relations and the growth of streaming services. Liu 6 Evolution of Ownership in Filmed Entertainment The television and film landscape today is occupied by dominant conglomerates who operate across traditional barriers and within industry sectors. To understand how the industry arrived at this state of consolidation, one must explore the historical evolution of its ownership since the early years of filmed entertainment. The following section will chronologically examine how horizontal and vertical integration and diversification have consistently shaped the film and television industries. In addition, this discussion will highlight the macro-environmental factors (federal deregulation, financial expansion, and technological innovation) that instigated these structural transformations. Early years of cinema (pre-1920s) The filmed entertainment industry has been defined by vertical integration since its origin. In December 1896, the Lumiere brothers from southeastern France invented the cinematograph, the first motion-picture apparatus. This device gave birth to a series of short film screenings around Europe in fixed theaters called nickelodeons. Early short films in major cities cost about a dollar to watch and spectators could stay for as long as they wanted. 2 By the early 1900s, movies gradually increased in length and quality as producers realized that they could charge more for a feature film that involved a well-known story or actor. The upgrade in film quality incentivized producers to buy out theater chains all over the U.S. in order to capture marginal revenues from movie tickets, effectively eliminating the theater-owners who 2 Bakker, Gerben. “The Economic History of the International Film Industry.” Economic History Association, 2015, https://eh.net/encyclopedia/the-economic-history-of-the-international-film-industry/ Liu 7 indefinitely profited from film showings at a fixed cost.4 This first wave of vertical integration in the film industry set up the foundation for the future studio model. In addition,