Building a Better Movie Business

The new technology also expands what's possible. Without it, Rodriguez says he couldn't have even conceived of his 3-D movies such as Spy Kids 3-D or The Adventures of Sharkboy and Lavagirl. "When you take the technology and mix it with art, you always come up with something innovative," he says. "That won't come from the studios, because they are so reactive."

But now the industry is recognizing the full scope of what lies ahead. For one thing, peer-to-peer technology is making it possible to pull DVD-quality movies off the Web in minutes (see "Peer-to-Peer: The Problem Is the Solution"). And the music business offers the movie moguls two lessons: If you don't let us buy what we want, when we want it, we'll take it anyway. But if you make it affordable and easy enough for us to get what we want--as Apple's Steve Jobs did with iTunes and the iPod--then we'll happily pay you and make you a star. "The opportunities arise out of our philosophical view of these disruptions," says Mitch Singer, executive vice president of Sony Pictures Entertainment's Digital Policy Group. "Once we have perceived these technologies as enabling, rather than as violations of this code or this part of the copyright law, then we can start looking at ways to reach the consumer more effectively."

In Silicon Valley, smart strategy has long depended on an ability to answer the question, Is this a bug or a feature? That's what movie moguls need to learn as Hollywood rules are supplanted by Internet rules. Is it a bug . . . or a feature? If we could get the films we want legally, and cheaply enough, then why bother stealing them? Why can't Hollywood let us see new movies on our terms--at the theater, on DVD, or streamed or downloaded to our home theaters or laptops or handheld devices?

That battle is beginning now, and it's already getting hot. All the players have powerful interests in protecting their so-called "windows"--the number of weeks when they can sell their version of the movie before the next player in line gets the rights to sell it--but entrepreneurs have started hurling rocks through those windows. The tech billionaire Mark Cuban, who owns an independent film distributor, Magnolia Pictures, plans to sell DVDs of Soderbergh's coming films on the same days they open in the 60-screen indie cinema chain Cuban also owns (see "Maverick Mogul"). In October, Cablevision's Rainbow Media revealed that it hopes to release 18 to 24 films a year simultaneously to video-on-demand cable, DVD, and its own IFC cinema in New York's Greenwich Village. And Rainbow has a close partnership with Harvey and Bob Weinstein, the impresarios who catalyzed the indie-film boom at Miramax. Cuban and his partner Todd Wagner are investors in Harvey and Bob's new studio, the Weinstein Co. Even Oscar-winner Morgan Freeman is getting into the act, teaming up with Intel to offer movies by broadband connection at the same time they're released in theaters.

Disney's new chief, Bob Iger, has terrified the Hollywood establishment by talking openly about breaking some glass. Shortly before taking over as CEO on October 1, Iger told Wall Street analysts, "I don't think it's out of the question that a DVD can be released in effect in the same window as a theatrical release, although I'm sure we will get a fair amount of push-back from the industry. I think that all the old rules should be called into question, because the rules, in terms of consumption, have changed so dramatically." A couple of months earlier, he told a media conference that he would "not allow management of traditional businesses to get in the way of very, very important migration to new media platforms. The competition will get the best of us if we don't move in that direction."

Who will be the big winners in the New New Hollywood? Judging by the past decade of the digital boom, they will be companies that help us search the vast array of digital content that's out there, find what we want, buy it when it's for sale, and get it onto our screens and hard drives. In the past 10 years those companies included the likes of Google and Yahoo. In the coming 5 to 10 years, they'll include . . . Google and Yahoo, which are already popular sites for downloading video. The winners may also include video-on-demand providers such as Comcast, which has taken the lead in VOD and brought the service to millions.

The oligarchy will lose its tight control of the industry, but that doesn't mean that those six global conglomerates won't be winners if they're shrewd and nimble. Iger, for one, is pushing to move lots of Disney's content from TV and movies into new media.

Still, as theatrical openings lose their place as the key variable in the "whole equation," the studios' stranglehold will give way to a period of chaos and creativity. A great deal still needs to be sorted out, such as how people will get paid for the use of their intellectual property. But this period of ferment will ultimately lead to a lot more choices for us--and a chance for real innovators to seize the future.

Alan Deutschman (adeutschman@fastcompany.com) is a Fast Company senior writer based in San Francisco.