Years ago, I lived for a time in a village in Spain. It was too small to have a full-fledged movie theater, but it did have an establishment that showed movies—outdoors, in a courtyard, with the picture projected on a whitewashed wall. And there, sitting on folding chairs and snacking messily and noisily on sunflower seeds, we watched films that were ancient even then. They were always American and always dubbed into Spanish. But the incongruous voices that emerged from the mouths of Jimmy Stewart and Katharine Hepburn and John Wayne couldn't diminish the power of those great pictures. Now, many years later in a different world with different technology, I'm introducing my 10-year-old daughter to the classic Hollywood film canon, courtesy of Netflix: We've done To Have and Have Not, Arsenic and Old Lace, and the entire Pink Panther oeuvre, among others.
Hollywood is a great American industry—perhaps the great American industry. The movies are nothing short of an instrument of nationhood: They have helped forge and reinforce our collective sense of who we are. And as my Spanish idyll reminds me, the movies are America's leading cultural export, with an unparalleled power to shape our image, for good or ill, around the globe.
Now this iconic U.S. institution is facing perhaps its greatest period of stress since the Nestor Co. opened the first Hollywood studio in an old tavern on the corner of Sunset and Gower in 1911. It's wrestling with everything from soaring production costs to shrinking audiences, competition from video games to rising cultural protectionism. And above all, it's facing the impossibility of controlling its distribution in a digital world, where peer-to-peer technology makes it possible to download DVD-quality movies in minutes.
Fortunately, as detailed in this month's blockbuster cover package (Building a Better Movie Business) the movie business isn't home just to creative artists. It also has its share of creative businesspeople, who are innovating their way out of the industry's dilemmas.
For the most part, they're not found in the old-line studios, which are still wrestling with, and resisting, change. But imaginative independent filmmakers such as Robert Rodriguez, director of Sin City and the Spy Kids movies and a pioneer in 3-D films, are harnessing the power of digital technology for both art and profit. In his high-tech studio in Austin, Rodriguez does it all, shooting movies, creating the special effects, editing, scoring—even making the posters.
The innovators also include outsiders such as Mark Cuban, the brash billionaire best known as the voluble owner of the Dallas Mavericks. His typically unconventional answer to the industry's woes: a digital throwback to Hollywood's old days of vertical integration, in which he owns the studio that makes the films, plus the theaters and cable channels that show them.
And they include a bunch of upstart computer-animation whizzes who, thanks to soaring processing power, are bidding to become the next generation of Pixars. As one of these moviemakers puts it, "Animation is the only part of film production where quality is going up while costs are going down."
And yes, they even include industry insiders such as Bob Iger, the newly minted CEO of Walt Disney, who's daring to challenge some fundamental assumptions about how films are released (and winning himself a lot of enemies in the process).
It adds up to a remarkable portrait of ferment and exploration in a business for which we all have a soft spot. And that's why we've chosen to focus on Hollywood in our annual Innovation Issue. There is no more compelling, no more useful story in the world of business journalism than the chronicle of creative people taking risks for the sake of doing something new and profitable. You may not be in the entertainment business, but if you're in a business that relies on innovation to stay ahead of fast-moving technology, changing consumer patterns, and rising competition—and who isn't?—I think you'll learn a lot from this month's Fast Company.
A version of this article appeared in the December 2005 issue of Fast Company magazine.