Grab the popcorn: Hollywood readies for epic battle with Silicon Valley
The war for dominance will be hard-fought between traditional studios and the likes of Netflix, and not all of the players are likely to survive
In its 1930s heyday, Warner Brothers’ sprawling studio on Sunset Boulevard was a hit factory for some of the world’s best-loved cartoons. As the home of Looney Tunes, the exploits of Bugs Bunny, Daffy Duck, Tweety and Wile E Coyote were produced here, in the shadow of the Hollywood sign perched on the dusty hills above.
These days, most of the studio space is occupied by Netflix, the San Francisco-based video streaming giant, which, in just over six years since it began making its own films and TV shows, has emerged like Road Runner to become one of Hollywood’s most powerful players.
While the traditional Hollywood studios race to catch up by launching rival video streaming services, Netflix has been on a roll. In 2019, Netflix will plough $10bn into new content while the group, which now has more than 139 million subscribers globally, most outside the US, is expected to make 55 new films. That compares with 36 films produced in 2018 by Universal Studios.
But Netflix is not the only Silicon Valley giant to have set its sights on Hollywood, and the battle for control of the movie business is about to get more intense.
Already a big player, Amazon is forking out an estimated $4bn to $5bn a year for its own streamed content available via Amazon Prime. More important, executives at Apple’s growing LA operation in Culver City, a few kilometres away, are putting the final touches to a rival streaming service due to be launched next week. Apple has roped in big-name actors and directors, including Oprah Winfrey, Reese Witherspoon and Steven Spielberg, and has already forked out more than $1bn on new shows.
Yesterday, Disney completed its $71bn takeover of 21st Century Fox. With both Disney and Warner also expected to launch their own rival streaming services in 2019, it’s an increasingly crowded and competitive market.
Rivalry runs deep
Inside a cavernous film studio, Reed Hastings does his best to soothe fears over Silicon Valley’s rapid, albeit controversial, ascent to Hollywood stardom. “Our success does not determine their success,” says Netflix’s billionaire founder, who is eager to argue that there is room for everybody in Tinseltown. “You do your best job when you have great competitors.”
If Hastings sounds relaxed, he is putting on a performance as good as any in the 100-year history of what is now called Sunset Bronson studios. In the ferocious battle for control of the global entertainment business, vast sums are at stake and the rivalry between different players runs deep. Nor is it just Hollywood that Netflix and others have in their sights. From Mumbai to Tokyo, the US tech giants are emerging as key players in the domestic television and film industries, bankrolling local productions as they chase new international subscribers.
For rank-and-file workers in the industry, the torrent of cash flowing in from Silicon Valley is welcome. “There has never been a better time to work in TV,” says one executive. But for shareholders in the established studios and among the industry’s elite who view the tech giants as brash arrivistes, it’s a horror show that took a sickening turn last month when Netflix won its first Oscar.
Dunkirk director Christopher Nolan has criticised Netflix’s “mindless” policy of releasing films simultaneously via streaming and for cinema release – a strategy many believes is damaging the industry. Nevertheless, the inexorable rise of video streaming is already driving big structural changes and it is Netflix, Amazon and Apple who have the wind in their sails. It was a key reason behind Disney’s acquisition of Fox’s entertainment assets – a deal that reduced the number of big Hollywood studios from six to five.
Either way, the battle for dominance is likely to be hard-fought, and not all of the existing players are likely to survive.
On one level, Reed Hastings is correct. As the big studios slug it out with Silicon Valley firms, the global film and entertainment business is thriving amid all of this investment. There is little evidence that streaming is killing off traditional cinema. In fact, US box-office sales increased 7% to $11.9bn in 2018. Global box office sales are expected to hit $50bn by 2020 from $38bn in 2015.
Some believe Netflix’s gamble may not pay off in the long run, however. With a market capitalisation of $156bn, Netflix is no tiddler, but it is up against competitors with even deeper pockets. The newly combined Disney-Fox group still outspends Netflix, with an expected annual content budget of about $22bn. Moreover, with a $245bn cash pile and a market valuation of close to $880bn, Apple has firepower that Netflix can only dream of.
The most famous trait of Looney Tunes character Wile E Coyote was to unwittingly run out over a precipice and glance down before crashing to earth. For Netflix, which uses hefty slugs of debt to fund its spending on content, there are similar risks. Its debt stood at $10.4bn as of the end of December, up from $6.5bn at the end of 2017.
That’s enough to worry even the most hard-bitten Hollywood mogul.
– © The Daily Telegraph