Explaining Southern California's economy

Hollywood needs Netflix, but Netflix is struggling

Netflix Reports Third Quarter Earnings

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Netflix disappointed Wall Street with its second-quarter earnings. It's trying to get out of the business of delivering DVDs by mail while it grows in online streaming.

In a world where people watching movies and TV shows online is a trend that's absolutely taking off, you'd expect that the biggest name in the streaming space, Netflix, would be doing quite well. And you'd be justified — but also quite wrong.

First, the streaming part. This is from The Wrap, referencing a recent report from the Digital Entertainment Group and looping in Netflix's major business-model change:

The five-fold spike in subscription streaming is largely due to Netflix’s shift away from CDs. Spending on subscription streaming hit $548.6 million in the first half of 2012, up from $85 million in the first six months of 2011. [my emphasis]

How could Netflix lose with increases of that magnitude being posted? Easy: All that demand for streaming means Netflix is going to have to spend and spend hugely to feed the demand. Wall Street is concerned about this — as well it should be given that the former darling of the Silicon Valley tech world just saw second quarter earnings call by a whopping 91 percent. USAToday does the numbers:

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Chris Dodd wants Hollywood and Silicon Valley to patch things up

CinemaCon 2011 - Day 2

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Former U.S. Sen. and new Chairman and CEO of the Motion Picture Association of America Chris Dodd speaks at The Colosseum at Caesars Palace during CinemaCon, the official convention of the National Association of Theatre Owners, March 29, 2011 in Las Vegas, Nevada.

You could say that it's the great business question of our era. Certainly it is in California. Why can't Silicon Valley, seat of the tech industry, and Hollywood, capital of the entertainment business, join forces and create a juggernaut of technotainment that will establish the Golden State as the most important place on Earth for innovation and global media?

In theory, it should be a no-brainer. But in practice it's a case of colliding business models. Big Content has built up its ownership of media over the course of a century. It's not going to share the goodies without claiming its cut.

Big Tech, on the other hand, wants all that content to be free, free, free. Chris Anderson pretty well laid it all out, in detail horrifying to Hollywood, in 2009, in his aptly titled book "Free: The Future of a Radical Price." Why? Because the ability to fragment and share content is a critical piece of Silicon Valley's overall business model. Users need to be able to do this by the millions if not billions, so that various Web companies and appmakers can sell ads against the — wait for it — free labor of those users. 

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In SOPA debate, is Hollywood on the wrong side of history?

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Senator Chris Dodd (D-CT)

The debate over the Stop Online Piracy Act is heating up. The SOPA bill could come to a vote this week in the House, and a similar bill is under consideration in the Senate. This has kicked the so-called "Geek Lobby" into high gear. Fred Wilson of Union Square Ventures, a venture capital firm in New York, has been vocal on his blog, going to far as to symbolically censor his post today as a call to action.

Wikipedia founder Jimmy Wales has suggested that the online encyclopedia could go on strike in protest. And California Republican congressman Darrell Issa has broken ranks and proposed his own alternative legislation, allying himself with Silicon Valley against Hollywood and the Big Content industry that supports the SOPA legislation.

The opposition has also created a video explainer on why the legislation is the worst thing that's ever been proposed. It's over-the-top and doesn't present the issue with anything resembling complete accuracy. But it is worth a watch (In the interest of reasonable objectivity, I'm not going to embed it, so follow the link if you're interested).

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Wait! Maybe Yahoo will move to LA!

A while back, I suggested that Yahoo, the beleaguered technology colossus, should close up shop in Silicon Valley and move all its operations to Southern California. (It already has an office in Santa Monica.) Now CNN's Juilanne Pepitone reports that something along those lines might be in play. Could Disney buy Yahoo? Here's the lowdown:

While Disney hasn't thrown its name into the ring, one analyst thinks it and its big-media rivals should consider a Yahoo buyout.

"The big guys -- Apple, Google -- aren't interested. And either way, it would make more sense for a traditional media company to buy Yahoo," says James Dobson, stock analyst at The Benchmark Group.

That's because traditional media companies are struggling with how to monetize their online presence. They're still working through the transition from old to new media, and they face stiff competition from upstart online publications.

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