We recently attended the iHollywood Digital Media Summit in Universal City on June 7 & 8, 2005. Besides being an event jam-packed with interesting people, companies, and opportunities, it was a very comfortable event ... well thought out and deftly managed. The focus was on the business, the technology, and the people of Digital Media, a rather vast topic to cover in so scant a time of just two short days. However, the core aim of this summit was to enable business networking and deal-making, and this goal was achieved by many attendees. Perhaps it was the giddy atmosphere of Southern California, the sunshine, the ice cream social, or the great musical entertainment, but something in the air made most folks realize that we were all there to meet each other and get on with the business of Digital Media. And that we happily did!
One of the highlights of the event was Will Hearst's Keynote, "Silicon Valley and Hollywood: A New Partnership." Will covered much ground in a rather short period of time, but I've managed to recount the impressions he left with me here.
A View From The Top
Will Hearst structured his address in a useful and rather straightforward manner. There were three main areas that he covered:
Relationship Foundations: What are the relationship elements to consider for successful Silicon Valley and Hollywood ventures?
Investment Principles: What are the principles that influence Silicon Valley and Hollywood investments?
Investment Themes Going Forward: What are the major investment themes now being considered by Will Hearst as a partner with Kleiner Perkins Caufield & Byers.
Foundations of a Good Marriage Between Hollywood & Silicon Valley
To kick things off, Will Hearst first laid out some important foundations for a good relationship / marriage between Silicon Valley and Hollywood. He focused on technology's role, the intrinsic or core attributes of the nature of the business, the importance of business talent, pricing tendencies and intellectual property rights.
Role of Technology
Silicon Valley deeply believes in technology, making it the value cornerstone of any venture and making sure that "relentless innovation" is central to the business plan. Hollywood tends to view technology as a means to an end, looks at incremental value add and the development of technical "crafts" which support the creative mission. Will Hearst's advice to Hollywood is to give technology a more prominent role in developing the value proposition of joint ventures, citing that these days technology is a vital part of any serious business venture.
Core Attributes: Taste & Instinct vs. Focus Groups
Will Hearst pointed out something that tends to frustrate the visionary among us: verification by surveys and focus groups acts like a mediocre safety net for those who are afraid to take the "creative leap." And the results are never as pure or as innovative as when creativity follows taste and instinct. Here, Hollywood's focus on story and character leads the way even though surveys and focus groups are still used in their proper place. This is yet another aspect of the difficult qualitative / quantitative balance that needs to be achieved for a successful enterprise.
Business & Managerial Talent
For both Hollywood and Silicon Valley, "managerial talent is a rarity," and should be nurtured and cultivated. Rarer still are business managers who can blend the technological with the creative, and guide their organizations to growth and success. Not everyone is capable of being a CEO, and sometimes this fact escapes many, especially the CEO.
Pricing Tendencies
In Silicon Valley companies, business models account for the fact that many aspects of the cost model (memory, CPU, bandwidth, storage) have a tendency to "drive to zero", and this plays a major role in pricing strategies. In Hollywood, the tendency is to build incremental creative value and brand franchises, which supports premium pricing strategies. Properly blending these two realities into one coherent approach is a major reason why managerial talent is so rare and Silicon Valley / Hollywood relationships can be so challenging.
Intellectual Property Rights
Debates concerning Intellectual Property Rights are never dull. And Will Hearst did his level best to frame the contentions accurately. Silicon Valley has an "open" approach to Intellectual Property, Open Standards, Open Source, Open Alliances, etc. Hollywood develops proprietary intellectual property in terms of brands and franchises in order to build value and protect investments. The proper attitude here is to reward business risk and provide compensation to those who supply the means, i.e. capital, to launch and sustain ventures. Even though this view makes logical sense, somehow its wisdom gets lost in translation within the endless debates regarding Intellectual Property Rights, and is particularly evident when Silicon Valley and Hollywood business models collide.
Investment Principles for Silicon Valley and Hollywood
For his keynote's second act, Will Hearst reviewed some relevant investments principles which presumably guide his own investment activities for Silicon Valley and Hollywood ventures. He talked about wasting cheap resources, channels & choice, meta-data, the chain of values, and our place in the early history of technology.
Gresham's Law Reversed
Gresham's law is stated as: "Bad money drives good money out of circulation". Will Hearst suggested that we should be fiscally irresponsible with cheap things, namely, memory, CPU, bandwidth and storage. Business models which have an appetite for such things should not be dismissed, since "the entire contents of the Internet now fits into a closet." Will also pointed out that cheap resources should always be in service to the rarest of resources, namely talent.
Channels and Choice
The explosion of content choices has strained the notion of a content "channel." And there is an important interplay between the "long tail" effect and the "head." While the long tail is evidence that choice is a crucial principle to consider, the head (i.e. content popular with mass audiences) plays a role in attracting the mass audience in the first place. Channels exist to aggregate content and advertising, and this is in service to the head. Business models which capture a niche are important and can be profitable but scale comes from servicing the long tail.
Pay Attention to Meta-Data
The long tail is statistically descriptive and shows how demand is distributed over a vast choice space, and this brings scale to a business model. However, without proper handling of meta-data, discovery and targeting are virtually impossible. Although it is possible to build successful niche businesses which are targeted to specific content areas, scale comes from the vastness of the long tail. So I managed to ask one question regarding meta-data: "Whose meta-data is it, anyway?" In other words, who owns the IP rights to metadata? In response, Will Hearst pointed out Paul Kagan's admonition with respect to bringing content to consumers: it's all about promotion and distribution, not just producing content and somehow the audience will come. This is something that was sadly obvious (in hindsight) with so many Silicon Valley business models of the bubble era. And in this case, meta-data is vital for discovery of content and thus for promotion and distribution. However, the meta-data rights issue remains a very "tricky" area ...
Rights Issues and the Chain of Values
When building value, it's all about respect: respecting the value of the consumer, the value of good management, the value of the artist and producers. But it's also about respect for the value of capital in terms of an investment return. And this value is certainly no less important than the rest of the "respect chain" of values. As an investment principle, this seems somewhat obvious to investors and somewhat opaque to less experienced entrepreneurs.
Early in the History of Technology
It is sometimes hard to fathom that we are merely at the beginning of a very long technological era. Try to imagine the technological advances coming in the next hundred years, and you will soon see that the best is yet to come. This "long view" perspective needs to be part of an investment strategy, taking into account constant, never-ending, technological advances. Some would also point out that this kind of thinking is sorely needed by public policy makers at all levels, but that is not the subject of this keynote. :-)
Five Investment Themes "Going Forward"
To wrap things up, Will Hearst denoted five investment themes that he will follow going forward which centered on the "EverNet", web everything, EverNet content, new energy sources, and the global marketplace.
[1] EverNet: Always On, Always Connected
Welcome to the EverNet: the Always On, Always Connected fabric of communications and media which forms a significant portion of your everyday reality. The pace of everything thus speeds up, and more and more business opportunities arise to add value in this brave new world.
[2] Web-Face for Everything
All businesses have some form of web component or "web face." Besides the traditional notion of web sites, there are blogs, listings, and on-line directories, just to name a few aspects how businesses must manage the online business component of their reputation, brand, customer service, and commerce.
[3] EverNet Content
Innovative content which rides on the EverNet is valuable and always in demand. The challenge to producers of so-called EverNet content is clear: create timely, always available and relevant content to support highly connected and media-hungry global audiences.
[4] New Energy Sources
Green businesses, renewable and sustainable energy sources and businesses which factor in these environmental issues are an important investment theme. Businesses which meaningfully relate to these issues have a significant edge over those that ignore them.
[5] Global Marketplace
All markets are global and interconnected. Over time, these markets become more efficient and effective via interconnections. Every business is thus a global business to some degree, and must address the global marketplace in order to not only reach its fullest potential, but to be viable and truly compete on a global level.
Many thanks once again to the fantastic team at iHollywood Forum for quite an enjoyable and very productive summit! And congratulations on a highly successful event!
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