When the late Brandon Tartikoff was the chairman of Paramount Pictures in the 1990s, he told the New York Times that the movie and television business was a “crapshoot.”

His boss at the time, Martin Davis, didn’t like opening his newspaper and discovering that the company he ran was engaged in something so risky, so unscientific, and so irrational as a game of craps, especially after making the case to a lot of institutional investors that his company was different.

That’s what a lot of professional gamblers say, by the way: I’m different, see. I have a system.

So he called Tartikoff on the phone and reprimanded him. This is not a crapshoot, he is supposed to have said. I do not run a casino.

But what’s so bad about running a casino? Casinos make a lot of money. Casinos, in fact, have a pretty perfect business. If Mark Zuckerberg, say, decided, What the heck, I’ve got 60-something billion dollars, let me live a little, and he sauntered into a Las Vegas casino and tried to put $5 billion on red, some big guy in a bad suit and an earpiece would forcibly guide the fragile, brittle-boned Zuckerberg into a quiet room where he’d be given another drink—not that he’d need another one, probably; the guy almost put $5 billion down on red!—and he’d be told that in this and every casino, if you want to wager 5 billion dollars—and by the way, they do want you to wager 5 billion dollars—you must do it in smaller, mathematically precise increments. Because the casino knows the more bets you make, the better the odds for them. The casino, unlike Hollywood, has a system.

Eventually, Paramount was bought by Viacom, which merged with CBS, which then split into two companies, which have recently been rejoined, because the rule of the media business is, if your company is languishing, you’d better buy something, unless you recently tried that, in which case you’d better sell something.

But in between the splitting and the rejoining—somewhere around 2016—an asset-management company called SpringOwl released a PowerPoint deck criticizing the management and performance of the company. There’s lots in it about upside-down growth, soaring executive compensation, lagging behind competitors, flop movies and shows, and the possibly incapacitated elderly owner, Sumner Redstone. But the best part of the deck is this one sentence, describing the predictably excellent results that would come from instituting the changes that the asset-management brains suggested:

“New hit shows,” the deck confidently avers, “will come from the transformed creative company.”

If your reaction, after reading that sentence, was to nod sagely and think, Good point, hit movies and television shows are really just about adjusting the management processes and getting the organizational chart just right, then you’d fit right in with the management team at AT&T. In 2016, AT&T purchased TimeWarner—which owned the sprawling Warner Bros. film and television studio and a collection of cable enterprises, including TBS and HBO—and immediately set about instituting its own set of adjustments and reforms and restructurings, very much along the lines of what the SpringOwl Asset Management LLC folks suggested for that other lumbering media giant that same year.

Here’s how it went: In May 2021, while awaiting the “new hit shows will come from the transformed creative company” phase, AT&T decided to combine the entire division with cable outfit Discovery and pass the newly formed bundle along to shareholders. It did this the way a parent will sometimes casually hand an infant over to the other parent as if nothing’s wrong, as if the baby isn’t loaded down with a very full diaper.

But what was AT&T supposed to do? Back in ’16, its leaders had decided, like everyone else, that they needed to own a “content factory” in order to stay competitive in their core enterprise of wireless services and devices. What they didn’t fully grasp was how expensive that was going to be.

About a century earlier, the Victor Talking Machine Company did exactly the same thing. At the time, Victor was a cutting-edge high-tech business. It manufactured the Victrola, one of the earliest consumer machines that could play recorded music. The Victor Talking Machine Company was what we would now call a “consumer-facing technology-hardware enterprise.” But a tech company with great tech needs content, as contemporary consumer-facing technology-hardware enterprises like Sony and Apple have discovered. The Victor Talking Machine Company made a machine that reproduced sound. But without sound recordings, it wouldn’t sell many Talking Machines.

So, in 1927, one of their more entrepreneurial employees headed down to Bristol—half of the town is in Tennessee and half in Virginia—and offered to pay local singers and musicians to come and record their music. A makeshift recording studio was set up at a local furniture store and people came from miles around to sing and play. The performers (whom we now call “content creators”) were paid $50 and received a two-and-a-half cents royalty per record sale, which in 1927 was not bad at all. These recordings became known as the Bristol Sessions, and in addition to creating content for the Victrola people, they incidentally pretty much invented country music. The simplicity of that business move—we have a machine, we pay you to sing into our machine—developed into the tangled and complicated entertainment business of today.

The history of the Victor Talking Machine Company tells the century-long story of the media business. Victor joined with the Radio Corporation of America, which eventually purchased the National Broadcasting Company, which was then swallowed up by General Electric and combined with Universal Pictures. Eventually, after exhausting and failed diversions with Japanese electronics giant Matsushita, liquor dynasty Seagram’s, French water-and-media conglomerate Vivendi, NBCUniversal was sold to Comcast, an enormous cable-television outfit, because if you have a company that supplies cable television to American homes, you’re going to need to buy a studio.

Which, of course, is nonsense. In many ways, owning a motion picture and television studio is the least efficient way to run a cable empire or a talking-machine company. The business theory behind this kind of vertical integration is the fear that if you don’t own a studio, no one will sell you their content—which is sort of like saying if you don’t own a farm, no one will sell you a hamburger.

Hollywood is positively thronged with people who will sell you their scripts, services, acting talent, and pretty much whatever. Studios and creative enterprises work best—both in terms of efficiency and as hit-machines—when they’re free to take risks, hear fresh pitches, try something new, put a lot of chips down on the felt. Hit shows don’t come from a reorganized company. They come from a disorganized company.

Even Disney, the most successful and tightly organized media business around, sticks resolutely to its knitting. Disney’s recent move into streaming video, Disney+, has so far been a rousing success. Disney owns no Internet service providers, no cable outfits, zero talking machines. Disney makes content and looks to someone else to provide the pipes. The trouble begins, as AT&T discovered, when you try to do it the other way around.

Which is not to say that Hollywood is a bad business. It’s a terrific business for a lot of people. One of the ways you can learn about an industry is to take note of who got rich and how. In show business, some rich folks—directors, producers, actors, rarely writers—got rich by selling their talents and services to the highest bidder. Other rich folks—studio chiefs and assorted executives—got rich by negotiating giant pay packages and fat stock options. Notice who isn’t on the list? That’s right: shareholders. Show business is a great place for individuals to get very wealthy. Publicly held companies, not so much.

So when you get right down to it, Martin Davis was right and Brandon Tartikoff was wrong. Hollywood is not a casino. It’s not a game of craps. Because a game of craps you can win.

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