Entertainment Will Be 'First Through the Gate' in Digital Economy

At M&V Confab: Google's Schmidt Praises Seth MacFarlane, Chides Resistance to New Technology

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BEVERLY HILLS, Calif. (AdAge.com) -- Entertainment will survive a changeover to a digital economy; newspapers and "Old Hollywood" may not.
Eric Schmidt
Photo: Gus Ruelas
Eric Schmidt at the M&V conference: Hollywood needs to adapt to an 'anywhere, anytime consumer model.'
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Photos From the Madison & Vine Conference

So said Google CEO Eric Schmidt at Advertising Age's Madison & Vine entertainment conference yesterday, and, to prove his point, he broke the news that Google had just concluded a new advertising-driven deal with Lionsgate Films. Instead of playing defense against the myriad fans who illegally upload hundreds of clips from Lionsgate films such as "Saw" and "Dirty Dancing" on YouTube, Google and Lionsgate hope to turn piracy into profitability.

Monetizing film clips
Starting in September, Tinseltown's largest indie studio will be able to monetize those film clips using Google's AdSense service: Sharing, uploading and "mashing up" those clips will be encouraged, because Lionsgate will profit from Google ads sold against them.

Google's collaboration with a Hollywood studio stood in stark contrast to the adversarial posture that Hollywood's other entertainment conglomerates have adopted when it comes to YouTube: On July 15, Google complied with a federal judge's demand that it turn over YouTube viewer data to Viacom as evidence in a billion-dollar lawsuit that alleges widespread piracy of Viacom content, including shows such as "South Park," on the video-sharing site.

It was, Mr. Schmidt said, a perfect example of how Hollywood needed to change to adapt the "'anytime, anywhere' consumer model," vs. what he derisively termed "the lawyer model."

In short, Viacom hopes to put the horse back in the barn. Mr. Schmidt wants to sell ads on the horse as it runs through town.

Speaking with Ad Age Digital editor Abbey Klaassen at the conference's keynote Q&A, Mr. Schmidt pointed out that because of the decline of classified and nontargeted display ads -- driven by Craigslist and, of course, Google -- newspapers were "in a world of hurt" and their future "particularly bleak." (Indeed, only 48 hours earlier, the Los Angeles Times sacked 150 editorial employees, or about 17% of its newsroom.)

By comparison, Mr. Schmidt insisted that "entertainment is so good that entertainment will be the first to get through the gate."

"The [entertainment] entrepreneurs -- and there are plenty of entrepreneurs here -- who will be most successful will be the ones who embrace the new technology with clever approaches. They won't just copy the old models; they'll come up with new ways of both making money, but also building brand. Seth is a good example."

Seth McFarlane's deal
He was referring to Seth MacFarlane, the creator of the wildly popular Fox series "Family Guy" and the highest paid TV writer in Hollywood, even before he made a deal in late June to syndicate a new animated series online via AdSense.

Mr. MacFarlane, in an exclusive video interview with Ad Age conducted a day earlier at the Television Critics Association's press tour, said that his arrangement with Google was so complex that even he couldn't fully comprehend the nine-figure deal.

"There's so much about it I don't really fucking understand," joked Mr. McFarlane.

In fact, it's fairly straightforward: Besides funding Mr. MacFarlane's new web series, the Wall Street- and Madison Avenue-backed firm Media Rights Capital has also bought advertising space from Google; it then resold those ads to advertisers, keeping the difference as its profit. And unlike "Family Guy," Mr. MacFarlane retains the rights to the new series.

But Mr. MacFarlane did presage Mr. Schmidt's comments about needing to think differently about how to create new work online.

"Initially, I was thinking in terms of writing a TV pilot, breaking it up into little segments and releasing it that way on the internet," he said, "But the more I talked to [Google], the more I realized I'm shoehorning the needs of one medium into the needs of another. I need to start from the ground up, looking at this as programming for this medium, not for television not for anything else but the internet.

"This thing is sort of a grand experiment, and I don't know exactly when it's going to become apparent if it's a success or a failure, but it'll be sometime later this year."

Five years ago, Coca-Cola Co.'s then-chief marketing officer, Steve Heyer, told the inaugural Madison & Vine conference that brands must "collaborate or die" when it came to entertainment. At yesterday's conference, Mr. Schmidt offered similar advice to those entertainment companies leery of new technology.
Amit Kapur: Building a competitor to iTunes
Amit Kapur: Building a competitor to iTunes Credit: Gus Ruelas

The price of music
Such advice, of course, is sometimes hard to follow, as a panel on the arbitrary price of songs on Apple's iTunes would show.

The panel included RealNetworks' founder and chairman-CEO, Rob Glaser, and MySpace Chief Operating Officer Amit Kapur. Mr. Kapur recently helped engineer MySpace's settlement of litigation with the world's largest record company, Universal Music Group, last April, and also launched its streaming and e-commerce service MySpace Music, in which Universal, Sony BMG and Warner Records are partners.

When former New York Times music industry reporter Jeff Leeds asked if the 99-cent price tag on songs available on iTunes was, in fact, "a dead model," Mr. Glaser admitted that declines in the record business' sale of physical albums far outstripped any gains in downloads: "For every dollar it's lost, its regained 30 cents."

Apple, on whose board Mr. Schmidt sits, controls well over 70% of the downloaded music market. By comparison, the more-competitive music touring business has sold a million fewer tickets so far this year, but made up the shortfall by raising ticket prices, according to Pollstar.

In a follow-up interview with Ad Age, Mr. Kapur was asked if the problem wasn't that record labels weren't willing to collaborate with tech gurus such as Apple's Steve Jobs, but rather that Mr. Jobs' vice-like grip on the song-download business precluded the labels' negotiation of better prices due to the absence of a competing service.

"Yes," said Mr. Kapur. "And we aim to build that competitor."

This article has been amended from its original version. Steve Heyer, not John Heyer, was the former chief marketing officer at Coca-Cola Co.

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