Is Hollywood Failing to See the Big Picture?

Emotions have been running high because the piracy debate heralds a reordering, if not a reinvention, of the way entertainment is consumed. The travails of the record industry are just the first nasty shock in what will eventually be a technological earthquake. Schwinn went bankrupt when it was slow to adjust to the arrival of carbon-fiber and aluminum-frame mountain bikes. Kodak has never recovered from ignoring the new technology of digital cameras and camcorders.

"As an industry, we are going to have to adjust. The tide is coming in whether we want it to or not," says Sony America Chairman Howard Stringer. "We've got to redefine our relationship with our customers and recognize that it's a two-way dialogue. We can't sit back and close our eyes for five years the way the record business did before they began to deal with new technology."

The entertainment business prides itself on absorbing and exploiting virtually every youth culture trend. But when it comes to revamping its business model, Hollywood can be as resistant to change as Detroit automakers or the steel industry. When TV sets appeared in living rooms in the late 1940s, movie studios panicked, treating the new medium with the same disdain and distrust that executives today have for baby-faced Internet downloaders. How could we possibly survive, the old moguls moaned, trying to compete with something that is free?

Hollywood survived and flourished in the new medium. But today's corporate CEOs by and large have a similarly dyspeptic view of the future. Feeling the drumbeat of quarterly earnings reports, they are not paid to be bold visionaries. They are rewarded by maximizing profits, not risking them pursuing new technology. It's especially telling that the first genuine success with a legal downloading music service, Apple's iTunes, was devised by a technology company with no stake in the old CD business model.

Entertainment companies, especially in profitable times, remain wedded to the past. Years after video became the preferred method of filmmaking for everyone from George Lucas to parents, movies are still shown in theaters on film projectors, a century-old technology.

It took the music business four years -- from fall 1999, when Napster swept through college campuses, to this last month, when Apple's iTunes Music Store became available for personal computers -- to develop a legal file-sharing service that had both a diverse selection of music and few onerous restrictions on use.