Hollywood versus the Internet: the media and entertainment industries in a digital and networked economy

The behaviour of oligopolistic firms is a source of considerable debate and concern, given their market power and ability to shape the development of new markets. A key area of debate concerns the scope for strategic adaptation in oligopolies; and in particular, the extent to which such large and otherwise successful firms ignore or marginalize important shifts in the marketplace. In this article, I critically evaluate these general theoretical issues through the lens of a specific, geographically bounded case study: the collision between Hollywood, a mature oligopoly comprising six studios, and the Internet, a decentralized architecture that has made possible peer-to-peer (P2P) file sharing between networked computers. I argue that in a secure form (enforced by 'digital rights management' software), file sharing has considerable promise for all copyright owners, including the studios. I examine the oligopolistic behaviour of the studios in response to the Internet, and in particular, their response to an alternative mode of peer-based film distribution, oriented around legal, paid-for file sharing. I argue that the studios are trying to preserve the oligopolistic structure of the industry in a digital age by promoting an inefficient and restrictive 'design' for Internet distribution, oriented around centralized server-client architectures, which provides tight control over digital commodities and minimizes the disruptive impact of the Internet. This behaviour must be understood in light of the social and economic incentives that influence executives, as well as the context in which decision-making takes place. Nonetheless, their response also raises some worrying questions about the future shape of creativity, distribution and consumption in the film industry (and in the broader realm of media and entertainment) in a digital and networked economy. The article is based on over 150 interviews with elites in the studios and other related firms in the Los Angeles region. Copyright 2006, Oxford University Press.