Silicon Valley steers towards a Hollywood ending

Through 2012 technology capitalists and founders have often resembled the hits driven business mentality of Hollywood. If anything, the Valley is morphing into Hollywood.

There are few people in the technology world more revered than Paul Graham.

Graham made his name and initial wealth via programming, selling an early start-up to Yahoo for shares worth, at the time, around $US50 million. In 2005 he founded Y Combinator, widely regarded as the world's most elite start-up incubator, having helped facilitate such success stories as Airbnb, Dropbox and Reddit. Silicon Valley looks to Y Combinator to introduce it to the next crop of entrepreneurs with big, disruptive ideas that can change the world.

Put simply, when Graham speaks, the start-up world listens. And it was listening intently back in January of 2012 when Graham put out the call for the next intake of YC applicants to "kill Hollywood".

Of Hollywood, he wrote in the piece: "The people who run it are so mean and so politically connected that they could do a lot of damage to civil liberties and the world economy on the way down. It would therefore be a good thing if competitors hastened their demise. How do you kill the movie and TV industries?”

At the time, Silicon Valley was up in arms around the SOPA bill. They believed it threatened innovation and harmed the public. The creative industries, including Hollywood, believed it threatened their long-term well being by not protecting its IP. At the end of the day, both parties were more concerned with the financial implications of the act on their business interests. Graham’s call to "Kill Hollywood” was well timed – it supported the Valley view and created a pretty neat in-group/out-group scenario.

The recent failure of much-covered start-up Color and the failure to launch of the immensely hyped Airtime have made me think. How can Graham hate Hollywood? Silicon Valley has turned into the new Hollywood and Graham is playing the same role as Hollywood agents such as Ari Emmanuel. Discovering, nurturing new talent and taking a clip of revenue/equity on the way through as compensation for guidance. Graham and YC are the Creative Artists Agency and WME of the technology world; the individual with the knack to find and focus creative minds. The similarities between the Valley and Hollywood seem significant. If anything, shouldn’t Graham relate positively to the Hollywood world?

The similarities are striking. Power is concentrated in the hands of very few. In Hollywood it’s the studios, media companies and agents. In Silicon Valley power is concentrated in the hands of the venture capitalists, incubators and big, wealthy technology companies. However, a truly excellent idea, well executed will get you noticed in both.

Big bets are the norm and failure is frequent. In Hollywood most movies/TV shows and recordings struggle to cover costs. The big success stories fund everything else – in TV, music and movies. It’s not uncommon for a movie to lose $50 million to $100 million. In Silicon Valley profit is an ambition more than a necessity on the whole. Many start-ups burn cash at an alarming rate (Color burnt through $41 million, Airtime has raised $33.5 million and has failed to even threaten to dent consumer awareness, Spotify has raised $188 million and is still yet to turn a profit) but the end goal is for a big pay-off if a company can reach Facebook or Google-like status. To put these current losses into perspective, The Green Lantern – widely considered a Hollywood disaster of epic proportions – incurred a loss of $US105 million off revenues of $US336 million.

Hollywood has lobbyists in DC. So does the Valley. Loads of them. SOPA pushed Google, Amazon, eBay and Facebook to launch The Internet Association to have a unified presence in DC. According to Fast Company, earlier this year Facebook and Google spent large amounts of cash on their Washington lobbying operations. Between April and June, Facebook spent almost $1 million, Google $3.9 million.

Hollywood loves to back what it believes to be sure things – star power with past box office success. But it does so with mixed results. The Valley does the same. Bill Nguyen had a moderately successful track record of VC exits and managed to fund Color. Sean Parker made his name with Napster but the success of Facebook gave investors confidence to back Airtime. Max Levchin saw success with PayPal and was well funded with Slide. Marc Andreessen invented Netscape and had no troubles raising $119 million for Ning. One could argue that these businesses’ listed above had similar outcomes to Kevin Costner’s Waterworld: lots of hype and volume but limited connection with consumers and little, if any, profit to justify the funding.

Hollywood is facing a significant challenge to its business model – and as such is being forced to look at new ways to position itself for the future. The technology world is in the same spot – it must move from a well-funded, nascent yet generally unprofitable world into a leaner, meaner and cash flow positive industry. It has the same reliance on venture capital that Hollywood has on the model of old. Both are hits-driven businesses right now that need to evolve into something less reliant on the big payday.

Truth is, to me, it seems like Silicon Valley and Hollywood have a lot in common. And that is perfectly fine. Both the Valley and Hollywood are revered hotbeds of creativity and innovation that are looked upon globally to provide a glimpse into what how to help entertain, inform and assist society in the future.

As 2013 approaches, I personally would love to see these two worlds work closer. There is room for old and new to coexist. And I’d love to see Graham, who has a history of identifying and inspiring talent, look to work with Hollywood and the entertainment world rather than looking for hero points by calling for its blood.

Ben Shepherd is group commercial director at Dainty Consolidated Entertainment and blogs at Talking Digital.