Interview with Matt Stoller, Director of Research at American Economic Liberties Project

 

By Hugh Reynolds

Matt Stoller is the Director of Research at the American Economic Liberties Project, a non-profit organization advocating for antitrust reform and corporate regulation in the United States. Stoller has been featured as an antitrust expert on Matt Belloni’s podcast The Town, and has advocated for antitrust regulation in Hollywood in numerous pieces, including Time to Break Up Hollywood and Make Hollywood Great Again. Stoller’s book Goliath, The Hundred Year War Between Monopoly Power and Democracy, was published in October. 

Hugh Reynolds interviewed Mr. Stoller about legal trends in the entertainment industry and the future of content creation. Their conversation is reproduced below.

Hugh Reynolds: You have written at length about antitrust issues facing the film and television industry. Would you mind providing a broad summary of these issues, and why you believe they are particularly salient right now?

Matt Stoller: Looking at consolidation in Hollywood, the strikes really brought home how the industry isn’t really delivering for anyone right now. You see a general public dissatisfaction with film and TV content that’s coming out, and the people creating that content are frustrated.

Something’s going wrong with this amazing industry – what is that? When I look at industries and market structures, I look at them in the context of the broad intellectual and political movements that have affected every industry. The one that’s consistent from the 1980’s onward has been consolidation, and you’ve seen that in Hollywood. Consolidation has led to the reduction in the number of studios, but also the combination of studios with distributors into these streaming giants. 

This is like consolidation in other areas. For example, with the combination of health insurance payers with doctor practices, you have these giant conglomerates in the health system, and an industry that doesn’t work very well. Airlines are fairly similar— down the line, a lot of our industries have consolidated. 

When they consolidate, they typically impose problematic barriers between the customers and the people that are producing. That’s what the consolidation in Hollywood was about. There were some important legal safeguards in the television and movie industries put in place in the ‘40s through ‘70s that separated firms that created content from firms that distributed content. This allowed for an open market: viewers could access content that they wanted to see, and then the content creators could get paid based on whether their stuff was well-liked and popular. When those safeguards came down, what ended up happening was a consolidation of the firms that produced and distributed. 

Now there’s a basic conflict of interest, and a basic flaw in the business model: the entity that is distributing has an interest in giving customers stuff that they make, rather than stuff the customers might be interested in. It then becomes more likely that companies create bad content, and the industry fixates on bargaining with creators to reduce their compensation. It takes a high-profit, high-revenue, high-quality, high-cost industry and turns gradually into a low-quality, low-cost, low-wage industry.

Reynolds: There have been other key developments affecting content quality. Looking specifically at the streamers and distribution, the business model has transitioned away from buying movie tickets, and toward subscribers. Separately, creators no longer receive substantial backend compensation anymore. Do you think the combination of these three factors adversely impacts content quality?

Stoller: I do. Creators have less power and less responsibility. As a creator, if you do great work, and it ends up being very successful, you would traditionally have various studios vying for your business— you could then make whatever you wanted. This is how a lot of weird, incredibly popular stuff got made.

However, when you consolidate power so creatives have less bargaining capacity, what you end up doing is asking Tim Cook [of Apple] or Andy Jassy [of Amazon] what they think in the five minutes a day they have to dedicate to their studio arm. That’s not what they do, and they’re not going to be making decisions based on what good creative content there should be. They make decisions based on a bunch of other irrelevant or counterproductive factors. Apple might make decisions based on whether or not it upsets China. There’s no way that that could improve the quality of the movies. However, where you have a studio whose only business is movies, then they have a really strong interest in making sure the content quality is as high as possible.

Looking to studios like Disney: they make money from their movies, but also through subscriptions and theme parks. In actuality, their film business selling in theaters is not as important as some of their other lines of business— so while they have some incentive to make high quality content, they’re really about control. As a result, their internal operational capacity to make high quality content has fallen apart. It was masked for a time, but it’s much like the auto industry in the 1960’s: all of a sudden, in the 1970’s Japanese car makers entered the market with high quality products, and it became obvious that the internal operating capacity for US auto companies had fallen apart. When you’re not competing, and you just have market power, then you don’t really have to make a good quality product anymore.

Reynolds: To make sure I follow, you’re saying as some of these companies horizontally diversify, it increases the amount of “noise” preventing them from making high-quality content?

Stoller: Not quite. What I’m saying is: for Apple and Amazon, movies are a rounding error for them. They don’t care if they do a good job; if no one wants Apple TV, it would make no difference to Apple’s executives. The same thing is true with Amazon. They spend a lot of money, and they don’t have to make money on money that they spend. That’s a huge problem for the whole industry.

Then beyond that, as a separate point: Disney is not interested in making the most interesting, weird content. They’re interested in maximizing the value of their whole portfolio. Sometimes, these things work against each other, like when they have to ask, “Does the creative richness of this content flow from, in-part, being critical of some element of China?” If so, they’re not going to do that project. They’re too big, and they have interests over there. However, if you had a bunch of smaller firms— some of them might do that project, as they wouldn’t be prioritizing expansion into China.

Reynolds: That reminds me of Amazon’s show, Citadel. It was incredibly expensive to make, and in terms of viewership, it looked like a flop. Still, Amazon renewed for another season. It’s possible the show led people across the globe to sign up for Prime, then retain their subscription long after to buy normal consumer products. That’s a weird incentive structure for making television.

Stoller: What’s funny is: I don’t think that people are actually Amazon Prime’ing more products. That presumes a level of rationality. Amazon is a giant bureaucracy — they’re just losing money on it.

It’s partially a consolidation problem, because they’re vertically integrated— they produce and stream, so they have the conflict of interest. It’s not like they’re a monopoly, but an example of a different kind of unfair competitive tactic, which is entering a market when you don’t have to make money. 

Reynolds: Right, that’s how Netflix broke in so early, right? Through buying market power.

Stoller: Yeah. You could call that predatory pricing, and it’s unfair.

Reynolds: It sounds like it’s really hard for these independent production companies to make content in this space. However, it seems like there might also be opportunities. For example, Everything Everywhere All At Once was enormously popular, in part because there are so few movies like it right now. It’s original and individual. Do you think this could be an opportunity for the smaller, more interesting companies?

Stoller: No. It’s much harder to get distribution if you’re smaller. The reason Hollywood has always been able to refresh itself creatively is that new, more niche artistic types constantly come into the mainstream. That’s because the distribution systems were relatively open. Eventually, something interesting would emerge that was European influenced, people would watch it, and the studios then hired those creatives to make whatever they wanted. Now, it’s much harder to do anything different and original. You don’t have that same feedback loop anymore, because content just goes straight to streaming. It’s much harder today than it should be.

Reynolds: You have previously written that studios have lost the feedback loop that comes from ratings by putting their own content on their streaming services. Netflix has decided to share viewing metrics, and if other streamers are to follow, Netflix could make decisions based on how content on Hulu is performing. Do you think studios viewing each others’ metrics could help mitigate some of this issue?

Stoller: Yes, I think that’s a good thing— but what’s important is that they’re all getting into advertising. It’s really important that the metrics for advertising, viewership and creative compensation are the same metric. 

What Netflix probably wants is that it wants one metric for advertisers, where they tell advertisers how the shows are doing, and one metric for the creators, where they tell the creators how the shows are doing, so they can lowball the creators and charge a lot to the advertisers. If they just had to show the same amount to both, then that would be ideal. I think the advertising model of releasing more information about how the shows are doing makes sense. I do think it’s important that there be an independent auditor. I don’t know why we believe Netflix.

This conversation has been lighted edited for concision and clarity.