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Back to the Fax With Sony Entertainment CEO Michael Lynton

"Technology, for the first time, has fundamentally changed the creative product in television," Lynton said. Among other things.

Asa Mathat for Vox Media

The Sony security breach of 2014 was devastating to Sony Entertainment CEO Michael Lynton, his company and his employees.

Now that’s behind him, he says — except for the fact that he routinely uses a fax machine to communicate.

Which Lynton says isn’t a terrible thing, either: “Slowing things down for a minute, that’s not the worst thing in the world,” he said last month at the Code/Media conference. “What you say in haste at three in the morning — which was often the case of what showed up in some of those emails — is not necessarily the best way to say what you want to say.”

During a wide-ranging onstage interview with Re/code Senior Editor Peter Kafka, Lynton spent most of his time talking about TV, music, movies, Snapchat and more. He marveled at the “happy accident” of the current TV boomlet and the “inconceivable” eruption of multiple-billion-dollar global movie franchises; suggested that the music business is going to follow the movie business and move toward “windowed” releases, which will make it harder to hear new music for free on Spotify and YouTube; and talked about the evolution of Snapchat CEO Evan Spiegel’s management skills.

You can watch the entire video below:

And here’s an audio-only version:


Let’s get this part out of the way. You got hacked a while ago.

Michael Lynton: Probably yesterday —

Yesterday, it feels like. It feels also like a lifetime ago. How is your company different today than it was pre-hack?

First of all, I think it’s well in the rearview mirror at this point. You know? I think it’s very much of an afterthought to everybody. I do think people are a lot more cautious with their email. I do think people are cognizant of what sort of information should and shouldn’t be shared, regardless of whether we’ve got somebody out there hacking us. But the point now is when you walk around the studio, you absolutely get the sense that this is in our past and not —

It doesn’t come up in discussions.

No. No, thankfully.

Presumably you’ve got a different IT team and a different IT structure.

Not a different IT team. There is some difference to the IT structure, but as the U.S. government has told us, we were supposedly cyber attacked by a sovereign, so it’s not clear that anybody could have withstood that.

And then having the contents of your inbox dumped out in public view for a couple of years.

Sifted through, catalogued —

I published a couple of pieces from it.

Yes. You’re not going to get me to swear. Unlike other people that have been sitting in this chair. [Laughing].

Swear all you want to. Or don’t swear, it’s fine. My kids are no longer here in the room. It’s fine. Do you communicate differently now? Are there things that you will only say on the phone or —

Oh, absolutely.

Yeah.

And my fax machine is in great use at this point.

You’re actually using faxes.

Fax. And I write it out by hand, and then I put it in the fax. At least once a day.

You’re not being facetious.

No, no, no, I’m not being facetious.

So it actually slows your business, then, because you’ve got to —

You know, it’s surprising how quickly you can write something down on a piece of paper and shove it in a fax.

Yeah.

And by the way, sometimes slowing things down for a minute, that’s not the worst thing in the world, either. What you say in haste at three in the morning — which was often the case of what showed up in some of those emails — is not necessarily the best way to say what you want to say.

Do you use any alternate methods of communication? You’re on Snapchat more?

I do, I Snapchat with folks, yeah. Not for work.

Not for work.

No. And mostly with my nieces and nephews and kids. And I instant message a lot, as you would imagine.

Asa Mathat for Vox Media

“A happy accident”

We’ll go back to Snapchat in a bit. Let’s talk about your actual businesses — start with TV.

Mm-hmm.

We had Mike Hopkins here, from Hulu. One of the reasons he’s interesting to talk to is there is this reshuffling of priorities with the TV guys and the SVOD guys and the Netflixes and the Amazons. And there’s this move from the big TV networks that are also in TV production to say, “We’re going to hold back more shows. We’re going to stop arming Netflix so Netflix can compete with us.” You guys have a big production arm in TV. But it seems to me like you’re kind of neutral as to networks versus Amazon. Do you have a side?

We’re fairly agnostic. The risk profile is different, and the upside is different. So if you do go off and make a series with Netflix — which we’re doing right now, two very good series, I should add. One of them’s called “The Crown,” and the other one is a Baz Luhrmann series. In that instance you’re guaranteed to make money pretty much right out of the gate, because it’s a cost-plus business.

Right. And there’s no syndication.

There’s no syndication, so you deliver your series, you get your money, and you go home. And they buy out all rights. So there’s nothing ancillary. There’s nothing international. Nothing.

That sounds pretty good.

It is good. With the other, obviously whether you’re selling to a cable network or a broadcast network, and if you do get a hit, if you do get a “Breaking Bad,” the potential upside is multiples of what you would get with a Netflix. That being said, you can also lose a lot of money on a broken series. So right now I think the way that we’re managing the portfolio of our own production company is pretty good. I mean, on the one hand you have a source of income that is fairly riskless, and the other one is riskier but it has more upside to it.

You brought up “Breaking Bad.” The success of “Breaking Bad” is one of the reasons that AMC, your client, who was buying “Breaking Bad” from you, has moved toward creating and owning more of its own shows. It wants to have those rights, as well. Do you see more of the networks saying, “We’re really going to try to bring this in house and maybe cut you guys out of that deal”?

The economics of their businesses are requiring them to try and do that. So as their affiliate fees come down and the advertising market gets more challenged, they say to themselves, rightly, “We have a platform here that’s launching content, and the way to make up for those shortfalls is by owning more of the content.” But the truth of the matter is that they need to have the best content — you’ve heard this 100 times, they need to have the best content they can on the networks. And if you show up with the next “Breaking Bad” — or in this case, “You’d Better Call Saul,” they want to get ratings. So they’re going to, likelihood, take that chance.

They want to get ratings, but they are trying to own more of the stuff. [Because] one version of the future is where I don’t go to AMC — I go to Apple TV and say “Show me something,” and up comes “Breaking Bad.” I don’t know where it comes from.

Right.

That’s not bad for you because you’re either going to have been paid for it, or you will get paid for it.

Right.

It’s maybe not good for AMC, because they don’t know that it’s coming from AMC. They get sort of cut out of the equation.

Right.

So it’s pushing them to own their own stuff.

Yes. But it’s also pushing them to own their own stuff by virtue of the fact that the advertising revenues are challenged, and the affiliate fees are challenged. So if you want to make more money, you’ve got to find the source of it somewhere else.

Reed Hastings said something to the effect of, “We saw this coming, and we knew that the distributors were going to become the owners.” In that scenario, if Netflix owns its shows and AMC owns its shows, does your role as a TV producer eventually diminish?

Hmm, not necessarily. I think as long as we maintain the creative relationships that we have with show runners — and the folks in our television division I think do a spectacular job — then we will continue to be able to develop shows that networks want to have. You know? And what Reed has been saying, by the way, is that he’s been forced to create his own content by virtue of the fact that other people are saying to him, “We won’t sell you our content.” And there’s a little bit of an irony to that, because if you really look at the success of “Breaking Bad,” Netflix is as much responsible for that success as AMC.

That’s what Netflix says. AMC gets bristly about it.

They don’t get that bristly. If you look at the figures, it sort of took off once it appeared on Netflix, which is, what was it, a year and a half, two years into the show. Then all of a sudden people started binge viewing on Netflix and —

They got a lot, but again, they say, “No, no, no, it was because we were doing it on SVOD and –“

Yeah, I think it’s a pretty symbiotic, actually. And everybody gets overly competitive in it.

You are a seller of TV, so I’m not going ask you if you think there is too much TV. Because that’s the definition of a softball question.

I’ve heard the question before, yeah.

So instead: How long do you think we’re going to have this boomlet of people making lots of televisions shows? There are also many buyers right now. Do you think this is a permanent state, or do you think it sort of retracts at some point?

Very tough to answer. I know [FX Network head] John Landgraf sort of came out with a comment, and I’ve had lunch with John since, and he sort of pointed out the nuances of the remark. As usual, John is very smart about this stuff. I think there’s a couple of factors at work. The whole concept of peak oil, as it were, in television is — with peak oil they got it wrong, perpetually they kept saying, “Oh, we’re going to run out of oil.” And then, incredibly, they discovered more of it. Even before fracking. In this instance, I think there’s a couple of things in play. One is how much can the audience actually watch. That — from my vantage point, and much to my surprise — seems to be an appetite that can’t be filled.

It should be finite, right? Because you can only be awake for 24 hours.

It should, but now you can watch it on the bus. There are many more ways to watch it. There are many more rooms to watch it in. I don’t know where that place is, but it doesn’t appear at this point in time that we’ve come anywhere near it. The second piece to the puzzle, which is a little more complicated, is how much creative talent is actually capable of making quality television. And there I do think we start getting — we start straining the boundaries at a point. Because it is a craft, it does require enormous skill to be a really good show runner. There are a limited number of good shows. We’ve all watched bad shows, and we don’t like to watch them. So I do think it’s somewhat defined by that, at least here in the United States, keeping in mind, you know, people are making shows all over the world at this point. So in that regard, I do think there’s going — I know I’m giving you the either/or here. I think more people are coming into television than ever was the case in the past, who wouldn’t have considered making television. So that seems to fill it up, as well. The last piece — [which] I do think will diminish — is the number of buyers. I do think everybody and their brother has jumped in and said, “We’re making originals,” and it doesn’t matter whether they’re a cable [network] which in a million years you wouldn’t have thought was going to make an original, to a new SVOD service, a platform you’ve never heard of before, this —

Yeah, Vox Media would like to be in the TV —

Well, there you go. I think some of those, if not many of those, eventually will find this isn’t —

It’s not easy to be in TV?

It’s not easy to be in TV. The business is expensive if it doesn’t work and, eventually, you know, they’ll say, “Not for us. We’ve got to find something else to do.”

So eventually it’s sort of that boomlet dies down.

Quiets down, let’s say.

Okay.

It would be my expectation. It’s a factor of all those three factors.

If I asked you three years ago, “Are we going to see this boom in TV?” could you have predicted it then, or is this really relatively recent?

No, I never would have predicted this in a million years. Not at all.

It’s a happy accident for you.

Very happy accident. Yeah.

Asa Mathat for Vox Media

Windowing

Let’s move to movies.

Mm-hmm.

It seems like that is a business that is not changing at a very rapid clip. There’s a move to China. There’s China’s role as a consumer.

Mm-hmm.

And financer. Financier?

Financier, whatever —

Thank you.

— to use the French, yeah.

But it doesn’t seem like the fundamentals of moviemaking and movie distribution have changed much over the past few years. Am I missing something from the outside?

No. I think that’s right. Coming back to television for a moment, technology for the first time has fundamentally changed the creative product in television, because you now have these open-ended episodes, which you could never have in the past, because there was no catch-up, there was no binge viewing.

You can make a 10-part series, you can do five years of 10-part series —

Right, so actually you’re getting writers creating these very long narratives now that go on for 10, 13 hours. So there you have a completely different product. I think that the fundamentals of moviemaking — leaving aside for the moment 3-D or special effects — has not changed. But other things have changed about it.

For instance?

So for example, you have for the first time — in the last four or five years, you have multiple-billion-dollar worldwide franchises. That just never existed in the past. It was inconceivable. Part of that is the expansion of markets like China. Part of it is just the fact that you have multiplexes all over the place. I think the haves and have-nots have increased. In the past, if you were to take a certain-size movie that was a family picture that you put enough money behind, and you put it on a holiday weekend, you could be guaranteed a certain gross. Right now — and it’s not related to the “billion” number, I’m not even talking about those kind of pictures — the audience either embraces something or just rejects it. And that makes it a scarier business to be in in some respects. You can’t market your way through something, necessarily, and it isn’t just a function of the movie being good or bad, although obviously bad movies have a worse chance. But it’s also just a function of the fact the audience doesn’t want to see it, and they don’t —

And you think social is a part of that, right? People tell each other —

I suspect so.

— on Facebook or Twitter, “this thing sucked?”

Yeah. Social, I suspect, is a part of it. I think competition is a part of it, because there’s more to do. But leaving aside why it’s happening, the fact that it’s happening is something that we’re all paying attention to. And then the third element to it all, the specialty business is changing, as we see it in the near term.

How so?

You see Netflix and Amazon coming into the marketplace — we saw it in Sundance this year. And they’re paying very considerable prices for pictures that otherwise would have been purchased by many, many different theatrical distributors. And I don’t know how long it lasts, but for the moment that’s going to change things.

So the hot Sundance film of the last Sundance — I’m going to forget the name as I’m onstage thinking about it [Birth of a Nation] — but I do remember that Netflix reportedly bid $20 million for this.

Right.

Fox got it for $17 million. What does that say to you? Is that particular to that film and that filmmaker?

You mean that Fox got it for 17?

Yeah, paid —

What it says to me is that in a previous year it would have gone for 10. Because that business never saw those kinds of numbers before. But you’re asking why it went to —

— why it went for less money than Netflix was offering, right?

Right.

Presumably because the filmmaker saw value in theatrical distribution.

I don’t know why they did it, but maybe they saw value in it. Maybe they thought that the picture would be marketed differently, or marketed in a way that they thought was more appropriate to the movie. I wasn’t a part of it, but I suspect that was a piece of it. But the headline for me was the number that it sold for was almost twice what it would have sold for in any other year.

And again, you think we’re in that same sort of bubble that we’re in for TV, where this is temporary and then goes back down?

Maybe. I don’t know.

On my flight back I’m going to rent your last James Bond movie. I don’t know what it’s called. I know it’s a James Bond movie.

Right. “Spectre.”

“Spectre.” Thank you. So you’ll get some of that money. I would have paid a lot more to have seen it at home many months ago, but the windowing structure for movies hasn’t changed.

Right.

Again, it seems one of those things that has not moved at all, even though the audience, at least, tells you out loud, “We’d like to change.”

Right.

I think you’ve got some sympathy for that move, right? But it seems like your distributors, your theatrical distributors, have no interest in it, so we’re going to stay stuck there.

For the time being. I think you have an audience right now who — you know, when I was growing up, which wasn’t so long ago, stores were closed on Sundays. And in fact, where I grew up, they were closed, believe it or not, on Wednesday and Saturday afternoons, and you just couldn’t get something then. And now everybody’s used to —

You grew up in the Netherlands, right?

Yeah. So now everybody thinks, rightly, that they can buy things 24/7, either on the Internet or in a store. The notion that a movie, for a period of as much as three months, is completely unavailable between theatrical and home entertainment is, I think, confusing to the audience. I don’t think if you stopped a person in the street and asked them the full windowing strategy, and when the James Bond movie was available, and why it’s available in this order between the pay channel and the broadcast and the cable and the — they wouldn’t understand it. By the way, the plus side to the windowing strategy — and interestingly I think, because I know you want to talk about music, they’re going to go to a windowing strategy in the music industry — is it has borne enormous fruit for the movie studios. It’s been very, very profitable for the movie studios.

Because they’ve been able to sell it at different price points over time.

Over time. I think it’s been very profitable for the people participating in those movies. And I think we should act with extreme caution, despite, you know, the audience not understanding exactly how that windowing strategy works, where we break a model that’s working.

I’m sure someone in the audience is going to say, “Aren’t you encouraging piracy by having this windowing strategy? Not delivering it to me when I want it, at a time when I’ll pay you for it?”

I’m not sure. The data doesn’t really entirely prove out on that.

You can see changing the system, but you’re not in a hurry to do it. You’re fine with the way it is now. We should be used to it —

I think it’ll evolve. I just don’t think it’s one of those things — given the fact that it’s been so profitable and still continues to be very profitable — that you want to do it all at once.

Asa Mathat for Vox Media

“There’s only so much money to go around”

So let’s talk about music — you control one of the three major labels.

Mm-hmm.

I guess we’re done consolidating for a while.

Mm-hmm.

And there’s been a discussion about whether there’s going to be windowing or not. Whether stuff will continue to be available widely via Spotify’s free tier or YouTube’s free tier.

Right.

Where are things going to move if you have your druthers?

In the case of Adele — and maybe that will be the last of its kind, where you actually, you know, had the physical album out there on its own for a period, or rather the album out on its own before it went on a —

She’s a Sony artist?

She’s a Sony artist, yeah.

Whose decision was that to keep it off Spotify?

That was everybody’s decision. And it was the right thing, and I don’t think the Spotify audience was hurt by it, ultimately.

Is that something she and her management brought to you? Did you guys suggest it to her?

That was discussed between the label and Adele. But I think what you will see going forward, ultimately, is some version of windowing in the music industry. I do think as we all know the physical business is headed downhill. The download business is declining every quarter. And that’s because people are now accessing their music either on subscription services or ad-supported services. And the kind of a service that we would like to see going forward is a subscription service.

A subscription service, where I’m paying to hear this music.

Yeah.

So if I’m getting it for free, then I’m going to have to wait to hear the new Adele song.

Right, right.

And the argument from Spotify, which has a free subscription service, is two things: One, we need this free subscription service to get a funnel going so we can get —

Yeah, but we don’t have adequate marketing dollars the way that Netflix does to generate leads.

— and by the way, if we’re not supplying this music for free, from this ad-supported service, people are going to go get it from YouTube for free, or they’re going to go back to stealing it. So we’re not what you want, but we’re better than the other alternative.

Yeah, and it’s really more the former. It’s really the fact that the economics of their business at the moment, say, that we don’t have enough money — given the way that the dollars get carved up between the recorded side, the publishing side and the service itself — to go out there and market the service. And the only way that we can get free or leads is by coming in through free music.

So, right now I can get free on-demand music, just about anything I want, on YouTube and Spotify, and I’ll have to watch an ad or two periodically, or hear an ad or two periodically.

Yes.

So when does that stop?

It’s a good question. I think it stops probably when you get over a — I don’t even want to say the number, but many, many-fold bigger than what we have in the current paying subscription world. So you have, what is it, 20 million subscribers who are paying on Spotify right now.

I think they’ve announced 25, something like that —

Twenty-five, thereabouts. And I can’t remember exactly the number that Apple has, but it’s —

Ten million there.

Ten million. You’re going to need multiples of that before you are going to turn off —

So your idea is, let’s keep free going until we raise the number of subscribers and then turn it off.

You might see it come sooner, but my suspicion is you won’t until you’ve got —

I think the perception was, you guys are saying, “Well, let’s turn off free so people will have to go buy this stuff.” You’re saying flip it around.

What we started the conversation with is, they’re going to window. So you’re going to be able to hear the music first in a subscription service, and then later in a free service, rather than the other way around. But that requires a lot of education.

You’re a part owner in Vevo. We had [CEO] Erik Huggers up here yesterday. He said they’re going to have a subscription service. I asked how was that different from the YouTube subscription service.

Right.

Didn’t get an answer. Do you know what he’s thinking about?

I’ve seen some of the thought behind it, yeah.

Can you spell it out for us?

A lot of it has to do also with the windowing strategy, part of it has to do with some original content, things you would imagine that would come along with this.

So you’ll pull some things, and you’ll put them behind the pay wall.

Correct.

Add some new stuff.

Correct.

And find out some mix that will make it worth me paying X number of dollars a month.

Exactly.

The music industry has settled at a price of about $10 a month. For all-you-can-consume music. It’s roughly the same as Netflix. Do you think that’s too expensive?

No. Not at all.

You think it’s a fair deal.

I do. To get access to that many millions of songs for 10 bucks a month, I think it’s more than a fair deal.

Apple, for a while, before they launched their service, was trying to get the labels down to $5 or $8 or some number below that.

Yeah.

It seemed like it makes sense, right? It seems like movies are more expensive. I pay more money to consume movies. They should price above —

By contrast, you listen to a song multiple times. You watch a movie once. So, you know, how that sort of plays out in terms of what the audience considers to be a fair price, there is the mix. I mean, you’ll listen to a song. You’ll run the sprockets off of it. You know? Somebody will listen to it 50 times, 80 times in a month. You watch a movie once, and that’s the end of it. So if you compare the $10 that you’re paying to Netflix to the $10 that you’re paying to Spotify, it seems fair to me.

And what do you tell the artists?

And by the way, the surveys that are done suggest that the audience feels that way as well, the consumers do, because that’s —

And what are you telling Sony recorded-music artists, any publishing artists who’ve been complaining for a long time that this move to streaming is not working out well for them. They’re seeing much less. Their song gets played X number of millions of times, and they receive pennies for that play.

Well, as I say, it’s an education process, because what we try and demonstrate to them is that, actually, they will see real money coming out of this. And obviously it’s going in that direction. So what we have to encourage is a subscription model, which is where they’re going to get paid the most.

You guys are an owner in Spotify. There’s a lawsuit saying, essentially, you’re double-dipping because you’re an owner in Spotify and you’re sharing revenues with Spotify, and some of this money — the implication is it should be going to the artists.

Well, we’ve already come out and said that we will deal fairly with the artists on this, if this company ever decides to go public itself —

Okay, so you’re in the same camp as Warner, so if there’s a sale —

We’ve said we’ll deal fairly with the artists, yeah.

Do you ever think they’re going to get to a point where they think, “All right, this does make sense, the pie has grown bigger, I am getting a fair shake?” Or do you think they’re going to be permanently dissatisfied with the state of music, because we’re not in the CD era anymore?

That’s an interesting question. I think for those who lived in a world — which, by the way, is the same as the case for the movie business, 20 years ago, even 10 years ago — who saw the economics that were so much better both for the studios and the record companies and the artists and the actors, they will look out into this new world and say, “Wow, I’m getting less than I would have done before, and I have to do something to make up for the difference, whether that’s touring or other things.” I don’t think they should view it as unfair, because that is the way that the world has gone in terms of the consumption of music and the consumption of movies and consumption of television.

So, “I feel your pain. There’s not a lot I can do.” Some version of that?

Yeah, there’s only so much money to go around. Absolutely. You know? And the music companies have downsized. The studios have all downsized. It’s not like there hasn’t been significant reduction on both sides.

Asa Mathat for Vox Media

Snapchat uses the camera to communicate

Let’s talk about Snapchat. You are the second Snapchat board member we’ve had on this stage in the last day.

I gather.

So you’ve been on the board for a while. You’ve watched the company mature. You’ve watched Evan Spiegel mature. First of all, what change have you seen in him over the last couple of years you’ve been on the board?

I think he has become what you would imagine him to become. A much more mature executive. He really has studied it hard. Running a company. And I think he’s gotten better and better at it. The one thing that’s remained a constant, which I think is reflected in the product, is he is a terrific product designer and innovator. And the company has continued, in my opinion, to deliver great new applications of Snapchat. On a very, very regular basis.

When he had that $3 billion offer, were you counseling him to take it? ’Cause it was a lot of money for someone who was 24 or 25 at the time.

It was really his decision. It was really his and Bobby Murphy’s decision.

What kind of counsel do you offer? What kind of counsel do they want from you? What are the things of value that you —

They really want to talk about their part of it as they look out at the media landscape, where should they fit in — the music business, the movie business, the television business — both in terms of a platform to promote, but as well as how they themselves should be delivering content. A lot of it, though, is around management. A lot of it is, you know, the organization has grown really quickly, and they need to try and understand how to organize all the conventional departments you have within a company, and that’s one of the areas where I can be helpful.

Back to the media part of it. Right now, Snapchat’s the place where I go to create my own content, or my kids would go to create their own content. And then you’ve got a bunch of publishers who are interested in [things like] Discover. That’s free content. Do you imagine there’s a place for paid content? Am I going to pay Snapchat to consume content at some point?

I’ve not seen that yet. So I wouldn’t know. But I haven’t seen plans of that.

And, again — we’re just talking about Snapchat a lot at this conference — but what is the thing, internally, that you’re seeing at Snapchat that people out in this audience and in the wider world don’t get about that company? It remains a confounding company. Evan is a difficult person for people to understand.

First of all, one of the things that confounds people — or they sometimes don’t fully recognize — is how often that company innovates on product. I mean, it’s available if you use the service, I just don’t think people recognize how difficult it is to pull off what they’ve pulled off. The other thing I think they don’t understand all the time is, I heard Evan in a conference like this once talk about the fact that for 150 years the camera was used to document, and that for the first time — not for the first time, but for one of the first times — Snapchat uses the camera to communicate. And I think the whole relationship between Snapchat users, of the mobile phone, and that camera, and how they interact, is the aspect of the service that I think people don’t always understand.

And that’s why it’s that first thing you see when you turn it on. You don’t go to the content page, you go to the camera.

Correct. And you’re using your phone as the lens through which you communicate with the world. And that is something I think doesn’t — the penny doesn’t always drop for people. It didn’t even drop for me, quite honestly, until I heard Evan communicate it that way.

So even though you’ve been on the board, you didn’t realize —

Even though I’ve been on the board —

— and as an investor —

— and I’ve used the service since there were like 25,000 people on it. To really hear it articulated in that way, that allowed me to better understand it.

That’s good. I feel not so bad about not always understanding how Snapchat works.

This is my interpretation of it. I’m sure if and when you get Evan up here, he might tell you something different but —

We’ll ask him again.

Asa Mathat for Vox Media

Is virtual reality the Casio watch of the future?

Questions from the audience about Snapchat, movies, music, television, anything for Michael?

Richard Cooperstein: In your role, Michael, what’s the most disruptive media and technology innovation of the last few years that Sony Entertainment anticipated and benefited from? And which is the one that you didn’t actually foresee, but that has been most important in your business, either by way of needing to catch up on it, or that you’ve been benefiting from nonetheless?

Wow. That’s a really good question. I suspect on both sides of the ledger it would be the SVOD services. I still remember when Reed Hastings split Netflix in two, and then that didn’t work out so well, and they decided not to do it that way. But when they first launched, I think it sort of caught us a little bit flatfooted. And if you remember, what really launched the service was the fact that they had Starz, which allowed them to show our movies and Disney movies, and that sort of caught us unawares. I think we responded to it pretty well by becoming a very quick supplier to Netflix. And also we saw enormous benefit, because it made certain markets — like the U.K., for example, where there was only one pay operator — suddenly we had a competitive market for our television and movie product. And that we’ve taken advantage of immediately. But I’ve got to say, the way it ramped, and the fact that they cracked the 25 million subscriber number here in the United States, I never would have guessed it.

Cooperstein: Anything you see, if you look out five years hence — now given your roles obviously across all the lines of business inside Sony Entertainment, but also now with Snapchat and all these other disruptive technologies — is there something you foresee that infrastructure you need to be a part of to anticipate where new monetization and new virtual reality —

How technology and consumers and creators interact continues to confound and surprise me. I’ll tell you a quick story, which other people in this room may have heard. I remember I was sitting with Milton Glaser, who was a great graphic designer, and it was back in late ’90s, it was just when the Internet was coming off. And I said, “This thing is going to be great, and already this, that and the other is going to happen.” And he told me the story of the Casio watch. He reminded me way back in the 1980s that the Casio watch came out, and he said everybody predicted we’d all be wearing digital watches. And he made me look out in the restaurant that we were in, and he said, “How many people do you see with a digital watch?” And I said, “Nobody.” And they all had analog watches on. And he said, “Yes, but I guarantee you most of them have quartz inside of them. A quartz mechanism.” And what people failed to understand was that it was the quartz mechanism that was important. And that people don’t actually care what time it is. The way they read time is by trying to determine how much time they have left. So you look at — at least people of my generation, because now kids with phones don’t do it that way — they would look at the minute hand to determine how much left of the hour you have. So that was a lesson to me that sort of said you cannot predict —

Kafka: What does the watch parable tell you about virtual reality? Do you think VR is going to be a giant thing, and is it going to radically change your business, or do you think it is a thing that ends up becoming a Casio watch?

More than anything else, it will entirely change the vocabulary of film and television making. And so that one really is impossible to predict.

Kafka: But you think it’s a thing.

I do. I absolutely do.

Ryan Nakashima: Now that we’re just in front of the Oscars, and given all the controversy around diversity, I wanted to ask, does it matter, from a financial point of view, how diverse a cast is in a movie? And if it does have an impact, and if the audience is getting more diverse, what do you make of the situation that the Oscars find themselves in right now?

Well, I think they’re related, but they’re [also] not. I think the diversity of cast is enormously important. You’ve only to look at a film franchise like “Fast and Furious” to see what an enormous success that movie has been. And in large part, I would argue it’s because of the diversity of the cast. I think the Academy has reacted very, very quickly and positively to, I think, what is a very extremely unfortunately situation this year. And it’s been said for a long time that the Academy needs to become more diverse, not just in terms of ethnicity, but gender and age. And I think this was a really positive step forward that’s been taken.

Jason Rapp: One category we haven’t really talked about throughout the conference is the multichannel networks, and YouTube’s role, and Disney and DreamWorks and Warner and Turner and AT&T have certainly placed their bets there. But I’m wondering if you’re bullish or bearish about that category of video content creation, and how you view it from your perspective.

I have a personal bias, but that’s more borne of the fact that I don’t watch that much of it. We have a service called Crackle which has been very successful for us. It doesn’t quite replicate what the other services that you’ve just described are, because it isn’t short-form content. It’s actually scripted, longer-form content. I think there’s market there for it. Clearly, there’s a lot of people watching it. I have a hard time believing that it’s going to become as large a business as, you know, conventional scripted content, whether it’s delivered over an SVOD service or a conventional linear service. That’s my personal view. But, obviously, others feel differently.

Kafka: There’s some folks here in the audience that run those, so they can argue with you when you get offstage.

I know, I’m sure.

Kafka: We’ll let you go to it. Thanks, Michael.

Thank you very much, Peter.


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This article originally appeared on Recode.net.

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