USC Marshall School of Business

For those willing to take risks in the entertainment world today, there are parallels to the early days of Hollywood, according to industry leaders who gathered at the 2011 USC "E2: Evolution of Entertainment" Conference.

"Everything is up for grabs," said keynote speaker John Fogelman, William Morris Endeavor (WME) board member and agent to filmmakers J.J. Abrams and Michael Bay. He urged audience members to take risks and be a part of something new. "There is," he said, "a lot of paralysis." "Think differently," said Fogelman.

The fourth annual "E2: Evolution of Entertainment" event was held on February 4 at the Ronald Tutor Student Center Ballroom at the University of Southern California's University Park Campus. The all-day forum was organized by students in the Business of Entertainment Association (BEA) and was sponsored by William Morris Endeavor, drawing more than 200 industry professionals and Marshall students to hear from some of the most influential business minds in entertainment today. In a series of panels focused on entertainment finance, digital distribution and business development, audience members gained insights from a series of key stakeholders including studio executives, investment bankers and successful entrepreneurs.

James G. Ellis, USC Marshall Dean, focused on the opportunities created by this upheaval. "What you are going to see is innovation from companies that have nothing else to lose," he said. "It is all about finding these opportunities and putting them together …and that is the creative process."

Lucy Hood, executive director of the Institute for Communications Technology Management at the USC Marshall School of Business, moderated the digital distribution panel. Eric Briggs, founding principal at the Los Angeles office of the Salter Group, led the discussion on finance, and David Wertheimer, executive director of USC's Entertainment Technology Center, moderated the business strategy and development panel.

The lineup of panelists attracted a mix of professionals and graduate students from USC and other business schools. Joe Lewis, creator of Tosh.0 and former 20th Century Fox executive, came to the industry event to hear from visionaries like Fogelman. "It's interesting to engage the leaders of the traditional media industry at a time when the pace of technology often exceeds their ability to address it," said Lewis.

The theme of rapid evolution in the industry was constant, and there was general agreement that the shape of future business models that will work is unknown. "The truth is people just don't know what is right in front of them right now," said Andrew Marcus, chief operating officer of Relativity, a media firm that produces, finances and distributes films. "People just need to focus on where the business is going." Though the uncertainty is difficult to manage, he pointed to positive trends that bode well for Hollywood in the future, from lower cost filmmaking to revenue growth in emerging markets. In all this change, Marcus also noted that there is incredible opportunity but also major risk in the long run. "The deals that you do now are going to have a huge effect in the future," he said.

Jeff Fleeher, chief financial officer of NBC Universal TV networks and digital distribution networks, has a different focus. "The key issue from our perspective is managing the traditional businesses models and digital (to see) how that morphs and evolves," he said. Falling cable revenue isn't being offset by the pace of growing digital revenue from outfits like NBCU-owned Hulu, and this creates a serious concern, according to Fleeher. "Cable is really our profit engine of the company. It's really a waiting game of keeping the traditional models going and smartly growing the new models."

Jason Sklar, vice president of JP Morgan Entertainment Group, said that despite the uncertainty in filmmaking, it is still a good bet for investors. For instance, in recent years the number of blockbuster films has fallen precipitously while total blockbuster sales have remained flat. As a result, films have "performed quite nicely" relative to other classes, such as real estate. "We are not so certain of the film economics in the long-run. But overall it's a pretty solid business," Sklar said. With the industry trending towards cost cutting, Sklar believes that "now as an equity investor you can actually make money."

In the digital distribution panel, the focus was on the speed of innovation and disruption. "Technology is moving faster than we can define what the business model will be," said Julian Levin, executive vice president of Digital Exhibition and Non-theatrical Sales and Distribution at Twentieth Century Fox. Levin discussed how a new generation of consumers who want to enjoy media immediately and often at no cost puts pressure on traditional stakeholders in the industry. "Everything is compressing," he said. While executives struggle to create new digital revenue streams and sustain existing models, "One thing is for certain, we don't have the solution yet," said Levin.

Frank Carrere, head of corporate development at Fox International Channels, summed up the state of the industry in 2011: "The bad news is we're at an inflection point. The good news is we're at an inflection point.

While others emphasized what is changing, Edward Sabin, chief operating officer of TLC, focused on what remains the same. Sabin said that although it is currently a "land grab" in the film industry, the long-term focus remains on continuing to provide high quality programming. "It's going to be about investing in content," he said. "We will figure out a way to follow those eyeballs wherever they go, monetize those eyeballs wherever they are and keep telling great stories," he said. "Ultimately, I'm optimistic."