Rahul Telang, a Carnegie Mellon University professor, is the co-author of the book “Streaming, Sharing, Stealing: Big Data and the Future of Entertainment.” He says an entire era of change in the economics of Hollywood was shortened to two years during the pandemic. This has led to the current standoff between the Hollywood creators and the studios.
He says what is happening in Hollywood was bound to happen because of streaming. Everything that impacts the way Hollywood makes money was disrupted.
But the issues are, how do you decide what’s fair compensation in this new world? Writers want their “fair share,” but there isn’t a lot of transparency in the process. Studios, for their part, aren’t typically willing to share audience numbers. This can impact residuals.
Connect with Rahul on LinkedIn.
This transcript is machine transcribed by Sonix.
Intro: [00:00:04] Broadcasting live from the Business RadioX Studios in Atlanta, Georgia. It’s time for High Velocity Radio.
Lee Kantor: [00:00:14] Lee Kantor here another episode of High Velocity Radio. And this is going to be a good one. Today on the show we have Rahul Telang and he is a Carnegie Mellon University professor and coauthor of the book Streaming Sharing, Stealing Big Data and the Future of Entertainment. And he’s here to share a little bit of insight into what’s happening with the actors and writers strikes and how streaming is impacting that industry in a very disruptive manner. Welcome.
Rahul Telang: [00:00:46] Thank you. Absolutely great to be here.
Lee Kantor: [00:00:48] Well, I’m so excited to learn what you’re up to. This is an issue that’s obviously gotten the headlines everywhere and it’s impacting lots and lots of folks, not only the actors and the writers, but also all the folks that are involved in these industries that have been ground to a stop right now. First, let’s talk about your book. What inspired you? I guess you saw the writing on the wall on this a while ago.
Rahul Telang: [00:01:13] Yeah, absolutely. You know, at that you know, the book came out in 2017. Netflix was getting popularity and it was having a bigger impact on the major studios, the movies and the television episodes. And we saw at that time that the streaming companies like Netflix are going to have a major impact on the entertainment industry at large. So that was the motivation, that why we wrote the book. We obviously didn’t foresee the strike that’s happening right now, but we kind of foresaw that the streaming is going to be a major player going forward.
Lee Kantor: [00:01:56] Now, can you educate our listeners to why, why there is a strike and what is the difference between the way it used to be and then now with the influence of all the streamers and the domination of the streamers in the mix here, how how has the money changed in terms of how people are getting paid and how the money flows into these organizations prior to the streamers being kind of the influential players versus the way it used to be?
Rahul Telang: [00:02:24] Sure.
Rahul Telang: [00:02:25] In a very simple sense, the money that flows from the studios to the downstream, which is actors, writers, whatever you want to call them, at some level, there was an understanding that how well the movie or the TV show is been doing and because the demand for the movie so the box office revenue, the number of tickets sold. Similarly for the television shows, how many people watched the particular content and the advertising money that came from. So there was a sort of agreement that how much revenues are generated by that piece of content. And I think when there was at least a broad understanding that how much revenue is being generated, then there was a contractual agreement that how the revenues are going to be shared. So if a movie has done really well, then the money flows down to the actors, to the writers, and even if it doesn’t flow down to them directly, you know, eventually they get renumeration because, you know, they get very well known and so on and so forth. So that was sort of a established model that there is an understanding that how the content is doing and then you know how the money will be split. Then came the streaming companies, the streaming companies. The biggest challenge in the streaming companies is it’s very hard to know how a particular content is done, and the streaming companies don’t really share all the detailed data. And even if even if they share, it’s not entirely clear. So, for example, let’s just say a show comes on Netflix or Disney or HBO. Max, we don’t know how well the show has been doing.
Rahul Telang: [00:04:17] More importantly for the streaming companies, what broadly they care about is how many customers are they? Are they able to acquire because of the show show or how many people they have stopped from churning? So that kind of complicates the whole thing. So one way to think about streaming is more like a bundle. It’s offering a bundle of different content and then different content is basically bundled into the whole streaming company. And now the question is that how much compensation or how much value should be assigned to a content? And we once we cannot assign a value directly, it becomes very difficult that how can I compensate the actors and the and the writers and all the the downstream participants? And I think broadly that has created the issue that because we are not able to value content, you know, when we say we are not able to value content, we don’t really have public information. You know, the streaming companies have a, you know, a team of data scientists and they are investigating, looking at the data and trying to figure out that is this content generating the value. But there is no transparency. We don’t know the downstream, the actors, the writers, they don’t have a very good idea either. And that kind of create this whole sort of a black black box environment where everybody feels that they’re being unfair. So streaming company might feel that they are already compensating pretty highly. The actors and the and the writers might think that, you know, the streaming companies are treating them very unfairly.
Rahul Telang: [00:06:10] So this has created this whole environment that we don’t really know, you know, how the money is coming and how the money is going. And the strike is basically sort of an outcome of that. Now, if I just add if I just add to this, you know, a little bit more. If you recall, in the last two years, the streaming companies, they just wanted to show how big the subscriber base is. So every streaming company will report every quarter that how many people have signed up. And, you know, the financial market and The Wall Street Journal and, you know, we rewarded them based on how many people they are. They have signed up. So my feeling is that their whole game, or at least the major focus for the streaming companies, was I want to sign more people because they wanted to sign more people, they wanted to generate more content. So they threw money to the actors and writers to create content, get the content on the network and so on and so forth. So obviously, potentially they paid significantly more money and they also hired so many of them. Now the market has changed now. Now the growth is not the only metric. Now people are saying, show me the money. And the moment that question comes in, that goes back to what I’m saying earlier, that how exactly do you know what the show is worth and how do we split the revenue? So it’s a long answer, but I think in the nutshell, that’s basically what is going on now.
Lee Kantor: [00:07:48] How do we move forward? Because, you know, it’s hard to put the genie back in the bottle, right? Like, it’s difficult to say that we’re going to use the same system that was based on ad revenue and it was based on residuals and syndication and things like that. When that’s not the model of today, everything is on demand. You watch what you want to watch, when you want to watch it. It’s less driven by ads. It’s more driven by a variety of content. And whether they want to share the numbers of how many people are watching or not, the number is going to be a lot different than it was in the past. Like, isn’t that correct?
Rahul Telang: [00:08:34] Absolutely. I mean, that’s going to happen. But my feeling is that the number is going to change. And I think broadly, people have people have an understanding that how the numbers should be measured. My feeling is that as we go forward, the both parties will come to some sort of a agreement. That is, they will agree that when a show comes on a Netflix or a HBO Max or Paramount or whatever, they will have an agreement that how much is the worth of the show? And then they will have at least some numbers. Hopefully they will be, you know, more transparent, they will be more publicly available, and then they will have a number that, okay, this show came in, this happened, and that’s why it generated so much revenue. So as before, you know, when the movie came in, the box office money came in and we know how much money was generated when the show came in, how many people watched it. And then we knew how much the advertising money came in. In this same context, when the show comes on a streaming network, some measure will be actually developed, verified. And from that measure, there will be an agreement that how much approximate money is being generated and that will lead to at least some sort of agreement on how this contract situation will be resolved.
Lee Kantor: [00:10:03] Now, is it do you think it’s going to evolve into the movies and television and that kind of visual content similar to the way that it is with music and Spotify where they can give a fraction of a of a cent for every view, or they’ll come up with some number that based on this is the reality of how many people are streaming your show. And you might think that it’s super popular, but in the scope of things, you know, it’s only worth this fraction of a cent per stream.
Rahul Telang: [00:10:37] I mean, probably some some sort of a measure along the same direction. So, you know, the the Spotify, you know, when somebody downloaded a music stream, at least there was an agreement that the streams were downloaded. Then the question is that how much money should be given. So the stream is worth $0.01, $0.02, $0.05. And that discussion, you know, that controversy will keep on happening in the current version when when a show is watched by five minutes by individual user, how should we count that? How should the demand be counted when the when the show is two hours, Somebody’s watching only for five minute, ten minute, half an hour. So those issues have to be resolved in the music industry, at least there there is agreement. And then the question is how the money should be split. I think in the movie industry we don’t have an agreement that how do we translate to how much people are watching to how much money is generating, By the way, how much people are watching itself is basically a number that the streaming companies have, but they don’t publish it all on all the content. So that also has become like a challenge where there’s a lot of information that the streaming companies have which they are unwilling to share that also create this basically whole black box.
Lee Kantor: [00:12:06] So when you lack transparency and this is a lesson for a lot of folks and a lot of different industries, the lack of transparency creates a culture of distrust that is absolutely correct. So in their mind, I’m trying to kind of look at it through their lens. They’re saying, look, I’m paying a lot of money for this content up front. I don’t know if anybody’s going to watch it or not. I’m basing it on your track record. You’ve been successful in the past, so I’m betting you’re going to be successful in the future. But any given piece of content, no matter how much money you spent for it, doesn’t guarantee that you’re going to make your money back. It could be a flop. There’s a lot, you know, a lot of history of movies that have had huge budgets that didn’t pay back. How how do you foresee, you know, when that happens? Because it can’t be a situation where one side wins, you know, no matter what the the the reality of what happens after the fact happens.
Rahul Telang: [00:13:05] I mean, some risk taking is going to be part of the entertainment industry. That is, you make a movie, you pay the money to the stars and so on and so forth, and the movie doesn’t do well. So the studios basically take the loss on the same regard. When the movie does really well, they also reap the benefits. The the the at least the long and short will be that when the movie does really well, at least some part of the success goes downstream to the actors, to the writers, if not directly indirectly. So if a movie does well, even if the actors didn’t get a lot of compensation, they get a big name, they get, you know, recognition, and in the future they start earning significantly more money. So so the point being that will the show be successful? That’s part of the whole movie industry for the last 100 years. So so the studios know the risks and the appropriately, you know, you know, develop the contract to make sure that, you know, they account for the fact that the movie will be actually a failure with some probability. So their compensation are sort of built in the same direction. So I think streaming industry will not be very different. I think the biggest difference being that because we don’t know if a if a show has failed or succeeded, that kind of makes the whole thing more complicated.
Lee Kantor: [00:14:39] But why is it that the streamer is the one that is forced to take the risk when they are the creator of the platform and not the production company or the actual creators of the content of taking the risk?
Rahul Telang: [00:14:56] That goes back to the point. So, for example, you know, let’s just say you write a movie or you act in a movie, which does really well.
Rahul Telang: [00:15:06] You know, on the.
Rahul Telang: [00:15:07] Hind side, you should get an enormous amount of compensation because the movie is done so well. It made billions. But you don’t get appropriately the same amount. On the other hand, when the movie is done really poorly, you still get the compensation because you agreed on the contract. So you know that sort of. So the why the studios are benefiting because they are the one taking the risk. They are spending the money to create the content when the success of that is unknown, both to the actors, to the director, to the screenwriter. So when they succeed, they they get the benefit. When it fails, they are the ones holding the stake. The the downstream activity, the downstream actors and writers, they don’t get affected so badly. They get affected, but not so badly. So maybe I’m not able to follow. But that’s exactly the whole entertainment business. Is that, you know, the risk is the the part of the game where the studios are willing to take the risk and they’re able to finance and they’re able to create the content, even though we don’t know if the content will succeed or not.
Lee Kantor: [00:16:20] But that’s different than most other industries. Like in your case, you work for a university, you get paid for being part of the university, but you also created a book and you put that book like on Amazon and you’re not guaranteed any money for that book.
Rahul Telang: [00:16:37] No, Correct.
Lee Kantor: [00:16:38] But if it does well, you’ll get a piece of the action based on and so will Amazon. And then but you’re still going to get paid no matter what from the university, win or lose.
Rahul Telang: [00:16:50] That is correct.
Lee Kantor: [00:16:51] But that’s not how it works in the movie industry or the television industry. It’s kind of more work for hire that they’re hiring you for a project. You show up and do the project and then you want to be paid down the road if the project is successful. But if it fails, you don’t want to give back the money.
Rahul Telang: [00:17:10] Some of that is true. Some of that is true.
Lee Kantor: [00:17:15] So it seems like there’s a shift now, or at least the streamers want the shift to be more of a work for hire, project based environment rather than this kind of retainer residual based environment.
Rahul Telang: [00:17:30] I think some of that is that is some of that is, you know, absolutely true that they want to hire people for the work. But again, that goes back to my question. The whole dynamics is happening because it’s very hard to know how much money the show or the movie has been generating. And because we don’t know how much money it is generating, it becomes very difficult to figure out how to split the money in the in the movie and the TV and all of those. At least there was an agreement that how much money is being so residual is an example. So residual at some level is so how many people watch how many time the movie got downloaded, how many times even repeatedly, some money actually flowed down to the downstream activity? That’s so hard to do in the streaming companies. And I think that is one of the sticking point. The the actors and the writers, they want the residual. And those numbers are either unknown on the streamers are unwilling to share. Nobody even knows that they actually generate the money for the streaming companies. So this black box nature then create the contractual dispute that we are seeing right now.
Lee Kantor: [00:18:44] Now, another kind of a sub issue of this is how do you decide which group of creators or creative folks gets to even participate down the road? Because in every movie there’s lots of folks who just get paid to do work during the show and then they stop getting paid when the show is over. Like if you’re the electrician or the gaffer or the guy that holds the microphone, there’s no expectation for them that they’re going to get paid down the road. Their job ends when the project ends. But we’ve decided that creators get a piece of the action down the road. But these other people that are maybe below the line don’t get paid down the road.
Rahul Telang: [00:19:26] Correct?
Rahul Telang: [00:19:27] That is correct. But but but the same thing will probably happen in the streaming business as well. If a Netflix want to create a show, they will probably have the same structure that if they hire a cameraman or the or the audio person, they’ll probably pay based on how much, how, how many hours they’re putting in and they they get paid accordingly.
Lee Kantor: [00:19:58] Right. So but this is kind of an arbitrary thing. This is just based on the way it used to be is the way that it is.
Rahul Telang: [00:20:06] That is exactly what the demand and supply is, you know? You know, you’re supplying some skill and they look at that. The market will say what the demand is and the wages are going to be a function of how many people are willing to supply and how much is the demand for those skill. And that’s how the market decides the wages. So, you know, that is no different than what has been happening for the last 50, 70 years.
Lee Kantor: [00:20:33] Right. But that’s the way it used to be. Now, in today’s world, and especially if you layer in AI, that that model is going to be exploded. I mean, just because back in the day, a person used to get paid a lot of money for a certain task doesn’t mean that they’re guaranteed that money down the road.
Rahul Telang: [00:20:52] I mean, that that that’s a that’s a bigger question than how I will shake up the whole structure. Um, you know, the I might at least the, the fear that I might help, you know, the studios write the script. They might not need so many writers, they might have a voice. So voiceover they might use the actors images in ways without getting compensation down the line and then the downstream activity. So the AI itself is, you know, a significant threat. And I think the threat is not just to the entertainment. I mean, that threat is, you know, a on a bigger economy. So will I shake up the whole labor market? Will I shake up the kind of skill required? Will I will I shake up the employment? Will I shake up the wages? So that’s a bigger question. It’s much more pertinent in the entertainment industry because, you know, with the growth of AI and the chat GPT and the large language models, there’s a there’s a threat that now the songs and the scripts and, you know, all those things can actually be written by the AI. And the writers may not get the credit, they may be replaced and so on and so forth. So yeah, absolutely it will have an impact on. That’s a that’s a concern at a much broader level.
Lee Kantor: [00:22:25] But it’s, it’s no different than when, you know, machines replace humans, you know, plowing the fields or, or building, you know, or robotics inside of a car manufacturer. At some point, technology is going to replace some of what humans do and the humans that are able to adjust and make them and let the market see their value or the ones that are going to be successful there. You can’t, like I said earlier, put the genie back in the bottle. This is an issue that’s to me much broader. This is an evidence that at one point automation and robotics affected maybe blue collar workers more. And this is an example of this type of work affecting white collar people more. And, you know, nobody likes change when it comes to this level of disruption.
Rahul Telang: [00:23:16] I totally agree about your point that, you know, the AI is sort of no different than other technology that have been impacting our economy, our our skill set, the kind of work we do. It has been changing or changing for last so many years. So has the same realm. And because they’re affecting the white collar workers, at least the threat that the white collar workers will be affected more sharply, you know, that is coming in in the strike where the worker, the writers and the actors are now going to have some protection against whatever I might be able to do that. So you’re right. I mean, this is you know, this is how the market is playing. This is how the technology is shaping the industry and how the the participants in the industry basically adjust to the reality. And as you mentioned, you know, that typically leads some winners and some losers. And that game is basically being being played right in front of us.
Lee Kantor: [00:24:31] Right. And things are happening faster. So things that used to take decades are taking years or things that took years are taking months. So the the change is happening at a much faster pace so that it feels more disruptive and most people don’t it’s not a gradual like a gradually then suddenly it’s just suddenly and people have a difficult time kind of making that transition as quickly as the technology is making the transition.
Rahul Telang: [00:24:59] I fully agree with what he’s saying.
Lee Kantor: [00:25:02] So now what’s the way out of this mess? Because I don’t this seems to be kind of systemic problems. This isn’t like a tweak. It’s going to be difficult. You’re going to be forcing the streamers to say, okay, we’re going to be transparent in order to make this work. And they really don’t want to be transparent. How what’s the way out?
Rahul Telang: [00:25:25] I mean, I wish I knew the answer, but what I know is that they both parties eventually have to compromise. They both need each other. The writers and the actors need studio. The studios need the writers and the actors. They need content so they will, you know, come to some agreement. So maybe they will not be able to be fully transparent as we have been discussing. But I think they will come to some sort of agreement about deciding how much value the actors and the writers and the content and the show and the movies creating to the streaming company. And accordingly, they will figure out that how they end up splitting the revenue. So I think the transparency will not be what we are used to, but there will be some sort of an agreement on how should they decide, how should they split the revenue from the studios and the streaming companies to downstream to the writers and the actors and so on and so forth. So I think they will come to some sort of a some sort of agreement that how should they decide? The money should be split.
Lee Kantor: [00:26:47] So you think it’s more likely that the streamers are going to be able to figure out some amount of split versus having the production companies get paid more up front to create the content and force the creators to kind of put more skin in the game. I mean, I think it’s more likely that the creators are going to band together and become more like Reese Witherspoon or Kevin Hart, people that create their own production companies that create content that they control, and that way they can split the money however they want to.
Rahul Telang: [00:27:23] You know how the whole market will go? We don’t know. Remember the studios? They have the expertise about creating content marketing, content, selling the content, getting to the streaming companies, the individual like Reese Witherspoon, you know, some of them might actually succeed. But there are a whole lot of there’s a long tail of actors and writers. They just cannot do that. So, you know, what are you saying may be true for, you know, some, you know, Top End, like, you know, Taylor Swift is able to dictate the term to Spotify and Apple, but not every musician. So the same way I don’t think that the majority of actors or the screenwriters can actually dictate the terms because the streaming companies are big, they have resources, so they will have to come to some sort of agreement that how they’re going to split the, you know, the pie about the about the content that is being generated. And that goes back to the question of how the AI will disrupt. I think most people agree that the AI will disrupt even the actors and the writers agree that the AI will be having a disruption. They just want to put some guardrails both in terms of the contract that, hey, I understand that I will, you know, take, you know, whatever you know, you know, the script might come, you might help with the AI. They just want the appropriate credit. They just want appropriate compensation. And again, you know, the whole thing is that when the rubber meets the road, so I think the rubber will meet the road, you know. Not everybody will be happy with what comes out, but some sort of a compromise is bound to happen.
Lee Kantor: [00:29:21] Yeah. To me, this is a very difficult challenge and I don’t see a simple answer to this because the numbers are going to be the numbers and the creators are going to be very disappointed with how much numbers are actually being generated for any one specific piece of content. Like when you buy Netflix for $20 a month and you start dividing up how many minutes you’re watching any given program, it’s going to be very small number what that creator is actually going to be making, if they use something similar to a Spotify method of calculating this stuff, because a lot of musical acts, like you said, were not happy about how Spotify splits things up, while some of them, you know, a lot of them are happy. So it’s going to be a big disruption and a big change. And I don’t I don’t see a simple solution to this.
Rahul Telang: [00:30:15] No, I totally agree. I totally agree. And, you know, that may be one way to think about it, is that’s what the market is. Maybe the demand broadly has gone down. So you you know, you just mentioned about Spotify, you know, one way to look at it that, yes, a lot of musicians get paid basically very low amount. But other way to think about it that, hey, they’re getting paid at least some money that they never got paid earlier. So, you know, there’s there’s a plus and minus in both ways. So, yes, you’re right. The money that the show is getting, based on how many minutes the people are watching, that number might go significantly down. But I think that is eventually going to be a reality that the actors and the screenwriters will be sort of disappointed that they’re not getting paid as much as they were getting before. But, you know, that’s going to be the reality because the streaming companies just cannot pay them more than what they’re getting. So, you know, everything is going to come down to that. So that’s what I’m saying. The streaming companies have to be able to establish in a trustworthy way that how much revenue, how much value that generating from the content. And then they can agree about how to spread the money that the minutes watch the measure is the number of people joining the measure if people stopping you know turning from the streaming company is the measure are some sort of that you know so my feeling is that they will come to some sort of agreement. And I think that’s when, you know, hopefully this contract situation will get resolved. When measure doesn’t mean that somebody will not be a loser, somebody will not be a winner. I think it will happen. We just will have to wait and watch what eventually comes out, Right?
Lee Kantor: [00:32:17] Well, I think it’s like you said, everybody is going to become kind of YouTube. Content creators that right? It’s going to be some version of that where there’s going to be a lot more people able to make a living or make money doing this. But it’s going to be, like you said, there’s going to be some winners and there’s going to be some losers. Like not everybody’s going to be Mr. Beast. You know, it’s most people won’t be making what they used to be making, but some people will make an insane amount of money.
Rahul Telang: [00:32:49] I agree. I agree.
Lee Kantor: [00:32:51] So if somebody wants to get Ahold of your book and get some insight into this mess and maybe get a hold of you to maybe have a discussion to to figure out some solutions, where can they get the book and where can they connect with you?
Rahul Telang: [00:33:04] The book is available on Amazon, but they can always reach out to me on my email address, you know, and I’m more than happy to happy to talk to them, respond to them and so on and so forth.
Lee Kantor: [00:33:16] Well, thank you so much for sharing your story today. You’re doing such important work and we appreciate you.
Rahul Telang: [00:33:22] Thank you. Appreciate that.
Lee Kantor: [00:33:24] All right. This is Lee Kantor. We’ll see y’all next time on High Velocity Radio.