The origins of Hollywood are rooted in skirting the law

Analog production and distribution of media was the original, quintessential rights management tool, making the reproduction of content challenging. Digitization – via the rise of computers, internet, world wide web and mobile – meant that intellectual property was let out of the genie. For more on why digital media is the new software, read this.

At the onset, a lack of economic incentive meant that Hollywood kept its IP offline. This led to a rise in piracy but also bought Hollywood time since digitizing text and images was easier and less cumbersome than digitizing “rich media,” particularly television shows, let alone long feature films. All that did, however, was delay the inevitable. Today, media companies are blowing up their traditional businesses to go direct to consumer – which I have captured in the diagrams below:

There’s good and bad everywhere, but…

In my experiences with executives in Silicon Valley, Wall Street, Madison Avenue and Hollywood, I’ve found Hollywood to be the most swashbuckling and wild wild west in its ways. This surprised me, given how much of a seemingly principled stand Hollywood takes with regards to things like piracy and the protection of intellectual property. This isn’t to say there isn’t fraud or unethical behavior on Madison Avenue, Silicon Valley or Wall Street – of course there is. In fact, there are probably as many unethical, unprincipled characters on Wall Street as there are in Hollywood, on Madison Avenue as there are in Silicon Valley.

Because Wall Street is rooted in capital, the law is pretty black and white: outlaws can run but they won’t hide, whether they allegedly rip off individual investors or institutional ones. Madison Avenue may trade in the intangible art of marketing and communications, but to protect i) consumers, there are laws over misleading advertising; and ii) marketers, there are safeguards against fraudulent advertising expenditures. Silicon Valley’s base in technology means that the law is pretty clear and those who skirt it face stiff consequences, even if the entire industry is somewhat based on staying one step ahead of the law. Indeed, Silicon Valley’s mantra could be summed up by “it’s easier to ask for forgiveness than for permission.”

But because of the intangible & inherently fluid nature of Hollywood’s foundation – ideas and relationships – I have found Hollywood’s moral compass to be the most dubious, because an entire ecosystem on ideas is inherently opaque and hard to enforce. I’ll be covering this more in the weeks to come. There’s the added dynamic of much of Hollywood’s IP base originally being part of the public domain and hijacked by corporations – but that’s for another article.

As the quintessential underdog and outsider, I generally only focus on people’s positives even as they may be peeing on my leg (“you’re such a warm person”). But as I get older and care less about appeasing the dishonest and unprincipled, I won’t lie: Hollywood’s moral compass (or lack thereof) is just off the chart. Why? It’s in its pedigree.

As all answers can be traced to history, it’s not surprising when you go down memory lane. There are many articles that cover this well, for starters, via MentalFloss:

The motion picture capital of the United States, if not the world, is Los Angeles, California—specifically, Hollywood. The weather is conducive to year-round shoots and rarely has rain in the forecast. The area has diverse scenery too, with beaches and the ocean as readily available as deserts, forests, and even mountains. On top of that, when some of the first Hollywood studios opened around 1915, land was cheap and labor was plentiful. All the area needed was an industry, and the movie industry made a lot of sense.

Oh, and there was one other reason the movie industry made its way west. Los Angeles was far away from New Jersey—and Thomas Edison was in New Jersey.

Edison, over the course of his career, held over 1000 patents in the United States. He was credited with inventing a bevy of technological devices from the incandescent light bulb to the phonograph. He also had a role in the invention of the Kinetoscope, an early movie camera (although most of the work was done by William Kennedy Dickson, an employee of Edison). And during the late 1800s and into the 20th century, he held many of the patents over the technologies needed to create movies. Edison apparently used these patents as a cudgel.

In short, if you wanted to be in the movie business, you did so at the pleasure of Thomas Edison. And Edison (via the MPPC) was not one to back down. The Company took to the courts to prevent the unauthorized use of everything from cameras to projectors — and in many cases, the films themselves. According to Steven Bach in his book, Final Cut, the MPPC even went to the extreme “solution” of hiring mob-affiliated thugs to enforce the patents extra-judiciously. Pay up — or else.

Many in the film industry, known as “independents,” chose a third option: flee. California made a lot of sense, not only for the reasons listed above, but also because California was in an area where judges were less friendly to the patents awarded to Edison and company. And even if the patents were held valid (or if the MPPC again tried to go with the extrajudicial solution), enforcement would be tricky, as cross-continental travel was expensive and cumbersome for mobsters and federal marshals alike. This time lag was all the “independents” needed, as the Company’s patents were expiring and the organization was losing antitrust cases in the courts.

Hollywood, born out of a desire to avoid Edison’s intellectual property claims, quickly became the primary location of the motion picture industry.

Indeed, all of the original builers of Hollywood were driven by the need to run away from the law, i.e. patents. From

Carl Laemmle had heard enough. The 5-foot-2-inch German immigrant was the little guy in more ways than one, but he wasn’t going to let bigwigs—not even an American icon like Thomas Edison—tell him how to run his business.

Laemmle loved the movie business. He had quit his job in 1906 and sank his family’s $3,000 savings into opening a Chicago nickelodeon where he screened motion pictures for five cents a head. Nine months after his theater’s opening, Laemmle was making $6,000 a week. He expanded into film distribution and was living his dream, even earning enough to take his family on a four-month European vacation.

Not long after he returned, however, a sea change swept over the film industry, which for nearly a decade had been embroiled in litigation concerning patents on motion picture technology. At the center of the dispute was Edison, who had first filed a patent on a motion picture camera in 1891 and purchased related patents with his deep pockets. Seeking to end the ceaseless lawsuits, Edison brought the representatives of the biggest film companies in the United States together in December 1908 to form the Motion Picture Patents Company, also known as the Edison Trust, which collectively held 16 major film patents.

The cartel was the most powerful force in American film. (...) in 1915, Laemmle finished construction of his own California movie metropolis, Universal City, now home to a theme park and the largest film production facility in the world. A special guest ushered in a new chapter in American film by dedicating Universal’s state-of-the-art electric studio. It was Thomas Edison.

But wait, there’s more! Via Lexology:

In 1893 Thomas Edison built America’s first movie studio, ‘Black Maria’. Big screen projectors not yet existing, the studio produced movies for viewing through a kinetoscope. Spectators were treated to movie shorts including “Professor Welton’s Boxing Cats” (that does exactly what it says on the tin) and the first cinema footage of Native Americans.

Around this time Edison filed and acquired a large number of US patents for motion picture technology, becoming the owner of most of the existing US patents in the field. The Edison Manufacturing Company flexed their patent muscles and effectively eliminated all of their competition on the east coast by filing patent infringement lawsuits against them. However, their main competitor Biograph used a different camera not covered by Edison’s patents.

As studios and cinemas began to open across the US at an increasing rate, the number of lawsuits Edison filed increased in spades. Edison, Biograph, and their other remaining competitors decided to join forces to form a patent licensing company to control the market: The Motion Picture Patents Company (MPPC). To avoid the newfound control the MPPC was exercising over the movie industry, many film makers began “heading west” – in other words, as far away as possible from the long arms of the Motion Picture Patent Company and the spectre of patent lawsuits. (It is worth noting that in the connected modern world we live in today, heading west would not evade patent protection). Los Angeles became the home to these flighting movie makers, connected by railway but also close enough to Mexico to hide infringing motion picture equipment over the border if the threat of an MPPC patent lawsuit presented itself.

Over the course of my twenty-year career in media, I have found honest and dishonest individuals in all walks of life, all industries and regions. But I definitely see how the combination of Hollywood’s fluid assets and value-creation engine (ideas and relationships) and demonstrated history in skirting the law (Edison’s patents) make it ripe for constant ethical lapses in behavior and judgment. Not all of my industry friends will love me saying this, but those tend to be the ones who are peeing on my leg.