The ways in which corporations and companies operate vary considerably, and they may informally be classified in several ways:
When two companies directly competing with each other merge, the process is called horizontal integration; when suppliers and customers merge, the process is vertical integration.
Vertical integration characterizes companies that engage in the different stages of manufacturing or marketing of a product, absorbing them into one corporate structure that retains its original identity. Studios involved in the production, distribution, and exhibition of films in their own theatres and TV and cable stations demonstrate this vertical integration. This differs from a consolidation, in which several concerns are dissolved in order to form a completely new integrated company, or a takeover, which is a purchase of a company against its will or the will of its shareholders.
As you know, in October 2006 Macquarie Bank in Australia, a venture capital company that provides some film funding to Australian film productions, contacted us wanting to buy WSAI for $300 million. We knew they had intentions of consolidating us into their production service arm, which is why we had no hesitation in turning down their offer. (Besides, Universal offered $180 mil more). WSAI is a globally integrated network as well as being a global literary and production consultancy. The sale would have been paramount to selling Sony Pictures to Kinko’s.
Horizontal integration embraces companies engaged in the sale of the same or similar products. Absorption into a single firm of several firms involved in the same level of production and sharing resources at that level. A conglomerate, such as Sony and Technicolor, is where a holding company controls other companies conducting diverse types of business, ranging perhaps from financial services to motion picture equipment manufacture to special effects houses to talent management to production to distribution.
Up to now we’ve been aware of the multinational corporate model where a company duplicates itself in different countries. Many of the studios such as 20th Century Fox and Warner Bros apply this business model. So no matter what country you are in, the company is identical to the parent company down to the last detail, but they use different suppliers in the different countries. But is the 20th century, mid 40’s multinational business model on its last legs, doomed to dissolve into the history books?
As an industry, we are now more global—Hollywood is a global industry—so we need to apply globalization methods to the way Hollywood works and integrate independent contractors and independent companies into the model. Hollywood is not vertical integration. It is not horizontal integration. It’s not even a company—it’s become a style and technical method of storytelling that even Bollywood is now using.
Global Integration
Driving growth globally in the film industry today requires companies to leverage the skills and capabilities of a global workforce, integrate operations and successfully manage their business globally. This is what I mean by Global Integration. Through global integration—not labor arbitrage—we can capitalize on emerging talent pools and integrate them with our local expertise to drive value for audiences and investors. Moreover, we should be using our technology to automate processes for continuous productivity gains and driving fundamental change in the way we manage our operations. When we do this—transform the processes and integrate globally—two things happen: costs go down and service levels go up. And this creates unique capabilities for the film industry to drive growth.
Globalization is a concept that encapsulates the growth of connections between people on a planetary scale. Globalization involves the reduction of barriers to trans-world contacts. Through it people become more able—physically, legally, culturally, and psychologically—to engage with each other in “one world”. People experience global consciousness, inasmuch as we define the realm of our lives in trans-world, planetary terms.
To us, globalization is having the ability to assemble the right skills, in the right place, at the right cost and being able to harness them along with our expertise and experience on behalf of production companies and production services.
It is about global integration, the ability to integrate vast capabilities globally to innovate, and this should be our strategy. Innovation and integration are key drivers and they underpin the three elements of the new business model—growth, productivity and effective use of cash.
Global integration supports the new Indie business model. It is how we are developing capabilities our businesses can leverage to drive growth. And the power of this approach boils down to three things:
The film industry has unmatched global capabilities.
We can all globally integrate these capabilities to enable growth and provide competitive advantage.
We can be more confident in our ability to deliver on a sustained basis three points of Earnings Per Share (EPS) growth from production.
WSAI Virtual Studios have a portfolio of businesses and unique capabilities:
Breadth and depth in services.
Unique capabilities in research, intellectual capital, business relationships, deep local roots and industry insight and global experience.
We are using some of the savings from productivity to:
1. Help Reinvent Service Delivery
We’re pairing film production professionals with services delivery experts to create a virtual global delivery platform to unify the film industry’s entire network of production delivery centers such as Hollywood and Bollywood. Standard processes and automation will allow us to distribute work seamlessly, globally between centers, providing unprecedented levels of reliability for our clients with automatic back-up and fail over capability.
In addition, the automation of service delivery will allow us to scale without adding as many new resources, dramatically lowering costs by reducing the dependence on labor for micro budget films.
2. Assemble Global Teams
In global production services, the scale of our global capabilities is an advantage. To make it easier to leverage them, we’ve created a professional marketplace. It is a unique resource staffing model that lets us and you quickly assemble and deploy global production teams based on skills, availability and cost that meet the requirements and price points of an engagement.
Because our approach is transformational—not simply helping you cut costs—our ability to deliver three points of EPS growth from productivity is sustainable.
Through global integration we are addressing nearly all of the film industry’s cost structure.
Some are the benefits we’ve seen include:
1. Integrated Supply Chain
Significant annual cost takeout on procured talent and services–optimized sourcing, vendor leverage, production design efficiencies, and disciplined processes.
2. Global Support Functions
Integrating IT, Finance, HR, Sales Operations, Real Estate, Communications, Marketing, and Legal.
Targeting 10-15% film productivity annually;
Establishing Centers of Excellence to streamline and optimize specific production processes.
HR globalizing employee service centers, Talent management, and learning.
Introducing the utilization of IT and recommending the deployment of low-cost VOIP and e-mail offerings, shifting to global delivery centers.
Deal Hub centers of expertise to optimize pre-sales support – demonstrated improved win rates.
3. Service Delivery
Created Global Competencies –75% of resources are now optimized globally to reduce costs, capture best practices, add flexibility in delivery, invest in tools and enabling technologies.
Improving services margins.
These capabilities individually are impressive, but integrated they provide a significant competitive advantage.
We all can use the process discipline demonstrated effectively in the production service supply chain and apply it to more processes across company. We are:
Gaining access to talent and skills wherever they are in the world; and integrating them globally to develop new, distinctive capabilities to enable growth.
Transforming business and production processes—componentizing, simplifying, standardizing and globalizing them to ensure a consistent and high-quality experience for clients. We are doing work where it can be most effectively and efficiently done
Infusing technology and process transformation; automating workflows to improve speed, eliminate latency and improve responsiveness to production companies and production services while dramatically lowering your cost structure.
Globalization is the trend whereby these various kinds of global relations emerge, proliferate, and expand. As a result of global integration, social geography gains a planetary dimension. “Place” comes to involve more than local, provincial, country, regional, and continental realms. With globalization the world as a whole also becomes a social space in its own right.
Thus global connections in the film industry entail a different kind of geography. Whereas other social contexts are territorially delimited, global relations transcend territorial distances and territorial borders to unfold on planet Earth as a single social space. In this sense globalization might be characterized as the rise of “supraterritoriality”.
Of course globalization does not signal the end of other social spaces. The rise of supraterritoriality does not eliminate the significance of localities, countries, and regions. Nor does the spread of trans-world connections abolish territorial governments or dissolve territorial identities. Global integration means the coexistence and interrelation of local, national, regional, and other dimensions of geography when working with filmmakers and production services on a global basis.
More advanced storytelling technologies mirror this global culture. Culture is now expressed as the land, people and technology in use and the social systems and stages of the character world and the particular cultural stages that go with them.
WSAI was one of the very first companies in (1997) to use a globally integrated enterprise model. This model provides you with actual people or services in different locations around the world that have the expertise that you may require. These guys are independent. Their companies are independent. So, we don’t own their companies and they are not on staff. So we’re not a vertical or horizontally integrated company, but a globally integrated NETWORK.
Global integration is the promoting of an open business environment and identifying, developing, and capitalizing on individual expertise on a global scale and integrating them into a business model. But you must be open-minded to be globally integrated. The difference is that there is a global relationship connection to those companies or people that have the expertise in their particular field that you can utilize to carry out any element of your production.
eBay is a good example of a globally integrated network. Created by the Bank of America, eBay’s core activities are the provision of a global portal (website) where sellers can display and market their wares and service providers can promote and sell their services and by providing a global payment system (PayPal) anyone can use.
They provide a network for thousands of retail and service providers around the world to be connected with customers and clients from diverse countries. They created PayPal as a single payment point that can be accessed readily by anyone, and distribution is made easier for all because instead of using hundreds of different transport companies for sellers to get their wares to their customers halfway around the world or next door, they can recommend the choice of just a few of the better international ones.
In the same way, WSAI provides a portal (crew list) of experienced above and below-the-line crew from around the world along with their resumes, linking the world to you, and you to the world. Our other core activities are the provision of development, production, and consulting services to the film and television industries.
What global integration means to you as a producer is you have a global—not just local—connection thanks to the internet, email, and broadband, etc. It also means, since the film industry is global, you can have office staff from three or three hundred handling your core activities and a potential production team of up to fifty thousand, operating in almost any city in the world. It also means that you can pay or receive salaries and fees across the Internet by use of PayPal straight into your or their bank accounts. And it also means you have an instant connection to advanced technologies.
Forces Behind Globalization
What generates globalization? What makes it happen? Different social theories offer different interpretations of how and why trans-world connections have grown. For example, liberal economics of the film industry stresses the role of unfettered market forces in a context of technological change and deregulation.
Technological innovation in the film industry has contributed to globalization by supplying a new infrastructure for trans-world connections. In particular, developments in means of transport, communications, and data processing have allowed global links to become denser, faster, more reliable, and much cheaper. Large-scale and rapid globalization has depended on a host of innovations relating to coaxial and later fibre-optic cables, packaging and preservation techniques, semiconductor devices, computer software, and so on. In other words, global relations could not develop without physical tools to effect cross-planetary contacts.
Next to technology, regulation of the film industries have also played an enabling role for globalization. Supraterritorial links would not be possible in the absence of various facilitating rules, procedures, norms, and institutions. For example, global communications rely heavily on technical standardization and advancement. Global film finance depends in good measure on a working world monetary regime. Global film production and trade are greatly promoted by liberalization, that is, the removal of tariffs, capital controls, and other state-imposed restrictions on the movement of resources between countries. Tax laws, labor legislation, and environmental codes can also encourage (or discourage) global investment. In short, globalization requires supporting regulatory frameworks.
Consequences
What, then, are the consequences of integrated globalization? I have already noted the most direct impact, namely, that globalization changes the contours of social geography. However, since geography is intertwined with other dimensions of social relations, it is not surprising that globalization also has wider implications—among other things—for economics, politics, and culture.
In terms of economics, for example, global integration of the film industry substantially alters the organization of production, distribution, and consumption. Many production companies and studios still “go global” by duplicating themselves across the planet as a multinational. This is fast becoming an outmoded business model because, in many cases, the left hand doesn’t know what the right hand is doing.
For example, an American Citibank credit card holder may be paying 6.45% interest on their gold card. If they moved to Australia, Citibank Australia will charge them 19.7% on their account without the knowledge or authority of Citibank America, refusing point-blank to honor the parent company’s agreement with the customer.
Many enterprises are now forming trans-world alliances with other companies and individuals through global integration, and this allows the creativity of the staff because they are not locked in to a regimented hierarchy structure. This means there is creative advancement and the opinions of even the mailroom boy mean something. IBM is currently restructuring the lateral business model it created in the period 1970 – 1972 in order to make way for global integration of their products and services.
In IBM’s lateral business model, the head of each division was answerable to that divisional head of the country’s head office, and in turn is answerable to the divisional head of IBM’s world headquarters, and each department head was answerable in like terms. The left hand KNEW what the right hand was doing... WHILE it was doing it.
In standard multinationals, such as Citibank, only the CEO is answerable to their world headquarters and can be answerable to anyone in the company, even the mailroom boy, because they aren’t interested in technological or business advancement, just the bottom line.
In a knee-jerk reaction to globalization, countless mergers and acquisitions occur as business adjusts to global markets. Questions of competition and monopoly can arise as a result. As a result of this reaction, studios relocate many production facilities as globalization reduces transport and communications costs. Globalization also expands the “virtual economy” of information and finance, sometimes at the expense of the “real economy” of distribution and production. All of this economic restructuring in the face of globalization raises vital issues of human security related to employment, labor conditions, poverty, and social cohesion.
The future extent of global integration above globalization is unclear. In one scenario the 21st century will experience a continuation—if not a further acceleration—of recent high rates of globalization. In an alternative account, globalization will slow down and stop once it reaches a certain plateau. In yet another forecast—for example, if globalization is a cyclical trend or succumbs to traditionalist opposition—the future will bring a process of de-globalization (centralization) that reduces trans-world connections.
The first step made into the global integration of the film industry was made when Melissa Gilbert—during the time she was president of the Screen Actor’s Guild—created and instigated Global Rule 1, which also includes the “better rates principle” which means if the production originates from a country that has a superior agreement protecting performers, that superior agreement will apply to that production as the offshore agreement.
This means—using Spielberg’s “Pacific” as an example—all Australian actors on the project are subject to the SAG Agreement and USD fee rates and Australian Extras are subject to Australia’s Actor’s Equity Extra’s Agreement and AUD fee rates, because they are the more superior Agreements.
The global integration of Hollywood, using an extended version of the Global Rule 1 to include crews as part the model, would mean that crews would work under the superior agreement no matter what country the originating company is producing in.
Now, this doesn’t mean that you’ll be paying everyone on the globe in US currency rates based on American crew Agreements. A Canadian script supervisor is still going to be paid $29.77 per hour Canadian (negotiable), if the agreement in Canada says that’s their minimum fee and it may even be the superior Agreement. An equivalent Scripty in the US might get $45.00 per hour, so you would not only be saving $15.23 an hour; you’re making a double saving because Canadian money is cheaper than American money. Even $45 Canadian is cheaper than US currency.
On the other hand, a production service in Madrid that sends you a bill for eighty thousand Euros is still going to cost you a little over $100,000 US dollars. What I’m saying here is that it generally balances out or is cheaper, so you can still have your production manager in Los Angeles budget to US dollars for your investors, but they will, of course, know the rates of a good location manager in London based on that country’s .production crew Agreement.
That is only a small part of global integration. Global integration also means that you have global reach. The world is your studio. If a script calls for your hero to briefly go to and be attacked in New Delhi and the cost of creating identical sets in your location is prohibitive, you can call on a production team there to do the filming and send the completed shots back to you for editing or you can use the facilities there, saving you money and heavy logistics.
With global integration, you can be in Canada, acquire a UK-written script, develop it in Italy—with the director in Los Angeles, Director of Development in Melbourne Australia, script editor in Oklahoma, and Production manager in New Zealand—get funding from Germany, do pre-production in Los Angeles, film in Omaha, the Ukraine, and Ireland (simultaneously), do post-production in Sydney, have the CGI done in Singapore, have the music and re-recording done in London, and still be regarded as a wholly Canadian production because your core production activities are there. What would’ve cost $60 million to produce if completely done in Saskatoon, might only cost you $37 million in the end, based on the differing currency rates, but also depending on the “better rates principle”.
With global integration, “Runaway Productions” is not a problem but the name of a US production company.
During the last 12 months The International Producers Alliance has taken to global integration like a duck to water. Almost daily I read requests of a production company in one country requiring contact with production services in another to film the scenes requiring an overseas location.
Even though global integration is still in its early days and still being tweaked by us as well as IBM and others, if global integration of the film industry was applied, as well as an extension of Global Rule 1 to crews, negotiation would be less taxing and less heated when filming in other countries, because everyone would know the score (and that country’s crew and performer’s Agreements) before they go there.
Each of the organizations and people in WSAI’s crew list, and their corresponding best practices, are recognized on a world-wide basis as the standard guidance for practitioners in their respective fields.
Global Integration: The Framework
The Global Integration framework brings together industry standards, integration, best practices, formal modeling techniques, and other initiatives to create a prescriptive approach to integration.
The global integration practice in the film industry is coming of age. The film community has been integrating production in some way, shape, or form ever since Hollywood’s golden age. In the mid 1980’s, the integration field exploded with the introduction of independent middleware technology (set building, editing, special effects and visual effects houses) as discrete industries. What followed was the rapid development of myriad production solutions by hundreds of integrated production software, production services and consulting companies, and the introduction of many new proposed standards. That market has since consolidated, matured, and middleware technology has demonstrated that it is here to stay; although it will continue to morph into new forms as innovations drive new solutions to complex production problems.
With the maturing of the global integration of markets and services, comes a new demand; the need for consistent and proven practices that will carry the film industry forward for a long time and compliment them with a number of additional elements to create a holistic framework for integration activities.
A vendor-neutral reference architecture,
An integration methodology including prescriptive templates and standards,
A central registry of production personnel and companies,
An education program, and
A certification process to validate the skills and knowledge of individuals, the conformance of film industry-related products and standards, and the maturity of organizations.
A global integration network is intended to be prescriptive in nature. In other words, it is much more than the typical guidelines, principles, connections, and heuristics. It’s purpose is to provide specific integration solutions to specific production problem scenarios. This is not to say that there aren’t other ways to be successful, but the value of global integration is that it is based on real-world scenarios that have been proven to work; follow the prescription and you will be successful.
One of the reasons for the success of the Internet is that it has achieved, in some respects at least, the “holy grail” of continuous innovation while retaining a low-cost shared infrastructure. When everyone plays by the “rules” of the film industry, then everyone can use it and improve it, but it continues to operate efficiently. The vision of the global integration of the film industry is to achieve the same level of utility for application and data integration as the internet has achieved with the ubiquitous browser. Specifically, this will define non-functional production requirements such that vendors can build highly modular production components that can be assembled flexibly and easily. Furthermore, the standards will be sufficiently proven and ubiquitous that production companies will mandate it.
The vision is not unique in some respects. It can be described as a boundryless information flow. The fact that many organizations have a similar vision is good.
There are many dimensions to making global integration easy and it will require broad-based industry support to make it a reality. The vision is not to duplicate the work of other organizations, but rather to use what works from different groups and assemble it into a holistic solution.
Hollywood will support global integration because it allows it to focus on solving business problems rather than technical integration problems. A few years ago, many production companies and production services’ production strategy still had a strong proprietary emphasis which resulted in a double-edged sword of competitive advantage and vendor lock-in. The focus has changed in recent years and the majority of vendors have embraced standards and open systems given the reality of needing to interact with products from other vendors and in the interests of efficiency. But a key challenge remains; which standards to adopt and how quickly? Global integration of the film industry will help answer this question.
A further motivation for production vendors is that global integration will enable the creation of an entirely new category of tools to support the production framework. Those vendors that are early pioneers and leaders in its development, will have a time-to-market advantage in developing the new tools.
Production service companies will support global integration because they also want to focus on business problems rather than technical issues and because fundamentally it will lower the cost of production. Production companies can and should demand that production services conform to a specific set of standards. But doing so by “boycotting” products that don’t conform to the standards the production company likes at any given point in time is a backhanded way of achieving compliance. Production companies will participate in the global integration development in order to “earn the right” to demand that their production services conform to the specification.
Room For Discussion
The process by which the Hollywood will achieve the global integration vision is an open collaborative process that involves all film industry members that are willing to participate. Elements of the global integration framework may be contributed by any member. Once submitted for consideration, it is debated at workshops, refined in discussion and practice, and may be combined with other elements. Once accepted by the film industry, it becomes an official proposed global standard.
A frequently asked question would be, “Why the extra work? Aren’t the standards as delivered good enough?” The trouble is that the standards are often put together by differing subcommittees, and while in theory the film industry standards bodies should reconcile all such differences, the reality is that this doesn’t always happen. There are production service agendas at work, and the elimination of one alternative in favor of another sometimes is politically impossible, or technically undesirable. This is where a proven reference interpretation is useful.