With so much in print — most of it worthless — claiming to explain the unprecedented economic growth of the last decade, it’s tempting to ignore Michael Wolf’s new book. But that would be a mistake. Wolf, a lawyer with a media and entertainment practice, offers in The Entertainment Economy an insight into today’s economy that is both fascinating and convincing.
Consider the economics of a missile, a mousetrap, and a movie. In some ways, they’re quite similar. The money that goes into a missile sustains a manufacturer, workers, soldiers, nearby stores and restaurants, and their suppliers. The money that goes into a mousetrap sustains a manufacturer, workers, delivery people, stores, and their suppliers. The money that goes into a movie sustains a studio, actors, crews, theaters, and their suppliers.
But there is also a crucial difference. Missiles are rarely used — and can’t be reused. One mousetrap easily replaces another — and a good one needn’t be replaced for a long time. A movie, however, can be released in the theater — and then again on video, on network, cable, or satellite television, and, soon, over the Internet. Popular movies generate more business for everyone involved with them, from the actors to the assistant producers to the studios. Licensing deals extend a movie’s reach to lunch boxes, dolls, clothing, and soundtracks. An imaginative marketer can continually extract value from the fixed cost of a movie — and there has always been an abundance of imaginative marketers in America.
About the only business better than a hit movie is the Internet. To make money from a movie, a studio must invest in a script, pay a lot of people, deal with a lot of egos — and then suffer the mercurial taste of the public. But the value of great Internet companies such as American Online, Tripod.com, and Raging-bull.com is created by their customers. AOL has chat rooms, Tripod has member homepages, and the Raging Bull has financial bulletin boards. The costs of enabling all this — and thereby delivering viewers to advertisers — is minimal. Internet companies enjoy the benefits of scale economics without significant fixed costs.
But — and this is Wolf’s insight — the virtuous circle enjoyed by Internet companies in fact appears throughout the entertainment economy. Entertainment goods create enormous wealth, and this wealth creates demand for more entertainment goods.
Indeed, the entertainment industry is perhaps the only field left for real growth. We already spend only 2 percent of GNP on food; we already produce inexpensive durable goods that are actually durable; and we no longer need as many missiles as before. While other industries continue to prosper, Wolf shows how many of them actually depend on the entertainment economy.
Who, for instance, is the leading distributor of toys in the United States? The answer turns out to be McDonald’s, whose alliance with Disney resulted in a 23 percent increase in U.S. sales of Happy Meals. Who provided Garth Brooks with his greatest concert audience? WalMart, as his concert was broadcast in 2,400 of the company’s stores the day his album Double Live was released. How does Citibank plan on attracting a billion customers? By creating an on-line service that establishes emotional bonds with customers.
With Internet, cable, and satellite technologies pounding the cost of distributing information down to almost nothing, there should be little doubt that entertainment will occupy an ever more secure place at the center of the American economy. This obviously has enormous sociological implications, which Wolf — writing about business — doesn’t fully analyze. But his book offers an opportunity for us to consider what direction we are headed.
A generation ago Daniel Bell worried about “the cultural consequences of capitalism,” just as two generations ago Joseph Schumpeter identified capitalist societies’ “creative destruction.” A certain type of economy automatically reinforces the moral virtues that sustain it: Farming crops at dawn, mining coal until dusk, and serving customers in the family drugstore all require hard work, responsibility, punctuality, cooperation, and respect. People who trade stocks, produce movies, and build Web sites may have those virtues, but they can prosper without them.
Advertising — the engine of the entertainment economy — has often called on people to free themselves from the burdens and obligations of the virtues that fuel capitalist prosperity. An economy successful enough to become an entertainment economy was not built by people who really believed that they “deserved a break today,” or that “all it takes is a dollar and a dream.” Such nonsense was tolerable when the influence of entertainment was softened by the requirements of the real world; it is quite a different situation when entertainment is the real world. The moral vigilance that was unnecessary in earlier eras of capitalism is the first great challenge of the entertainment economy.
The second great challenge of the entertainment economy is described by the comedian Chris Rock, who said, “It used to be that music was here today, gone tomorrow. Now it’s here today, gone today.” Rock’s insight has enormous sociological implications — implications that were best plumbed by Alexis de Tocqueville in Democracy in America. “A native of the United States . . . clutches everything, he holds nothing fast, but soon loosens his grasp to pursue fresh gratifications.” For Tocqueville, the abundance of opportunity in America can be literally maddening.
The entertainment economy offers an infinite number of outlets for enjoyment. We live in a world of opportunities to view thousands of things, travel cheaply almost anywhere in the world, communicate easily and for free, and work in new and unestablished sectors of the growing economy. It is a world that has made possible Jeff Bezos and Jerry Yang — young men who have made great fortunes transforming the economy.
But for every founder of Amazon or Yahoo! there are thousands more who wonder which of the infinite number of possible routes is the shortest to success. Even those who do not fancy themselves a Bezos or Yang are left wondering which of the new and old products of the entertainment economy will satisfy them. Are these people necessarily happier than their forefathers who knew they would be farming the fields every day until they died? The self-evidence of the answer suggests just how formidable the challenge of the entertainment economy will be.
Mark Gerson is co-CEO of the GL Group, a business publishing company in New York.
