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Hollywood Competition, Regulation, and Disruptive Innovation

· May 2, 2019

Recent news coverage of an intra-Hollywood legal tussle suggests the entertainment industry is witnessing its own instance of the broader phenomenon, often covered by DisCo, where regulatory changes are inspired by disruptions caused by business practice innovations.

Writing in the Hollywood Reporter, Eriq Gardner analogizes an ongoing legal fight between the Writers Guild of America (WGA) and the Association of Talent Agents (ATA) to the disruption of the transportation industry and fight between ridesharing services such as Uber and Lyft and the taxi industry. Gardner’s coverage outlines the debate surrounding the California Talent Agencies Act on issues such as “occupational licensing” and “regulatory capture.”

In short, the ATA and other talent agencies support strong licensing language, claiming it will protect artists and ensure fair and lawful competition. Organizations such as the WGA support a loosening of that language as they feel talent agencies currently have too much control over occupational licensing and should not be engaging in the practice of “packaging,” which the WGA argues serves to benefit talent agencies over who they represent and negatively impacts competition in the market.

The Screen Actors Guild‐American Federation of Television and Radio Artists (SAG-AFTRA) has also been vocal on the issue:

“The nature of the entertainment industry gives the gatekeepers to employment immense power. The manner by which artists obtain employment and the brief duration common to most industry jobs leave few artists in a position to scrutinize or challenge those who control their employment opportunities. For these reasons, and in light of recurring abuses at artists’ expense, the California Legislature has long recognized the need to regulate the gatekeepers.”

In making the comparison to the issues between taxi companies and Uber, Gardner draws attention to a common phenomenon. Frequently in industries undergoing evolution or experiencing disruptive innovation, regulation will be the target of multiple interested parties to solidify their positions, whether they want more or less. In the case of the transportation market, the debate surrounding the law centers around the licensing regulations that taxis have to follow, while Uber does not. Taxi companies have argued that the regulations that applied to them ought to apply to services such as Uber as well, however Uber has argued that new technologies and services require different regulatory approaches.

DisCo has written specifically about occupational licensing and its effects on competition and consumer protection in the past. The FTC also released a report last year investigating occupational licensing and explaining why it’s a complex issue. Oftentimes preexisting occupational licensing cannot simply be applied to all firms across the board. Doing so could stifle competition and hold an industry back, creating unnecessary barriers to entry for individuals or firms aiming to compete and aiding in creating a regulatory structure that benefits incumbents over new entrants and challengers, also referred to as regulatory capture. This dynamic can be seen in the debate around the Talent Agencies Act, the transportation market, and beyond.   

Along with the discussions of regulatory capture and occupational licensing through the lens of Uber and the transportation market, DisCo has also illuminated this phenomenon through the fights between Airbnb and hotels and private hair-braiders and cosmetologists. This phenomenon is not new, it’s reflected across multiple markets on a large scale, and it’s a continual struggle between businesses in a market to solidify their standings. When considering legislation, policymakers must recognize the complicated nature of this phenomenon.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.