You cannot swim for new horizons until you have courage to lose sight of the shore.
William Faulkner
In the early 20th century, Thomas Edison dominated the film industry in the United States through near total control of the patents that regulated the production and distribution of motion pictures.
This monopoly limited emerging filmmakers, stifling innovation and restricting any attempt to create something new without passing through Edison's hands.
However, history teaches us that many moments with very narrow paths can lead to acts of great daring. The founding of Hollywood is one of those moments.
A group of rebellious entrepreneurs and filmmakers, determined to escape Edison's control, moved to the west coast of the United States, to a small town outside of Los Angeles that you may be familiar with, called Hollywoodland and later renamed Hollywood, where they began to build an industry that would change the world forever.
Thomas Edison and his control over the motion picture industry in the U.S.
Thomas Edison, one of the most prolific and famous inventors of his time, had established a dominant position in the motion picture industry thanks to an extensive portfolio of patents covering virtually every aspect of motion picture production and exhibition.
His company, the Motion Picture Patents Company (MPPC), also known as the Edison Trust, monopolized the manufacture of motion picture cameras, picture projectors and film distribution. This meant that any filmmaker who wanted to make a movie in the United States had to obtain a license from the MPPC and pay royalties for the use of the patented equipment. Failure to comply with these rules resulted in relentless lawsuits that could bankrupt anyone who dared to challenge Edison's empire.
On the East Coast, where Edison was based in New Jersey, his lawyers jealously guarded any attempt to infringe the patents. The pressure on filmmakers was enormous, and creativity was caught in a legal web that prevented any significant breakthrough.
For entrepreneurs who saw film as a creative medium with great potential for innovation, the situation was difficult to accept. The only solution, some thought, was to flee Edison's sphere of influence.
The Flight to the West: Hollywood as a refuge
The small town of Hollywood, located outside of Los Angeles, offered something the East Coast could not provide: distance.
By settling in California, the filmmakers were far enough away from the immediate reach of Edison's lawyers to operate with greater freedom. But in addition to geographic distance, there was another crucial factor in the choice of Hollywood: its closeness to Mexico.
When filmmakers based in Hollywood violated Edison's patents, they knew that the inventor's agents would be slow to arrive from New Jersey. If the situation became critical, they could quickly escape to the south, cross the border and hide their equipment in Mexico, where U.S. patent laws had no jurisdiction. This ability to evade Edison's authorities made Hollywood an ideal haven for those who wanted to experiment with film without the constraints of Edison's Trust.
We find here already innovative entrepreneurs willing to take a real and tangible risk by violating the patents of a giant in order to venture and innovate in the new storytelling frontier that was cinema. These rebellious filmmakers minimized the risk as much as they could by operating in a frontier zone as far away from Edison's reach as possible, but they were still risking lawsuits that could finish them off.
Risk and reward: the unavoidable equation
The story of these film pioneers (the American West has served many types of pioneers) is steeped in a fundamental lesson:
Risk is an essential component of progress.
Disruptive or radical innovations are not achieved by following established rules, but by first questioning them and, often, breaking them.
I've already told you what to do with the rules here.
This group of entrepreneurs understood and accepted that taking on Edison and risking the legal consequences was the only way to escape from his control of patents and be able to create something new.
The risk - reward equation is very simple:
Amount of reward = Amount of risk X Other factors
Without going into what the other factors are (ideas, execution, talent, etc.) what we are interested in knowing about the equation is that it makes one thing very clear: the relationship between reward and risk is directly proportional. That is: the more risk there is in the equation, the greater the probability of a larger reward.
The converse is also true: the less risk in the equation, the lower the probability of a large reward.
This obviously does not mean that risk guarantees reward, nor does it mean that more risk guarantees more reward. No. It means that by eliminating risk and setting it to zero, there is zero probability of reward and that by raising the risk, those probabilities and the size of the reward start to increase.
This is very important because today, there is a general tendency to minimize risks to the extreme, if possible doing the impossible to try to bring them to zero (which is conceptually impossible), and this is connected with an obsession to seek security and stability rather than innovation. Moreover, a misunderstood security and stability, which I already told you about here.
However, the history of Hollywood reminds us that great rewards cannot be obtained without taking great risks. The filmmakers who built Hollywood not only risked their capital and reputation, but everything else, since operating without paying Edison's Trust was illegal.
The fact that these pioneers were willing to take such risks allowed them to revolutionize the motion picture industry. Without their audacity, the motion picture industry might have remained under the tight control of Edison and his patent system. Had they chosen to play it safe, the history of American cinema would be completely different and Hollywood would never have emerged as the global center of film culture.
On the other hand, this same history provides us an additional lesson. The initial success of Edison and his patent monopoly demonstrates that protecting inventions is a valid way, but if this protection becomes an obsession to control and avoid any competition and swallows all the energy and creativity in raising defenses, one runs the risk of losing immense opportunities. Edison chose to focus on lawsuits (at a time when he could no longer sue as fast as independent studios appeared to infringe his patents) rather than take an offensive approach to dominating an industry he himself had helped create.
As a result, he missed one of the greatest entrepreneurial opportunities of the 20th century: the very plausible possibility of having been the pioneer of a massive film industry.
Hollywood: From Rebellion to Compliance. First moral.
The Hollywood that these entrepreneurs and filmmakers built did not remain forever a stronghold of rebellion and innovation. In its early years, it was a place of unbridled creativity and a break with the norms imposed by Edison's Trust. But, over time, the Hollywood industry itself began to adopt the same controlling dynamics that its founders had challenged.
This was due, in part, to the fact that the studios created in Hollywood established exclusivity agreements with different cinemas and developed exclusive ways of distributing films to these cinemas. These agreements prevented other filmmakers from exhibiting their films if they were not part of the system established by the major studios. The companies controlled not only the production, but also the distribution and exhibition of films, creating an oligopoly that dominated the industry for the next 30 years.
Measures such as these prevented other filmmakers from entering the film industry without complying with the rigid rules set by the studios. Innovators and independent creators faced obstacles similar to those that Hollywood's founders had faced against Edison's control. The cycle repeated itself: yesterday's rebels became today's establishment, blocking innovation and protecting their dominant position.
This phenomenon is not unique to Hollywood. It is a recurring pattern in the history of innovation. Entrepreneurs who take big risks to challenge the status quo and create something new often end up, once they achieve success, defending their own power system. They become the new established order, which, in turn, will resist innovations that may emerge from subsequent generations.
The cinema, the missed opportunity of Edison. Second Moral.
It is a powerful lesson to think that, although Edison controlled all the key patents in the film industry and was an incredibly innovative and successful entrepreneur, he arguably missed the revolution that cinema was about to unleash.
By focusing so much on imposing his control through patents, he adopted a defensive approach that, while allowing him to maintain that control for a short time, prevented him from capitalizing on the future growth of the motion picture industry. Instead of adopting an offensive strategy that would allow him to benefit from the immense potential cinema had, Edison was trapped into defending his monopoly, thus losing the opportunity to lead what would later become one of the world's largest industries.
If a new generation is coming with its innovations, you have possibly only two options: try to participate in the value of these new innovations and become an agent of progress that has capitalized on one stage and, while continuing to do so, also capitalizes on the next or, on the contrary, try to control everything and maintain the position achieved in the first stage. I do not recommend putting your energies into the defensive formula of control, but into the offensive formula of growth.
If Edison had considered how to make the success of the new filmmakers also his success, he could have been a pioneer in the creation of a cinema emporium, having been able to invest and own all or part of companies covering practically all the links in the cinema value chain. He was perfectly positioned to do so if he had wanted to. No one fights a giant if the giant gives reasonable options for everyone to grow.
If he had done this, he would surely have gone down in history not only as the inventor of the light bulb and the quintessential entrepreneur of electricity and other technologies, but also as the first tycoon of a gigantic film industry.
The Cycle of Progress: risk, innovation, new status quo. Repeat.
The history of Hollywood is a clear example of how progress and innovation are intrinsically linked to risk. Filmmakers who challenged Edison's control made dangerous choices and broke the rules in order to realize their creative visions. This act of rebellion gave rise to one of the world's most influential industries. However, it also shows how the success of one generation can lead to the establishment of a new rigid system, which in turn becomes a barrier to the next wave of innovators.
This cycle is one of the great challenges of progress in any society. Those who achieve success and innovation tend, inevitably, to resist the changes that the next entrepreneurs bring with them. Previously disruptive systems become the new guardians of the established order.
However, this cycle need not be immutable. Successful entrepreneurs and creators have a powerful option at their disposal: instead of resisting change, they can become investors and mentors to new generations of innovators. In this way, instead of seeing new ideas as a threat, they can actively participate in the success of the new creators and in their own success.
This strategy not only benefits emerging innovators, but also enables veterans to remain relevant in an ever-changing landscape. Aligning the interests of both generations creates an ecosystem where innovation is encouraged rather than hindered.
Under the sofa you cannot thrive
The story of the founding of Hollywood is a reminder that progress always involves risk, even if society communicates to you through all its channels to choose what has the least risk. That same society could not be giving you those messages without using the means that risk takers have created. The cinema in particular and the audiovisual industry in general are today, in fact, possibly the most influential artifact in shaping world culture, and they are used many times to convey messages aimed at getting you to take little risk, less risk, even less, get under the sofa.
That's not the way to do anything in life that will lead to anything worthwhile. Instead of avoiding risk, understand it and manage it at whatever level you decide that makes sense for you.