Point, Application, and System Solutions: Hollywood's AI Dilemma

As the son of historians, I've developed a habit of viewing current events through the lens of historical patterns. Lately, I can't shake the feeling that we're living through a real-time historical case study – one that future generations will analyze and dissect. But this isn't just an academic exercise. We're experiencing a technological disruption with AI that impacts the jobs and livelihoods of people and communities I care deeply about. The decisions we make now will shape not just our industry, but the cultural landscape for years to come.

This sensation crystallized when I read a recent Bloomberg interview by Lucas Shaw (my favorite entertainment writer) with four Hollywood insiders about AI's impact on Hollywood. While informative, the piece left me with a nagging sense that something crucial was missing. The viewpoints presented seemed limited, focused primarily on immediate applications and potential threats, rather than the transformative potential of AI.

The experts discussed important but narrow concerns: protecting actors' rights, creating interactive experiences with film characters, legal implications of AI use, and current AI applications in film production. While these are valid points, they fail to capture the full scope of AI's potential impact on the entertainment industry.

As I thought about why the article left me unsatisfied, I kept returning to the framework presented in "Power and Prediction: The Disruptive Economics of Artificial Intelligence" by Ajay Agrawal, Joshua Gans, and Avi Goldfarb. This work introduces a model for understanding revolutionary technological adoption that seems incredibly relevant to Hollywood's current approach – and, I believe, exposes its fundamental flaws.

The authors describe three levels of AI integration: point solutions, application solutions, and system solutions. 

• Point Solutions are direct, one-to-one substitutions that don't fundamentally alter existing systems. They're like replacing a steam engine with an electric motor without changing the factory layout.
• Application Solutions involve more substantial changes within existing paradigms. They leverage AI's capabilities to improve processes but don't completely overhaul the business model.
• System Solutions reimagine entire industries around AI capabilities. They're transformative changes that create new possibilities and paradigms.

Reflecting on the Bloomberg interviews through this lens, it became clear that Hollywood, like many industries, is primarily focused on point and application solutions. This focus, while important, could be leaving the industry vulnerable to disruption from outsiders who are thinking more broadly about AI's potential.

Point Solutions: The First Spark

To understand point solutions, let's use a historical analogy. Imagine it's 1882, and you're a textile mill owner who's just heard about Thomas Edison's marvelous new invention – electricity. After much deliberation, you replace your steam engine with an electric motor. But here's the catch – your factory layout remains unchanged. The big machines are still clustered near the power source, just like they were with steam. You've adopted electricity, but you haven't really embraced it.

This is a point solution – a direct substitution that doesn't fundamentally alter the existing system. It's more efficient, sure, but it's not revolutionizing your business.

In today's AI context, this is like a Hollywood studio using an AI tool for script analysis or initial drafts. It might make the process more efficient, but it doesn't change how movies are made, distributed, or consumed. It's adoption without adaptation.

The Bloomberg piece is rife with examples of point solutions in Hollywood. AI is being used for initial script analysis, rough drafts, or generating background elements in visual effects. These are efficiency improvements, not industry-altering innovations. And herein lies the danger: by focusing on these point solutions, Hollywood risks missing the forest for the trees.

Point solutions are important. They're often the first step in adopting new technologies and can provide immediate benefits. But if an industry stops there, it becomes vulnerable to outsiders who are thinking bigger.

Application Solutions: Rewiring the System

Fast forward a decade or two in our electricity analogy. Some forward-thinking factory owners start to realize that electricity offers more than just a replacement for steam. They begin to redesign parts of their factories, installing individual electric motors on machines. This allows for more flexible layouts and more efficient production flows.

This is an application solution – a more substantial change that operates within the existing paradigm but doesn't completely overhaul it. It's starting to leverage the unique properties of electricity, but still within the confines of the traditional factory model.

In AI terms, this might be a film studio using machine learning to optimize production schedules, predict box office performance, or personalize marketing campaigns. These applications require changes to processes and workflows, but they don't fundamentally alter the business model of creating and distributing films.

While these application solutions are more substantial than point solutions, I argue they still fall short of AI's true potential. They're optimizing existing systems rather than reimagining them from the ground up. And this is where the real threat lies – in missing the opportunity to reimagine the entire industry.

System Solutions: The Light Bulb Moment

Now, let's jump to 1913. Henry Ford introduces the moving assembly line, completely reimagining manufacturing. This isn't just about making existing processes more efficient; it's about creating entirely new possibilities.

Ford's innovation leverages electricity's unique properties to create a new paradigm of production. The assembly line wouldn't have been possible with steam power. It required the flexibility and distributed energy that only electricity could provide.

This is a system solution – a complete reimagining of the industry built around the capabilities of the new technology.

In the AI world, a system solution would involve reimagining entire industries around AI capabilities. What would the entertainment industry look like if we built it from scratch with AI at its core?

This is where the insiders from the Bloomberg article, and much of the current discourse around AI in Hollywood, falls short. The focus is primarily on how AI can fit into or slightly modify existing structures, rather than how it could fundamentally transform the industry.

The truth is, we can't accurately predict what true system solutions in AI-driven entertainment might look like. Just as the factory owners of the late 19th century couldn't have imagined the assembly line, we are limited by our current paradigms and experiences. The most transformative applications of AI in entertainment may be beyond our current ability to envision.

What we do know is that system solutions tend to fundamentally alter the way value is created and captured in an industry, change the relationship between producers and consumers, enable entirely new forms of products or experiences, and redistribute power and influence within an industry ecosystem.

The real threat to Hollywood isn't that AI will make current processes more efficient – it's that someone, possibly from outside the industry, will reimagine entertainment entirely, leaving traditional players behind. This reimagining could change not just how content is created and distributed, but what we consider "content" to be, how we interact with it, and how it integrates into our lives.

The Innovator's Dilemma and the Point Solution Trap

The focus on point solutions in Hollywood can be understood through the lens of Clayton Christensen's "innovator's dilemma." This concept explains why established companies often struggle to adopt disruptive technologies, even when they can see the potential benefits.

The innovator's dilemma creates a bias towards point solutions through short-term incentives, the desire to protect existing revenue streams, reliance on existing skill sets, and risk aversion. This bias creates a vulnerability. While established players focus on incremental improvements, outsiders – unencumbered by legacy systems and thinking – may be working on system solutions that could significantly threaten the existing entertainment industry.

The Danger of Complacency

There's an argument present from the insiders in the Bloomberg piece – and in many conversations  I've had with entertainment executives – that the industry can simply incorporate AI as a new tool without fundamentally changing how it operates. This belief is risky.

Consider the confidence expressed by some experts that courts will side with corporate rights holders in AI-related disputes. They might be right, but the prevailing legal opinion from across the legal landscape I'm immersed in suggests it's more likely than not that the courts will not decide in favor of the studios or rights holders.

This assumption betrays a defensive mindset, focusing on protecting existing models rather than exploring how AI could reshape the entire industry. It's a prime example of hoping for the best – which is completely reasonable. Where it becomes unreasonable is when that hope justifies inaction in preparing for the threat. By relying on the most hopeful outcome, which is far from certain, Hollywood is ceding valuable time and opportunity to prepare for a radically different future.

History Repeating: Hollywood's Resistance to New Technologies

This isn't the first time Hollywood has been skeptical of new technologies. The industry has a long history of initially resisting innovations that later became integral to filmmaking and entertainment.

From the transition to "talkies" in the late 1920s to the emergence of special effects and the shift to CGI in animation, Hollywood has consistently shown initial resistance to transformative technologies. Yet, in each case, these innovations eventually became industry standards, fundamentally changing how films are made and experienced.

These historical examples demonstrate a pattern: initial resistance, followed by gradual acceptance, and ultimately, transformation of the industry. In each case, the transformative potential was initially underestimated, with incumbents focusing on point solutions rather than system solutions.

The question is, will Hollywood learn from this history as it faces the AI revolution – a technology orders of magnitude more advanced than what we've seen in entertainment over the last decades – or will it repeat the same pattern of initial resistance, potentially ceding ground to outsiders who are thinking more boldly?

The Pace of Progress: Today's Limitations are Tomorrow's Capabilities

One of the most common arguments against the transformative potential of AI in Hollywood goes something like this: "AI can't do X, Y, or Z, today so it will never be able to replace human creativity." This line of thinking fundamentally misunderstands the nature of technological progress, particularly in the field of AI.

It's crucial to remember that the AI tools and capabilities we see today represent the worst, least capable versions of what this technology will become. The progress we've seen in AI over just the past few years has been staggering, and there's every reason to believe this pace of advancement will continue or even accelerate.

Recent examples in video generation (Sora), image generation (Midjourney), and AI in advertising (Laszlo Gaal's unofficial Volvo commercial) illustrate the breathtaking speed of AI development. What seemed like science fiction mere months ago is now at our fingertips.

For Hollywood and the broader entertainment industry, this presents both a challenge and an opportunity. The challenge is to keep pace with a technology that's evolving at breakneck speed. The opportunity is to harness this rapid progress to create new forms of entertainment, new ways of storytelling, and new models of content creation and distribution.

The Kodak Moment: A Cautionary Tale

To understand the potential consequences of failing to adapt to transformative technologies, we need look no further than the story of Kodak. In 1975, a young Kodak engineer named Steve Sasson invented the first digital camera. It was a clunky device that captured black-and-white images at a resolution of 0.01 megapixels. When Sasson presented his invention to Kodak's management, their response was telling: "That's cute, but don't tell anyone about it."

Kodak, the titan of the photography industry, couldn't fathom a world without film. They saw digital photography as a novelty at best, a threat at worst. They focused on incremental improvements to their existing technology – better film, better cameras – while dismissing the digital revolution happening under their noses.

We all know how that story ended. By 2012, Kodak had filed for bankruptcy, while digital photography had transformed not just how we take pictures, but how we communicate and share our lives.

This tale is more than just a cautionary business anecdote. It's a stark reminder of how easy it is to miss transformative change when we're deeply embedded in the status quo. Kodak wasn't run by fools; it was full of smart, experienced professionals who simply couldn't imagine a world fundamentally different from the one they knew.

Today, as I look at Hollywood's response to AI, I can't help but see echoes of Kodak's missteps. The focus on point solutions, the confidence that courts will protect existing business models, the belief that AI can't replicate human creativity – it all feels eerily similar to a company insisting that nothing could replace film.

The Path Forward: Embracing System Solutions

So, how do we move beyond point solutions and start thinking in terms of system solutions? We need to question everything, including our own assumptions about how the industry operates. We must look beyond efficiency and ask how AI can enable entirely new business models or forms of value creation.

Embracing experimentation, fostering cross-disciplinary collaboration, and incentivizing long-term thinking are crucial. We need to monitor innovation outside our industry and cultivate adaptability in our organizational structures and cultures.

As we navigate this AI revolution, it's crucial to embrace dynamic and creative point and application solutions. These are key to understanding the technology and can provide immediate benefits. However, we can't stop there. While point and application solutions are important steps, the real transformation – and the real opportunity – lies in system solutions. We must use the knowledge gained from these initial forays into AI to imagine and build entirely new paradigms for entertainment.

This isn't about predicting the future. It's about being open to possibilities, about fostering a culture of innovation that can adapt to whatever the future holds. It's about understanding that the AI we see today is just the beginning, and that the real game-changers might come from directions we haven't even considered yet.

As someone who's spent a lifetime studying history, I'm acutely aware that we're living through a moment that will be dissected and analyzed by future generations. The decisions we make now, the attitudes we adopt, the innovations we embrace or reject – all of these will shape not just our industry, but the cultural landscape for years to come.

So let's not be Kodak, clinging to film in a digital world. Let's not be the taxi industry, caught off guard by ride-sharing apps. Let's be the innovators, the risk-takers, the ones who saw change coming and rose to meet it. Let's be the ones who looked at AI and saw not just a tool, but a portal to new worlds of storytelling and audience engagement.

The question that remains is: are we bold enough to seize this moment?