The suit who wears five hats
Warner Bros.' new home-entertainment chief is at the center of Hollywood's toughest turf war: the one in your living room.
(FORTUNE Magazine) - Lots of people think they have the toughest job in Hollywood. Tom Cruise's publicist. The EMT on the Jackass set. The guy who played Gollum in the Lord of the Rings movies.
But Kevin Tsujihara, the new head of Warner Bros.' Home Entertainment Division, doesn't just have one tough job; he has five of them fighting for his time and attention--and just plain fighting.
As the guy in charge of home entertainment, the fastest-growing business at Warner as at other studios, Tsujihara is in Hollywood's newest hot seat. He oversees home video, digital distribution, videogames, technical operations, and anti-piracy efforts. That means that on any given day he must attempt to increase the sales of Warner Bros. DVDs on retailers' shelves--while at the same time persuading customers that they should really try downloading movies online.
He knows consumers want new movies in their living rooms as fast as possible--but he also has to make sure theater owners stay in business. He can't afford to alienate his biggest customer (Wal-Mart (Research))--but he can't afford not to pursue strategies that make the retailer irate. He has to take a hard line on piracy--yet he recently decided to use the same technology pirates use. Confused yet? "There's more conflict between the pieces of our business model today than ever," admits Tsujihara.
The home-entertainment business used to be simple: The guy in charge of selling DVDs called the shots. (At Warner Bros., which like FORTUNE is owned by Time Warner, home video accounted for more than $5.8 billion of the studio's $11.7 billion in revenues last year.) The guy in charge of online whined about how the home-video guy got all the attention.
The woman who brainstormed videogame ideas toiled away in a distant office, and the unlucky individual relegated to mobile phones moaned about how Europe is, like, so far ahead of the States. Everyone had his own P&L; everyone had his own agenda. The problem? Nobody had the power to challenge the DVD guy--even though everybody suspected that one day he'd be obsolete.
So in October, Warner Bros. did something radical: It became the first studio to combine all its warring home-entertainment divisions under one roof. To lead the new venture, Warner Bros. CEO Barry Meyer chose the 41-year-old Tsujihara, a mild-mannered MBA and corporate-strategy veteran at Warner Bros. He has an "ability to step back and see the bigger picture," says Meyer. Given the insane job description, it probably doesn't hurt that Tsujihara is a Buddhist who meditates on the treadmill.
"My counterpart at Warner Music used to tease me about what was happening to the industry. He said, 'Don't worry, you'll be here soon,' " Tsujihara says. When the music division's spinoff was announced in March 2004, it was a wake-up call. "You can try to protect your market share or you can say, 'I have the biggest hole to fill if this business slows down,'" he says. "We've taken the offensive strategy." (Two other studios have moved in the same direction: In April, Sony (Research) created a digital distribution unit that reports to its home-video chief, and in early February, Paramount formed a digital-media group.)
It's a job that requires one to have no allegiances to particular forms of distribution or potential partners, because, as was once written of French cuisine and torture, no technique is off limits. And to get a better idea of Tsujihara's seemingly impossible mandate, one need look no further than his La Canada, Calif., living room.
There, on a typical day, his 4-year-old daughter, Morgan, will be playing a Barbie computer game. His 6-year-old son, Matthew, will alternate between surfing the Net on an Alienware laptop and watching Bugs Bunny videos on a 55-inch TV. But his 79-year-old mother, Mickey, wants none of it. She had such a hard time switching from VHS to DVD that she says she'll never try next-generation, high-definition DVDs, nor will she ever watch movies on her computer--she doesn't know how to turn it on.
Morgan may be the future, but for now people like Mickey pay the bills.
"Today is a horrible day," says Tsujihara, sounding almost out of breath as he runs through his 13-hour workday. He got up at 6:30, answered e-mail, and then was on his cell to Europe all the way to work. He had nine meetings on everything from plans for E3, the Electronic Entertainment Expo interactive-gaming conference, to details of the Superman Returns DVD release.
As for time between meetings, that was quickly eaten up by wall-to-wall phone calls about everything from shooting extra content for DVDs to new digital distribution partnerships (he's mulling some 60 possible deals). Then there are the BlackBerry emergencies. Most e-mails he'll forward to an assistant to deal with, but a fair number, he sheepishly admits, are ones he has sent to himself so that he won't forget a task. So when does he catch his breath to think big thoughts? Typically, "when I'm lying in bed and can't sleep."
Tsujihara's days are extreme--and so is the situation he walked into last October. "The day we announced the new structure, it was uncomfortable," he says. Though the old Home Video chief was fired, among remaining staffers there was "some healthy discussion" about whether such a drastic structural move was necessary. The five divisions only officially collide once a week--they meet at Warner Bros.' Spanish-style Burbank studio lot to hash out the week's projects--but persuading thousands of employees to work together is a huge part of Tsujihara's job. Since he took over, he has functioned as part efficiency expert, part mediator, part psychiatrist. Says Home Video president Ron Sanders: "The very nature of these businesses converging leads to some emotional meetings, but Kevin makes sure it doesn't devolve into personal attacks."
Though his co-workers characterize Tsujihara as the one person in Hollywood who doesn't have an ego, he disagrees. "The guy that tells you he has no ego is lying to you," he says with a smile. He does cop to a very un-Hollywood upbringing. He grew up in Petaluma, Calif., where his father was an egg distributor--and through his sophomore year at the University of Southern California, he spent his summers delivering eggs to merchants for his dad.
Far from being one of those "all I want to do is direct" teenagers, he worked as an accountant, graduated from Stanford business school, and co-founded an online tax-filing company before landing at Warner Bros. in 1994. Tsujihara caught the attention of the higher-ups soon after he arrived, while he was running Warner Bros.' investment in Six Flags theme parks.
He then moved to head the New Media division, where Meyer, who took over the company in 1999, was impressed by his leadership and his relaunch of warnerbros.com. Tsujihara was named head of corporate business development and strategy in 2002--but Meyer "kept adding things" to his plate, says Tsujihara. The theme parks division began reporting to him, then New Media, then DC Comics, then the anti-piracy division, then videogames. ("I juggled well," he says.) He also managed to consolidate power without collecting enemies--a rare feat in Hollywood. The key? "I don't go into any room thinking I'm the smartest guy in the room. There are thousands of people who could do what I do." Maybe--but after hearing what Tsujihara's up against, one wonders if anyone else would want to.
"I was blown away by Sex and the City!" says Tsujihara, his voice rising. Unfortunately, he isn't talking about a particularly witty episode of Warner Bros.' hit HBO show, whose last episode aired in February 2004. He's just flown in from a whirlwind piracy tour through China to meet at the glassy Time Warner Center in Manhattan, and he has dark bags under his eyes. He describes store after store selling the highest-quality fake DVDs he's ever come across. And these weren't shady street vendors either. They were sleek retail stores. The Sex and the City box set, perfect down to the font and colors, still gives him nightmares.
No wonder: It's Tsujihara who must figure out how to stop 1.3 billion Chinese citizens--not to mention the rest of the world--from buying pirated copies of Carrie Bradshaw's exploits and everything else Warner Bros. develops. As a start, Tsujihara has chosen a rather radical tactic: co-opt the pirates' technology.
During our interviews in early May, he is just days away from announcing a deal with movie-downloading pioneer BitTorrent. Not to overstate the case, but it's a bit like the U.S. government announcing it's going to launch a huge crime-fighting initiative--then deciding to put the Mob in charge.
For the past five years BitTorrent's software has been the scourge of the legit movie industry; 60 million people have downloaded the file-sharing program that allows them to illegally post or download copyright-protected films (see "Torrential Reign" on fortune.com). That's about twice the number of people who go to the movies each week. "The first reaction was, Why would we want to do something with BitTorrent? They so embody our problem," says Tsujihara. "But I wanted to legitimize these guys. A lot of these partnerships, like the one with BitTorrent, aren't natural. We're like a cat and a dog, but we need to figure out a way to co-exist."
Under the gun of a Supreme Court ruling on file sharing and an agreement with the Motion Picture Association of America, BitTorrent insists it has changed its ways, and says that since last fall it has been patrolling its site and removing illegal copies of movies. Though the details haven't been finalized--the launch is this summer--Warner Bros. will try to sell 200 digitally encrypted movies and TV shows via the partnership.
Users won't be able to burn the downloads to DVD yet, but movies will be available online the same day DVDs hit stores, with download times as fast as ten minutes and prices as low as $1 for TV shows. Says BitTorrent CEO Ashwin Navin: "They're giving people what they want, when they want it, which is the best thing to combat piracy."
In April, Warner Bros. became the first studio to simultaneously release a digital download and a DVD--a surefire way to make retailers furious--when it partnered with a Dutch site called Free Record Shop to sell digital downloads of Harry Potter and the Goblet of Fire on the same day the DVD was released. Tsujihara is testing another digital download service in German-speaking countries--where broadband penetration is high and piracy is rampant--called In2Movies, a partnership with Bertelsmann. Warner Bros. hopes to use its peer-to-peer format as a model for services across Europe and Asia.
If the deals work, Tsujihara will have a headstart on his competitors. Therein lies another awkward situation: While he was putting together these partnerships, he was also finishing work on a broadband video-on-demand service called MovieLink with four other major Hollywood studios. After four years of planning, the service launched a download-to-own service in April, and let's just say that if it were a summer blockbuster, the title would be something like Collective Disaster. Downloads take 60 to 90 minutes, new movie releases can cost more than $20 each, and they can be watched only on computers. Though Tsujihara spearheaded the project and sits on the company's board, he says he regrets creating such an unwieldy structure. "Trying to get five competitors to agree on anything, even when to meet, is tough," he says. The lesson: "Let's not wait to try to build a consensus."
That's why when it comes to another major headache--call it the Wal-Mart (Research) problem--he decided to move first and ask for supporters later. The issue is simple: Wal-Mart, along with Best Buy (Research) and Target (Research), sells the majority of the industry's DVDs--and is by far Warner Bros.' biggest customer. Warner Bros., in turn, is Wal-Mart's biggest DVD supplier. DVDs are crucial for Wal-Mart because they draw customers into stores to shop for higher-margin items. So it is, to put it mildly, somewhat delicate that all of Tsujihara's digital initiatives are directly aimed at replacing this nice, fat, destined-to-wane DVD business.
When you're dealing with the most powerful retailer on earth, however, you don't just apologize for creating a problem--you solve it. So Warner Bros.' tech brains are helping Wal-Mart build out its website to sell digital movie downloads. And Tsujihara is also taking the oft-discussed idea of video kiosks that burn DVDs and working with a technology company--it's rumored to be HP (Research)--to try to get them in stores. The idea is that retailers could save valuable shelf space by stocking only the most recent releases, yet offer all 6,600 Warner Bros. titles, compared with the 400 they might typically stock.
Once they have a prototype, they'll start recruiting other studios, and Tsujihara hopes to have a limited rollout to stores in 2007. His team has also been putting together presentations to help retailers figure out how to play this decade's version of the VHS vs. Betamax battle, Blu-Ray vs. HD-DVD. Warner is going to sell its movies in both formats, even though that's more expensive than choosing sides. "We're not helping retailers just because we're nice guys," Tsujihara says. "We wanted to make it clear to retailers how they can win in this space, because if they win, we win."
Nobody in the Warner Bros. commissary seems to notice Tsujihara. Tucked away behind a column, wearing a conservative Hugo Boss suit and picking at a Cobb salad, he'll never have the swagger of your typical Hollywood power player. (Of course, it can't help his Q-factor that sexy, scruffy movie star Dennis Quaid is a few tables over.) But while Tsujihara may cut a quiet figure in the cafeteria, his invisible hand is increasingly felt at the company. He weighs in at "green light" meetings (where the studio bosses decide what scripts to make).
If a film doesn't have home-video potential, it won't get the go-ahead. As the company plots its digital future, the menu of options is endless. So Tsujihara has worked with Technicolor to replace film reels with less expensive digital film distribution. He's ramping up Warner's straight-to-DVD business, working with movie studio chief Jeff Robinov to make horror films under the name Raw Feed. With AOL he has launched In2TV, a streaming-video service that offers old TV episodes for free, if viewers sit through a few minutes of commercials. He's doing a made-for-mobile deal with Verizon called Atomic County, which is based on a comic book penned by a character on the WB series The OC.
Some of these deals will fly, others will undoubtedly flop. "I have no idea what the digital home will look like in ten years," admits Tsujihara. No one does. That's why out of all the people who suspect they have the toughest job in Hollywood, Tsujihara might actually be right.
From the May 29, 2006 issue