Alumni Association Update

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In 2005, box-office receipts were down while DVD and on-demand revenues are rising. Some people are now proposing releasing DVDs the same time as the theatrical release.

I think a better alternative would be secure, high-definition downloads simultaneous to the theatrical opening, but with digital rights management technology coding the movie such that it can be played only for a limited, studio-selected number of times or number of days. The protection on the files would keep them from being forwarded or copied.

The distinction between the theatrical release and video release will disappear, but the video release will be electronic. The use of VRM will enable studios to control and price it to minimize the cannibalization of revenues during that time period.

The benefit of using the theatrical advertising not just to draw people into the cinema but to draw usage in the home is very seductive. Thus the media can be leveraged against the much larger audience that goes to the movies.

Do you think this will change the kinds of entertainment that is made?

Yes, I do. As we develop a home model that scales the media budget, we will be appealing to a demographic whose tastes and interests might be very different than the younger generations that find cinema-going a great escape from staying at home.

I look at this home model as creating an appetite for investing in story- and character-driven movies that appeal to the pre-, post-, and actual baby boomers who were the core audiences who brought about the creative resurgence of cinema in the 1960s and 1970s, but whose tastes are not being met in today's market.

Advertising-dependent television has been dominated by the youth market, as well as theatrical films. The home distribution will create access to a new market because in lieu of the constraints of distribution—the theaters and networks as gatekeepers—distribution will be ubiquitous on the Internet.

The economics are yet to be decided because until you know the consumer reaction, it's hard to predict the production budgets. But arguably the costs of production would go down, because technology is transforming production and post-production as well, lending the medium to more productions of specialized programming.

It's clear that the television model is also going to change. The disruptive technology of the personal digital video recorder, downloads to portable devices, and video on demand is going to challenge consumer audiences. The movie model is going to change based on this continued progression of personalization where the user is the programmer and no one else.

If you create a distribution model that is direct between the content and consumer and it's not filtered through the economics of running a cinema or selling advertising, the content will determine the length and format, not business metrics. There are no magical number of pages in a book, so I don't know why there has to be a magic number of minutes for a movie or a television program.

Access to content at your schedule, your location, your device will be the next generation of the dissemination of entertainment. As someone who loves movies, that's something I look forward to.

Michael Milken: Financier for a Cure

More than 30 years ago, philanthropist, financier and Wharton School alumnus Michael Milken, WG'70, began applying the innovations he developed during his studies at Wharton to revolutionize modern capital markets, bringing new financing strategies to fund companies. The thousands of companies he financed created millions of jobs, and the financing markets continue to bear his imprint.

Just a few years after starting in business, Milken began using his business innovations in philanthropy. Today he is ranked not only as one of the leading economic innovators in this country, but also as one of the most generous living Americans. During the past 30 years, he and his family have given more than $750 million to medical research and education. Their Milken Family Foundation has created models in how philanthropy can advance education, youth programs, inner cities solutions, pediatric neurology, and treatments for various forms of cancer.

Milken recently spoke with Wharton Alumni Magazine about how he is using new business models to fund and drive medical research toward cures and treatments for serious diseases.

You created a revolution in capital markets and now you have had this extraordinary success funding medical research. How does your approach differ from the traditional approach and why does it work?

It took 20 years to figure it out, so there was a lot of trial and error along the way. I began working on this aggressively in 1972 when my mother-in-law was diagnosed with breast cancer, and then really in earnest in the mid-1970s when my father was diagnosed with a melanoma.

The approach has been to recruit human capital. The concept is that getting the best people gets the best results. How? I have three key approaches to encouraging the most talented people to participate.

The first thing we did this was to change the awards process. With our foundations, a person can apply for grants knowing that we promise to read only the first five pages of their application. They could submit a nine-foot-tall stack of papers, but we're only going to read the first five pages. And we promise to let them know if they're going to be funded in 60 days and give them their money within 90. Many people who were very busy, or Nobel Prize winners who wonder why they should get involved with a lengthy or difficult application process, or people that had a unique idea, would not normally apply for grants from the National Institutes for Health or the National Cancer Institute because they have no proven data to give them. By allowing them to present their ideas to us in five pages, people didn't have to prepare for months for this mission, and they had quick responses on whether they'd be funded or not. This strategy really worked well. It's gotten people involved who might otherwise not have gotten involved in these forms of research.

The second approach is that we literally did fund things based on the future, not the past. So we funded ideas, from the standpoint of worthy venture medical research, to get someone started. Once their work is underway they can then be funded by the National Institutes of Health or the National Cancer Institute or in some cases biotech companies or pharmaceutical companies.

The third thing is that we collaborate and make them share. We interact with these individuals anywhere from one to four years, we hold them accountable for what they're doing, and we bring them together periodically with others to share their information.

This was a difficult proposition for some researchers. Many people felt their work so important, they were waiting to get it published, they were waiting for credit, and they didn't want to share it. In those cases, I told them that if their work was so important, I'm sure they wouldn't have a difficulty getting funding from someone else. I told them our funds were for individuals whose work wasn't that important and needed our funding. Within a year everyone was willing to share their information.

I think bringing together a critical mass at individual centers is a very important piece in innovation. Creating a therapy consortium, where institutions would share with one another, has made a big difference. When it began, people felt they were competitors. We explained to them that for the patient there are no competitors.

Looking back now a few decades, are you able to see mistakes that you made, lessons you may have learned, strategies or processes you have been able to develop?

One of the things we've always done is identify key researchers in a laboratory and give them awards, so they don't have to take a vow of poverty. That's been our thrust and strategy.

In general this has been very effective, with one exception: When we give senior people these awards, I would have to say that 30 years later, the benefits of that decision are hard to justify. I don't believe that was a good social investment. When I look at what was done by our young investigators, they were far more productive than the people near the peak, near the back ends of their careers.

If you look at Nobel Prize winners, if you look at my own work, most of the ideas, say for today's modern capital markets, came out of my studies at Berkeley and Wharton. Most Nobel Prize winners get Nobel Prizes in science or economics for the work they did within five years of going to school. They might get the recognition 30 years later, but the ideas occurred much earlier. Today we're much more focused on young investigators who are still deciding what to do with their career. The average age of a first grant from the National Cancer Institute is somewhere between 42 and 44 years of age. Well, that's long after a person's has reached their peak in knowledge, in terms of going to school, getting a PhD, MD. It's extremely discouraging, if you're 29 or 30 years old, you've spent 12 years in a university setting, and the average age is another 10 to 15 years before you're going to get a grant. Our goal was to encourage these individuals.

The second mistake we made was that early on, I felt that giving a researcher an inspirational speech, an award ceremony, and money was enough. We discovered later there was a lot more work that had to be done to help people. This was primarily supporting interaction for them between nonprofits and for profits, dealing with bureaucratic issues and getting clinical trials going.

Scientists and business people are often dispassionate about the people affected by their work, whether they are conducting basic scientific research or weighing a financial decision. Your funding of cancer research has at times seemed very personal. Is this a benefit?

It is personal, and not just for me. I would say at least one in two people went into medical philanthropy because of their personal disease, their children's disease, their brother or sister, their parents, or a friend. Many of them were successful entrepreneurs or businessmen, and have completely diverted their careers or partially diverted what they were doing to drive organizations that are disease specific. I always say it is personal. I've lost 10 relatives to cancer. I lost my father to cancer. I've lost four relatives to brain tumors. My children had certain health challenges. I've spent nights lying on the floor in hospitals like others have.

Today I try to talk to anywhere from one to five individuals who have been diagnosed with cancer a day. This gives me a focus on the person who has just been diagnosed, who obviously is on the edge. I try to understand what they're thinking, what they're learning, and it also gives a fresh perspective on how a person reacts and what knowledge is available. Last week a young man who I knew well died of cancer. This was despite all of our efforts and despite who I believe was the best doctor in this field and despite his access to treatment. Everything we could do in 2005 was still not enough for him. The numbers of people touched by disease are so large it might seem like it's not personal, but I think everyone, every person who is sick and needs care, is personal.

There are other philanthropists trying to affect health. What is unique about your work?

Some people have chosen other paths. The Gates Foundation particularly has been focused on bringing medical care and solutions that are proven to people that haven had access to them, in Africa, for example. My focus here has really been to search for medical solutions to problems that have not been solved. I find that intellectually stimulating, emotionally stimulating, personally rewarding, and very challenging.

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