Slipped Disc: Why DVD Residuals Still Matter -- and Always Will

05/25/2011 12:15 pm ET
  • Jonathan Handel Entertainment/Technology Attorney, TroyGould & Contributing Editor, The Hollywood Reporter (

Read more about the strike on the Huffington Post's writers' strike page.

Until last Sunday, the WGA's proposals included doubling the home video residual. But that day, at a last-ditch bargaining meeting, the WGA rolled over and dropped its proposal, trading it off against gains in new media residuals and jurisdiction. Big mistake. Why? Two reasons: because now the home video residual becomes a major impediment to settling the strike; and because the home video residual matters enormously, even in the world of Internet and cellphones.

The home video residual will be a major impediment to settling the strike because of what happened in that room on Sunday -- namely, as everyone now knows, the talks collapsed. It's unclear why. The AMPTP made concessions on streaming and on Internet jurisdiction, although they hadn't yet moved on Internet downloads.

By the way, the distinction between downloads and streaming is misguided and will lead to trouble in the future. It rests on an assumption that streaming video can be promotional and is free to the user, but that downloads are neither. Yet, this is not true: downloads are sometimes promotional, just as streaming can be; and streaming video is sometimes sold, just as downloads often are. Moreover, some technologies, such as the recently introduced Vudu box, are hybrids. (The box downloads and stores the first 30 seconds of thousands of movies on its hard disk, but then streams the remainder of the selected movie.) How will they be treated?

But leave all this aside. The AMPTP's concessions sound like progress, but for some reason that wasn't enough to deter a strike. When the clock struck 12:01 a.m. in New York, the east coast branch of the WGA went out on strike, even though talks in LA were still ongoing. Predictably, the producers walked. And we find ourselves in the middle of a bitter strike.

The problem is, now the producers know that the WGA is willing to give up on DVD residuals, even though the guild refers passionately to "the hated DVD formula." Now that the producers smell blood, they're less likely to ever concede on this issue. And the guild, having once been burned for conceding on home video residuals, is less likely to do so again. Fool me once, shame on me; fool me twice ... well, you know the rest.

But does it even matter? Conventional wisdom is no. The Internet and cell phones are the wave of the future, we're told. Streaming and downloads beat physical goods every time: infinite selection, no manufacturing cost, content on-the-go, and no need to run out to the video store, or pay late fees.

All true. Yes, streaming and downloads will one day be huge. But not yet. The predictions I've read say that even five years from now, the majority of in-home revenue will be from physical media: DVD and Blu-ray and/or HD DVD. Indeed, when the studios finally settle their self-defeating fight over high-def formats, they can expect a wave of new revenue as consumer re-purchase videos they currently own on DVD.

Meanwhile, efforts to connect PCs to television sets have faltered. Devices are awkward to use, and haven't proved popular; and, of course, anything with a Windows PC in the mix is likely to be crash-prone and flakey. That means that getting all that wonderful Internet-based content to people's home theaters and expensive plasma screens is tough. Advantage DVD.

Still, one day those problems will be solved, and Blu-ray or HD DVD will eventually be left in the dust. Doesn't this mean downloads and streaming will ultimately vanquish packaged goods once and for all?

No. The fallacy in the conventional wisdom is assuming that packaged media will develop no further than Blu-ray or HD DVD. That ignores history. Storage densities in hard drives, for example, have increased by an astonishing ratio of 500,000,000 -- that's 500 million -- in the last fifty years. Even today, physicists are working on nano-scale devices that could further increase densities by a factor of 10 to 100 in the next few years. These devices, like hard disks, are magnetic media; optical media, such as holograms, might offer even higher density.

Density matters, because higher densities means more data on smaller media. More data means more content, at higher resolutions. One day, for example, we'll probably have wall-sized displays, as seen in sci-fi movies. Those displays will be paper thin. Perhaps they'll be sold in rolls like so much wallpaper; maybe they'll be painted on the walls. No one knows. But large scale displays will require ultra high-def content.

We'll probably also see some form of 3-D entertainment in the future -- first using on-screen technology, and ultimately, perhaps, via holographic images of actors playing out a story in our living room, or a bare-walled media room. This kind of movie/stageplay hybrid would require enormous amounts of data to be delivered and processed at high speed. Also, with new types of images come new requirements for sound. More speakers -- more channels -- mean more data is required to store that sound.

Couldn't all this content be delivered over the Internet? Maybe one day. But if history is any guide, pipes will always lag devices. It has always been possible to deliver more data, more quickly, on a physical device than via telecom lines into the home. That's why, even today, you buy most software in physical form rather than via download. That's also why CDs are higher quality than MP3s -- the latter are compressed, the former aren't. There's no reason to think that physical media won't always have the edge when it comes to timely availability of large amounts of data. For a leading-edge experience -- wall-size displays, holographic movies, or whatever else -- physical media will probably always have the advantage, and transmission lines will always lag.

Now, nano-scale devices and holographic media don't sound much like DVDs or video cassettes. Perhaps the home video residual formula won't apply? Guess again. The Guild agreement defines "videodisc/videocassette" as a "disc, cassette, cartridge and/or other device serving a similar function which is sold or rented for play on a home-type television screen." See Art. 51.B.1, p. 277 (italics added).

This means the home video formula is likely to apply far into the future. Wall-sized displays will be the television screens of the future. Linear 3-D entertainment on-screen falls easily within the definition as well. And holographic entertainment, even absent a screen, might well be covered by this definition as well, if such entertainment replaces 3-D entertainment delivered on a screen. This kind of argument by functional analogy is one way courts, for example, analyze the scope of old contract language as new technologies arise.

The Guild agreement is an archaeological document. The basic cable residual formulas is named after old TV shows like Alfred Hitchcock Presents and the term "producer" is defined in terms of the duties of Samuel Arkoff and Alan Ladd in 1977. See App. 2.b.(2), p. 501 and Art. 1.B.1.a, pp. 14-15. Decisions that get made today will still have meaning decades into the future. The Guild shouldn't roll over on home video residuals. They're important now, and always will be.

Read more about the strike on the Huffington Post's writers' strike page.