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Writers Deal: Analysis

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The Writers Guilds East and West held membership meetings Saturday to brief members on the tentative deal.You can read the deal summary here. Here's my analysis (in the same order as in the deal summary) and recommendations. Note that actual contract language has not been released and may not be prior to ratification, so analysis is shadowed by some uncertainties, some of which are noted below. Also, note that my bias is generally pro-writer: e.g., "excellent" means excellent for the writers, and not so much for the studios.

Contract Expiration

May 1, 2011 -- synchronizes with likely SAG (and announced DGA) expiration of June 30, 2011, which probably increases negotiating leverage, because it allows for threat of two-Guild strike (though eliminates opportunity to easily destroy TV season or awards shows).

Minimums

Various minimum compensation levels will increase by 3.5% or 3% per year under the proposed deal. Appears to be generally the same as DGA increases.

Made-For New Media Jurisdiction

If a professional writer writes original programming for new media (such as Internet and cell phones), the work will be covered by the Guild agreement, even if the budget levels for the programming are low. This has is a rough equivalent in the DGA deal.

Derivative programming for new media -- i.e., spinoffs of existing TV shows or movies -- are covered regardless of budget level; and original programming for new media is covered above certain budget levels. These provisions are the same as the DGA deal.

The budget levels for original programming seem high, but bear in mind that the studios have to compete at lower budget levels with non-union Silicon Valley startup-generated content and with user-generated content (UGC), the latter of which is often produced at little cost and not even for profit. Union jurisdiction would arguably hamstring the companies.

Made-For New Media Compensation

For derivative works, relatively low compensation minimums apply, on a per-minute basis, with a floor of two minutes' compensation. Not great, but better than the current practice of often pressuring show staff writers to do this work for free.

For original works, compensation is negotiable. That's not so good -- given the relatively high budget thresholds for jurisdiction, it would have been preferable to see some minimums.

Pension and health provisions apply to new media. Good provision.

Made-For New Media Credits

The Guild determines credits on new media programs within the above jurisdiction, and credits must appear on-screen or via a link if anyone else receives such credit. Excellent provision -- recall that the WGA was founded 70-plus years ago with credit as a key motivator (to counter abuses in credit granting that were then common). Excellent provision.

Made-For New Media Residuals

When new media programs are reused in traditional media, residuals for television programs apply, with unspecified "minor modifications." Sounds good.

Note -- such reuse is exemplified by Quarterlife, and might typically represent the situation where the Internet is used to create a backdoor pilot. This is important coverage, because such backdoor pilots will probably become increasingly common.

When new media programs run in new media for over 13 weeks (ad-supported streaming) or 26 weeks (user-paid, such as iTunes downloads), then residuals are payable.

For derivative works or for original works above a certain budget threshold (rather high, but the logic is the same as for budget thresholds discussed above), then the residual formulas described below for reuse (of TV shows, presumably, not of theatrical movies) will apply, except that Electronic Sell Through (EST) (paid downloads, such as iTunes) are paid at the much better rate of 1.2% of distributor's gross, which is excellent (note -- matches certain existing residuals in Guild agreement). Residuals for ad-supported streaming would thus be paid under the somewhat questionable formula described below.

For original works (apparently meaning original works below the budget threshold), the residual for ad-supported streaming is negotiable (not so good, but understandable reasoning, just as per the budget thresholds described above), and user-paid reuse is paid at 1.2% of distributor's gross (good).

Made-For New Media Separated Rights

Complex issues, generally good; involve character payments and sequel rights, if writer qualifies for separated rights (a somewhat complicated determination per the existing Guild agreement). See http://digitalmedialaw.blogspot.com/2008/02/whats-deal.html for a brief explanation of this complex concept (the WGA's own booklet explaining separated rights is 32 pages, and not well understood by most people in Hollywood, even agents and lawyers).

Made-For New Media -- Other Provisions

Writers of covered new media programs must join the WGA. Excellent provision. Also, disputes are subject to arbitration (as with disputes in existing version of the Guild agreement. Excellent as well.

New Media Residuals

This applies to reuse of TV programs and theatrical movies in new media (unclear how made-for-DVD movies are treated). Pretty much the same as the DGA deal, with a couple notable exceptions, discussed below. Details are as follows:

Distributor's Gross: Note below that many of the formulas are based on distributor's gross, not producer's gross. This is excellent, because distributor's gross is higher, and is less subject to accounting manipulations of the sort that studios are famous for.

Paid Download Rentals: 1.2% of distributor's gross. Excellent.

Electronic Sell Through (EST) (paid downloads, such as iTunes): 0.36% of distributor's gross below certain thresholds for number of units sold. Not a great rate, and same as existing DVD formula (more particularly, there are two existing DVD rates, and this is the higher of the two). The thresholds are high, but probably become more likely to be met as this medium eventually replaces DVD.

Note -- "same as existing DVD formula" actually probably means less than the existing DVD residual payment (four cents on average DVD) per unit, because EST prices will probably be lower than DVD average selling price, at least eventually. (The four cent DVD residual is actually a percentage, not a fixed amount.) But, the total residual payment may be the same or higher, because unit sales would increase at lower per-unit prices.

Above the threshold number of units sold, the rates are higher: 0.65% to 0.7%. Not huge numbers, but an improvement over DVD.

Theatrical Ad-Supported Streaming: 1.2% of distributor's gross -- excellent. Note -- only applies to post-July 1, 1971 films. For older films, apparently no residuals.

Television Ad-Supported Streaming for Library Content: Post-1977 programs (and some unspecified prior programs) are payable at 2% of distributor's gross. Excellent. Unclear when "library" definition ends. For instance, if we're in Season 2 of a series, then is Season 1 content considered library?

Television Ad-Supported Streaming for New Programs: Very complex, and was the subject of enormous conflict. That's probably because, when such content is rerun on TV, a high fixed residual is payable. As reuse migrates to ad-supported new media, but still exists on TV, then studios will have to pay both the high fixed TV residual and the new media residual, so they feel burdened by high costs, in a business that already is under a lot of financial pressure.

Here's the deal:

There's an initial window of 17 to 24 days where no residual is payable. This isn't great for the writers, because much viewing will occur during this time, since viewers will probably not wait weeks before they catch up with TV programs they missed on TV (or didn't care to see on TV).

Then, there's a residual payable. For network prime time shows, it works like this: in the first year or second year of the new deal (WGA contracts are three years), the residual is a percentage of the applicable TV residual base. That translates into a fixed residual of roughly $1400 per year for one-hour programs and roughly $700-$800 for half-hours. The numbers may or may not be relatively fair - that's unclear -- but the fact that they are fixed and don't scale with increased distributor's gross is not great.

In the third year of the new deal, the residual is seemingly 2% of distributor's gross, which is an improvement over the DGA deal. Sounds good, because it does scale. But wait -- distributor's gross is deemed to be fixed at $40,000 for one-hours and $20,000 for half-hours, resulting in a fixed residual of $800 or $400, respectively. So, it doesn't actually scale.

That's quite bad, because it doesn't scale. But, it's better than the way year one or two works, because, by setting out a distributor's gross framework, it makes it somewhat easier for the WGA negotiators in three years to argue for true scaling (or, at least, an increase in the deemed level for distributor's gross). That's very speculative; this provision is not great.

For other than network prime time shows, there's a fixed residual. The amount is unspecified, and not easy to calculate, but it's even lower than the fixed residual for network prime time -- probably much lower, because traditional cable residuals are much lower than network prime time. So, cable takes it on the chin.

Paid Streaming or Ad-Supported Downloads: Unclear how these are paid, because deal seems to assume that all streaming is ad-supported and all downloads are user paid. I previously blogged that these assumptions were problematic, because this leaves a gap in the contract for paid streaming or ad-supported downloads. That could engender disputes, if the deal summary is accurate.

Transparency: New media residuals based on transactions between divisions of the same company have to be based on a fair market value, and the issue would presumably be arbitrable. Also, the studios and networks have to provide the WGA with new media contracts and distribution statements, without redactions (deletions), and usage data. Excellent provisions, and, I believe, not even attained by the Guild previously in traditional media (nor in the new deal).

Clips: Clip residuals are low for ad-supported streaming, which will hurt late-night writers when, for instance, a Leno monologue is made available online for free preceded by an ad. Where the user pays, the residual is 1.2% of distributor's gross -- very good, but an unlikely scenario on the Internet. Might be more common cell phones -- i.e., pay $5 extra per month on your cell bill and get all the comedy clips you want.

There are provisions for residual-free clip usage when used to promote programming. These provisions are very reasonable.

Cable Minimums

Cable takes it on the chin in another way: basic cable minimums were not increased to the same degree as achieved by the DGA. Specifically, under the DGA deal, directors of high-budget basic-cable programs got a 12% pay increase. However, under the proposed WGA deal, writers of such programs do not receive an equivalent bump. (Note -- this issue is not related to new media.)

Given the increasing amount of scripted content on cable (basic cable, such as FX, USA and AMC, as well as pay TV such as HBO and Showtime) -- and the decreasing amount on network TV, at least for the time being (since strike-replacement reality programming is occupying time slots formerly held by scripted programming) -- it seems shortsighted and unfortunate for cable TV to suffer second-class citizenship.

Favored Nations

If the Screen Actors Guild gets better deal terms in its upcoming negotiations than the writers, will the writers retroactively get the benefit of those improved terms? This is called "favored nations." (See http://digitalmedialaw.blogspot.com/2008/02/favored-nations.html for discussion.)

The WGA says they achieved a limited form of favored nations -- it applies only to the new media provisions of the proposed agreement. So, if SAG attains better terms in another area, such as DVD residuals (which SAG has highlighted as an issue it will focus on), the writers would not get the benefit of SAG's efforts.

But, the WGA deal on favored nations is apparently a handshake deal. Why is it not in writing? Not great, and who knows if it will hold.

However, the issue may be academic -- AFTRA (another, and more moderate, actors union) has announced that it will negotiate separately with the studios, undercutting SAG's leverage and perhaps reducing the likelihood of any gains. Still, this story is very much in flux, and it's too early to know whether SAG might nonetheless achieve further benefit.

Other

There are many other, more minor, changes; see p. 4 of the deal summary for information.

Reality and Animation Jurisdiction

The Guild abandoned these demands, as I predicted back in October, and recommended. Thus, reality and animation jurisdiction are not part of the new deal.

Administration and Enforcement

This deal is going to be very complicated to administer and enforce. Expect a lot of errors in new media, especially early on, while studios implement and debug new computer software to pay these residuals and compensation minimums.

And, because of the low dollar amounts in new media over the next few years, individual audits will generally not be cost effective. Hopefully the Guild will develop sufficient in-house capability to conduct audits, perhaps as part of the Tri-Guild (WGA, DGA and SAG) audit process.

Process for Lifting Strike and Ratifying New Contract

There will probably be a 48-hour vote (via phone and/or online or email, I believe) on whether to lift the strike. The WGA West board and WGA East council (their board) will be voting on this starting at 10:00 a.m. today (Sunday). This would send writers back to work Wednesday.

There will probably be a 10-day vote (via mailed ballot, I believe) on whether to ratify the new deal. The WGA West board and WGA East council will be voting on this starting at 10:00 a.m. today.

My Recommendation

Writers should vote their conscience on both votes, but I hope they'll vote yes. This deal is an enormous improvement over studio rollbacks of three months ago, and is also an incremental improvement over the DGA deal, as I recommended it should be (in an LA Times Op-Ed piece).

On the merits, it's a good deal in many ways, not so good in others, but is probably the best deal attainable. WGA leverage declines from now until June 30, when SAG's deal expires, but there's little assurance that the Guild could hold out until then -- and the distinct possibility that SAG will reach a deal and thus not be willing to strike at that time.

So, it's time for the strike to end. Not with full satisfaction for writers, nor with full happiness, for many (writers, directors, actors, crew, and others) have suffered -- but, yes, with satisfaction that writers faced down eight large media companies and conglomerates, and won what appears to be a decent beachhead on the Internet.

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