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Hollywood Studios Want Employees Not Partners

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I wrote an article about the writers strike and it was published Wednesday in The Hollywood Reporter.

I wrote it at over 1000 words, and the Reporters limit is 750 words.

Their edit is followed by my original version.

I have managed to annoy people on both sides of the issue, and the issues are far from simple.

I have also suggested a "reasonable" solution, assuming however that "reasonable" might work for either side.

In my not too humble opinion, the following would be "an unattainable solution" to the issue of residuals for any or all who have the leverage to obtain them.

Why "unattainable?" Do you have a couple of hours and I will explain?

Nevertheless, here goes!

A Motion Picture or a Television series becomes a "designated accounting unit."

All revenues are placed into a category entitled "All REVENUES."

All hard costs are put into a category entitled "All HARD COSTS."

"All HARD COSTS" will be deducted from "All REVENUES"

We will call the resulting number "the gestunderheinst" or GHS for short. (a meaningless word that I just made up and a small joke)

The Guilds will negotiate with the Studios to determine what their share will be of the GHS.

This cannot happen until the Studios end the tortuous activities featured by their accounting departments, and the Guilds trust the Studios.

Recovering hard costs ONLY will be difficult concept for the Studios to accept, but it would end the horrid complications of retaining the status quo.


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From The Hollywood Reporter

Opinion: Power relations define strike talks
Guest opinion by Norman Horowitz
Jan 2, 2008
The Hollywood Reporter welcomes occasional signed pieces from entertainment and media executives on topics of interest to the business. We reserve the right to edit these pieces in keeping with style and space allotments.

It was 40 years ago that I learned my first Hollywood studio lesson as to "how it all works." I had made and reported a large feature sale to my company bosses. While discussing an allocation issue with a finance executive, he explained the underlying studio philosophy: "The producers screw us when they make movies for us, and we screw them when we release them."

As I saw it, that was the modus operandi very often during my career. The more powerful invariably exploit the less powerful.

The labor dispute between the writers and studios is a simple one. The mega companies believe that they are entitled to keep all of the money that their content earns, and the writers, like other talent, want as much of it as they can get their hands on. It is not more complicated than that.

In 1996, the Telecommunications Act was rewritten to allow, even encourage, both vertical and horizontal mergers in the business of producing and distributing content. This facilitated deals made without a willing buyer (a broadcaster) and a seller (a studio) who had to reach a negotiated bargain. The buyers and the sellers essentially merged, and we now have General Electric, Time Warner, News Corp., Disney and CBS/Viacom on one side of the bargaining table and the writers on the other. This makes the negotiations anything but fair, reasonable or equitable.

I have been around long enough to remember how the messy residual structures came about. Being, as it were, in "the used film business," I was responsible for earning money for the programs produced initially for the broadcast networks or for theatrical exposure. I worked for Columbia Pictures (twice) as well as for CBS, PolyGram and MGM. In my nearly 50-year involvement in the process, I can safely say that at the time that content is created, no one ever knew what future delivery systems would deliver revenue.

If you produced a movie in 1939, did you anticipate television? In 1945, did you anticipate video rentals? In 1970, did you anticipate DVDs? In 1985, if anyone suggested that delivery to a wireless phone would create revenue, they would have been institutionalized. And the system will continue to morph into newer things.

I am writing with the advantage of being separated from current events at "the studios": It would be my thought that the conglomerates are desirous at some point of eliminating any and all contingent compensation (residuals). The owners, I would hazard, would prefer that guild and union workers get paid for what they do as artists (writers, directors, actors) at the time they perform the services, and that is it.

I suspect that the notion of residuals came about when the studios did not want -- or thought they couldn't afford -- to pay upfront dollars to actors, writers and directors and hence came up with the deferred compensation notion of "residuals." "I can't pay you more now, but I will pay you more at a later time if the business is there to warrant it" was the pitch the studios used to convince talent to go along.

I wonder if there are many other industries that have this residual system. Do designers, architects, carpenters, painters and such have any sort of deferred compensation? I don't think so. They are hired to do a job and paid for what they have done without any contingent compensation.

I realize the studios have a problem in that they invest a lot of money in content that often fails in its "original use," and they don't want to pay any more money to the people involved in the failure for any ancillary delivery of that content. Suppose you spent a hundred million making a movie and it was a dismal boxoffice failure. How happy would you be if you were $50 million in the hole and the writers wanted part of the revenue from Internet downloads?

Of course, when something succeeds, the studios want to keep all the money that they can accrue from whatever distribution platform.

In this post-1996 era, the users of content are the same guys as the makers of the content, and they want to keep all the money. Isn't that what made America a great country? The studios want employees, not revenue participants.

It's hard to imagine that the stronger party (the studios) won't win in this most unfair fight.

Norman Horowitz is a media consultant and writer.
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Submissions can be sent to Forum, 5055 Wilshire Blvd., 6th floor, Los Angeles, CA 90036-4396, or e-mailed to forum@hollywoodreporter.com.

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This is the original article as submitted.

IT'S NOT FAIR

My son is three years older then my daughter. He was able to go to sleep later and she would cry "It's not fair" and I would try and tell her that neither was life, and that she should learn to deal with it! (Cruel? Perhaps.)

All "deals" are made between a "willing buyer" and of course a "willing seller." Not that both sides and either side for that matter are thrilled with the outcome, but that is the way it works. As a general rule, someone always "played" the stronger hand, and ended up with "the better deal."

While there is no "trading," or "negotiating," when buying a quart of milk at the market, most of the worlds "deals" are made when the more powerful use that power to "exploit" those who are less powerful. Most are not happy with that reality, but as I just love to say, "gravity does not care if you agree with or like it or not."

It was about forty years ago that I learned my first studio lesson as to "how it all works." I had made and reported a large feature sale to my company. While discussing an allocation issue with a finance executive he explained the underlying studio philosophy when he said "the producers screw us when they make movies for us and we screw them when we release them."

I do not wish to imply that the "dishonesty" is or was rampant in the industry, but to me that was the case very often during my career. The more powerful invariably exploit the less powerful. Simple yet it is the way it is.

The existent labor dispute involving the writers is a simple one. The Studios Mega Companies believe that they are entitled to keep all of the money that their content earns, and the writers among others want as much of it as they can get their hands on. No it is not more complicated then that.

In 1996, for undoubtedly wrong reasons, the Communication act was re-written that allowed and even encouraged both the vertical and horizontal mergers in the business of producing and using content. This facilitated or became "... a deal made without a willing buyer (a broadcaster) and seller, (a studio) reaching a negotiated bargain. Before 1996 any labor negotiations while not exactly a battle between "equals" it was a lot closer to that then it is today.

We now have the General Electric Company, Time/Warner, News Corp, Walt Disney, and CBS/Viacom on one side of the bargaining table, and on the other side we have the writers.

Do you think that this is: FAIR, REASONABLE, OR EQUITABLE?

These are words used in these situations by both sides, but have nothing to do with the situation at hand or anything resembling reality.

I have been around long enough to remember how the residual structures (boy are they a mess) came about. That however is for another time.

I have described myself as being in "the used film business" in that it was my responsibility to earn money for the programs produced initially for the Broadcast Networks and Theatrical use. I have worked for Columbia Pictures, (twice) CBS, Polygram and MGM. In my nearly 50 year involvement in the process I can safely say that at the time that content is created, (whenever that was) NO ONE EVER knew what future delivery systems would deliver revenue.

Residual structures created many years ago relate to a far different world then the one we live in today. If you produced a movie in 1939 did you anticipate television? In 1945 did you anticipate Video Rentals? In 1970 did you anticipate DVD's? In 1985 if anyone suggested that delivery to a wireless phone would create revenue they would have been institutionalized.

All of the
And the system will continue to morph into newer things.

I am writing with the advantage of being separated from current events at "the Studios" In other words, I am not in any way encumbered or restricted by the facts, and I am making this all up.

It would be my thought that the "GIGANTIC studio companies" are desirous at some point of eliminating any and all contingent compensation (residuals). The "owners" I am sure would prefer that guild and union workers get paid for what they do as artists (writers, directors, or actors) at the time they perform the services and that is it.

I would expect (and I don't know for sure) that the notion of residuals came about when the studios did not want to pay upfront dollars to actors, writers, and directors, and sold the "deferred compensation" notion of "residuals." It became an "I can't pay you more now, but I will pay you more at a later time if the business is there to warrant it."

I wonder of there are many other industries that have any sort of "residual" structure. Do designers, architects, carpenters, painters and such have any sort of deferred compensation? I don't think so. They are hired to do a job, and paid for what they have done without any contingent compensation.

Now in case someone asks me who is on the side of the angels in this dispute, I would be hard pressed for an answer. I realize that the studios have a problem in that they invest a lot of money in content that fails in its "original use." and they don't want to pay any more money to the people involved in the failure for any ancillary delivery of that content. Suppose you spent a hundred million making a movie and it was a dismal box office failure, how happy would you be if you were 50 million in the tank, and the writers wanted part of the revenue from internet downloads?

Of course when something succeeds, the studios want to keep all the money that they can get their hands on as well.

In this post '96 era, the users of content are the same guys as the makers of the content, and they want to keep all of the money. Isn't that what made America a great country?

The way things are, the very strongest (the studios) will win in this most unfair fight.


Norman Horowitz