The Writers' Strike: Networked Television's First Death Match

The WGA went on strike this past Monday and everyone, from blogger to professional pundit, has been talking about which shows will continue to air, which will stop, when, how -- some reports have even taken a shot at why. Sound bites and articles written to scare TV fans into abject despair are both useless and insulting. If the writer's strike isn't over by later today or early next week, it will probably last until June 2008 when SAG (The Screen Actor's Guild) will have to renegotiate their contract. Let's not speculate. The strike will be over when it's over.

What I'd like to explore are some of the underlying issues that make this negotiation networked TV's first death match and, why both sides really need to win. Sadly, both sides won't win. In this case, there will be a clear winner and a clear loser (as opposed to a compromise that both can live with). I am not aware of any past zero-sum entertainment-related union negotiations, but this certainly won't be the last.

I'm told, by people who are intimately involved, that the union caved on the DVD issues last Sunday night and that the strike is almost exclusively about how guild members will be remunerated for alternative media, advanced media and online use of their works.

At its simplest, this is a strike about money. The writers want to be paid when producers make money from the additional use of their intellectual property. On its face, this sounds like a reasonable request. And, it certainly doesn't sound like a death match. But if you think about what's really at stake, it doesn't take long to realize that the underlying issues are profoundly fundamental to the future of the business.

The writers are asking for a share of revenue. To quote Michael Winship, president of the Writer's Guild of America/East, "It's simple, if they get paid, we get paid." In this case the "they" Michael was referring to are the members of the AMPTP (The Alliance of Motion Picture and Television Producers). Many people suggest that this model can work because it is how so many Internet companies do business and online video is like the Internet, right?

Well, not exactly. It's true that people in Internet-related businesses are used to partnering and rev shares are extremely common. The business culture has evolved to reward cooperation and competition. In fact, sweat-equity is a respected currency of online and technology start-ups. We can all picture a bunch of 20-somethings sleeping in their cubes, living on chocolate-covered coffee beans, Doritos and Red Bull, writing code. Cliché, yes. But, boot-strapping is a culturally accepted way of doing tech start-ups because so much technology needs to be shared and there is very little economic incentive to reinvent the wheel. On the other hand, there is zero incentive to sharing anything with your competitors in the entertainment business. And, unlike their tech counterparts, most established writers would not be willing to work for free or for slave wages in exchange for stock.

As we know, 99.5% of television shows and movies are born dead. Or, to put it another way, the businesses of movie and television production enjoy a spectacularly high failure rate. While most businesses in the tech-sector are seeded by venture capital, entertainment is almost never financed in this way. The risk is assumed by the producers, their bankers and, in many cases, the distributors of the final product. Even a primer in film and TV finance is outside the scope of this writing, but suffice it to say, that "Hollywood" accounting is an opaque art form because the economics of the business dictate it to be so.

Any truly meaningful percentage deal between the parties will require a level of accounting transparency that is unprecedented in Hollywood. The thought of sharing a percentage of revenue by calculating actual profit is simply antithetical to the risk/reward profile of the business.

For example: If a producer puts up $1 million dollars to make a show. How much are they entitled to recoup before sharing the profits with the rank and file? Certainly the number must be much greater than $1 million. How much greater? Are they entitled to "first money out?" What is a reasonable profit? I'm sure you have your own opinion about it, the writer's certainly do. Here's the problem -- the show isn't getting made unless the producer risks the capital. And, in the entertainment business, that risk is extremely high.

Now, you might argue that no matter what the risk profile of the business, smart, professional risk managers can build models that can satisfy both parties. This might even be true if it were the entire issue. But it is not.

Unfortunately for everyone involved, it is incredibly unclear if the current model of television and movie production can survive the behavioral changes in media consumption.

You have a personal story about how differently you consume media now than you did a year ago. In fact, everyone you know has a story on the subject. You use your iPhone, your kids play video games and have IM windows open on their computers, your 18 month old nephew likes to watch Sponge Bob on TiVo and can already use the remote control, etc. This fundamental shift can be attributed to a significant increase in consumer control of media and, more importantly, the stunning difference between open and closed networks.

A chain of movie theaters, a cable system or a broadcast television network is a closed network. The public Internet is an open network. When you watch a movie at a theater you are using a time-tested business model -- Pay Per View. You buy a ticket, see the movie once and go home. This is a closed network. You are asked to leave the theater after the movie is over and you must buy another ticket to see it again.

On the other hand, should you find the same movie as a Bittorrent file on the public Internet, you can watch it all you want, share it with your friends and keep the file forever without paying anyone anything ever.

Hummm ... how much of that revenue should the writers be entitled to?

As a practical matter, nobody knows how and when online video will actually become a business. At the Future of TV seminar, David Poltrack, Chief Research Officer, CBS Corporation/President CBS Vision said, "If you really want to watch something, I guarantee that we will figure out a way for you to pay for it." He was talking about how online video might be supported by advertising or some other business model. I am a big fan of David's, but I completely disagree with him. The only way that you can make someone pay for content from 2007 into the foreseeable future is on a closed network. On the public Internet, content is and will probably always be free. (Just to clarify -- people with more money than time, pay; people with more time than money, pirate. As people get better computers, better broadband connectivity and better software, the casual, or even unintentional, bootlegging of content will increase exponentially.)

This may make some people very sad, but there's very little that can be done about it in today's technology. Can we create technology that would so seriously invade the privacy of individuals that we could protect content on the public Internet? Yes. Will we? I don't know and neither does anybody else.

So, why is this a death match? Why do both sides need to win?

If the writers really win, the producers will have to fundamentally change the way they do business. And, happy as it might make some people, this kind of tectonic shift would so demotivate risk capital; that the business would truly never recover. It would also open the door for every other union and guild to "get theirs" and that just can't happen. How much rev share should the key grip get? Hyperbole, yes ... but rev share has to stop somewhere.

If the producers really win, the writers are going to be absolutely screwed out of any hope of proper payment for their work. Big media will continue to be subsidized on the backs of creatives who have become defacto bankers with zero ROI. If you're a writer, you should put your pencil down until the producers agree to pay you fairly for your work, whatever it takes for them to accomplish it.

How will it end? Badly, I fear. But, let's revisit this issue in 2012. We'll know quite a bit more after the transition from analog to digital is complete, after the spectrum starts to become commercialized and after about 10 more generations of personal media devices. Or, maybe we will be even more confused about the future of media -- you know, that's why there's just never really a good time for a death match.

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

Shelly Palmer is Managing Director of Advanced Media Ventures Group LLC and the author of Television Disrupted: The Transition from Network to Networked TV (2006, Focal Press). Shelly is also President of the National Academy of Television Arts & Sciences, NY (the organization that bestows the coveted Emmy® Awards). He is the Vice-Chairman of the National Academy of Media Arts & Sciences an organization dedicated to education and leadership in the areas of technology, media and entertainment. Palmer also oversees the Advanced Media Technology Emmy® Awards which honors outstanding achievements in the science and technology of advanced media. You can read Shelly's blog here. Shelly can be reached at [e-mail]

Comments

[VastRightWingConspiracy]

.
The WGA has given TV executives and TV viewers a GREAT opportunity. The best TV shows ever were made during the 50's, 60's, 70's and 80's. Bring them back. Ernie Kovacs, Steve Allen, Mary Tyler Moore, The Dick Van Dyke Show, Jack Paar's Tonight, Sid Caesar, The Bob Newhart Show, Johnny Carson's Tonight, The Wild, Wild West, The Jack Benny Program, That Girl, The Avengers, Carol Burnett, Sonny and Cher, Jackie Gleason, Kraft Television Theater, Studio One, Philco Playhouse, Playhouse 90, Armstrong Television Theater, Rowan & Martin's Laugh In, The Ed Wynn Show, The Saint, The Rifleman, Knight Rider, The Six Million Dollar Man, Mission Impossible, Superman, and on and on. Nothing created since even comes close (except Seinfeld). Make these classics the new stable for prime time TV on all networks. Bring back the best TV ever produced - and everybody wins, both young and old. After several months of seeing these classics, maybe, just maybe, the standard for acceptable TV will increase from its current toilet-level.
.

[realitytrumpsbull]

I think it'll be one more thing that ends up
getting outsourced...they don't call em
'starving artists' for nothing...

[thenicerguy]

This thread either has 0 an infestation of studio "plants" who take the illogical side no matter what, or B) the dumbest collection of twits on the web.

If a producer puts up $1,000,000.00, he's entitled to recoup the $1,000,000.00 first but every penny after that is profit. Time to share. And BTW, for all percentage participants, the fee they get up front is a PERCENTAGE of their eventual participation. All of my contracts say "x dollars against y dollars against z dollars royalties."

There were at least 3,000 members of the gWGA at the rally at Fox Studios on Friday. There are 10,000 members in the union. One hundred and fifty were "showrunners" who make megabucks. I'll bet another two hundred here make 200,000 plus a year. That's less than 10% of just the folks there. Statistically, everyone who wasn't there made ZERO dollars last year.

Not exactly a union full of rich folks.

[Fleurdamour]

By this logic, no one should ever have been paid for writing for television. It's "free" to watch network television, PBS, etc. All one has to do is buy, or get access to, a TV. It's not people watching the shows per se that generates revenue - its selling advertising on the shows. The internet actually is easier to track "eyeballs" with than TV ever was - you can get exact page view counts, therefore it will in the future be even more valuable to advertisers than TV, if it isn't already, because they will know exactly how many people are seeing their ad. That's why the writers need to be paid for re-use on the web, or for content written for web only - the media companies sell advertising on their internet content, thus they are generating income and everyone involoved deserves to get paid.

[melakfilms]

When I was but a wee lad this new way of getting television signals to consumer evolved. It was satellite television. Back then, in the early eighties, if one possessed a sat dish the size of a swimming pool, you could pull down whatever shows, whenever you wanted - all free. My father started up a satellite installation service and sold dishes, and the boxes that converted signals for the televisions. The business boomed - until the networks and companies showering half the globe with their digital signal saw the profit they could make. My father was put out of business overnight when the corporations decided to scramble their signals and sell their service via satellite. This, as everyone knows, went on to become the biggest competitor of cable - a multi-billion dollar a year business.

So please stop telling us how the televising of shows via the internet are 'free' and 'open' for everyone out there. Any 'free' or 'open' loophole in that system will soon be shut off. The networks have already secured their shows so that they can only be streamed, not downloaded, not saved and never shared. And all commercials inside the stream must be watched - no fast forwarding now! This revenue stream is already on track, just as the satellite model was back in the 80's.

Why do people keep getting kyboshed into siding with Goliath? I'll never understand.

[sneezeguard]

Three words-- "work-for-hire."

You negotiate your fee, sit down at your computer, write the thing, and then get lost.

Solves everyone's problems.

[tchristin]

While I love seeing any union flexing its muscle, I have a hard time working up a lot of passion for participants in the entertainment industry.

I realize there are real issues but just once, couldn't it be child care workers, retail, restaurant or hotel employees, how about coal miners? Would it get the front page coverage I wonder? Those workers who struggle to make enough money to feed and house their families?

It's hard to feel outraged as the segments of the "haves" argue amongst themselves over how big their piece of the pie will be (i.e. players and team owners) while the "have nots" continue to go without living wages, basic health care, or while we sit back and watch the last gasps of our planet.

But yes I support the right of writers to their "reasonable fair share" whatever that means.

[Bakersman]

99.5% of all television and movies are born dead? If that's true (which it isn't) the studio owners (and let's be honest about it, that's who runs the AMPTA. They should call it the Conglomerate's Union, it's far more accurate) would be standing near the on-ramp of the 405 Freeway with a cup in their hands. I'm not sure where you get your numbers but the studios did record business. I guess you don't read their propaganda: Variety. They are always touting their windfall financial years. Oh, that's right, that is in the books they show Wall Street, not the one's they pull out to cry poverty to the creative unions. Flat out, this is about corporate greed. Dress it up anyway you want and once you strip away the frill and lace it will still be about corporate greed. And this could be a win-win but the studios will trip over dollars to save dimes. Because they won't take care of the very people who make them all that money that they claim they don't have to pay themselves 40 million dollars in cash and stock every year.

[zaneblue]

That's a very silly argument. No one is saying the writers need to get into the guts of the business model and see what gets rewarded up front. They are just saying that like DVD's, when someone downloads content from iTunes or Netflix, they get a cut of that charge. And if someone is watching the show online with ads, they get a cut of that ad revenue. SOMEBODY is keeping track of that ad revenue.

I think your real unspoken point is that at some point in the not too far future, all content will be online and not shown on TV at all, and of course at that point the ad revenue for online viewings will be THE revenue for the show.

[elizaW]

Just want to point out that a week into this strike, in spite of the raucous rally and less than pithy slogans, most writers I know are seriously depressed... the rich ones, less so. People are saying things privately that they feel too intimidated to say when surrounded by WGA strike leaders. I've talked to feature writers who do a lot of re-writes and therefore don't make their salary from residuals because they don't have equity in the final project. (WGA rarely gives screen credit to these re-writes.) The residual issue doesn't impact them the way it impacts TV staff writers who work on series. Yet, these feature writers are paying the price for the TV writers issues. I've talked to writers who are pro-strike but, now with their show runner deals in suspension, wonder if Verrone's faux-macho strategy to strike sooner rather than later wasn't a big tactical mistake. And I've talked to people outside the business who feel that though the producers aren't winning over any hearts and minds, neither are the writers.

[Ginzaman]

One key flaw in his argument: not dealing with the huge profit for everybody involved.

Does anybody force networks to do yet another remake?
Did anybody force NBC to pay Kelsey Grammar $1 million an episode for Fraser?
Did anybody force NBC to pay Larry David and Jerry Seinfeld roughly $300 million for the first syndication deal for Seinfeld?

The answer to all of these is, no. Of all the shows on right now, how many can you actually say are original? Practically none. Which means that foreign producers like Simon Cowell and Mark Burnett come in and say, right. A lot of American TV is s**t. And now's my chance to clean up. Do you REALLY think that Cowell is worried about American Idol actually being quality programming? No chance in hell. He's laughing all the way to his villa as far as what a killing he's making. And what do the networks do? All it is is numbers and profit. Which means that they'll put on anything. And what's their excuse? It's a business (which is true). Now Good Business 101. A succesful business is successful because they actually listen to and meet the needs of their customers? Les Moonves says if you can gurantee that a show will be a hit we'll put it on. My response: a huge percentage of the public wants Bush and Cheney to be impeached. Woud you do a show about that? Of course Summer Redstone would fire his ass in a second if he did.

Which proves again it's all about huge profit. And nobody's willing to take responsibility for actually making quality content to get that profit. If a writer/producer (the people with the real money/power) were to say, no I'm not going to take $____ million in fees for doing this show because we need to have better quality, THEN I would be impressed. Also, the WGA would instantly have credibility you couldn't buy.

So until then the strike(s) will go on and more money has to be lost.

[andygaus]

Allowing writers to share in the profits from their creations would be a "tectonic shift," you say, and it "would also open the door for every other union and guild to 'get theirs' and that just can't happen. How much rev share should the key grip get? Hyperbole, yes ... but rev share has to stop somewhere." Yes, and if you allow this J.K. Rowling person to claim a share of the profits from the Harry Potter movie, then every Jack and Jill will want to be paid as well. Rev share has to stop somewhere, but if it starts anywhere, it starts with the writers: they have a unique and unmatched claim as the original creators of the profitable thing. Perhaps rev share should end right there, but for sure it should include the writers. It is offensive to treat the people who actually generate the material as simply one of the pigs at the trough, the one we just don't have room for. It is a legitimate question why anybody else should get rev share, but there's no question about why the writers should get it: it's their creation in the first place.

[maca]

You're plugging the same BS illogic as the studios, which is basically, "There's no use giving you a percentage of the profits when we don't know what they'll be". So we take your advice and revisit the issue in 2012. If internet downloads are providing a huge profit, do you really think the studios will be willing to provide a cut THEN?

The time to get the percentage is NOW. If they don't make much money, we won't make much. If it turns out to be profitable (and let's face it, they wouldn't be putting stuff on the internet if it weren't), then we'll get more.

And enough bull about the studios taking all the risk. The amount they pay writers up front for a speculative work is FAR less than it's worth. The only way we get more than that is if the profits start rolling in, and we have a percentage. The studios risk their money, the writers risk their time and effort. Everybody takes a bath if it tanks; everybody should share the profits if it flies.

Lastly, there's this bit of illogic:

"If a producer puts up $1 million dollars to make a show. How much are they entitled to recoup before sharing the profits with the rank and file? Certainly the number must be much greater than $1 million." Certainly? Why? Above one million, it's PROFIT, and the profit is to be shared. They'll get the lion's share, the writers will get a tiny one. But according to you, the writers should get nothing until the studio gets what they feel to be ENOUGH profit. And if left to the studios, that will of course be never. The reason we're in this mess and having this strike is because the studio execs think like you.

[BillSeward]

the studios know it is in their best interest to keep the details of what a film grosses over time private. its called "the rolling gross." when profit participants ask for money due them, the studio will dodge and weave, often until they are sued, to avoid distributing profits. they'll keep saying they haven't recovered their investment yet, and push it another six months or year. some people sue, most don't. it's expensive, you might not win, it makes enemies, etc.

so. as mr. palmer said, and this is a huge point, to come out of this with transparent accounting would very probably put hollywood out of business. hard to believe, but true. they don't want anyone near the books (either set) because they spend so much time moving money around to try and cover their losses so they can keep the capital coming in from their backers. if they "told the truth"? they'd be out of business.

residual is, and has always been, a killer for movies and tv, because the unions have a right to follow gross amounts coming in to networks and studios, so the unions can set residual payments to the participants. studios and networks hate telling the unions what they're making. they need what they see as flexibility to be financially creative to offset their losses.

bottom line? hollywood has always functioned on shadowy accounting. without it, they go bust.

[BillSeward]

the underpinnings are staring to come out. on any half hour or hour tv show, each episode costs a lot of money. the exact figures vary show to show, but, for the purposes of illustration, half hour? 1 million per. hour? 2 million per. so, a full season of a half hour costs approximately 24 million, a full season of an hour show 48 million.

commercial rates are set each tv season in advance based on recent "sweeps" periods, how much for a minute commercial, thirty second, etc. but, the commercial revenue does not offset the cost of the show. not even close.

so. most shows, not some, most, are money losers. 75%, again, for the sake of illustration.

after about 100 episodes, the show can be sold into syndication. the deals vary wildly. top shows can sell for hundreds of millions of dollars. second tier shows for far less. the vast majority of shows never make it to syndication.

movies? say a film costs 100 million and makes 50 million at the box office. the studio makes 25 because the theater owners get about 50% of ticket sales. then there are separate deals for dvd, cable rights, as well as foreign theatrical and foreign dvd and tv.

most movies fail. again, for the purpose of illustration, say, 75%.