WGA Strike - Confusion Reigns

Are the talks between writers and producers headed for a breakdown, or are we on the road to a deal? It's impossible to tell. The producers say their new proposals represents an increase in compensation to the writers. The writers say it represents a decrease.

In addition, it appears that the writers have a proposal on the table too. Yet, the writers' public statement omits details of their proposal, while offering some details of the producers' proposal. Meanwhile, the producers' statement has no details of either.

The writers' statement is bitter and angry, yet they say they're going to study the producers' proposal -- even though they've already attacked it. In contrast, the producers' statement implies that talks are on the way to a fruitful conclusion. We're being spun by at least one party, and probably both. The parties should release the full text of their proposals and let the public judge.

Writers' Strike: Why They're Talking

The writers and the producers (studios and networks) returned to talks this past weeks, following a three-week period, during which no talks occurred, after negotiations collapsed on November 4. What persuaded the parties to resume discussions?

The writers are back at the table for these reasons:

(1) The Directors Guild of America (DGA) is Waiting in the Wings. The Writers Guild knows that if they don't do a deal soon, the DGA will commence negotiations with the producers and do a deal first. (Even though the DGA's contract doesn't expire until June 30, they like to do their deals early.)

The home video and new media aspects of that deal would then become the template for the writers' deal, because all three guilds (writers, directors, and actors) mirror each other in the home video portion of the agreements. And, the directors' deal would be more favorable to studios than the writers' deal would be.

The reason the directors would be less assertive is that the directors don't care about residuals as much as the writers, because two important DGA constituencies don't relay on residuals as much as writers do: film directors generally receive more upfront money than writers and are less reliant on residuals; and assistant directors and other non-director personnel, who are 40% of the DGA membership, receive virtually no residuals. (This leaves middle-class TV directors somewhat in the lurch.)

Also, film directors probably view themselves as quasi-management (which is accurate - they tell people what to do!), and would thus be less aggressive from a labor union perspective.

(2) Unity is Beginning to Crack. Writers are also returning to the table because unity is beginning to crack. For instance, many showrunners - the writer-producers who write and supervise TV shows - are apparently returning to their producing duties (though not their writing duties). This will allow shows to continue producing scripts they have on hand, giving the networks a new lease on life, even though no new scripts are being written.

Also, the Teamsters (truck drivers), who had expressed unity with the writers, are now apparently crossing the picket line in significant numbers. Their support had been key, since their refusal to deliver equipment can shut down production immediately. If nothing moves, nothing shoots.

In addition, the IATSE (union representing "below-the-line" workers such as cinematographers, production designers, hair, makeup, etc.) has continued to be critical of the strike, since many of its members are out of work as a result.

The producers (studios and networks) are back at the table for these reasons:

(1) TV Shows Went Dark Faster Than Expected. The fact that the showrunners ceased their producing duties meant that many shows (several dozen so far) ceased production much sooner than the studios and networks expected.

(2) Movies Began to be Postponed. The average studio movie costs $100 million to produce and distribute. Without a writer on standby to touch up (or even rewrite) the script during production, studios, stars and directors are reluctant to begin production. And, once a movie is postponed, it becomes difficult and expensive to restart it: stars and directors may be unavailable because they're working on other projects, locations become unavailable, options may expire, etc.

(3) Pilot Season is Imperiled. The networks select new shows for next fall season by ordering pilots - sample, initial episodes of prospective TV series. Scripts are written, some are selected for production as pilots, then the resulting pilots are viewed and some are selected to become new series. This process happens during January through early April. Without scripts, there's no pilots and no pilot season. Without pilots, there are no new series, at least under the current system (some execs suggest that this process is inefficient and overly expensive in any case).

(4) The Studios and Networks Were Losing the PR Battle. The studios and networks were unprepared for the PR onslaught -- blogging, YouTube videos, international demonstrations, rallies, statements of support from politicians and from other unions, and the like. Surveys of both the entertainment industry and of the public at large show overwhelming support for the writers.

Both parties are back at the table for these additional reasons:

(1) The Industry as a Whole Wants Them to Negotiate. People are losing their jobs, the industry is shutting down, and the community saw both sides trading vitriolic barbs rather than engaging in serious negotiation. Anger was building against both parties.

(2) Agents Began to Mediate. Agents don't make money unless deals get made. This put them on the firing line. Also, agents have a foot in both camps: they represent the writers, but they dress, talk, think like, and lunch with the execs. Also, they spend their day making deals, every day. They're uniquely positioned to induce the parties to negotiate, and to reach a solution, and they stepped up to the plate and engaged the parties.

All of these pressures and efforts bore fruit in getting the parties back in the room. Now it's time for them to complete the process and reach an agreement.

This article first appeared on The Huffington Post on 11/29/07.

Blogging for TV Shows During the Strike

Eriq Gardner at The Hollywood Reporter's Entertainment & Media Law Blog points out, even though "The Office" is dark, its blog continues to be updated. The blog, of course, is in the name of various characters from the show, but someone's writing it. If that someone is a Guild writer - seemingly unlikely, given how outspoken The Office's writers have been - is that writer violating the strike rules?

Eriq noted that I had previously blogged on a related matter, and asked me to comment. My reply, which he ran as part of the post today, was as follows:

Can a WGA member write for [a struck-company owned TV show] blog during the strike?

I spoke with WGA spokesman Gregg Mitchell, and his answer was an emphatic "No." A TV show's fictional blog is just "an extension of the same show," he stated, and the writing is therefore prohibited.

Let's drill down. The strike rule applies to writing in connection with new "programming" for non-traditional media, but doesn't define that term. Does a series of blog entries constitute "programming" on the Internet?

Probably so. We can find guidance in the Sideletter on Literary Material Written for Programs Made for the Internet (2004 Writers Guild MBA, p. 561). This Sideletter provides limited, optional jurisdiction for new media writing. Two provisions are key.

In one place, the Sideletter refers to "literary material written for the Internet or other similar delivery systems." The term "literary material," in turn, is defined in the MBA (Art. I.A.5) to include, among other things, "dialogue, ... sketches, ... narrative synopses, routines, and narrations." This would seem to encompass blog entries.

Also, the Sideletter refers to "audiovisual entertainment programs made for the Internet of the type that have traditionally been covered under the WGA Basic Agreement as well as other types of programs made for the Internet." I've added the emphasis to make the point: in new media, the Guild's concerns are not limited to audiovisual programming.

So, my analysis is that the strike rules do indeed prohibit blogging for struck-company-owned TV show blogs. It's odd to think that blog entries - unadorned text - constitute "programming." But so it goes in the crazy world where new technology collides with an abstruse, 600-page Guild agreement.

Exclusive: The AMPTP YouTube Video the Writers Don’t Want You to See

WGA writers, whose pencils are (mostly) down and PC’s off, have lately occupied themselves walking picket lines and chanting protest slogans. Many have found time for a bit of auteurism, creating a growing number of YouTube videos explaining the writers’ position (reportedly an astonishing 750 videos to date). The videos — by turns impassioned and humorous — have collectively attracted notice.

But, like the dog that didn’t bark, the real mystery is why the producers haven’t produced. The Alliance of Motion Picture and Television Producers (AMPTP) has created no YouTube videos of its own, opting instead for the old-media alternative of occasional paid advertising in the NY Times, LA Times and trades, and an op ed piece in the LA Times. I wish I could offer you a link to the AMPTP’s new YouTube video — like my headline promises — but I can’t, because there isn’t one (that link will just give you a blank screen). The companies’ strategy has been more NoTube than YouTube.

But why? With all their resources, why haven’t the AMPTP companies produced and distributed video content of their own? It’s not for lack of writers; the companies could use non-WGA writers if they wished, since new media is not a covered area, and in-house promotional activity presumably isn’t either (and, in any case, the WGA agreement expired October 31 and is no longer in effect). Nor is it because the companies don’t have a case to make; they do, although I disagree with much of it.

And, the companies’ audio-visual silence does not represent a failure to understand the importance of public opinion — otherwise, why buy the ads and write the op-ed piece? Nor can the absence of company content be explained by pointing to the success of the AMPTP’s traditional PR methods, because there’s nothing to point to. On the contrary, the companies are losing the PR battle, and badly; for instance, over two-thirds of respondents to a Variety survey said that the writers were representing themselves more clearly, forcefully, honestly and forthrightly than the companies. In addition, half the respondents see the AMPTP in a more negative light as a result of the strike.

The only remaining explanation is that the studios and networks — the country’s largest media companies — just don’t understand new media, or they have carelessly allowed their representative, the AMPTP, to function without comprehending the importance of new media. Online, and on cellphone and iPod screens, is increasingly where the eyeballs are, not to mention the hearts and minds (thankfully, that’s as anatomical as we need to get). Newspapers, and television, also matter, a lot; but ignoring a fast-growing, young-skewing medium makes companies seem stodgy at best, and ever more the villain — or, “the man,” if you prefer — at worst.

Does it matter? Yes. A business that loses the love of its customers might soon find itself more busy suing them than selling to them. The studios seem to have inadequately taken note of the lessons the music industry offers, so here’s one that bears repeating: piracy is hard enough to combat, but even more so if there’s no love lost between consumer and company.

In addition, a company that can’t figure out how to use new media on its own behalf will have an even harder time understanding how and why its customers use new media. Not for nothing have Silicon Valley companies successfully portrayed Hollywood as an industry that doesn’t get it. The AMPTP’s inaction only reinforces that conclusion. It’s time for the execs — or the AMPTP — to grab their camcorders and start making some video.

This article originally appeared in The Huffington Post on November 27, 2007 at http://www.huffingtonpost.com/jonathan-handel/exclusive-the-amptp-yout_b_74237.html?refresh_comments=1.

Reflections on Residuals: Go Forth and Multiply

Just four cents per DVD — that’s the writer’s home video residual, we’re told. More specifically, the hated DVD formula is 1.5% (or 1.8%) of 20% of the studio’s gross on DVD sales. That odd looking set of percentages is equivalent to 0.3% or 0.36% of the studio’s gross. The 1.5% or 0.3% applies when the studio’s gross on a title is less than or equal to $5 million; the 1.8% or 0.36% applies thereafter. If the studio gets about $11 on an average $22 DVD, the writer(s) get a total of three to four cents.

That sounds small, and it is. The WGA made a proposal to double those residuals — that would be a four-cent raise per DVD — then withdrew the proposal at a bargaining session two weeks ago. Now the proposal may or may not be back on the table when talks resume next Monday, but even eight cents per DVD sounds modest. Why are studios resisting?

Then there’s new media. Here, the Guild is looking to double its take on streaming (from 1.2% of studio’s gross to 2.5%) and an eight-fold (not eight cent) increase on downloads (from 0.3% of the studio’s gross to 2.5%). That last one is large in relative terms, but the actual dollar amounts are small today (though will be larger in the future). Hence, again, the question: why are the studios fighting the Guild so vociferously?

The answer on DVD dates back to what many of us inadequately learned in third grade: multiplication. On new media, throw in a bit of geometry as well. What are the facts and figures, and are they persuasive? Here’s the 411.

Multi-Guild Residuals — Almost Ten Times the Fun

A four-cent per DVD increase sounds like a no-brainer. But in the world of Hollywood unions, four cents is actually almost forty cents. This is true for a simple reason: the WGA isn’t the only union in town.

As it turns out, all three guild agreements (WGA, DGA and SAG), plus the IATSE agreement, have similar DVD residual formulas. Any amendment to the WGA’s DVD formula will almost certainly be made to the other unions’ as well. It’s called pattern bargaining; the deal for one is the deal for all — but with a twist: SAG’s formula is three times as large as the WGA’s, and the IA’s is four and one-half times as large. (The DGA’s is the same as the WGA’s.) New media formulas can be expected to mirror each other across unions in the same fashion.

So, if writers get a four-cent raise, actors get an extra twelve cents. That’s not because actors are three times better than writers, but because there are so many more of them on any given movie or TV program. The actors split the residual among themselves based on a formula that reflects both salary and time worked on the show. Thus, each actor’s share is less than the writer(s)’ share. (Writers too have to split among themselves when there’s more than one writer on a project.)

The DGA raise would match the writers’ — four cents. Most of that would go to the director. Yet, 40% of the DGA membership are below-the-line workers who receive a miniscule share of DVD residuals (less than one-fifth of a penny per DVD). Doubling the formula would make little difference to them, which is one reason why DGA support for a strike over residuals is so tepid.

The IA raise would be 4.5 times the writers’ — an extra eighteen cents per DVD — yet IA members receive no residuals directly. Instead, the residuals are used to fund the IA’s health and pension plans. So, residuals matter to IA members, but in an attenuated way.

Bottom line: whatever increase the writers achieve in DVD or new media has to be multiplied by a factor 9.5 to determine what the studios will be paying out. (9.5 = 1x for the WGA, 1x for the DGA, 3x for SAG, and 4.5x for the IA. If you want to read the contract language for yourself, check out the WGA agreement (Art. 51.C.1.b), DGA agreement (Sec. 18-104), SAG agreement (Sec. 5.2.A.(2)), and IATSE agreement (Art. XXVIII(b)(2)).)

DVD — The Shiny Little Disc Just Keeps Spinning

How do these numbers play out in practice? The studios and the WGA each have their own numbers, and so far as I know, are not releasing them publicly. But we can take a stab at it.

Start with DVD. Let’s reject the conventional wisdom that physical media don’t matter. DVD is a $16.5 billion business (domestic sell-through in 2006). That’s a far bigger business today than downloads and streaming (see below). When the Blu-ray / HD DVD format war gets resolved, people will probably start buying more product, and that number will spike up. And in the more distant future, even if discs are replaced by chips, holographic data storage, or little nano-somethings, the “DVD formula” — i.e., the home video formula — will still apply. So, the formula matters.

Now let’s do the math. $16.5 billion retail gross equals an approximate $8.25 billion gross to the studio (assuming a 50% margin). Multiply by 0.3% or 0.36%, yielding a $24.75 million to $29.7 million single-guild residual. Multiply by 9.5, to arrive at a 4-union figure of $235 million to $282 million. Now, multiply by 3 — the guild and IA agreements are three-year contracts — to arrive at a $705 million to $846 million cost over the term of the contract.

This calculation assumes that the DVD business (standard def plus Blu-ray and HD DVD) neither grows nor shrinks materially over those three years. This was true of 2006 as compared to 2005, and some analysts predict little growth over the next few years (see chart in 12/19/07 print edition of LA Times, p. A15; not available online). I believe the actual figure would be higher if one of the high def formats takes off, but that’s unlikely unless and until one of the formats prevails and the other drops by the wayside. When, or even if, that will happen is anyone’s guess.

The WGA wants to double the residual, which would add an extra $705 million to $846 million cost to the contracts, whereas the studios want to keep the formula unchanged. So, the parties are $705 million to $846 million apart on the issue of DVD residuals.

Let’s look at the numbers another way. Can the studios afford to increase the DVD residual? Yes. There were 1.3247 billion units of DVDs shipped in 2006. $16.5 billion divided by 1.3247 billion units yields a mean (average) price of $12.45 per unit. The cost of manufacturing a DVD in quantity, including insert, packaging and shrink wrap, is frequently quoted to me as only $0.25 - $0.35. That leaves a lot of profit ($12.10 - $12.20). But, there are also marketing and distribution expenses. One well-regarded book (p. 130) estimates manufacturing, marketing and distribution costs at “less than $5 per unit.” That implies net receipts per DVD of about $7.50. A $0.38 increase in the residual is a 5% additional cut out of $7.50.

However, from this $7.50, we should deduct some allocation of the cost of production of the film. How much this allocation should be is hard to determine. For one thing, it depends on the negative cost of the film. This, of course, can vary widely. In addition, there is probably some correlation between negative cost and DVD sales, but this would be contained in proprietary studio models which I don’t have access to (and which would be protected by confidentiality agreements in any case). How strong this correlation might be is unclear in any case.

Also, there might be some correlation between negative cost and DVD manufacturing, marketing and distribution costs, since negative cost might correlate with the quantity of DVDs manufactured, and also with how elaborate the packaging and insert might be. (Clearly, there’s correlation between these latter items and domestic box office, since studios will spend more on the DVD for a successful movie; but whether there’s also a correlation with negative cost is less certain.)

In addition, deciding how much of the negative cost to allocate to the DVD revenue, as opposed to how much to allocate to theatrical and other revenue streams, is somewhat arbitrary. Should all of the negative cost be allocated to theatrical, since this is the initial market? Should the allocation be proportionate to the revenue received from each window? Or should the allocation proceed in some other fashion?

So, that $7.50 figure has to be reduced, perhaps significantly. Thus, the $0.38 increase in residuals represents a greater than 5% additional cut of the studio’s net, perhaps significantly greater. Conclusion: on some DVDs, a $0.38 increase might be too high to be reasonable, but it’s hard to tell. So, it’s probably appropriate for the Guild to settle on some compromise between leaving the residual unchanged, on the one hand, and doubling it, on the other. This is why I have previously proposed a 1.25x – 1.5x increase.

New Media —Now Playing on a PC and Cellphone Near You

On new media (streaming and downloads), much of our work is already done. Using various research data, Michael Learmonth has estimated that the parties are $7.2 million apart in 2007, with that gap increasing to $71 million in 2011, on a single-union basis. Assuming for the sake of simplicity that the growth between then and now is linear, this results in a single-union three-year gap of $117.6 million ($23.2 million in 2008, plus $39.2 million in 2009, plus $55.2 million in 2010). Multiply by 9.5, to arrive at a 4-union figure of $1,117 million. Michael’s figures don’t include revenue from banner ads and subscriptions, which the WGA rightly wants a piece of. Those revenues are probably larger than the revenue from in-stream advertising (ads in the videos themselves) — though who knows — so I would at least double this figure to $2,235 million.

Can the companies afford the increase? Yes. Distribution costs are negligible, since there is no manufacturing cost, and marketing costs can best be described as moderate, since films and TV shows have built-in name recognition (no need to spend astronomical sums to drive traffic to the company websites). Even after allocating a portion of negative cost to new media, the companies’ profit will ultimately be quite high. This is why execs have been effusive in their embrace of new media and their predictions as stated to Wall Street.

Divide and Conquer

Adding the home video and new media gaps yields a total gap of about $3 billion on the residuals issues. That’s more than the pocket change implied by “four cents per DVD” — or is it? After all this multiplication, now it’s time for division. Divide by 8, yielding $375 million as a per-company average, to roughly account for the fact that there are six majors, one quasi-major, and many smaller companies in the AMPTP. Then divide by 3, yielding a gap of $125 million per major per year.

Remember too, the WGA doesn’t realistically expect to get all the numbers it’s asking for; a negotiation is a compromise, not a diktat. Let’s assume the parties split everything down the middle. That’s about a $60 million increase per major per year. $60 million? It’s a small fraction of the typical revenue and profits the conglomerates are achieving. The numbers are complex, but the conclusion is simple: the producers can afford to increase the residual payments, and it’s time for them to do so.

PS: The LA Times (11/19/07, p. A15) has new media numbers that are slightly higher than Learmonth's in 2007 and significantly lower in 2011. The difference on a per-studio per-year basis is not great.

Also, note that the above article only discusses residuals. The WGA proposal also includes an increase in minimum compensation rates for film and TV writing, and a request for jurisdiction over writing for new media. Both of these requests increase the studios' costs by an amount that is difficult to determine.

Oh, a couple definitions might be helpful too. "Negative cost" means the cost of making a movie, including writing, development, preproduction, production and postproduction.

Negative cost does not include the costs of distributing a movie theatrically (such as the cost making prints of the movie and paying for advertising, marketing and publicity -- so called "prints & ads" or "P&A") nor the cost of releasing a movie on DVD or television.

"Majors" means the six major studios - Disney, Fox, Paramount, Sony, Warner Bros. and Universal.

The quasi-major I refer to in the article is MGM, which was once a full-fledged studio with its own studio lot and an extensive library (catalog) of films. It now has, instead, an office building and a small library, but retains some other attributes of a studio.

I also mention in the article that there are many smaller companies in the AMPTP. More precisely, there are many smaller companies that are signatory to the WGA Agreement. Not all of these companies are actually members of the AMPTP, but the distinction makes no difference to the economic analysis. A list of signatory companies can be found at http://wga.org/subpage_member.aspx?id=2537.

This article originally appeared in The Huffington Post on November 23, 2007.

JLH widely quoted re Writers Guild strike

I've been quoted and interviewed on the WGA strike several dozen times by local, national and international newspapers, magazines, television and radio, including CNBC, local television, KCRW, Variety, the LA Times, Wall Street Journal, Canadian TV (several 5 minute interviews, two of them live), BBC Radio. The coverage is listed here.

Internet Interdit for WGA Writers?

Can WGA writers write new media content (Internet webisodes and cell phone mobisodes) during the strike? There's disagreement, but my analysis is yes - if the employer (or purchaser) is not a signatory to the WGA agreement. WGA strike rule 1 only prohibits such writing for struck companies. And, new media writing is not within WGA jurisdiction, so writing such content for non-signatories is not prohibited.

Remember - this blog is not legal advice. Consult your lawyer or the WGA for a definitive answer.

Here's the relevant portion of the rule: "With regard to programming made for non-traditional media (such as the Internet and cellular telephones), this Rule prohibits writing services performed for a struck company in connection with new programming intended for initial release on non-traditional media and the option or sale of literary material for this purpose."

Game Over for State of Play?

Brad Pitt has dropped out of Universal's film "State of Play," reports Variety. The studio contends that he had a pay-or-play deal, and is reserving the right to sue him if they can't get the picture recast. Pitt's people say he didn't have a pay-or-play deal.

Unclear from the story is whether there is written contract. If not, then we're in the treacherous territory of oral agreements. In most cases, the law doesn't require contracts to be in writing or to be signed. Thus, when emails and oral statements go back and forth, it can be hard to tell when a deal has actually been reached or not.

Pitt's reps say he hasn't approved the script (big stars often have approval rights). Revision of the script is, of course, impossible during the writers strike (at least if a WGA writer is to be used).

A pay-or-play deal, for non-Hollywood readers, is a Hollywood construct that requires an actor or director to do the movie if the studio wants him to, and requires the studio to pay him regardless of whether they decide to use him or not. A-level talent won't agree to do a movie without the deal being pay-or-play.

Script Magazine column

A reminder: I write a column on legal issues for writers in every issue of Script Magazine. To get the column promptly, you have to subscribe to the magazine, but you can find past columns here.

How to Write LOIs and Term Sheets

UPDATED: My short book on writing LOIs and term sheets is available on Amazon.

Writer's Strike — Give Peace a Chance

It's punishment time. The WGA's on strike, determined to inflict maximum pain on the producers. Meanwhile, the AMPTP has compared the WGA to McCarthyites and announced that its next bargaining sessions will probably be with the DGA, in an attempt to cut an early deal with the directors, undercut the writers, and spank the WGA for striking. And, at least one studio has fired showrunners' personal assistants, many of whom are probably young aspiring writers to whom the showrunner is a mentor. "Make the pain personal" seems to be the theme. Neither party is willing to return to the bargaining table without conditions, and even backchannel discussions have largely ceased.

It doesn't have to be this way. Every few days, the newspapers carry a heartwarming story about great forgiveness between people wronged. If lions can lie down with lambs — and I'm not talking about the Redford movie — surely the writers and producers can cross the chasm that divides them. But how?

Start small, because small steps matter. Here's a modest proposal. The WGA should unilaterally impose a moratorium on picketing one day a week — say Tuesday, Wednesday or Thursday (so there are no jokes about the moratorium being an excuse for three-day weekends). The strike would stay in effect, but picketing would stop for a day a week. And, for their part, the studios and networks should unilaterally provide writers on the picket lines with pizza and drinks one day a week. Execs — not just assistants — should deliver the eats, and share a bite or two on the line as well.

Meanwhile, the negotiators should plan a social outing for themselves: perhaps a group tour of the Dali exhibit at the LA County Museum of Art, or maybe a trip to Catalina (although that might be even more chilly than the climate in the industry). Substantive discussion should be optional for now. Instead, the conversation ought to be about art or wildlife. What these people need is a good road trip.

Sound crazy? You bet. Pollyannaish? Yes. But we've really reached the point where pizza and a time-out would count as progress. Mixed signals are better than the unremitting hostility that now prevails. Each side needs to confuse the other with kindness, and remind itself that both parties are partners in an industry that can ill afford a long walkout. Perhaps a bit of unconventional thinking can break the impasse and restart the talks.

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This article originally appeared in The Huffington Post on November 14, 2007 at http://www.huffingtonpost.com/jonathan-handel/give-peace-a-chance_b_72560.html

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

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 consumers 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 density 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 telecomm 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 archeological document. The basic cable residual formula 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.

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This article originally appeared in The Huffington Post on November 12, 2007 at http://www.huffingtonpost.com/jonathan-handel/slipped-disc-why-dvd-re_b_72245.html.

Writers and Producers: Here’s the Deal They Should Make

[Note - this article was first published about 10 days ago.]

As the deadline for the writers' strike bears down, Hollywood waits with anticipation and fear. The effect of a strike, if not averted or delayed, would be programs off the air, movies delayed, and people out of work throughout the industry and the local economy. It doesn't have to be that way. There's room for a deal on all the major issues:

DVD Residuals. DVD residuals are the writer's cut when a movie or TV show gets released on DVD. The current formula – which the WGA calls "the hated DVD formula" – is crazy. It dates to 1985, and is adapted from an old record industry royalty formula. What's more, it's based on the assumption that "videograms" – videotapes, at the time – are expensive to manufacture. That's no longer true; DVD's in quantity are $0.25–$0.35, shrink-wrapped with inserts and ready to sell.

Of course, there are other expenses – shipping, recoupment of production and advertising costs, etc. – but still, the studio profit is large. Meanwhile, the writer gets under $0.05 (five cents) per unit sold. That's ridiculous. The writer's want $0.10 per unit. Not a huge increase, but the actors and directors will get parallel increases too. The parties should compromise on $0.075 (seven and one-half-cents) or $0.0625 (six and one-quarter cents) and call it a day.

Residuals for Internet Downloads. The studios want to apply the DVD formula to downloads as well. This, too, is ridiculous. The DVD formula makes no sense any more for home video, let alone for downloads, where the manufacturing cost is zero. The studios' position amounts to paying the writers 0.3% of the studio's gross on downloads, whereas the writers want 2.5%. They should compromise on 1.2%, which is the figure used for videogames and pay TV (HBO and Showtime).

Residuals for Internet and Cell Phone Streaming. The studios' position is unclear. They say they want to apply the DVD formula, but they also reserve the right to deem any streaming (and even download) usages as "promotional" – even if the studio receives revenue – which means no residuals would be payable at all. Piggy, piggy, piggy. Give the writers the 1.2% unless the studio receives no revenue on the usage.

Jurisdiction Over New Media. When writers create content directly for new media (webisodes and mobisodes), the WGA wants the guild agreement to apply. That's a bit much. The agreement is 625 pages and is so incomprehensible that the day I started working at the Guild (I'm a former WGA Associate Counsel), my boss told me not to bother reading it because none of it meant what it said anyway. Plus, setting minimum compensation levels for writers, when business models are unknown, is not feasible.

However, there is a voluntary Internet Sideletter (p. 561 of the agreement) that a few studios have signed on a project-by-project basis. All it requires is that the studios pay pension and health insurance benefits (P&H). The compromise: make the Sideletter apply to all new media (such as cell phones), add a provision requiring credit parity (require that the writer get credit on-screen if the director or actors do), and make the Sideletter mandatory. Done.

There are some other issues as well:

Animation. The writers want jurisdiction over animation writing, which they've received on a case-by-case basis. Trouble is, a rival union, IATSE (the "IA"), also claims jurisdiction in this area. Ironically, the president of the WGA is an animation writer. Still, this one's probably a lost cause.

Reality. The writers say they want jurisdiction over this issue, but their strike rules don't even bar such work (in contrast to movies, scripted TV, and animation – the writers can't do any such work during a strike). They're signaling that they'll pass on this issue at the end of the day.

The CW. The writers want to treat the CW like a full-fledged network for compensation and residual purposes. It isn't; treat it like Fox in the '90s and set the levels in between network levels and the current lower rates.

MyNetwork TV. The writers want higher residuals here. Please. MyNetwork TV? This channel is more like no one's network TV.

So, a deal is possible. The parties should make one and let the town get back to work.

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This article originally appeared in The Huffington Post on November 5, 2007 at http://www.huffingtonpost.com/jonathan-handel/writers-and-producers-he_b_71157.html

Life is Not a Bowl of Blackberries

Research In Motion, the manufacturer of the Blackberry device, has sued LG for trademark infringement, reports Law Day. The complaint relates to LG's use of the names Black Label, Strawberry and Black Cherry for its cell phones. In addition, last December, RIM sued Samsung over its BlackJack phone.

Sounds to me like RIM has a case, in all of these instances, except perhaps Black Label. The others just look or sound too similar, or are too similar in meaning, to Blackberry. The trademark standard is "likelihood of confusion" - if the later trademark is likely to be confused with the first one, then the later mark is an infringement.