Friday, January 18, 2008

The Directors Deal – Fair or Feasible?

The Directors Guild has reached agreement with the studios. Should the Writers Guild accept the same deal ... or try to negotiate better terms, and possibly continue the strike for months? Is the deal fair, or merely feasible, i.e., the best the DGA thought it could get? What's the tradeoff between fair and feasible, and what should the WGA do next?

Let's take a closer look.

Residuals for paid downloads (Electronic Sell-Through)

On paid downloads such as iTunes purchases, the studios gave the directors about twice what they offered the writers. That sounds extravagant, but it's not: the existing number - which was the same as the formula used for home video -- was unreasonably low, considering that there's no manufacturing cost for digital downloads (unlike DVDs and video tapes).

The writers wanted about 8 times as much as the studios offered, so, the studios didn't even meet the writers half-way. Also, the increase only kicks in above certain sales volumes (and the formulas differ slightly between movies and TV programs). Still, an increase is still better than a sharp poke in the eye.

Residuals for ad-supported streaming

This is where it gets ugly. If a network provides a show via streaming on the Internet or cell phones, with ads but with no charge to the user/viewer, the residual payment to the director would be a flat fee of about $1,200 for the entire first year of streaming. (That figure is for a one-hour program; other figures apply for half-hours or for movies; and also, there's a short initial "free period" where no residual is payable.) The network and/or the studio might make a lot of money on advertising, but the residual would still be a flat figure. A fairer approach would link the figure to either advertising revenue or viewership (number of hits).

There's another twist: what happens if or when television itself is delivered via Internet technology (so-called IP-TV)? The studios might then argue that the low flat-rate figure applies, rather than the current, more talent-friendly television residual formulas. The current definition of "Internet" in the Guild agreements is vague enough that this is a real concern. It should be tightened.

Residuals for electronic rentals

Several days ago, Apple announced that movies and, I believe, TV shows, would be available for rental on iTunes - a new wrinkle, since most content on iTunes is sold, not rented. The DGA press release on the new deal does not discuss rentals, but an email being circulated by a prominent writer claims that the DGA deal includes a provision reconfirming a 2001 Internet Sideletter that provides a 1.2% residual for such usages. If so, that's good news.

Jurisdiction over new media

When, or if, more programming is produced for new media in the first place, the guilds want it to be done using their members. The studios offered the writers jurisdiction over derivative works - i.e., Internet and cell phone programming based on existing TV shows (or movies, presumably). The DGA deal achieves that, but also attains jurisdiction over new works created for the Internet, as long as the production budget for the new work exceeds certain thresholds. The thresholds are a bit higher than one might like, but still, this is a clear win.

Sunset provision

The deal expires in three years, which is always the case with the entertainment guild agreements - they're always three years. But this time, there is apparently some kind of "sunset language" emphasizing the point that the parties can reconsider everything afresh in three years, as technology changes. Perhaps, goes the theory, the directors (or writers) could obtain increases in the next negotiating cycle.

I think that's an empty promise. Are people really going to sit in a room and reargue the issues from square one, as though this year's deal had never been made? Of course not. The deal that gets done today will be the precedent for tomorrow, just as the home video deal, crafted at the dawn of the videocassette age, has lived on more than two decades, into the realm of DVDs and its hi-def successors, such as Blu-ray.


The DGA press release says the new deal gives the guild better access to studio "deals and data," and also gives the guild improved provisions for challenging transactions between two divisions of the same company (these intra-company, self-dealing transactions are problematic because they can be artificially manipulated by the studios in order to reduce the amount of residuals due).

The press release isn't specific about the details, but these new or enhanced provisions can be critical to enforcing the guild agreement. Sounds like a clear win.

Also, the various residual percentages for new media are based on distributors gross rather than producers gross. This technical sounding point gives the directors a cut of a bigger pot of money, and one that is somewhat less subject to Hollywood-style accounting (i.e., manipulation). That's a significant concession from the studios - it's something the writers wanted, and it's one reason the studios walked out of talks last month.

Other terms

The new deal increases wages and residuals by amounts that are consistent with past practice (3% annual increase in minimums, for instance). There are also a variety of provisions with no direct analog in the writers agreement, just as the writers have some issues on the table that are specific to them.

What next?

The studios have said they're willing to resume discussions with the writers, initially on an informal basis. The writers should accept the invitation. What they need to do is quite simple: press for some improvement in the deal and hold the Oscars hostage. By negotiating down to the wire, they may achieve a few small improvements in the deal, which the studios would then offer the directors as well, of course.

The other option is to continue the strike, and hope that SAG will walk out too. But that's five long months from now. No one has the stomach for that, and the collateral damage is too great. Besides, flawed though it is, the DGA deal doesn't warrant five more months on the picket lines.

The DGA would never have achieved the gains in the new deal were it not for the pressure of the writers strike. The writers have an opportunity to tune up that deal just a little bit, but that's about all. Let's hope that next month, there'll be a new Academy Award category, and that the Oscar for best guild agreement will be awarded jointly to the WGA and DGA.

This article first appeared on the Huffington Post on January 18, 2008.