WGA Deal: Details

Want to know the gory details of the tentative writers deal (now being voted on by the Writers Guild members)? If so, read on.

The Writers Guild has released a deal summary at http://www.wga.org/contract_07/wga_tent_summary.pdf, and actual contract language (not posted, but I can email it to you). Below is my analysis of the contract language, generally in the same order as in the deal summary.

Note that this is just a summary; for definitive answers, refer to the actual contract language (which is over 50 pages in length, in three separate documents). Also, more information, and updates, are available on my blog, at http://www.jhandel.com.

Made-For New Media Provisions

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 a rough equivalent in the DGA deal.

Derivative works for new media – i.e., spinoffs of existing TV shows – are covered regardless of budget level; and original programming for new media is covered above certain budget levels (must be over $15,000 per minute and $300,000 per single production and $500,000 per series). These provisions are the same as the DGA deal. (It’s unclear how, or if, derivative works based on theatrical or direct-to-video, product are covered.)

Some writers have criticized the budget levels for original programming as high, but bear in mind that the studios have to compete at lower budget levels with content generated by non-union Silicon Valley startups and with user-generated content (UGC), the latter of which is often produced at little cost and not for profit. Union jurisdiction would arguably hamstring the companies. Also, as the Internet grows as a venue for original programming, budget levels will likely increase, just as they have for video games.

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 for writers, but better for them 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 for the writers – given the relatively high budget thresholds for jurisdiction, they would have hoped for some minimums.

Pension and health provisions apply to new media.

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. This provision is consistent with one of the WGA’s core functions – recall that the Guild was founded 70-plus years ago with credit as a key motivator (to counter abuses in credit granting that were then common).

Made-For New Media Residuals – Derivative Works

Initial compensation covers 13 consecutive weeks of ad-supported exhibition and 26 consecutive weeks of consumer-paid exhibition.

Thereafter, (a) reuse on ad-supported platforms within one year of expiration of the 13 week period requires payment of small fixed residuals; after the one-year period, the rate is 2% of distributor’s gross. And, (b) reuse on consumer-paid platforms after the 26 week period, the rate is 1.2% of distributor’s gross

When derivative new media programs are reused on television, residuals for television programs apply, with some modifications. No residuals are specified if such content is released on home video (quite conceivable) or even (albeit unlikely) theatrically.

Made-For New Media Residuals – Original Works

Initial compensation covers 26 consecutive weeks of consumer-paid exhibition, and all uses on ad-supported platforms.

Thus, no residuals are payable for ad-supported uses. Also, no residuals are payable for uses on consumer pay platforms if the program is budgeted below $25,000 per minute.

Above that budget threshold and after the 26 week period, the residual is 1.2% of distributor’s gross.

When original new media programs are reused on television, residuals for television programs apply, with some modifications. No residuals are specified if such content is released on home video (quite conceivable) or even (albeit unlikely) theatrically.

Note – reuse on television is exemplified by Quarterlife (a backdoor series), and could also represent the situation where the Internet is used to create a backdoor pilot. This is important coverage, because such backdoor series and pilots may become increasingly common – for instance, as an alternative to traditional, expensive pilots.

Made-For New Media Separated Rights

For derivative works, if the writer introduces a new character that is used as the basis for a new TV series, then separated rights apply. For original works, certain separated rights apply if separation of rights would have applied had the work been written for free television.

Also, if a writer writes for new media, then later writes a television program or theatrical motion picture based on the new media content he or she write, the fact that there was such source material will not preclude separated rights.

Note: separated rights are complex, even prior to the introduction of this concept into new media. The WGA’s own booklet explaining separated rights is 40 pages. I can email you a copy of the booklet if you wish.

Made-For New Media – Other Provisions

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

New Media Residuals

This applies to reuse of TV programs and theatrical movies in new media (it’s 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:

Definition of New Media

Internet, mobile (such as cell phones or PDAs), and “any other new media platform known as of February 13, 2008.” Thus, we can expect further discussion (or discord) as additional new media platforms are developed over the next several years and beyond.

Distributor’s Gross

Note below that many of the formulas are based on distributor’s gross, not producer’s gross. This is excellent for the writers, because distributor’s gross is higher, and is more transparent.

Paid Rentals

Residuals for paid rentals – i.e., downloads or streaming where the user pays on a subscription or per-picture basis, and the payment covers viewings for a limited time period or a limited number of viewings – are paid at 1.2% of distributor’s gross.

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 for talent, 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/Blu-ray.

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% (theatrical) or 0.7% (TV) of distributor’s gross. Not huge numbers, but an improvement for talent over DVD.

Theatrical Ad-Supported Streaming

1.2% of distributor’s gross. Note – only applies to post-July 1, 1971 films (measure from start of principal photography). For older films, apparently no residuals.

Television Ad-Supported Streaming for Library Content

TV library content is payable at 2% of distributor’s gross. Library content means programs that (a) are post-1977 (and, apparently, some prior programs, but it’s hard to determine which) but (b) as to which the literary material was written prior to February 13, 2008.

Television Ad-Supported Streaming for New Programs

This area is 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 “streaming 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 that they prefer to watch on a PC in the first instance, which is the case with many young people).

After the streaming window, there’s a residual payable. For network prime time shows, it works like this: in the first year or second year of the WGA contract (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.

In the third year of the new deal (literary material written on or after May 2, 2010), the residual is seemingly 2% of distributor’s gross, which would be an improvement for the writers as compared to the DGA deal. But what one hand gives, the other hand takes away: 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, the residual doesn’t actually scale as distributor’s gross increases.

By setting out a distributor’s gross framework, this provision arguably 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).

For other than network prime time shows, there’s a fixed residual. It’s unclear whether this is lower than the residual for network prime time – I believe so, but the contract language is quite ambiguous.

Paid Streaming (Non Time-Limited) or Ad-Supported Downloads

Unclear how (or if) residuals for these uses are paid, because the deal seems to assume that all streaming is ad-supported or for a limited time (in the latter case, it would be paid under the rental formula) 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. These provisions, I believe, were 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, but this is an unlikely scenario on the Internet. Such a business model might be more common cell phones – i.e., the user could pay $5 extra per month on your cell bill and get unlimited comedy clips.

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

Other Issues

Contract Expiration

May 1, 2011 – synchronizes with likely SAG (and announced DGA) expiration of June 30, 2011. This arguably increases the WGA’s negotiating leverage, because it allows for the threat of concurrent WGA and SAG strikes; but, on the other hand, it eliminates the WGA’s opportunity to easily interrupt the fall TV season mid-stream or implode the 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.

Cable Minimums

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.

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. The WGA deal on favored nations is apparently a handshake deal.

However, the issue may be academic – AFTRA 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 Technology-Related Issues

The parties established a committee to address the reuse of movies and TV shows on alternative digital broadcast channels, which are new channels such as LA ch. 4.1, 4.2, etc. (controlled by ch. 4) which are broadcast digitally in spectrum space used for digital transmission.

The parties also agreed to meet on a company-by-company basis to discuss electronic data transfer of residuals information. The companies first expressed the intent to move to such transfer (as a replacement for the paper transfer of information that then has to be rekeyed by the Guild) more than ten years ago, so it might not be realistic to expect a change in procedure anytime soon.

Foreign Remakes of TV Series

The parties added a new sideletter setting out residuals for foreign remakes of U.S. TV series.

Other

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

Reality and Animation Jurisdiction

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

DVD Residuals

The WGA several months ago abandoned its demand to double the home video residual rate, so it remains the same as always: 0.3% of the studio’s gross below a certain threshold, rising to 0.36%. No change from the previous version of the contract, and no difference from the DGA. Note that SAG considers this issue still on the table for its contract negotiations, as of their last published statement on the topic, a couple weeks ago. I have argued that this decision by the WGA was a mistake for writers; see Slipped Disc: Why DVD Residuals Still Matter – and Always Will (http://digitalmedialaw.blogspot.com/2007/11/slipped-disc-why-dvd-residuals-still.html).

Bargaining History

Ambiguities in the Guild agreement (MBA) are usually resolved, or at least addressed, with reference to bargaining history, composed of notes taken or exchanged during formal negotiations. However, since much of the 2008 deal was worked out in informal sessions, it’s unclear how much bargaining history will be available as disputes arise.

Administration and Enforcement

As the complexity of the new media provisions suggests, this deal is going to be very complicated to administer and enforce, notwithstanding the transparency provisions. Expect 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.

Format of Contract Language

Interestingly, the new media provisions of the MBA continue to be contained in two Sideletters buried at the end of the contract. This will seem increasingly peculiar as the Internet grows in importance.

Strike Termination Agreement

There is a separate Strike Termination Agreement that deals with return to work and extension of personal services agreements, among other issues.

Talent Managers and Two Sets of Supremes

The U.S. Supreme Court hears a tiny number of cases per year. Ditto the California Supreme Court. So, when someone feels wronged, and wants to take a case "all the way to the top," the hardest part of their job is just getting a Supreme Court - of either flavor - to even take the case. Actually winning the case is almost an afterthought.

Looked at in that light, Hollywood's talent managers have scored a double that actually amounts to two home runs. A U.S. Supreme Court case decided yesterday, joined with a California Supreme Court decision that's just a few weeks old, create a new world for managers.

The source of the managers' discontent has been the California Talent Agencies Act, which bars managers from procuring employment for their clients. That function is reserved by law to licensed talent agents -- but, in reality, managers do it every day as well.

That's what the client usually wants. But when disputes arise between manager and client, the manager would be caught in a vice: the California Labor Commissioner, which enforces the act, has frequently allowed the aggrieved client to recover all fees ever paid to the manager (or, at least, paid within the applicable statute of limitations), including fees that were unrelated to any procurement of employment. That gave the client enormous leverage.

Three weeks ago, the balance shifted: In Marathon v. Blasi, the California Supreme Court decided that a near-reflexive policy of disgorgement of all fees was not supportable. Instead, the Court stated that the doctrine of severability could be applied -- the prohibited aspects of the management agreement (procurement) could be severed from the permitted (advice, counseling and the like). Thus, the Court said, "For the personal manager who truly acts as a personal manager, however, an isolated instance of procurement does not automatically bar recovery for services that could lawfully be provided without a license."

That's not an unadulterated victory for managers, but it's pretty close. In practical terms, the client's nuclear weapon has been reduced to a mere handgun.

And now the U.S. Supreme Court has weighed in. In Preston v. Ferrer, decided yesterday by an 8-1 vote, the Court examined a management contract between a TV judge and his manager. The TV judge - who was formerly a real judge - alleged that the manager - who is also a lawyer - acted as an unlicensed talent agent (i.e., procured employment).

It goes almost without saying that both the entertainer-judge and manager-lawyer had lawyers of their own to argue the case before the Supremes -- judges who once were lawyers, and who are aided by law clerks, which is to say, elite law school graduates who are not yet practicing lawyers.

With all these lawyers in the mix, you might expect there'd be something interesting in the management contract, and there was: an arbitration clause, which provided that disputes regarding the contract would be heard by a mutually-selected private arbitrator, which implies that such disputes would not be heard by the Labor Commissioner. This provision favors the manager, since the Labor Commissioner tends to be pro-talent (as noted above), whereas a private arbitrator is usually an attorney (again!) and thus has a more corporate and "pay your fees" mindset.

So, on the one hand, we have a state law (the Talent Agencies Act) that provides that the Labor Commissioner handles disputes alleging that managers have acted as unlicensed talent agents, and on the other hand, we have a contract provision that says an arbitrator should decide. State law trumps contract, right?

Wrong. That's because there's a little-known federal law called the Federal Arbitration Act that establishes a national policy favoring enforcement of arbitration provisions in contracts. And, say the (federal) Supremes, that policy means that a contract can displace not only a court, but also an administrative agency (such as the Labor Commissioner) from jurisdiction over a dispute. In other words, federal law enables a contract to effectively trump state law.

The take-away for managers: include an arbitration clause in your management agreement. A severability clause is important as well. The take-away for talent: be sure your manager-to-be is reputable, and get the agreement reviewed by a lawyer before you sign.

The take-away for everyone else: what a tangled web arbitration has become! And btw, it's not clear to me whether yesterday's ruling undermines the California state court rulings I blogged a few months ago, which limited the enforceability of arbitration clauses against consumers, employees and other just plain folk. For more on this subject, take a look at the client alerts listed in the first paragraph of this item: http://troygould.com/index.cfm?fuseaction=content.contentDetail&ID=8835&tID=303.

Format War Over: Toshiba Drops HD DVD

It's official: Toshiba has discontinued HD DVD, reports Variety Asia. That's the end of the format -- Toshiba is the owner of the format -- and of the high-def DVD format war. The move follows a string of recent setbacks for HD DVD, and should give a boost to that format. It may also delay adoption of Internet downloads as a format, at least until there's a better way to get Internet content onto TV sets. Blu-ray wins - unless the Internet does.

Blu-ray Wins

In the presidential campaign, the battle between blue states and red states hasn't yet begun, but in the DVD format wars, there's finally a victor, reports the New York Times (although the LA Times is a little less certain), and it's blue. Blu-ray, that is.

HD DVD suffered a quick succession of body blows: Last year, Target stores dropped HD DVD (though Target still sells the players and discs online ). Then, in the last six weeks, Warner Brothers, Best Buy, Netflix, and yesterday Wal-mart, in a coup de grace, each abandoned the format.

A question worth asking - and neither article does - is why Blu-ray prevailed. Perhaps because the discs have greater capacity, perhaps because the format (my sources tell me) have better technology, or perhaps even because the name is cooler (never underestimate the power of branding).

The other question, for Blu-ray and its backers, is how much of a window of opportunity they have to push their wares. On the one hand, many consumers may see little reason to upgrade their players and libraries for only an incremental improvement in quality. And on the other hand, digital downloads are growing in popularity, albeit slowly. The Blu-ray hardware companies will have to reduce their prices, and the studios will have to do likewise with disc prices, if they want to overcome consumer resistance, and establish significant market share before downloads become a real threat.

And not to forget the just-settled writers strike, the battle between discs and downloads will have an effect on writers residuals. See my article on DVD residuals and my analysis of the WGA deal (note discussions of download residuals and DVD residuals).

Meanwhile, Toshiba, the primary backer (and owner) of the HD DVD technology, is apparently not expected to withdraw the technology anytime soon - Microsoft still supports it, as do three studios - but the format war is over. According to the NY Times, Toshiba execs wouldn't even return calls.

Loopy Hollywood Accounting on Lord of the Rings?

Is it the same old line from New Line? The Tolkien Trust thinks so.

That org, a charity controlled by the heirs of J.R.R. Tolkien, has sued New Line for $150 million, alleging that the studio failed to pay a 7.5% gross profit participation due on the three "Lord of the Rings" films, report Variety and The Hollywood Reporter.

Those films have allegedly grossed nearly $6 billion worldwide, yet New Line has paid no gross participation at all, says the legal complaint. The suit also seeks punitive damages, and the right to terminate New Line's rights in the Tolkien properties.

That last remedy would endanger New Line and MGM's planned feature "The Hobbit," which is to be produced by Peter Jackson, who directed the "Rings" films.

The Tolkien Trust (which is joined in the suit by the publisher HarperCollins) is not the first to complain that New Line's profit accounting is as fantastical as the films themselves. Jackson, for one, sued New Line on those grounds. That suit settled in December.

And producer Saul Zaentz sued New Line twice over profit participations. One suit is still pending. (It's not immediately clear to me how the other suit was resolved.) There's more: In two separate additional suits, Miramax and 16 supporting actors sued New Line as well for unpaid fees and/or profit participation, reports the New York Times.

Lord of the Rings? More like "Lord of the Lawsuits."

Where's the AMPTP? And Do We Care?

In a wonderful article, Variety summarizes the last few month of negotiation, and notes that "movement in the WGA talks began when Disney CEO Robert Iger and News Corp. prexy Peter Chernin got into the same room with Verrone, Young and Bowman" and engaged in informal talks rather than formal bargaining sessions.

In a separate Variety story, attorney Alan Wertheimer is quoted as saying "I hope that direct dialogue with the CEOs in the context of informal meetings can serve as a model for future bargaining."

All of which raises the question: are the AMPTP's lead negotiators relevant any more? (The AMPTP is the alliance that represents the studios jointly.) It seems that most of what they did was inflammatory (see the first Variety story above) and designed to derail talks, not get a deal done productively. Should they even play a role in the SAG negotiations? Or in the next round of talks three years from now?

Based on the evidence, I think not. Unless, that is, they change their style. There are rumors that the AMPTP head will retire soon - he's been on the job since the org was founded over 25 years ago - and perhaps his successor (who may be his current deputy) will adopt a different style of negotiating.

Of course, let's not be naive: the AMPTP execs report to - and do the bidding of - the media congloms. So, if those congloms want the AMPTP execs to be relevant and productive negotiating partners in the future, they'll have to issue new marching orders.

This article also appears on the Huffington Post.

Writers Deal: Analysis

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.

This article first appeared on the Huffington Post today.

Writers Deal: Details Emerge

NOTE - This article is superseded by http://digitalmedialaw.blogspot.com/2008/02/writers-guilds-east-and-west-held.html. Click on the link and read the newer article instead.

---------------

The Writers Guild held a closed-door meeting Friday with strike captains to brief them on the tentative deal. Here’s what a source inside the room told me:

The Meeting

About 250 strike captains attended. The confab was at WGA headquarters in LA. A written summary of the proposed deal was distributed, but copies were numbered and had to be returned. No word on what the members will receive prior to – or at? – the membership meetings tonight (Sat. night).

Ratification Process for New Contract

Under the WGA constitution and bylaws, there is a ten-day ratification process and an alternative, 48-hour ratification process. Guild president Patric Verrone indicated that there are burdensome logistical procedures required under the 48-hour process that make it impractical. Thus, they expect to use the ten-day process.

During the ratification process, people will be asked to suspend the strike and return to work pending the outcome of the vote. Many people at the meeting objected to this, and apparently are feeling pressured or even manipulated by the Guild leadership. Nonetheless, a back-to-work resolution is apparently part of the deal the Guild leadership agreed to.

Although people expressed criticism of the deal, my source believes it will pass.

New Media Residuals

Pretty much the same as the DGA deal, with a couple notable exceptions. One difference, as previously reported in the trades and elsewhere, is that the residual for ad-supported streaming is 2% of distributors gross, starting in the third year of the three-year Guild agreement. (For the first two years, the residual is a fixed dollar amount.) The other difference from the DGA deal relates to cable TV; see below.

The promotional window (during which no residuals are due) is still 17 or 24 days, as in the DGA deal, and the formula for paid downloads is unchanged from the DGA deal as well.

Cable Residuals and Minimums

Cable takes it on the chin, in two ways. First, the improved residual rate for ad-supported streaming (2% of distributors gross rather than a fixed dollar amount) applies only to network TV shows streamed on new media (the Internet or cell phones). In contrast, streaming of cable TV shows is subject only to the fixed dollar residual.

Second, 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 deal, it turns out, has only 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.

This 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.

New Media Jurisdiction

If a professional writer writes original programming for new media, the work will be covered by the Guild agreement, even if the budget levels for the programming are low. This is an improvement over the DGA deal, which covers original programming for new media only above certain budget levels. (Derivative programming for new media – i.e., spinoffs of existing TV shows or movies – are covered regardless of budget level.)

The proposed deal sets minimum compensation levels, though the minimums are not high.

Separated Rights

The proposed deal provides for separated rights in new media. See http://digitalmedialaw.blogspot.com/2008/02/whats-deal.html for an explanation of this concept.

Minimums

Various minimum compensation levels will increase by 3.5% or 3% per year under the proposed deal.

Clip Usage

There are some provisions regarding clip usage that apparently are not favorable to late-night TV writers.

This article first appeared on the Huffington Post today.

What's the Deal?

We haven't been hearing much detail yet on the WGA deal in process, but here are a few data points:

On ad-supported streaming, Variety says the deal is initially similar to the DGA deal - in other words, a fixed dollar residual. No word if the amount is the same as in the DGA deal, and it might be difficult to make the amounts match exactly, because the fixed dollar amount in the DGA deal is keyed off of provisions in the DGA agreement that may not be identical to those in the WGA agreement.

In any case, note that I say "initially" similar. The WGA agreement has a three-year term. Variety reports that for streaming occurring in the first two years of that term, the fixed amount would apply. In the third year, the residual would be 2% of distributors gross (i.e., the amount that the network receives). This is a great improvement.

In contrast, the New York Post reports that the deal on ad-supported streaming is altogether different: their sources say that it is a tiered system based on viewership (no word on how the tiers would work or what the payment amounts would be). They also say that the 17 to 24-day free promotional window (during which no residuals are payable) has been shrunk to 7 days.

I don't know which of these reports, if either, is correct. However, either one of these approaches would probably be a victory for the WGA.

Variety also reports that the WGA has obtained separated rights for programs created for the Internet. This technical-sounding provision, which has no analogue in the DGA agreement, means that writers could receive various payments if, for instance, material they create for the Internet is later turned into a TV show or movie. That's another win for the WGA.

I haven't heard reports of any other differences from the DGA deal, but no doubt there are some. Also, there are a miscellany of other issues that are WGA specific.

Just for fun, let's look back at the six "roadblocks" the AMPTP cited when it walked out of talks in December:

1. Reality jurisdiction. The WGA dropped this demand a few weeks ago.
2. Animation jurisdiction. The WGA dropped this demand a few weeks ago.
3. Sympathy strikes. Status unknown, but the WGA has probably dropped this demand.
4. Distributors gross as a basis for residual calculation. The AMPTP conceded this point for the DGA, probably as a result of pressure from the WGA strike.
5. Self-dealing transactions. The AMPTP gave the DGA some advances in this area.
6. Industry standards (requirement that subcontracted work be subject to terms of Guild agreement). Status unknown.
   

Favored Nations?

With a writers deal apparently in the offing, now's a time to pause and ask about favored nations. The questions are simple:

First, if the writers gain an improvement over the directors deal, will the directors "retroactively" get the benefit of the writers bargain? Maybe so - they may insist on it (note that their membership hasn't yet been asked to ratify their deal, and might refuse to do so without the retroactive improvements).

Indeed, the directors deal may contain a favored nations clause requiring that they be offered the improvements. ("Favored nations" refers to a clause giving the benefit of any better bargain reached with another party; it's a term from diplomacy, abbreviated from "most favored nations.") The directors deal executive summary that's been released doesn't mention such a clause, but we've not seen actual contract language.

Note, however, the directors deal is already out to the members for ratification, so the Directors Guild may have little leverage to insist on getting the benefit of the writers bargain if their contract does not have a favored nations clause. Of course, the idea of directors without leverage is hard to conceive.

Second, if the screen actors later gain an improvement over the writers and directors deals - and they've been hinting that they'll insist on one - will the writers and directors retroactively get the benefit of the actors bargain? The analysis is the same, but applies to both the writers and directors deals.

So, memo to the writers guild negotiators: if you want the best deal you can get, insist on a favored nations clause in your deal.

Recap: Investor Conference Call re the Strike

If you missed the call, here's information for replaying the recording, available until Feb. 8:

Replay phone number: 800-633-8284
International Replay phone number: 402-977-9140
Reservation #: 21370994

Also, over at Vallywood, Steve Diamond has generously posted a detailed summary of the call.

TiVo Trounces Dish Network

TiVo prevailed in part in its patent suit against Dish Network, sending TiVo shares up 29%.

Do You Yahoo!? Microsoft Does

Micrososft has made an usolicited offer to buy Yahoo!. Details are or will be available in your favorite newspaper or entertainment trade pub.