The Hot Blog

« Sunday Estimates by Klady - Nov 4 | Main | $.003 Held Hostage - Day One »

November 05, 2007

Why We Strike

I’ve embarked on trying to figure out a way to make the financial side of the industry unions clearer.

As amusing as it is to make jokes at the expense of the studio execs (as on SNL , when the studio head brought up the more than $200,000 per year that working writers average and was asked how much he made… “less than $20 million!”) and to throw that $200,000 figure at the writers.

But so far, the search for some clear financial answers is rather frustrating. The main reason is that the surface is accessible, but the depth on both sides is quite elusive.

On the producers/studio side, you can find out the theatrical box office gross and come up with reasonable estimates of the overall DVD gross return revenues for both TV and film. But when you start to dig for what costs and income are in detail, the vertical nature of these businesses make a fair assessment almost impossible.

And it’s not all that different on the writers’ side. You can figure out what money is flowing through the union, which coves the working rank and file. But the WGA doesn’t cover, for instance, the producer side of writer/producers. The truth is that most writer/producers are producers because they are writers, creating and “running” the shows. Yes, there is some blur. But when Larry David, for instance, made hundreds of millions on syndication and then DVD sales for Seinfeld, he was not making that money as a writer. But he made it – it was negotiated - 100% because of his writing.

The entire residual number for DVD/video for TV was just $13 million in 2006. One of the big things on the table is WGA asking to double that number, by percentage. And with the studios generating many billions on the sale of those DVDs, the idea of $26 million being a problem seems absurd on its face.

But if the studios are paying out billions of that income from TV shows sold on DVD/video to writers, who are making it as producers - not as residuals - how do you put that on the table?

Flip side… if you are looking at how Disney monetizes a movie… they are funding it one way, they are getting paid on advertising, they are getting paid on distribution, they are getting paid internationally, they are getting paid to sell the DVDs, they are getting paid for the DVDs, etc, etc, etc.

Since ’88, the ownership landscape has been changed significantly by way of changes to the law, as well as increased corporate consolidation. And the core of what this strike is really about is not the murky details of nailing down a contract, but the power that these vertically integrated companies wield as games players. And what is a contract but a tool to structure things so neither side can be, by their perspective, be taken advantage of?

It’s an odd thing, the idea of residuals. They are absolutely minor in the big picture. Yet at the same time, it is not untrue that studios are working on narrower margins now than they have since the launch of the DVD era. But who is to blame?

It was a major landmark in the history of television finance when Spielberg, Warner Bros, and John Wells held up NBC for so much to renew the smash hit E.R. that NBC would, for all intents and purposes, be unable to make a profit from buying and airing the show. NBC was willing to do it because the value of having the #1 show on their network was felt to be an engine for the rest of the network programming… and with NBC on top of the industry at that moment, losing the show would have been a potentially massive loss if the show spurred another network to be able to bring down NBC a few notches.

Spielberg and WB were “them,” but “they” were the conduit by which Wells was able to continue to build a massive fortune for his writing skills, as supplemented by his management skills.

Warners remains the one studio television producer without a major broadcast network directly affiliated with the studio. But they do have partial ownership of the CW and a series of cable networks that want and need feeding.

Flip to 2007 and take a look at the Law & Order franchise, produced by NBC/Universal and aired on NBC… but now, pushing one of the franchise spin-offs, L&O: Criminal Intent, in first run on the NBC/Universal-owned USA cable network. As a result, there are opportunities for the producers to reduce costs… though I don’t know whether they have in any substantive way. But NBC/Universal also gets the advantage, which cannot be quantified, of having an established original network series bringing its cache to a cable net.

So how does that get paid for? Dick Wolf is getting paid as a producer, not as a writer (he probably gets some tiny percentage of his income from union dollars for creating the shows and characters). His deal is not a union issue. When the DVDs for this season of L&O:CI go on sale, he will make a significant percentage of the income. And the writers on the series? Well… they are fighting to go from three-tenths of a cent on the dollar to six-tenths (3/5) of a cent. But for producer Universal Television, that is not an issue of paying a writer… they are already paying writer Dick Wolf something more than 300 times that residual. It is about adding up all the money after they have paid out all of their obligations.

And the same thing is going to be true of L&O and every other show as they stream on the internet, one way or the other. Whatever deal the producers end up making with the WGA, the real cost of those internet runs will be the deal they make with the major gross players on the shows.

And what is the network income from those reruns? Well, I would guess that right now the ads running on ABC’s free reruns online from Pfizer are little more than an added value for a massive advertiser. Yes, Pfizer wants the ads and they are certainly putting some dollar figure on them on paper. But ABC is a much bigger advertiser on those internet rerun pages than any sponsor who gets 3 or 4 30 second spots in the body of the rerun.

Acknowledging a dollar amount for the internet sector is a real problem for studios right now. The internet is a decade old and advertising models are still being futzed around with. The question of delivery technologies and how they will evolve and how they will grow or shrink audiences is a wide open conversation.

This doesn’t mean that they shouldn’t be paying for exploiting the work of individuals. But the “how” and “on what basis” is not a false challenge.

The bottom line is that the whole concept of residuals is actually quite flawed in the new economic era. We now live in the era of the Ultimate… the internal studio numbers that project lifetime revenue for each and every project they invest in.

It is nearly an absurd suggestion, but what the industry really needs now is union agreements much like the ones in major league baseball and football. The “Owners,” aka The Studios and Producers should have to distribute a certain percentage of the amount they will spend on production to the unions with significantly higher minimums for all working writers on projects of over $7 million in film and $250,000 in a TV half-hour and, for all intents and purposes, a luxury tax on the talent that gets paid significantly more than the rest.

The problem with that, of course, is that it means a fairly open system of spending, which no studio wants. And on the union side, it is nearly impossible because when you look hard at the numbers, you realize that it is the most successful writers who are taking the food out of their less-well-compensated brethren’s mouths, even more so than the evil bosses. Doubling residuals would be a walk in the park if studios weren’t paying out to writers as producers in record numbers. But as with the classic “monkey points” comment from Eddie Murphy, anyone who is making their money exclusively as a WGA writer is making “monkey bucks.”

Simply, it is the showrunners who are up in front on these negotiations who have the second most to lose from the strike and almost nothing to gain, as a percentage of their income, from the settlement. Their terms are not set by the Guild, but by their agents… who have the most to lose in this strike, since they make the most on television programming without making even the slightest effort beyond packaging the deals in the first place... by exploiting the talent they represent.

And if the studios had the balls to roll back the prices they are paying “producers” of shows, they could easily afford to pay the WGA demands without breaking a sweat.

Really… WGA signatories pay out under $300 million a year in residuals to writers. $600 million is not a huge amount on its face, when the amount that the Guild is getting paid on is well over $50 billion.

Like so much of this world now, it is not an issue of which side you are on, but to which class you belong.

No television writer in the upper class is ever going to live off residuals in any medium unless they are throwing away their money hand over fist. And as things are, no working writer in the lower class is going to make enough money in residuals to do anything more than subsist. (Love the story about Marc Cherry living on residuals when he almost left town pre-Desperate Housewives… but you can be sure that his raw, passionate, unflappable determination, not those residuals, is what kept him going.)

On the other hand, film writers simply do not have the opportunities to expand their empires the way TV writers do, Akiva Goldsman aside. There are plenty of writers whose incomes are being moved away from WGA deals into "producing." But feature writers are simply not valued the ame way as television writers, so again, a house divided.

Many of the high profile writers of films who you would think are making a fortune by any reasonable standard are not. And they are sitting next to some of the men and women who are making a fortune, seeking to find one clear solution to a million tiny little pieces of this industry.

Half the working writers in the WGA make over $100,000 a year. Financially, it’s a pretty great gig. And it should be even better. That middle class should be making more than $200,000 a year on average. The industry can afford it. But not when the above-the-line costs are so massive and designed to keep any projects from being “too” profitable for the studios. Yes, Virginia, the agents are that smart.

That is why the studios were proposing the end of residuals. It wasn’t because they were expecting a free ride. It was to establish stability. These corporations like fixed costs. They can adjust to whatever those costs might be – and have – but it is the unknown that makes corporations soil their shorts.

Don't get me wrong... "They" are still more than happy to rape and pillage all day long. But the only reason to simplify it to that is to rile up the villagers... most of whom are going to lose in this process.

So why is there a strike? Because people – however wealthy – tend to base their standards on improving their lot, not looking at the situation with any perspective. And that is on both sides of these negotiations.

In the end, the people who can least afford all of this fighting will not get the benefit of this strike because they are not much represented on either side. It is not the wealth… it is the distribution of wealth. Of course any form of use that isn’t paid for is wrong on its face. But the rules of NIMBY (Not In My Back Yard) are in effect… and no one wants to face that negotiation… ever.

Posted by poland at November 5, 2007 08:58 AM

Comments

Posted by: hendhogan at November 5, 2007 12:31 PM

Posted by: Direwolf at November 5, 2007 01:56 PM

Posted by: Tofu at November 6, 2007 08:51 AM

Posted by: David Poland at November 6, 2007 12:02 PM

Post a comment