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The Hollywood Guild Residuals and the Challenge of New Media

Jose Jehuda Garcia

© 2007 Jose Jehuda Garcia All Rights Reserved

I. Out with the Old

The entertainment industry changes through the evolution of technology as much as any

other industry. But one thing that will probably never change in the business of show business is

one of its many raw materials: creativity. The source of this creativity is often creative labor –

writers, actors, directors – collectively represented by three different unions or guilds: the WGA,

the SAG, and the DGA, respectively. And as of this writing, the collective bargaining

agreements for all three Hollywood guilds will all expire in less than 18 months. Thus, these

agreements will all be up for re-negotiation in the near term.

As technology changes the entertainment industry, it also changes our entertainment

choices. Wide-ranging trends prompted by new technologies that affect the delivery of

entertainment to the masses are already generating pressure among Hollywood’s labor ranks for

these changes to be reflected in their guilds’ contracts. But as profound as the industry-wide

changes are, the industry’s labor may not see its employment contracts change as profoundly just

yet for economic, political, and even cultural reasons.

A. Uncontainable Trends

Hollywood stands for many things. To some, it means fame and stardom; to others, it’s a

mere tourist destination. Still to others it is an elite group with significant political influence1.

Hollywood, however, is also a community of businesses dedicated to the manufacture and

John R. Emshwiller & Merissa Marr, Return to Treasure Island, Wall St. J., Mar. 17, 2007 at A1.


marketing of works of intellectual property2 which a great majority of the world enjoys as

entertainment3, namely movies and television shows.

Welcome to “Hollywood, Inc.” They don’t make the screens. They make what makes

staring at screens entertaining. Their product is, in fact, what the screens contain, i.e. content.

And you can find this content on different screens today: computer screens, TV screens,

cellphone screens, movie screens.

Indeed, entertainment content today can be enjoyed on multiple “platforms”; and no

platform seems to be lacking for some form of entertainment content. This is the result of

developments in digital technology which have made images and sounds portable, transmittable,

and storable in ways that were just unthinkable less than a decade ago. More and more people

can enjoy entertainment content not only wherever and however they want, but whenever they

want. How digital technology makes this possible is beyond the scope of this research paper;

but it is a fact that becomes more and more ubiquitous everyday, especially among the young

and hip4.

B. New Media: The Medium is the Business Model

1. New Business Models for a New Order

With the advent of digital technology, entertainment content has not only evolved, but

also seen the rise of more sweeping change. New technologies have always prompted

Hollywood, Inc. to catch up with the times, from the first time “talkies” appeared on screen to

the introduction of television as an entertainment alternative, all the way to the introduction of

Carl Diorio, Study: Showbiz Greatest Influence on Economy, Hollywood Rep., Mar. 1, 2007, available at
Gregg Kilday, ‘06 B.O. on the Up and Up, Hollywood Rep., Mar. 7, 2007, available at
Joe Morgenstsern, You Tube Youth, Wall St. J., Mar. 3, 2007 at P9.


the iPod alone – perhaps the most emblematic of all the new “platforms” – has 5 Brian Steinberg. digital media are upsetting decades-old business models in Hollywood5. and to watch TV shows without adhering to TV network schedules11. et al.businessweek. The changes have been fundamental enough to change our culture in tangible ways.html (last visited Apr. Mar. 28.the DVD as a home video alternative. 10 Mike Snider. available at http://www. Just as remarkable is the fact that a significant segment of Hollywood’s audience does not require TV sets to enjoy movies or TV shows at all. To illustrate. USA Today. and “portable devices” to be desirable “platforms”.com/TERM/N/new_media.webopedia. and consumed today – via digitalization – have transformed all sorts of media businesses worldwide in one way or another. Apr.wsj. But the resulting array of new audience habits is also testing the Hollywood industry. 2006. delivered. Feb. Can Mad Ave. Long in Decline. 2007)... available at http://www. Indeed.. Wall St.htm. Gerry Khermouch. 8 “Streaming” is generally understood as playing audio or video directly from a remote server. 21. Indeed. people today listen to MP3’s and “stream” videos on their computers8. 9 The Glossary for Internet Service Providers. 23. 6 Ethan Smith. 2007.html. the young are not the only ones who find computer monitors. Mar. Plunge Sharply. http://isp.usatoday. 2. 3. digitalization has made it possible for more and more people to enjoy Hollywood movies in their homes. BusinessWeek Online.. Questions for Jack Kliger: Moving Magazines Out of Print World to Strictly 3. 2007 at B4. 7 Brian Steinberg. without saving the audio or video on one’s computer. from the music recording industry6 to the newspaper and magazine businesses7. there is a new buzzword out there that the entertainment business itself has had to adopt: new media9. 2007 at A1. In fact. Wall St. In fact. available at http://online. J. New Tack: Mini Programs in Ad Breaks. Tom Lowry. Sales of Music. 11 Ronald Grover. For example. J. Make Zap-Proof Ads?. cellular phones. 3 . Video Slips as DVD Market Matures. the new ways in which entertainment content can be produced. 2004. But it could safely be said that technological changes in the field of media are occurring faster – and cutting deeper – than ever before.. Wall St. Jan. away from movie theaters (the DVD movie market is three times as big as the theatrical movie market10).

engadget.. available at http://www. lessons which might be derived from the music industry’s evidently unsuccessful17 search for new business models to go with this new order. And yet.reportedly sold more than 100 million units12 (some iPod models can play audiovisual content). Inc. 2006. The Hollywood Rep. 7.. to heed.. 28. it is not done changing. ENGADGET. And then there are those who prefer their computers to their TV’s at any given moment16. Microsoft: 1 Million Zune Sales by June 2007. http://www. The Hollywood Rep. more commonly.hollywoodreporter. The technology to turn music singles into digital files transformed the music industry in less than a decade.hollywoodreporter. as a former record store owner recently described in a newspaper editorial: 12 Nick Wingfield. Mar.hollywoodreporter. And there are lessons in its experience for Hollywood. Dec. 2007. 2007. GearEye: MSNTV 2. 14 Ryan Block. 2007 at B3. They are either surfing the web on their TV screens14 or. 17 Lars Brandle. 4 .com/hr/content_display/business/news/e3i951a9dcfb18869facfc6c7df61a61d5c.html . Hollywood Too Often Misses the Moment. available at http://www. 2007. 13 Elizabeth Montalbano. and Microsoft predicted late last year that it would sell one million of its new Zune digital media players by mid-200713. 27. msn-tv-2/. available at http://www. Much of the change was brought about by the RIAA itself – the trade group that represents the recording industry in the USA – in the way it chose to react to the rise of the MP3 music file and the internet. 19. 2004. Apr 10. EMI Music Revenue Shrinks by 15%. a) Sounds Like A New Order This level of social change signals the rise of a new order. Inc. Apple Says 100 Million iPods Sold. Networkworld. Much of the change has also been destructive. 6. Apr. playing videogames on them15.networkworld. The Hollywood Rep. but it is not entirely without precedent. 15 Videogame Homes Topped 45 Million in ’06.. many of those who are still staring at TV sets for entertainment are not staring at them for TV show or movie content. ignores these lessons at its peril. The music industry has been struggling to adapt to a new Sept. 16 Steve Bryant. The Wall St. http://www. J. At the same time.

the state of television The N.. 2007. b) Is Hollywood Listening? For Hollywood. but the labels themselves. And today it’s not just record stores that are in trouble. Apr. Instead they killed the album. 5 . 5. Cross-platform portability. Not to mention that it allows the viewer to do away with the heart of the TV business 18 Tony Sachs & Sal Nunziato. and what the new business models will turn out to be remains an open question. Is the Concept of the Channel Over?. 20 Michael Masnick. EMI to Sell Music Without Anti-copying Software. And impulsive industry reactions to these emerging models have been counterproductive.shtml. which was once considered by the music industry an undesirable accessory to online music piracy. the relevant business models are still evolving. As of this writing. J. Instead it killed the compact disc. TECHDIRT. The rise of the DVR is making TV networks and channels irrelevant20. 2005. Times.html?ex=1177646400&en=1a1d0ffa332808b1&ei=5 070. Take for instance. It gets the content you want without you having to look for it or stand by for it. It is simply delivered to you based on your preferences so you can enjoy the content whenever you want. The [RIAA] wanted to kill Napster. many recording industry giants are still mulling whether to protect MP3’s with anti- copying software or to discard it in order to enhance the portability of MP3’s across different platforms. June 23. Without a doubt. the new order in the music industry has not yet consolidated itself. A DVR is more like a blog reader on a personal computer.”18 Apparently. a new order has also arrived. 19 Ethan Smith and Nick Wingfield. Spinning Into Oblivion. 1. Apr. http://www. 2007 at B5.techdirt. The Wall St. now belatedly embracing the Internet revolution without having quite figured out how to make it pay. Inc. “The major labels wanted to kill the single. this new order is yet to consolidate is now regarded by some as an aide to the effective marketability of MP3’s19. As in the music industry.. available at http://www.

Inc. http://investors. Inc. content online exists.99 cents for an MP3 file. and the results are perhaps proof that Hollywood. 6 . While there are some indications that copy protections may hamper sales of digital content – even as they reduce widespread piracy – if there is widespread piracy. 2. 2007. The potential loss to the industry from such copyright breaches is estimated at $7 billion dollars worldwide21. The 21 Brian Degon. no new technology can be exploited as a dependable source of income.model since its inception: commercial advertising. needs to think of new media in a totally new way. Another instance of the unpredictability of business models that is more closely aligned with the current experience of the recording industry is the one involving the already widespread availability of pirated movie and TV show content over the internet. i. Hollywood Reeling from Illegal Movie.e. then there must be a market.e. the demand for Hollywood. The genie is indisputably out of the bottle. what is the sort of value Hollywood. And without a business model. Inc. it is not necessarily so.asp?artsec=17&issue=20070402. but that it very likely should not. can deliver online that the market is willing to pay for? Business models cannot be developed if that question is not first answered. Apr. Digital media is perfectly portable across multiple platforms because – absent copy protections – it can be perfectly copied. Investor’s Business Daily. It is thus a question of economics. While successfully meeting this challenge may seem impossible in the short term. i. TV is without a doubt undergoing substantial change. TV Downloads. there is one successful business model for the new order that Hollywood seems intent on adopting. Selling New Media in New Ways A successful business model for the new order might be found in Apple’s iTunes Music Store. Ironically. a website which has proven that millions of people will pay .

24 Simon Aughton. Oct.3 million iTunes Movie Sales.slyck. 22 Thomas Menecke. In contrast. http://www.’s major content producers – Disney – to be played only on Apple hardware with Apple software. And this sort of success is an easy illustration of the nuances of supply and demand. while Apple is an example of a successful approach to the new order. Inc. but in the business of making the content itself. 7 .html. SLYCK. iPod sales are likely so plentiful22 because the content sold through the iTunes website can generally be played only using Apple software and mostly on Apple-made hardware. is not in the business of making hardware or “platforms” for any entertainment content23. needs. Understanding Apple’s accomplishment prepares us to understand the nature of the need for a new Hollywood business model that can be successful in the new order. and revenue stream seem to be big enough to at least make a hit of Apple’s iPod portable devices. For Apple is not so much selling content as it is selling platforms. Inc. one for which it also happens to sell content.html. Apple. whose business was focused for decades on the sale of computer hardware. Inc. The proof is in the The iTunes Music Store itself. 5. has evidently – and predictably – developed a business model for the new order geared towards selling more which also sells TV shows and full- length feature films from one of Hollywood. Apple saw the demand for portable entertainment and it supplied it with a portable platform. Hollywood. But while Disney has sold at least 1. 23 An exception comes to mind: Sony Pictures Studios.pcpro. Therefore.3 million movie downloads since it entered the iTunes market in late 2006 (at prices similar to those of DVD’s). available at http://www. Disney Clocks 1. iPod Sales Help Apple Soar. according to some these figures do not amount to a significant revenue stream for Disney24. it is not necessarily an example of the new business model Hollywood. namely the iPod in its different iterations. Feb. 2007.

it does not follow that limiting portability will work for the studios. Apr. or phonelines when it comes to delivering movie downloads. is so pervasive that it evinces a high level of demand for Hollywood content rtner=rssuserland&emc=rss. Some officially-sanctioned online movie content. The reason is the fear of piracy. 26 Brad Stone. Inc. 27 Saul Hansell. The Wash. Software Exploited by Pirates Goes to Work for Hollywood. Piracy that. The N. Indeed. let alone embrace a new market.Y.Y. the major studios just do not want to supply the existing demand lest they sow the seeds of greater digital content piracy25.html?ex=1330059600&en=7b224e0313e84cff&ei=5088&par tner=rssnyt&emc=rss. But judging from the few online movie download ventures of At Last. And still. again. 2006 at F07. Times. Post.nytimes. bandwidth. Considering that the studios are not paying for packaging. 25. Inc.’s current online operations. eliminating online piracy – rather than selling content online – is the priority26. The N. available at http://www. One could argue that is the wrong way to embrace this emerging new order. Movies to Keep Arrive on the Internet. as they might feel the price is not worth the product. it is easy to see why some people would rather download their movies illegally. available at http://www. 3. Compare that to a DVD for less than $15. actually costs more than the DVD version. for example. The cause for such trickling revenue might be precisely one of the central aspects of Apple’s iTunes business model: the limit on portability of content. 2006. which you can play on a computer and on your DVD player at home or on a portable DVD player while traveling. Times. Movielink and CinemaNow: Hardly Worth the Effort.nytimes. When one considers 25 Rob Pegoraro. 2007. Feb. yet embodies less value than the DVD: $20 to $30 for a new movie that can be played only on a computer27. May 14.’s own creation. recent developments in online content marketing make it clear that for Hollywood. these limits on portability are in fact central to almost every one of Hollywood Inc. While limiting portability works for Apple’s business model. 8 .

There is too much at stake and some accommodation will eventually result that will likely revolve around the question of emerging business models. That can only lead to failure29. I want to give a copy to my brother. Digital convergence is supposed to make things like this easier. one might conclude that if the major studios are supplying the online market with some product or service.” he said. The market is looking for more than content availability and they are willing to pay. That Hollywood.portability and pricing factors such as the above. a clearer picture of what sort of supply the entertainment market demands today emerges. they are not supplying the product or service the demand in that very market requires. through the decades. What is less certain is who in the industry will partake from any revenue that flows therefrom. I want total portability. at the very least. As an anonymous 36-year-old San Franciscan recently put it in a New York Times Article: “The sad thing is. a PhD in economics is not required to venture that Hollywood. as technology has changed the way entertainment content is delivered. “I’m not interested in renting a movie. Inc. supra note 25. the problem is complex. might be approaching the problem the wrong way. can thrive in the midst of such profound structural changes should not be doubted. It cannot be just about putting content online if one is to compete with pirates. I want to own it. it’s not about the money. 28 Brad Stone.”28 When the movies people most want are not made available by the supplier just the way they want them. This is a question that the entertainment industry has grappled with periodically. Inc. 9 . given that they are in the business of selling movies. Without a doubt. Thus. [not] harder.

with studios and networks characterizing such uses as promotional and excluded from current collective bargaining agreements. which are paid on reuse of content material) from most of the novel distribution methods that new media makes possible. July 1. talent is often refused any payment [of residuals] for [most] entertainment content that is re-used over the Internet or on mobile platforms like cell phones. They are collectively referred to as the “WGA” from here on. “[T]o date. 30 Both WGA guilds negotiate as one entity. It all started in 1941. 10 . And the creative lifeblood of that workforce – the writers. available at http://www. C. This is an old collective bargaining battle in a whole new form.”31 The one exception is the rental of movies to watch over the internet. as the DVD market might make evident) it does not follow that the same goes for Hollywood’s unionized writers. and directors whose talent and effort are inseparable from the content production process – is thus faced with an important challenge of a socio-political nature: how to become part of Hollywood’s emerging business models without getting run over by them. it follows that its workforce is as well. actors. This is something the guilds aim to change. with radio. 2006. for which residuals are paid under an MBA “Sideletter” provision which is described in more detail below.htm?campaign_id=rss_tech. SAG. and DGA respectively – do not contemplate a right to profit-sharing (via residual payments. BusinessWeek. actors. Movielink on the and directors. That is because their collective bargaining agreements – negotiated through their representative guilds: the WGA East/WGA West30. While the possibilities of delivering content in a new media world represent potential new sources of revenue for their employers (even when these sources “cannibalize” others. A Revenue Stream Runs Through It If a business community is enduring change. When radio artists saw that what they recorded in New York was being rebroadcast 29 Ronald Grover.

’s discovery and exploitation of a never-before- seen revenue stream. But ever since. prompted by Hollywood. 2007). 12. 34 Michael 33 Residuals Survival Guide. with the year of 1953 marking the first time writers got the right to such compensation. about eight months sooner than the MBA’s between the AMPTP and the other two guilds. there were no aftermarkets in which to re-use Hollywood Thus. TV Watchers Can Tune in to Wider Selection of Channels. Before there was television. it was not until the early 1950’s that the WGA first saw itself negotiating for residuals. Residuals.three hours later on the West Coast. Mar. Esq. The WGA sought the right to residuals believing that re-using content would result in “less employment for new product” the next round of talks between the WGA and the AMPTP will start soon. available at http://www.wga. Inc.’s collective bargaining representative – the Alliance of Motion Picture and Television Producers (AMPTP) – is less than seven months away from expiring. especially TV screens (just think that there could be more than 300 cable channels being delivered to millions of homes in the USA alone. 27. 2004. The idea arrived in Hollywood about a decade later. that there is a never ending need to fill up screens with content.. Inc.wga. That same reasoning may no longer apply. The stakes are high 31 Carl DiOrio. with the evolving uses of a new technology often at the center of negotiations35. . the WGA Minimum Basic Agreement (or WGA MBA) with (last visited Apr. 19.aspx?id=133#2. The Hollywood Rep.jsp?vnu_content_id=1003560028. 35 Wga. Apr. SAG. the same battle repeats itself. 32 Museum. http://www. 24 hours a day34).aspx?id=133#2.usatoday. http://www. Consequently. USA Today. WGA Strategizing for AMPTP Talks. There are so many different outlets for the distribution of content these days.’s entertainment content. The Case of the WGA Minimum Basic Agreement As of this writing. Residuals Survival Guide.htm. available at http://www. 11 . they collectively demanded residual compensation for that reuse32.hollywoodreporteresq.

Achieving clarity on the business model question will help the guilds and the AMPTP agree on a residual formula for new media uses down the road.variety. If no agreement is reached before the current one expires – and if the parties don’t stop the clock or agree to extend this deadline – either a strike or lockout could result36. new media business models for Hollywood. available at http://www. 38 Dave McNary. July 23. Establishing these revenue streams is a matter of economics: what to supply in order to meet the demand which evidently exists as the rampant piracy of content has made ‘Model’ Scribes Walk Strike Runway.for both parties. health plans. But as described above. To be sure. 12 .html?categoryid=1066&cs=1. Inc. the other one is compensation for new media uses of entertainment content39. Daily Variety. if you include the WGA’s recent efforts to unionize Reality TV writers38). This fact alone represents a significant obstacle to an expanded agreement on new media residuals. and pension funds37. are likely not yet fully gestated. and which the other two guilds are quite interested in discussing with the AMPTP. 37 Carl DiOrio. And the WGA has plenty to talk about with the AMPTP. besides the perennial labor issues of minimum compensation. as profit-sharing cannot occur when revenue streams are unstable or do not exist. some progress in the area of residuals for new media uses has already occurred. Article 7. A recent example of such progress is a separate deal the WGA and DGA have made with CBS providing for basic pay and limited residuals from certain video segments made 36 2004 WGA MBA. 2006. which is the subject of this paper. There are two concerns of more recent vintage certain to be raised during the upcoming round (three. which all three guilds unsuccessfully tried to obtain three years ago. as well: one is an increase in residuals from DVD sales.supra note 30. And although answering this question may take years – as the music industry has discovered – that does not mean that successful new media business models do not currently exist.

http://www. on the other hand. Soap Webisode Deal Could Influence Coming Guild Talks. Apr. described in more detail below. Basically.000 Canadian performers) and the Canadian Film and Television Producers Association (does not apply to the major studios of Hollywood. 43 Ethan Smith and Nick Wingfield. But change in the industry’s collective bargaining agreements will occur because the industry has changed. supra note 30. Inc.)41. 2007 at D9. 13 .. 1. The Wall St. 9.hollywoodreporteresq. digital content can be played on multiple platforms – from computers to cellphones to other portable devices (although oftentimes digital content is limited to only one platform to prevent illegal copying43).6% of gross distribution revenue have recently been agreed to as part of a collective bargaining agreement between ACTRA (which represents 21. The Wall St. All the relevant issues are further complicated by the portability of digital files across an assortment of content Could a digital content provision include such compensation? After all. We are only starting to see the contours of the next big thing. For example.. because as much as the industry has changed. Esq. 2007.42). J. J. Inc. no agreements whatsoever yet exist in regards to residuals for cellphone use of content (and yet. 42 NBC Plans On Demand TV for Cellphones. In Canada. the when and the how cannot be easily predicted at this point in time. 15. it remains in transition. And perhaps even more impressive is a provision within the current WGA MBA itself: one of the MBA “Sideletters”. Mar.specifically for internet viewing (also known as “webisodes”)40. Nevertheless. new media residuals of 3. emerging revenue streams are terra incognita by definition. 40 Carl DiOrio. The Hollywood Rep. EMI to Sell Music Without Anti-copying Software.jsp?vnu_content_id=1003556235. 39 Carl DiOrio. this type of distribution channel is already exploitable by Hollywood. 41 Id. Mar. It is only a matter of when and how. 2007 at B5. How much more progress will be made once the round of talks begins is anybody’s guess.

These factors fall into two categories: those related to Hollywood industry practice and those related to law. negotiating for online content residuals is of little use. A. but very narrowly. already addresses the issue of online content. which gives WGA members the right to 1. 1. 418. multiple platforms must involve multiple business models. Current Industry Practice The practice factors one might want to focus on to get an idea of what is to come are (1) existing WGA MBA provisions in regards to online content. Pg. Existing WGA MBA Provisions Related to Digital Content The 2004 WGA MBA. And that is the central issue that new media raises: what will be the new order of business models that will evolve from all this change? Until that question can be answered. there are some factors which – when seen collectively – could help one make an educated guess about what the guilds can expect of this year’s negotiations.2% of 100% of a production company’s gross on the rental of movies watched over the internet44. By implication. (3) the peculiarities of “pattern bargaining”. (2) the unpredictability of emerging business models. Exploring them in some detail will be of aid if one is to understand the issue more specifically and attempt to envision what the future may hold in this regard. the current agreement. It does so in the First Sideletter on Exhibition of Motion Pictures Transmitted Via the Internet. not just vis a vis their members’ employers but also in regards to a world where the internet is as common and pervasive as the very air we breathe. and admitting it might be too early to predict what might result from the upcoming round. Given this entanglement of multiple questions and interests. That is 44 2004 WGA MBA. 14 .

html. 46 Craig Mazin. 49 Eric J. There are yet no provisions covering residual compensation for movies sold and delivered via the internet. MIP. available at http://www. J. This reasoning. 2007.52 The studios argue 20% is what is left in home video revenue after they pay a 25% fee to distributors and 55% in distribution expenses53 (never mind that the studios have their own home video distribution operation54).generous compared to the residuals paid for DVD home video. Article 51. 2007). The Hollywood Rep. Lyman & Scott Roxborough. 47 Julie Angwin & Brooks Barnes.jsp.mecfilms. 52 Craig Mazin.hollywoodreporter. supra note 51 Residuals for the telecast of TV show re-runs are generally governed by Article 15B of the WGA MBA. but such a right is likely to be addressed in upcoming negotiations46. 2007 at D9. 48 NBC Plans On Demand TV for Cellphones. 16. The Wall St. NBC: iPod Boosts Primetime.jsp?vnu_content_id=1003572762. which have a base rate of 20% of the relevant gross45. For many years. News Corp. available at http://www.. have stood by their position of refusing to pay DVD and VHS home video residuals on more than 20% of their home video The Average Writer's Non-Biased Guide To The Upcoming WGA Negotiations.tvweek. 1.htm (last visited Apr. Online DVD Shop.. 2007. Feb. however. Inc. Mobile TV a Hot Ticket in Europe. 2006. Plan Online Video Venture. 50 Daisy Whitney. the major studios of Hollywood. Frequently Miscontrued Terms Relating to 18. 15 . 23. 53 Mecfilms. 54 Warner Bros. The Wall St. But how agreeable the studios are likely to be in regards to residuals on the sale of downloadable movies or internet reruns of TV shows remains an open question. Jan. 27. 15. J. Mar. TV Week. of course)47 and over cellphones48 (with varying business models49) – not to mention downloading entire TV shows to watch on an iPod or computer screen has been possible for some time now50 – the issue of residual payments for such re-use of TV content is bound to be discussed during the upcoming round as well51. 2007 at B3. 2007) http://artfulwriter. 27. Mar. http://www. THE ARTFUL WRITER. cannot be applied to distribution 45 2004 WGA MBA. NBC. As more and more major broadcasters make entire episodes of hit TV shows available for play over the internet (with commercials. (last visited Apr.

org.html?ex=1302408000&en=68d8f1ba0d341e25&ei=50 88&partner=rssnyt&emc=rss.wga. This part of the MBA covers re-use in “interactive programs”. a term which by its contractually agreed definition refers only to videogames and is therefore not relevant to this discussion.aspx?id=1651 (last visited Apr. 56 Carl DiOrio. while certainly not as well-positioned as advertising on actual television broadcasts.via the internet (and the WGA is not likely to accept such terms either55). which might offer an open for the guilds as they negotiate for new media residuals. Article 51 provides for residual compensation from movies 55 Wga. there is little the studios have to spend in terms of internet distribution. But then there is Article 51 of the MBA.b. 58 Julie Bosman. 57 See 2004 WGA MBA 15B. They do not install or maintain the telephone and fiberoptic lines through which internet content 27. Apr. residuals for them could be paid under terms analogous (but probably not equal) to those for re-runs on free television57 if broadcaster’s websites evolve into the cyberspace iteration of their TV networks. Nevertheless. As for TV show re-runs on the internet. could still generate some significant income for broadcasters and mitigate the impact of any residual concessions (TV re-run residuals are not paid based on gross ad revenue59).(2). Catch “Lost” Online.1. 2007).org/subpage_newsevents.Y. Perhaps that is why residuals on internet movie rentals are being paid on 100% of revenue. http://www. WGAE / WGAw Joint Reaction to Digital Download Residual Rate. the studios had the opportunity to agree to similar terms in negotiations with ACTRA…and they refused56. available at http://www. Such advertising. supra note 39. Another provision of the MBA that touches on the subject of digital content is Article 64. The N.nytimes. This is even more probable if internet play includes commercial advertising which could be incorporated into unavoidable built-in commercial breaks inside on-demand content (in addition to website banner ads)58. Times. Soon. 2006. a Day Later. 11. Except for the digitalization of their movies (which one might suppose has already been carried out if the movie is available on DVD). 16 .

Verizon’s Network Bet Relies on Games. the unpredictability of a still-emerging business model has to give the entire industry (both employers and employees) some pause.c 17 . the internet is beyond the scope of Article 51 because the provision’s language is platform-specific. 2. Profit margins in the movie business are not what they used to be and there is uncertainty about the future. Mar. Article 51 also states that the premium cable and pay-per-view systems that are considered supplemental markets are those “which exist in the industry today and are commonly understood in the industry today to be pay television systems”62. pay-per-view. it could be only a matter of time before Article 51 includes at least some online content by default.. Letting Emerging Business Models Emerge Taking into account the current economic climate in the entertainment business. Given the way trends are heading. 62 2004 WGA MBA. Article 51B2. Not to mention. As for the latter. in digital form) to compete with cable providers on their own turf61.shown in “supplemental markets” which – as defined therein – include only DVD. at A1. will not be in the most generous of moods during the upcoming round. The Wall St.B. online sales would in theory be covered. In regard to the former. 60 2004 WGA MBA. though what constitutes a supplemental market under Article 51 is expressly defined and enumerated.e. at the most basic level. one might expect the major studios of Hollywood. premium cable. However. TV. 7. 59 Id. Inc. 2007. and commercial carriers such as passenger airplanes or buses60. its language could be described as contemplating the distribution of digital content indirectly for two reasons: (1) DVD’s store digital content and (2) telephone companies already transmit TV signals as data (i. Article 51. but if Article 51 was re-drafted as referring to residuals from the distribution of content regardless of platform. 61 Dionne Searcey. VHS. J.

In 18 . The Picture Blurs for Studio Profits. Sept. simmer for 22 weeks in a stasis that hurt myriad personal livelihoods and corporate bottom lines66. a three-guild strike forces the AMPTP’s hand to give the guilds something in the realm of 63 Merissa Mar. and putting aside what may result from the upcoming negotiations for a new WGA MBA. this is exactly what happened in the 1973 negotiations between all three guilds and the studios. 66 Gabriel Spitzer. a possibility to which all three guilds might acquiesce given the palpable uncertainty surrounding the relevant economics. none of this may be up to the AMPTP if in 2008. which saw Hollywood. together with the cost of developing strategies to prevent it.medialifemagazine. 2006 at A1. http://artfulwriter. Therefore. Paramount on guild negotiators’ minds must also be not to sow the seeds of an eventual repeat of the contentious 1985 negotiations which led to the home video base rate being lowered from 100% to 20% of the gross.8% of 20% of the applicable gross67 or – even more cautiously – to make no new allowances for online residuals until they understand what internet sales are all about. has not yet been quantified. the studios might deem their best option is to stick to the familiar and go with something more akin to the current home video formula of 1.html. J. Ouch! Remembering the 1988 Writer’s Strike . One Contract to Rule Them All. 67 2004 WGA MBA.”63 Thus. 2006.html. Inc. On the other hand. but two writers’ strikes (and apparently some lingering resentment)65 . 64 Arguably.5 to 1. Equally important for both parties must be to avoid a protracted work stoppage like the one from the 1988 writers’ strike. 16. especially if the cost of online piracy. while a 100% base rate for online movie rental residuals might be acceptable to the studios. 65 Craig Mazin. 2. available at http://www. Media Life Magazine.“The movie industry is at a crossroads and it's not clear yet what digital distribution will mean for the business. Article 51. The Wall St. a victory for the studios that came at the price of not one. Mar. they may shy away from committing to a base rate of 100% for online movie sales before they understand how such a market will work64. once all three guild MBA’s expire. THE ARTFUL WRITER..

since SAG members get paid residuals in triplicate due to their large number. with like results. The major studios are not entirely opposed to the idea of new media residuals. The right to some new media residuals already exists in the WGA MBA. But given Hollywood. supra note 45. then the other two must get it as well. Inc. 19 . those two guilds will get stuck with the same bad deal. and CBS has agreed to pay residuals for certain online content. That means that the AMPTP has to think in terms of paying 5 times the amount of residuals proposed by a guild70. 70 Craig Mazin. since the…DGA…accepted diminished residuals in 1987. available at http://findarticles.”69 Negotiations in 1980 and 1984 were carried out similarly. Therefore. Pattern Bargaining The phenomenon of “pattern bargaining”. But it also works the other way around. the WGA would have to agree to let its members work without a contract for more than half a year…or hope they can strike for that long. is one of the unavoidable by-products of the politics of residual negotiations. “The AMPTP is designed to divide and conquer…[pitting] unions against each other…In negotiating with the Writers Guild [in 1988]. for instance. 1988. All three guilds feel they are entitled to as good a deal as the AMPTP is willing to make. which could be defined as “dictating [the terms of an agreement] on the basis of agreements made with another [union]”68. 69 Id. That is why closing a collective bargaining agreement with the AMPTP can be such a horserace. 3. Pattern bargaining also makes the AMPTP more conservative in negotiations. the AMPTP's opening gambit was to say that. the writers had to follow suit in . Nov.’s current unease about the movie 68 John Eisendrath.internet residuals. because if one of the three guilds makes a bad deal before the other two. The Making of the Hollywood Working Class. if one of the three guilds gets a residual improvement. But for this to happen.

the question mark that still is the movie download market. and.S. the picture remains largely unchanged. including the law of the contract. authors. 1. which include – inter alia – the right to attribution and the right to control the integrity of one’s creative perhaps applying only to advertiser-supported TV show re-runs online. However. 20 . insists on having as much control as possible over the movies it 71 17 USC. 3) performance rights. That is if any concessions in this regard occur at all. 4) public display rights. which is contained within Title 17 of the United States Code. When one looks at applicable law. any concessions related to new media residuals will likely be limited in scope. have several exclusive rights in their creations as long as they hold the copyright to them. Inc. WGA members don’t own the copyright in the scripts they are hired to write because Hollywood. One must therefore focus on (1) statutes and (2) the law of the contract (the MBA). The Relevant Law There is no relevant case law to cite in regards to residuals for new media use. § 106. Those exclusive rights are: the right to (1) reproduction of copies. and the magnifier that is pattern bargaining. In other words. Under Title 17. 5) the right to prepare derivative works (such as a movie)71. B. Statutes If any statutes are pertinent. in the U. as defined by the statute. 2) to distribution of copies. they are very probably those related to American Copyright law. there are no creative rights for authors as they are commonly understood within the context of the droit moral or inherent author’s moral rights of the European legal tradition72.

73 17 USC. which gives to the employer the exclusive rights of a copyright holder enumerated above. http://artfulwriter. are not different from royalties in name only. If WGA members are to possess the right to residuals for new media use of content. 21 . Screenplays written for the studios are. 1. royalties are not payable to WGA members. Jan. makes the employer the de jure author of the screenplay and also the copyright holder for the work73. Glossary. THE ARTFUL WRITER. they come from the WGA MBA. Most other countries do not recognize works for hire. in this case..’s writers do not retain copyright. § 101. such a right has to be negotiated into the MBA just like it was negotiated for TV re-runs in 1953 and 72 Craig Mazin. “works for hire” which. authors could also negotiate the right to earn royalties from the movies based on their screenplays.S. their screenplays would have to be licensed to the studios. Residuals.S. The work-for-hire doctrine is peculiar to Anglo-American law. therefore. This is the rule in other nations which generally observe the droit moral tradition. Royalties are negotiated individually. WGA writers have no right to share in their employers’ profits when content is re-used. 2005. where such author’s rights are simply not recognized by law. If writers were allowed to keep the copyright to their films. Inc. The Law of the Contract All three guilds have MBA’s that provide for the payment of residuals. Their business models typically depend on that. Since under U. Besides the license fee. 2. Any and all such rights must therefore come from contract. Copyright law. but residual formulas are formally agreed to on an industry-wide basis in each guild’s MBA74. Absent the substitution of residuals for royalties. although substituting for royalties. Not so in the U.html#workforhire.

2007.A.A. Those provisions are the First Sideletter on Exhibition of Motion Pictures Transmitted Via the Internet (mentioned above) and Article 64.A. applies to no content other than videogames and similar interactive fare76. or to “any other entity which qualifies as a [network] under [former] Section 73. Something Picket This Way Comes. but as indicated above. Article 51. But then there is Article 15B. although it may come to cover it by default sooner than expected as technology redefines the meaning of Article 51’s terms. Feb. Article 15B1. The Sideletter’s language is narrowly tailored to online movie rentals. The current MBA has two provisions that expressly refer to digital content. THE HUFFINGTON POST. the guild’s options would be seriously limited. Assuming a scenario where the WGA cannot obtain the new terms it desires and chooses to extend existing language to achieve the same end. CBS. Article 64. which covers “interactive rights”.662(f) of the [FCC] rules” and its provisions for the payment of residuals for TV show re-runs that are telecast on free television.5. Failing that. is too narrowly constructed and cannot be said to contemplate online content. a broader interpretation of their language that could result in a built-in right to compensation for online use is not possible.1.html. while referring to digital content obliquely. it is possible that if the Federal Communications Commission is ever authorized by Congress to expand the definition of a TV network to include an internet portal or internet delivery of some sort. both by the MBA’s language and copyright law. 76 2004 WGA MBA. http://www. And Article 64’s language.ever since. 74 Craig Mazin..2 and 64. while expressly referring to content played on computers75. the right to residuals has to be read within the language of the current MBA. 22 . etc. This applies to material re-used on television networks such as ABC. 75 2004 WGA MBA Article 64. NBC.b will apply automatically to re-runs of TV shows played online. In other words. 15.

Why the FCC Will Regulate the Internet. 2007. and the internet itself largely runs through telephone lines. J. 77 2004 WGA MBA. 80 The competing political and economic interests are beyond the scope of this paper. Mar. when one looks at current industry practice and the law – as exists in statute and as the MBA provisions would dictate – one might conclude that an expansion of residual compensation for digital content will not likely evolve naturally from the industry status quo. Absent the parties re-negotiating the meaning of the term “TV network” under the MBA. Verizon’s Network Bet Relies on Games. and video (including cable channels) over fiber-optic lines78. the existing FCC regulations which pertain to TV broadcasts are listed under “Radio Broadcast Services”. the nature of administrative agency rules is such that this regulatory leap would require extensive redrafting of federal regulations subject to the political process in Washington. if negotiations result in the relevant proposals becoming part of new Basic Agreements. from the next round of Since telephone companies are regulated by the FCC.1. TV. but to begin. 2005.. 7. a perception of unaffordable costs (from the lack of an effective digital business model and the cost-magnifier that is pattern bargaining). media is increasingly converging on the internet. One might base this prediction on a combination of industry-wide uncertainty (unease about the movie business. uncertainty surrounding the movie download market). The Wall St. at A1.e. voice. 19. Dec. 4.b. Article 15B. Ch. Mitchell. http://www. 79 Robert L. This is not as far-fetched as it sounds in view of recent ventures by telephone companies to compete with the cable industry by delivering data. However. i. making such possibility very remote80. and the risk of making these costs the unavoidable price of doing business. websites will not be TV networks or vice versa anytime soon. That is not even in the same neighborhood as “telephone lines”. 23 .(6).computerworld. COMPUTERWORLD. Part 73. See 47 CFR Vol. 78 Dionne Searcey. Thus. 1. an expanded role for the FCC in internet regulation – and thus pan-media regulation – cannot be ruled out79.

As noted previously. However. a) Strike It is indisputable the WGA represents a very important part of the entertainment industry. Therefore. as any significant improvement in internet use compensation will be delayed by three more years for each guild. it will be undercutting the other two guilds. WGA leverage in a labor negotiation like the one involving the MBA is nowhere comparable to the importance of their members’ role in the industry. it can then (a) choose to strike. III. The WGA would do this at the risk of alienating its union cohorts in the industry and the only benefit that the WGA would obtain in return would be a new MBA. the issue more specifically stated is: what will the WGA do in the upcoming round of negotiations. The risks of allowing its members to work past their contract would have to outweigh very significantly the political risks of alienating the other two guilds (and other labor groups in the industry). then see what the other guilds do81. or (b) have members work past the contract’s expiration and wait for the DGA and SAG MBA’s to expire as well. 24 . no project for a director to shoot. In the current industry climate. the phenomenon of pattern bargaining is such that the first guild to close a Basic Agreement negotiation will end up dictating what sort of residuals will be paid to all three guilds. if the WGA settles for the status quo. there are no lines for the actors to speak. the WGA would be wise to maintain strong ties with all possible allies. if pasts practice holds. The Issue Specifically Thus. and what impact would that have? If the WGA does not formally agree to maintain the status quo by signing a new MBA with no significant improvements in residual compensation. and ultimately no product for a studio to release. Without a script.

86 Craig causing some dissatisfaction among WGA members86. The Reality Organizing Campaign is. http://artfulwriter. which are written well in advance of…production. The nature of the production process delays the impact of a writers strike and. but in the summer of 2006 the WGA leadership tried to rouse Reality TV writers (who have no labor representation at all) into striking85. will not be feeling the pinch until it runs out of scripts.html?categoryid=1066&cs=1. where both “scripts and episodes are typically completed far before their air dates. “If actors or directors strike. 25 . film and television instantly shuts down. 83 Id. judging by recent history. 84 Gabriel Spitzer. supra note 72. 85 Dave McNary. Contract Talks Stall Between Writers and Studios. 82 Id. in a strike. 3. Dead.variety. the WGA leadership may not have what it takes to spark the fire of a work stoppage. 81 Craig Mazin. WGA members cannot strike while the MBA is in effect.html. July 23. Media Life Magazine. time is not every worker’s ally. Not so with screenplays. THE ARTFUL WRITER. 2006. Daily Variety. available at http://www.html. 2006.”83 In other words. ‘Model’ Scribes Walk Strike Runway. Hollywood. even if writers strike. Inc.”82 Employers have even more leverage in the TV end of the industry. The aim was to bring Reality TV writers into the WGA as was part of a wider strategy designed to increase the leverage of the guild in the upcoming round of talks with the AMPTP by eliminating the possibility of TV networks relying on Reality fare to fill any programming voids resulting from a WGA work stoppage. Reality TV writers did not strike and the plan went nowhere. And the accumulation of scripts in anticipation of a strike is a measure which the WGA has conceded cannot be ruled out as contract negotiations Furthermore. But the WGA leadership miscalculated. available at http://www. Dec.

as the SAG and DGA contracts are both valid until June 30. What this means. the two sides can stop negotiating without a strike or lockout. 26 . supra note 39. just like they did in 2004. This is by no means certain. If SAG decides to strike. or pay off at all. is that WGA members may opt to work without a contract for some time. the industry would likely come to a standstill. or DGA members could choose to put their economic interests and livelihoods first. but if the SAG and DGA choose to join the WGA in following this path. the WGA will likely join it. the gamble may not pay off very handsomely. b) Contract? What Contract? The WGA’s leverage would be increased. again. Nevertheless. Therefore. However. that this scenario is unlikely to ever develop.”87 But such a possibility is very remote. working without a contract for less than a year may be a small price for WGA members to pay in exchange for a significant increase in negotiation leverage. there is no guarantee that either SAG or the DGA will strike. all things being equal. thus. they cannot do so until months after the WGA MBA expires. 87 Craig Mazin. 2008. Even if it did develop. possibly even due to lowered morale. if and when the other two guilds strike together with the WGA. supra note 72. Its members might not be willing to hold the picket lines together for very long. it is unlikely the WGA can strike successfully on its own. thinking that residuals for internet use are not worth the trouble. It should be noted. But a lot of things can happen until June 30. so they might be on the same page as to a strike. If that is the case. “If the WGA won't accept a bad deal and the companies won't offer a good one. 2008. It is true that SAG and the WGA have been strategizing for their respective rounds of negotiations together88. And then it would all be up to the DGA. It could strike in solidarity with its sister guilds. 88 Carl DiOrio.

then both the WGA and SAG would probably – but not necessarily - have to settle for that same deal. However. Then again. It is not just about selling content..’ They go out to the movies to be entertained. it might behoove the studios to embrace a different view of the business they are in. it suffices to consider how “[h]orse-drawn carriage makers… [were not] in the horse-drawn carriage market.”89 Therefore.[but] in the transportation market. negotiations will yield changes to the Basic Agreements regardless. In other words. but about selling content for the entertainment of an audience that likes to be entertained in their living room watching TV and in movie theaters 27 . IV. if the DGA – for instance – decided to make a deal. The parties may agree to adopt a wait- and-see attitude until their next round of negotiations three years down the road. To expand on this reasoning. If any one guild held out from striking and decided to make a deal with the AMPTP. because no one really knows yet how the new order of new media will develop.” Similarly. If that happens to be the case. just not in the field of new media residuals. perhaps the shortest way to establish a new working business model is to adopt a new view of the market in which Hollywood.. but their understanding of the business model. like it or not. and while the industry tries to weather the challenges posed by new platforms. and ever-changing audience habits. Inc. Striking or settling lie at opposite extremes of the spectrum of choices the guilds have. all parties may decide it is too soon to negotiate online residual provisions into the new agreements. is. piracy. while they wait for new media business models to evolve. it might get some new concessions as to online use compensation. Potential Resolutions/Futures If the key to succeed in this new order is an understanding of the demand’s true nature. it may not be their business model that is obsolete. because of the pattern bargaining phenomenon. “[p]eople don't go out to the movies because it's ‘a movie.

Some in the music industry have adopted the same view to the chagrin of record labels90. at their as long as it is officially authorized by them92. and there may not be for some time to come. But since residuals are essentially profit-sharing. a digital iteration of “word of mouth”. Under such a business model. That debate revolves around the true nature of the market the industry aims to supply. 2005. Inc. for the guilds to earn residuals from online use there must first be agreement in a debate in which the guilds unfortunately do not take part directly. They can have content when and where they want it by staring at their computer screen’s. but – as current trends seem to indicate – also in a cafeteria. they see it as piracy. There is no agreement on this point in the industry. An alternative view of the current state of affairs new media has brought about is that of a new business model where free online content plays a role in selling content elsewhere. available at http://www. it hypes91. May 3. It circulates. at a myriad of “portable devices”. except in so far as their members are consumers of entertainment. Otherwise. a clear picture of the relevant revenue streams will materialize. USA Today. It May Not Be the End of Music World.htm. 90 Kevin Maney. 28 . making it unwise to force an agreement on new media residuals in 2007 or 2008. in their doctor’s waiting room. it creates buzz. That will also take time. Re-use of content on the internet is. If Pirating Grows. online content becomes promotional. But it might not be so. in fact. Once that question is resolved and that market is properly supplied.usatoday. Perhaps. online piracy is only the cost of doing business in a new order.watching the big screen. already seen as promotional by the studios and networks of Hollywood. Ignoring this warning would leave the door wide open for an online re-run of 89 Id. on a subway.

cedmagic. and take in the new order before they decide how to memorialize it in the MBA’s. 96 Craig Mazin. supra note 65. Perhaps it is best for all to take a step back. the resulting labor strife may be a price both employees and employers can ill afford to pay. Hollywood. Hollywood. 93 See supra note 64. ++∞∞∞++ 91 Michael Masnick. In the world of new media. supra note 39. 29 . both management and labor. all three guilds managed to get residuals for them on the very same formula as movies distributed on free TV during the 1973 rounds95. Subsequently. 94 1972: Cartrivision – The First VCR with Pre-recorded Tapes. the studios successfully negotiated the formula down with the infamous 1985 strikes as result96. take a deep breath.techdirt. It is now big. 95 This formula was based on 100% of the relevant studio gross. 2006.html. when the VHS home video market was really up and running.the 1985 home video residual formula battle93. as the recording industry has discovered. July 6. That survival undoubtedly resulted from adapting to changing conditions. surviving almost intact all sorts of change over a century. Soon after movies on videocassette were first marketed for home use in the early 1970’s94. http://www. has been around for over 100 years. the studios realized that videocassette distribution was significantly more expensive than re-runs on TV. are well advised to approach change delicately. After all. Years later.. Inc. It started small. if their business is to adapt to change for the best. change can be destructive if not implemented with care. always learning to profit from the very changes that it so often fears. the history prior to that 1985 strike tells us that a heightened level of patience would not be unwarranted. Therefore. TECHDIRT.shtml. http://www. 92 Carl At a time when the industry as a whole is at a crossroads. Can Someone Explain Word of Mouth Marketing to Hollywood?.