Top 12 Film Industry Stories of 2007: #1:
Writers Strike, Hollywood Braces for Later Impact
By David Mumpower
January 1, 2008
BoxOfficeProphets.com
Where do we stand on the issue? Alas, BOP itself is not above the fray here. We have a couple of studio execs as well as multiple members of the Writer's Guild on our staff. This makes the entire subject touchy enough that we generally do not discuss it for fear of a civil war erupting that would rival our previously most controversial subjects, chili recipes and the Ryder Cup (don't ask). Any attempt to discuss the issue requires us to speak in the most neutral terms for fear of alienating one of our own. The matter is just that laden with pitfalls.
Here is what is not up for debate. On November 5, 2007, Hollywood writers who were members of the Writer's Guild laid down their laptops and grabbed picket signs instead. They drove to the buildings where they went to work every morning, only this time they did not go in. Instead, they began to pace outside, showing their signs to bemused passersby. These scribes no longer felt they could in good conscience enter the buildings where their pay scale was not considered to be in line with the amount of revenue earned by the sweat of their brow.
Last ditch efforts to forego the situation had failed, and all later attempts to curtail the matter were also inadequate, save for one independent negotiation between David Letterman's company, Worldwide Pants, and the writers for the shows he controls, Late Night with David Letterman and The Late, Late Show with Craig Ferguson. Everyone not impacted by this discussion remains on strike with no settlement in the offing. The Writer's Strike of 2007 appears ready to last well into 2008.
How did we get to this point? That would depend upon whom you ask. The key sticking point is the same as the strike of 1988, residuals. The difference lies in the advances in technology since then. We'll examine the why of that later on. First, we should point out why members of the guild are determined to avoid history repeating itself. The 1988's strike was predicated upon the argument regarding how a writer should be financially compensated from corporate revenue resulting from VHS tapes. At the time, such titles were not priced to sell, meaning that when video store chains such as Blockbuster made purchases, they were generally paying in the range of $50 or more. MSRP on these titles was frequently near $100 for any consumer not buying in bulk who attempted to make a purchase.
Writers wanted their fair share of compensation and went on strike to attain such a negotiated settlement. After 22 weeks of holding out, crippling financial pressure allowed corporations to break the union, as it were. A situation that was merely an aggravation to corporations whose bottom lines were suffering a bit was a struggle to put food on the table for the writers striking for more money. They had no choice but to settle for less than they had aspired to garner. Their plight was aggravated by the fact that soon afterward, market conditions lowered the MSRP of videotapes down to the $19.99 range. When the average sell-through point hit its final resting point of $9.99-$14.99 for titles, writers were hurt that much more by their settlement.
They had agreed to take 0.3% of the gross on the first million in revenue followed by a 20% increase to 0.36% for all earnings above a million. For those of you who aren't good at math, 0.36% of a million is $3,600. A movie that made $10 million on home video, a relatively successful performance, earned the writer exactly $36,000. Working folks wouldn't turn their nose up at that (unless they were playing Deal Or No Deal), but let's be honest here. It is not the promised land one would expect when they set off to write the greatest screenplay since Citizen Kane. And the odds of a movie doing that sort of business on home video were dramatically reduced once that MSRP on videotapes fell 70-80% from the $50 average when the agreement was made to $9.99-$14.99 afterward. At this point in the marketplace, a title had to sell at a factor of five more often to garner the same accrued income for a writer. Ergo, when the writers union was broken, hundreds of millions of dollars in future compensation was lost in the process.
Given the way the 1988 writer's strike played out, it is understandable that writers would be reticent to put themselves in a similar position in the future. This is particularly the case when we consider that membership in the guild has increased by 33% over the past 20 years as the increase in cable channels has created an expansion in creative programming. Approximately 12,000 members are impacted by the current strike as opposed to roughly 9,000 two decades ago. Most of them are not in the league wherein Hollywood Reporter and Variety report their every new deal, either. The average income of a Hollywood writer is considered to be $60,000, and that number is skewed quite a bit by the high-end earners, the ones who get seven figures for their hotly contested works. A lot of people are putting their very livelihood at risk by striking.
What makes them do so? The marketplace wherein movies are distributed has experienced a fundamental shift since 1988. DVDs are now disposable purchases that require no more money than a person can find between their couch cushions. Even HD-DVD and Blu-Ray, the new, ultra-expensive formats generally sell in the range of $25-$35 when not on sale, an amount representing 50-70% of the average cost for a VHS tape when the last agreement was reached. But neither of these is the particularly troublesome issue for writers. That boogeyman is the Internet.
Anyone who peruses this site is presumed to be an expert in emerging entertainment technologies. We frequently touch upon such advances in our columns, because the changing behavior of the industry impacts not only initial box office results but also the final revenue amount of a feature film. It is presumed you know by now that through places such as iTunes, CinemaNow and Netflix, a person may watch movies on the Internet. There are several other services of this ilk either in existence now or being prepared for launch in 2008. As computers interact more and more with smart television sets, the line is being blurred between conventional means of watching movies and previously impossible ones involving broadband connections. A purchase can be made that in no way involves a physical transaction of product transferring to consumer. Currently, writers are in no way compensated for any content watched over the Internet. Moving forward, such a scenario is simply bad business for any entertainment provider. The Internet matters as much as television if not more due to cross-breeding of the technologies.
Then, there is TiVo and the like. For those of you who don't own a personal video recorder such as TiVo (and I pity you if you don't), you may not realize how this works. The lack of knowledge of how a PVR works mainly applies to the Amish who somehow read this site sans computer and/or Internet connection, but I will explain it anyway. A movie is broadcast on television, and a person uses what amounts to a specially programmed computer complete with hard drive to record the content. They are then able to view the designated entertainment at their leisure.
This is a particularly tricky issue in Hollywood, because Nielsen ratings only recently began to reward viewership numbers for TiVo'd programs. Even worse, these numbers are only applied if the program is viewed within a designated period - ordinarily 72 hours – of broadcast. These ratings are the cornerstone upon which advertisers determine how to much to pay corporations in exchange for airing commercials during the programs. What this means is that the corporation airing a program may not be able to sell the same amount of ad space for its number of eyeballs viewing as its eyeballs recognized as viewing by Nielsen. Such a scenario occurs when the consumer fails to watch the program in the timely manner Nielsen expects. In addition, advertisers are reticent to pay for PVR recorded ratings add-ons anyway, because one of the main purposes of such a device is to skip over the very commercials that pay for the content.
In light of all of this, it is understandable why studio execs are less than enthusiastic about the proposition of paying talent for airings of broadcasts recorded on PVRs. The problem is that such talent - the writers, directors and actors involved - still expect to be compensated for their work based upon the agreed upon ratio for Nielsen numbers independent of what deal corporations get for the same number of viewers. The entire area of TiVo recordings is a boondoggle for all involved, making a compromise a bloody deal to negotiate.
The factors above open a huge can of worms for corporations and the talent they employ. Current contracts in place preclude the earning of revenue by employees in such instances based on outdated technologies for viewing entertainment. The only options used to be in theaters and on television in some form, whether that be through VHS tapes or network/cable broadcasts. New negotiations are required to allow for the emerging technologies. The writers are the first group sticking their hands out and asking for money to be placed in them. The corporations that run Hollywood have no interest in making such an agreement because the instant they do, actors and directors will expect the same concession. That triples the lost revenue such a compromise would incur. Corporations hate anything that damages the bottom line, but a deal that will need to be paid out to three different groups is particularly unwelcome. This leaves the entire industry stuck in neutral, as it were.
Moving forward, the key area of compromise must be the Internet. It is simply impossible to imagine a scenario wherein writers agree that there is no money to be made on the Internet. They have hilariously tweaked corporate bigwigs on this matter throughout the strike. Videos have been pieced together catching them in glaring examples of doublespeak. Perhaps my favorite thus far involves a statement denying that there is any way to define the amount of money available for entertainment on the internet. It is immediately followed by the same company's employee stating in an interview that $500 million or more in financial windfalls are available in the upcoming year alone. If you want to watch further humorous examples such as this, this is the site to monitor. Any place that shows video of Todd Bridges blaming a previous cocaine addiction on the writer's strike is aces in my book. And while I have tried to maintain neutrality throughout this discussion, I do want to point out there is a brilliant video satire up here that accurately sums the discrepancy in financial gains and losses between the writers and the companies against which they are striking.
As far as exactly how much all of this impacts the industry, a lot of it depends upon how much longer the strike continues. In the short term, the areas of notice are the awards shows. The Golden Globes and the Academy Awards both utilize writers to bring the funny during their shows. While the idea of an unscripted four hour Oscars show is appealing to any fan of chaos, rumors are surfacing that the show may be delayed or even canceled if the strike continues. Key to this is the idea that people who attend such awards may be viewed as picket crossers by those currently on strike. Given that Hollywood has always been considered a glorified high school where everyone knows everyone, such a reputation could hurt those in attendance over the course of their careers. Whether industry mainstreams choose a risk-averse approach by sitting out the major events will go a long way in determining whether they proceed as normal or have altered schedules.
The bigger impact, however, is the reason why this is the biggest industry story of the year. With the striking occurring this past November, the period 12 months later will be right in the middle of awards and holiday season at the box office. This is a double strike for the industry. After the usual lackluster fall campaign, studios will be relying upon the November/December period to provide the box office revenue to end the year on a high note. Anyone reading this site over the past week knows that the box office period from mid-December to New Year's Day is the most lucrative of the year. If a compromise were brokered tomorrow, any project would be facing a huge rush to be finished in time for that period. If the strike goes on for another four months as many expect, those two months are going to be barren in terms of major releases. Studios have stockpiled a few additional movies to counteract this, but they largely failed to anticipate the length of the strike. There simply will not be enough product to cover the period.
The awards season aspect is also crucial. With the Academy Awards moved up a month these days, the late fall/early winter period is when all of the major contenders for such awards are released. As things stand, there will be a scarcity of noteworthy candidates for the 2008 awards season. That situation will only deteriorate if any projects miss their deadlines, which is much more likely to occur what with the scarcity of writers on-set and all. There is also the issue of movie quality for the same reason. With all the most talented scribes in the industry on a break, we might be begging for the subtle wisdom of Tyler Perry before this is all said and done. And if that thought is not enough to make you hope for a quick resolution to the writer's strike, I don't know what will.