The WGA went on strike this past Monday and everyone, from blogger to professional pundit, has been talking about which shows will continue to air, which will stop, when, how — some reports have even taken a shot at why. Sound bites and articles written to scare TV fans into abject despair are both useless and insulting. If the writer’s strike isn’t over by later today or early next week, it will probably last until June 2008 when SAG (The Screen Actor’s Guild) will have to renegotiate their contract. Let’s not speculate. The strike will be over when it’s over.
What I’d like to explore are some of the underlying issues that make this negotiation networked TV’s first death match and, why both sides really need to win. Sadly, both sides won’t win. In this case, there will be a clear winner and a clear loser (as opposed to a compromise that both can live with). I am not aware of any past zero-sum entertainment-related union negotiations, but this certainly won’t be the last.
I’m told, by people who are intimately involved, that the union caved on the DVD issues last Sunday night and that the strike is almost exclusively about how guild members will be remunerated for alternative media, advanced media and online use of their works.
At its simplest, this is a strike about money. The writers want to be paid when producers make money from the additional use of their intellectual property. On its face, this sounds like a reasonable request. And, it certainly doesn’t sound like a death match. But if you think about what’s really at stake, it doesn’t take long to realize that the underlying issues are profoundly fundamental to the future of the business.
The writers are asking for a share of revenue. To quote Michael Winship, president of the Writer’s Guild of America/East, “It’s simple, if they get paid, we get paid.” In this case the “they” Michael was referring to are the members of the AMPTP (The Alliance of Motion Picture and Television Producers). Many people suggest that this model can work because it is how so many Internet companies do business and online video is like the Internet, right?
Well, not exactly. It’s true that people in Internet-related businesses are used to partnering and rev shares are extremely common. The business culture has evolved to reward cooperation and competition. In fact, sweat-equity is a respected currency of online and technology start-ups. We can all picture a bunch of 20-somethings sleeping in their cubes, living on chocolate-covered coffee beans, Doritos and Red Bull, writing code. Cliché, yes. But, boot-strapping is a culturally accepted way of doing tech start-ups because so much technology needs to be shared and there is very little economic incentive to reinvent the wheel. On the other hand, there is zero incentive to sharing anything with your competitors in the entertainment business. And, unlike their tech counterparts, most established writers would not be willing to work for free or for slave wages in exchange for stock.
As we know, 99.5% of television shows and movies are born dead. Or, to put it another way, the businesses of movie and television production enjoy a spectacularly high failure rate. While most businesses in the tech-sector are seeded by venture capital, entertainment is almost never financed in this way. The risk is assumed by the producers, their bankers and, in many cases, the distributors of the final product. Even a primer in film and TV finance is outside the scope of this writing, but suffice it to say, that “Hollywood” accounting is an opaque art form because the economics of the business dictate it to be so.
Any truly meaningful percentage deal between the parties will require a level of accounting transparency that is unprecedented in Hollywood. The thought of sharing a percentage of revenue by calculating actual profit is simply antithetical to the risk/reward profile of the business.
For example: If a producer puts up $1 million dollars to make a show. How much are they entitled to recoup before sharing the profits with the rank and file? Certainly the number must be much greater than $1 million. How much greater? Are they entitled to “first money out?” What is a reasonable profit? I’m sure you have your own opinion about it, the writer’s certainly do. Here’s the problem — the show isn’t getting made unless the producer risks the capital. And, in the entertainment business, that risk is extremely high.
Now, you might argue that no matter what the risk profile of the business, smart, professional risk managers can build models that can satisfy both parties. This might even be true if it were the entire issue. But it is not.
Unfortunately for everyone involved, it is incredibly unclear if the current model of television and movie production can survive the behavioral changes in media consumption.
You have a personal story about how differently you consume media now than you did a year ago. In fact, everyone you know has a story on the subject. You use your iPhone, your kids play video games and have IM windows open on their computers, your 18 month old nephew likes to watch Sponge Bob on TiVo and can already use the remote control, etc. This fundamental shift can be attributed to a significant increase in consumer control of media and, more importantly, the stunning difference between open and closed networks.
A chain of movie theaters, a cable system or a broadcast television network is a closed network. The public Internet is an open network. When you watch a movie at a theater you are using a time-tested business model — Pay Per View. You buy a ticket, see the movie once and go home. This is a closed network. You are asked to leave the theater after the movie is over and you must buy another ticket to see it again.
On the other hand, should you find the same movie as a Bittorrent file on the public Internet, you can watch it all you want, share it with your friends and keep the file forever without paying anyone anything ever.
Hummm … how much of that revenue should the writers be entitled to?
As a practical matter, nobody knows how and when online video will actually become a business. At the Future of TV seminar, David Poltrack, Chief Research Officer, CBS Corporation/President CBS Vision said, “If you really want to watch something, I guarantee that we will figure out a way for you to pay for it.” He was talking about how online video might be supported by advertising or some other business model. I am a big fan of David’s, but I completely disagree with him. The only way that you can make someone pay for content from 2007 into the foreseeable future is on a closed network. On the public Internet, content is and will probably always be free. (Just to clarify — people with more money than time, pay; people with more time than money, pirate. As people get better computers, better broadband connectivity and better software, the casual, or even unintentional, bootlegging of content will increase exponentially.)
This may make some people very sad, but there’s very little that can be done about it in today’s technology. Can we create technology that would so seriously invade the privacy of individuals that we could protect content on the public Internet? Yes. Will we? I don’t know and neither does anybody else.
So, why is this a death match? Why do both sides need to win?
If the writers really win, the producers will have to fundamentally change the way they do business. And, happy as it might make some people, this kind of tectonic shift would so demotivate risk capital; that the business would truly never recover. It would also open the door for every other union and guild to “get theirs” and that just can’t happen. How much rev share should the key grip get? Hyperbole, yes … but rev share has to stop somewhere.
If the producers really win, the writers are going to be absolutely screwed out of any hope of proper payment for their work. Big media will continue to be subsidized on the backs of creatives who have become defacto bankers with zero ROI. If you’re a writer, you should put your pencil down until the producers agree to pay you fairly for your work, whatever it takes for them to accomplish it.
How will it end? Badly, I fear. But, let’s revisit this issue in 2012. We’ll know quite a bit more after the transition from analog to digital is complete, after the spectrum starts to become commercialized and after about 10 more generations of personal media devices. Or, maybe we will be even more confused about the future of media — you know, that’s why there’s just never really a good time for a death match.