Something Picket This Way Comes: Why Hollywood Talent Might Go On Strike

Say the word 'laborer,' and the last thing that typically comes to mind is a man in an Armani tux standing next to a woman whose necklace costs more than your house.

Even so, when you watch the Academy Awards this year, you're going to see a parade of laborers . Each actor, director and writer is in at least one of the talent labor unions--the Screen Actors Guild (SAG), the Directors Guild of America (DGA) and the Writers Guild of America(WGA). When the current WGA contract expires at the end of October, word on the street is that the writers might walk out.

Why? The only thing that really matters in Hollywood is money, and this is no exception. In this case, the battle is over residuals.

Our Story Begins...

To understand what the upcoming negotiations are about, we first need to understand the American quirk of copyright law known as "work for hire." If a person or corporation commissions an individual to create a work of authorship, the commissioner can be considered the author in law. What this means is that writers in Hollywood aren't the legal authors of their scripts. Directors aren't the legal authors of their films. And actors aren't the legal owners of their own images.

If writers were legal owners, we would be collecting royalties, like novelists or playwrights. Since we're not, the WGA and other Hollywood unions negotiated for a royalty-mimicking system. When the work or likenesses of Hollywood laborers are reused in so-called "secondary markets" (e.g. reruns, pay-per-view, DVDs), we are paid a residual. The residual formulas vary depending on the type of reuse, but the most prominent and profitable type of reuse is home video.

Rather than addressing residuals on a per-employee basis, the formulas are instead hammered out on an industry-wide basis. Every three years, the big talent unions sit down to negotiate a minimum basic agreement (MBA) with the studios and networks, who are represented by a trade association known as the Alliance of Motion Picture and Television Producers (AMPTP). The MBA contains the formulas for residuals, and so it's the MBA that becomes a flashpoint when new markets emerge.

In 1988, failed negotiations over home video residuals led to the longest strike in Hollywood history. The WGA walked a picket line for nearly six months, largely shutting down television and film production in their fight for a fair share of the booming VHS market.

The writers lost.

The failure of the '88 strike enshrined an anemic home video formula . Under this formula, writers get about .3% (note the decimal point) of studio grosses from the VHS tapes and DVDs of the movies and television shows they author.

For nearly twenty years, resentment over this deal has simmered, nearly boiling over in the late 90's when the DVD market exploded. While the studios generated massive revenue, writers were reaping a paltry five cents for each DVD sold.

And now, with the advent of internet downloads, a new distribution channel with the potential to dwarf the DVD market, things are getting downright nasty.

The Plot Thickens...

There are a few things labor and management agree on. When someone downloads an episode of The Office from iTunes, both sides acknowledge that this is a secondary market, both sides acknowledge this is reuse and both sides acknowledge that the studio is earning a share of the revenue generated by the download.

And that's about where the agreement ends.

In 2001, the WGA was able to make a deal guaranteeing a residual rate of 1.2% of 100% for shows and movies rented over the internet, but a sales definition seemed to remain in play.

Over the past few years, it's become increasingly obvious that internet distribution is a key part of the future of the entertainment industry. And so, the WGA, not wanting a repeat of 1988, began preparing for a bruising battle. A relatively militant slate of leadership led by Patric Verrone was elected in 2005, and their private goal was clear: beat the companies in 2007 and not get screwed on residuals for internet downloads.

That was not their public goal. Publicly, their goal was to strengthen the union through organizing, i.e. aggressively seeking to cover new work areas under union jurisdiction. For instance, you may have heard about the WGA's crusade to organize reality television . What struck many as a bit of retro Norma Rae-ism was anything but . The leadership of the WGA knew that if push came to shove and a strike was required to win the day in 2007, the large quantity of non-union reality television was going to mitigate the damage a walkout would do. Unfortunately, the WGA's efforts to organize reality television ended in failure (to read more about that battle, and why I believe the union was terribly misguided, go here).

The WGA thus finds itself once again in the strange position of being both the most militant union and the union with the least dangerous strike threat. It's a simple matter of production realities. If actors or directors strike, film and television instantly shuts down. Not so with screenplays, which are written well in advance of film production. In television, scripts and episodes are typically completed far before their air dates. If writers strike, film and television will shut down... one day... when the scripts run out.

So How Does It End?

The WGA negotiates first among the unions (its contract is up on October 31st) . If it doesn't get the deal it wants, it has three options. It can settle, it can strike, or it can work past the expiration of the current contract.

The first option is unlikely. SAG and the DGA are both set to negotiate for a summer of '08 expiration and they both have very credible strike threats, so why should the WGA settle for a bad deal when all it will do is undercut the other unions chances of doing better?

Plenty of ink has already been spilled over the second possibility: a strike. I think a strike is less likely than many observers assume.

Ironically, the complete and total failure of the ANTM strike may have saved us all from a bad general strike. I know the current leaders of the union. I opposed them in 2005 because I felt they were naïve and far too trusting of their own intellectual theories of how battles with the studios would actually play out.

After the ANTM debacle, I think they might have realized that I was right. Romanticism can run high among writers —we fetishize Paddy Chayevsky's Network for its fearless, media-smashing Don Quixote —but a punch to the nose can complicate delusions of rebellion.

The third option, working past the deadline, seems likeliest. If the WGA won't accept a bad deal and the companies won't offer a good one, the two sides can stop negotiating without a strike or lockout . This is precisely what happened in 2004. If this comes to pass in '07,

then all eyes will turn to SAG and the DGA. If SAG strikes, all bets are off, and the WGA will almost surely walk the line with them in support. If either SAG or the DGA makes a deal, the writers will get stuck with it for better or worse. Either way, we're not quite the canary in a coalmine many industry writers paint us to be.

Unless...

There is one other possibility.

As if the situation weren't confusing enough, there's the small matter of the business model for sales of movies and television shows over the internet:

It doesn't seem to exist.

Right now, internet distribution is a Babel-like jumble of different price points, varying models of purchase, a lack of standard media formats and digital rights management snafus.

Once it all stabilizes and becomes as fast and common as downloading music, the companies will find out how people want to get their movies and TV shows online and what they'll pay for them . They'll find out what the real sales volume is. They'll find out what the overhead will be, whether they or third parties will distribute, whether the sales will be per unit or on a subscription basis, and so on.

Right now, they just don't know. And because they don't know, there's lots we don't know about how to establish a fair and sustainable residual structure for writers in this strange new world.

Given the lack of consensus and economic visibility, there's a strong possibility that everyone will look at each other and decide that maybe the best bet is to agree to figure this all out in 2010, when the contract expires again . But this fight over residuals has been brewing for twenty bitter years, and, be it now or later, it's going to be settled at some point . The talent knows they may never recoup what they lose in a strike, and the companies know that market instability is poisonous to their bottom line.

It's tempting to say that cooler minds will prevail, but this is Hollywood. When money's on the line, things always seem to get ugly.