Residuals Debate: Old Script on New Set

NBC lets consumers download “Studio 60 on the Sunset Strip” and “Heroes.” ABC makes episodes of “Lost” and “Ugly Betty” available free online a day after they air. The MySpace website offers episodes of the Fox drama “Prison Break,” and Walt Disney Co.’s “The Little Mermaid” can be purchased for download to a video iPod.

In a digital free-for-all, Hollywood trumpets another round of ventures nearly every week making TV series and films accessible on the Internet.

But with each splashy announcement, resentment builds among writers and actors who believe studios are ducking the issue of how to properly pay them when their work is viewed via the Web. With major labor contracts expiring over the next two years, fears are growing that digital distribution will become such a contentious issue that it could prompt a strike.

“We’ve learned from history that when these new technologies emerge that we can be left behind,” said Alan Rosenberg, president of the nearly 120,000-member Screen Actors Guild. “We have to make sure we don’t wait 20 years to get properly compensated.”

Standard Hollywood labor contracts are largely vague on what payment formulas should apply to the presentation of films and TV shows on something other than a movie screen or TV set or for programs created for the Web. Studios would like to pay lower home video rates for movies and TV shows sold on the Internet, but actors and writers want better scales, similar to what they get when their work airs on pay TV.

Actors and writers now make pocket change from downloading because the business is new. In many cases, talent isn’t paid at all because the download is considered promotional for a show.

The current rift can be traced to the home video boom that started in the early 1980s. Studios and unions agreed then that distributors would keep 80 cents of every wholesale dollar earned selling videos. The various talent guilds divide the remaining 20 cents according to complex formulas. In theory, the deal was needed to help studios launch the new medium.

Instead, videocassettes, and later DVDs, became gold mines, leaving actors and writers grumbling that they were saddled with an antiquated pay system badly in need of fixing. Unions have tried to revisit the issue, but studios refused to budge. Today’s talent doesn’t want to repeat that experience.

“We made a lousy deal for videocassettes about 20 years ago, and I think it’s come back to haunt us,” said writer Marc Cherry, who created the hit ABC show “Desperate Housewives.”

Studio executives contend that it is too early to establish pay formulas for such nascent markets and technologies. In many cases, they say, online streaming is merely promotional and doesn’t justify extra payments. Both producers and talent benefit, they say, if the Web exposure boosts a show’s popularity.

In addition, they warn that digital distribution could end up cannibalizing their current primary sources of revenue: DVD sales and box-office receipts.

“We have the same fear of the unknown,” said J. Nicholas Counter, president of the Alliance of Motion Picture and Television Producers, who serves as the industry’s chief negotiator. “We don’t know how these markets are shaping up. When we get to the point where we can make some intelligent decisions, then we’ll sit down and negotiate.”

Studios contend that the guilds, in invoking their experience with home video contracts, fail to acknowledge how much their members have benefited from the popularity of DVDs. In 2005, an estimated $570 million in home video residuals -- the extra fees talent gets when their work is reused -- was allocated to entertainment workers, up from $220 million in 1995, according to industry estimates.

As much as studios have benefited from DVD sales, they contend that it is not pure profit. DVDs offset rising marketing and production costs and help fund the big paychecks of stars such as Johnny Depp and Julia Roberts.

Patric M. Verrone, president of the nearly 11,000-member Writers Guild of America, West, contends that his members aren’t naive about Hollywood economics and recognize the value in promoting a show with Web downloads.

But, he adds, now is a crucial time for writers. They need to cut a better deal for digital distribution with their contract expiring in a year. “We will not stand by while the industry creates business models that leave us out of the mix,” Verrone said.

Actors will tackle the issue in 2008, when their contract is up. Both unions expect the studios to take a hard line in negotiations.

With a year before the first key labor contract expires, it may seem that Hollywood has plenty of breathing room. But it doesn’t. Because of the long lead time required for TV and film production, some studios and producers are already ordering additional scripts and developing cheap reality shows just in case.

If tensions don’t ease by early next year, Hollywood could be in for a repeat of the de facto strike of 2001. Although walkouts by writers and actors were averted then, thousands of workers were furloughed anyway. That’s because studios were so spooked by the threat of strikes that they built up a backlog of projects that had to be burned off before production resumed.

When strikes do happen in Hollywood, technology is usually the cause. In 1960, about two decades before actors walked out over compensation for pay TV and videocassettes, they struck over payments for movie reruns as TV was booming.

“Every time a new distribution system comes along, whether it’s television or cable, video or cellphones, there’s going to be a fight over who gets to stick their spoon into the money stream,” said University of Texas professor David Prindle, author of a history of SAG.

So far, war hasn’t broken out over downloading, but skirmishes have.

CBS touched a nerve recently when it announced that it would stream episodes of several prime-time shows on its website the day after their airings.

What it didn’t say was how, or whether, talent would be paid. That prompted the Directors Guild of America to join actors and writers in declaring that their labor contracts provide for compensation when work is reshown.

“Our members must be properly paid for the use and reuse of their work, and our agreements and future negotiations will assure it,” DGA President Michael Apted said.

In another dispute, NBC Universal filed a still-pending complaint with the National Labor Relations Board against the Writers Guild when scribes on several shows, including “The Office,” stopped working on short Web episodes.

NBC maintains that the work is covered under existing agreements, but writers believe that they should be paid extra.

More incendiary was ABC’s decision that residuals for downloads from Apple’s iTunes store would be based on the current home video formula.

Unions griped that ABC violated collective-bargaining agreements by imposing the rate instead of consulting with them. The network has stood its ground. An arbitrator will try to resolve the dispute.

For some actors, how they are being paid for their work online is already a concern. Seth Menachem, 32, whose credits include a Miller beer commercial and a bit part on the TV show “The King of Queens,” recently auditioned to host several five-minute episodes of a dating show created for the Web. They pay half the money he gets for commercials and don’t pay for reruns.

“If the union isn’t able to catch up with the future of media,” he said, “then those of us who are working actors won’t be able to make a living.”

David White, a former SAG general counsel who now is a labor consultant, said both sides were treading carefully as tensions grew.

“The unions are nervous about making concessions before they understand the impact of those concessions,” he said. “Producers are nervous about making concessions when they don’t understand how these models will yield revenue.”

That’s because it’s hard to predict exactly which methods will catch on with consumers. Movie download services such as Movielink and CinemaNow, for example, have yet to catch fire.

“It’s absolutely clear that consumers’ monogamous relationship with the TV screen is coming to an end,” Forrester Research analyst Josh Bernoff said. “But anybody who says they know where the next big distribution channel will come from is guessing.”

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Back story

Nearly every week, major Hollywood studios and broadcast networks tout a new venture to distribute their movies and TV shows via the Internet.

But as Hollywood producers grapple with new ways to mine opportunities in the burgeoning new-media industry, writers and actors are growing increasingly uneasy about what they see as an effort to deny them fair pay for their work.

Studio executives contend that it’s premature to lock in pay rates before technologies and markets develop further. But actors, writers and directors -- or “talent” -- fear being left behind and are determined not to repeat their experience with home video in the 1980s. Then, unions locked themselves into a discounted pay formula to help launch a fledgling business that quickly became a lucrative one.

The issue already has sparked several labor disputes and could help trigger a strike by writers and actors when their contracts expire in the next two years.