Take My Study… Please

Why shouldn't we take seriously the Companies' idea to conduct a three-year study of non-traditional media?

How can we take an idea seriously that means stalling for three

years the bargaining of fair contracts for the people who create and

produce the content that makes the entertainment industry so successful?

The studios assert that these are new technologies, so they don't

know how any of it will work from a business standpoint. This may be a

clever excuse, but as we all know digital distribution is hardly new.

Movielink, one of the earliest Internet websites for delivering movies,

was started by several of the studios in 2001. They've collected six

years of data from Movielink since then. We've had a residual formula

in place for this type of “temporary” Internet downloads since November

2001. More recently, in October 2005 iTunes began selling downloads

under a deal with Disney. In Internet years, two years is a long


The Companies claim that the business models for new media are unknown. (By the way, what is a business model?)

A business model is simply a description of how a studio gets paid

under a specific deal. The Companies have made hundreds of digital

distribution deals during the term of the current MBA, and each

represents a business model. A discussion of those deals at the

bargaining table is more informative than a study. We have requested

information about these deals from the Companies to enable us to

bargain effectively, and by law they are required to provide it. But we

have not yet received it.

What are the Companies proposing to study for three years? Their

written proposal contains an important limitation: the study would be

based only on “publicly-available” information. But we've already done

that study, and we assume that the Companies have as well. We don't

need outside consultants to present us with an analysis of public data

three years from now, while in the meantime the Companies pay nothing.

They say that residuals can't be paid until a dominant business model emerges.

The fact that delivery systems are changing, and will continue to

change, does not mean that residuals shouldn't be paid now. Collective

bargaining can accommodate change. The existing formulas for digital

distribution-and the formulas that the Guild is proposing in the

current negotiations–are based on percentages of revenue. These are

business-model neutral. If the studio generates a lot or revenue, the

writer gets more in residuals. If the studio generates less revenue,

the writer gets paid less.

Technology changes constantly. Don't we need to see which one dominates?

The percentage of revenue model does not require betting on a

winning technology. It is technology neutral. Under our proposal, when

the studio gets a dollar, the writer gets 2.5 cents-the technology

doesn't matter.

The studios claim they need flexibility in this new area.

A percentage of revenue model is 100% flexible. "Flexibility," as

the Companies use it, is a code word for paying less. The studios want

non-traditional media uses to generate revenues with no residual

obligation or with the heavily-discounted DVD formula, even when there

is no DVD to manufacture. That's not fair; it's greedy.

Non-traditional media could cannibalize existing media.

The “cannibalization” of old media by new media is a red herring.

There are several factors that affect the displacement of older

distribution methods by new ones. Business decisions that are

completely in the control of the studio executives exert major

influence in this process.

ITunes started with four ABC series and several Disney Channel

series. The Companies have been selective in releasing product through

new media outlets. No studio has licensed the thousands of features and

tens of thousands of TV episodes in their libraries in a wholesale way.

They release product to new outlets only when the viewing is additive

or when the new method of distribution is more profitable than the

displaced one. In other words, “cannibalization” is a business


The studios claim they don't know what they are doing in these new markets – it's “experimental.”

Experimentation is a normal part of any business, and in the

entertainment industry experimentation is a way of life. The studios

make a convincing case to Wall Street that they are in firm control of

their strategies, including their experimentation with new media. This

is the explanation they give for their high profit margins, and the

justification for their executive compensation packages. Since making

false statements to the markets is a violation of securities law, we

take their Wall Street pronouncements seriously.

Residuals in this area will be groundbreaking.

Not so. In 2001, the Companies negotiated the first new technology

residual, agreeing to pay 1.2% of the distributor's gross receipts for

Internet rentals. Now that other forms of distribution have arrived,

such as the sale of downloads or advertising-supported streaming, it is

time to negotiate fair residuals to cover these new uses.