The writers' union is feeling flush from the increased cable residuals in its new contract, but cable networks don't expect an immediate pinch in their purses.
The tentative agreement between The Writers Guild of America and the Alliance of Motion Picture and Television Producers calls for increasing writers' payments by $41 million over the term of the deal. The guild's 11,000 members are expected to ratify it; cutoff time for the mail-in votes is June 4.
Payments by cable networks were at the heart of the negotiations, since they have still been getting price breaks negotiated when they were poor and thinly watched, not rich and sometimes beating broadcast networks' Nielsens.
The union scored a significant victory with increased residuals for made-for-pay-TV programming. A new fixed-payment system increases residuals for shows like HBO's The Sopranos and Sex in the City and Showtime's Soul Food to $4 million a year from $300,000 per year under the old contract.
"The problem with this was that, in practice, it never paid any residuals," said Chuck Slocum, the guild's director of strategic planning. "We were never happy with this. The directors' guild had a richer formula, and the actors' deal was somewhat richer, but ours just has not worked."
The new contract will not have drastic implications for the cable industry—at least in the short term. Many near-term original movies and series are in production or finished and are not covered under the new deal. The networks won't feel the effects until they start new productions. The degree of long-term pain won't become clear until the networks start new productions and will vary according to the level of contact a network has with the union.
"Lifetime and most networks get original programming and scripted series from outside production companies, and they have deals with the writers' union. We don't pay the writers directly," said Dawn Tarnofsky-Ostroff, Lifetime's executive vice president of entertainment. The increased residuals could slightly affect prices charged by the production companies.
But Tarnofsky-Ostroff contends that, to compete for talent, Lifetime already pays broadcast-network rates.
E! Entertainment uses in-house, nonunion writers. The Disney Channel said it doesn't expect to feel much pain from the hike in residual payments. HBO, TBS, TNT, Showtime and USA Network would not give details.
The WGA said that writers will now receive a fixed amount, rather than a percentage license fee, and each payment buys the network a year of reruns. The old contract employed a formula for payments where the writers received 2% of the license fee when certain thresholds, such as revenue level and year of distribution, were met.
Now, after the first year, writers will receive $2,500 for a half-hour program, $4,333 for an hour and $8,333 for a two-hour show. The payments stay about the same for the third and fourth years but diminish in the fifth season of reruns.
When a show such as The Sopranos or Sex in the City (which have had strong VHS/DVD sales) moves from pay cable to another pay service or VHS/DVD, the writer will now receive 2% of license fees. The union was seeking a more significant increase.
Made-for-basic cable residuals will rise 20% to $850,000. The percent increase will pay writers 30% to 36% of the syndication rate for a made-for-cable show.
The guild's major cable defeat was a failure to boost the 2% residual for shows going from broadcast to cable TV, such as ER, Law and Order and TV movies.
This issue is sure to be a high priority when the two sides meet again in 2004 to hammer out the next contract, Slocum said.
With the writers' contract settled, network executives are now looking toward upcoming contract negotiations with the Screen Actors Guild.
"It's one contract down, one to go," said E! President Mindy Herman. "Cooler heads have to prevail, especially in the current economic condition."