Producers Make Dramatic Call for Residuals Revamp

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The networks and studios Wednesday set the stage for what promises to be a long period of contentious negotiations with labor unions by calling for a complete revamping of the nearly 50-year-old fixed residuals system for writers, actors and directors.

The dramatic offer was instantly rejected by the Writers Guild of America (WGA), which is scheduled to begin negotiations with the Alliance of Motion Picture and Television Producers (AMPTP) on Monday on a new three-year deal that could lead to the first industry strike in two decades.

Conceding that they are in for a difficult fight with the big guilds as their contracts expire over the next year,  high-ranking network and studio executives said during a press briefing at AMPTP headquarters in Los Angeles that they want all residual formulas—not just new media issues that writers have used to largely frame the upcoming talks—to be on the bargaining table. 

Lamenting how the world has changed over the past half century, the executives insisted the upcoming negotiations have taken on heightened significance due to increasing audience fragmentation, rising production and marketing costs that have spilled more red ink onto the books, new advertising challenges and the rise of broadband and digital platforms.

But the WGA wasn’t buying it. “The industry conglomerates declare windfall profits to Wall Street while pleading poverty to the talent community,” said John F. Bowman, chair of the WGA’s 2007 Negotiating Committee, which encompasses the separate West and East Coast branches. “Our proposals will be fair to writers and to the industry. What we are seeking over a three-year contract is about what a couple of failed executives get every year in severance packages.”

While avoiding discussion of its specific proposals, Warner Bros. Entertainment Chairman-CEO Barry Meyer, CBS Corp. Chairman-CEO Les Moonves and Anne Sweeney, co-chair of Disney Media Networks and president of the TV group, made it clear that they will call for a study that would bring about an entirely new residuals formula structure.

 “We’re now dealing with something that transcends the normal four, five, six things you deal with in labor negotiations,” Meyer said. “We’re dealing with something that is of bigger import and has greater long-term consequence around the industry.”

He added, “We’ve talked about it, we’ve thought about it but we never really have gone after it. And we think we need to have to really go after it now. We can’t wait any longer.”

The goal, Meyer said, is to find “a way to recoup the sizeable investment in movies and television programming before there is a sharing of profits with anybody.”

 “Why,” he asked, “does the model work that says you have to reuse that product trying to recapture a loss? Why isn’t (there) a model that says once the investment is recovered, maybe there should be a higher percentage paid of the profits?”

And producers declared that they want to study “experimental” new media issues for the next several years to get a better gauge on which of the emerging platforms can be financially sustained.

“I devote an awful lot of my day right now to dealing with new media and where our content is,” said Moonves, who wants to avoid having the TV and movie business follow in the footsteps of the music industry. “You’d be surprised how often I’m dealing with that now in my day-to-day life in New York City.  I wouldn’t know how to begin to talk about a formula (or) how this would be shared since it is such an experiment right now for all of us.”

Building fixed residuals into new media, in the words of Meyer, “will force these businesses away from us, will force (us to go) to people who will (film productions) out of studios and places other than Los Angeles and New York. We really don’t want to force those businesses away from us by saddling them with those old rules.”

But Bowman countered the claims, saying, “The companies have made hundreds of deals in the new media arena over the past year, which proves that they do have viable business models. We don’t need a study; we need a fair share for writers of the revenue our work generates.”

Despite the objections, Meyer said the issue of a comprehensive study addressing residuals is “going to be raised in a very, very serious way with all three guilds, and it is a change. We think the sooner the better in terms of addressing it, but it’s not like we have every answer to this right now. We think the study has to seriously encompass a look at those old traditional models and whether they still apply in today’s world.”

Under the existing residual formulas, Meyer said, “There are a lot of people rooting for a reuse of a program in free television, because it is a higher residual than it is in pay television. We shouldn’t care about that. We should care about … a unity of interests. We should all care in getting all the revenue in from whatever source we possibly can, having that recapture the investment, and then sharing it regardless of what the source is.”

Meyer emphasized that none of the executives are “suggesting that come day one of a new contract, all residuals are going to be eliminated. But I think what we are suggesting is that we need a very, very comprehensive, cohesive study involving all three of the guilds with a view to changing what those models are.”

Added Sweeney, “It’s not just about the new media and how that might impact our businesses. It is about the whole structure of the business.”

Noting the varying strategies the networks have taken to new media, Sweeney said, “We have no idea how many new platforms and technologies are going to come into play within the next month, within the next year. When we look back, it has really been 18 months of furious activity in the digital space with nothing to suggest that is going to slow down over the next year.”

The executives are taking aim at residual structures established in the early 1960s and partially revised 20 years ago, when the guilds went on strike to fight a losing battle over residuals for videos. The unions have vowed not to be left behind again when it comes to broadband and other new technologies.

While writers stepped up their rhetoric and tactics over the past few years, when new, more radical leadership took over, producers had refrained from publicly discussing their objectives—until now.

Thirty years ago, Meyer noted, “You cancelled a show if it didn’t get more than a 33 share.” Today, he said, the top network gets a 4.4% share.

“Per se, there’s something wrong with that. Per se, something has to change in that model and this is the time, for a lot of reasons, not the least of which is that all new media things are really beginning to bubble to the surface.”

The most vocal of the three, Meyer said, “We have to make fair deals. We just think that the model has to change, that the sharing should be done on profitability in a model where it is very hard. … It’s clear to us that those old models don’t work anymore, that models based on reuse of programming before  you’ve recouped your costs, or any semblance of costs have been recouped, don’t work anymore. And we think that the study we’re asking for has to look at that.”

But the WGA raised doubts over the industry’s reputation for accounting transparency.

“Our members can’t rely on Hollywood accounting,” Bowman said. “According to studio analysis, 'The Simpsons' doesn’t turn a net profit. The companies have lost the right to talk about a profit basis for residuals.”

Anticipating such a response, Meyer suggested that accounting “is one of the things that we have to look at” as part of a study, saying, “There’s no reason to think that we can’t solve the problem of how you deal with all of those accounting issues.”

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