Writers Seek Their Slice of Internet Pie
Guild Fights Over Pennies On the Digital Dollar
By Linda Moss -- Multichannel News, 11/11/2007 7:00:00 PM
(Strike Photos)
Nearly two decades ago, the Writers Guild of America agreed to a home-video residuals formula that the union now claims wound up shortchanging it when that market boomed. This year alone, DVD sales are expected to hit $16.4 billion.
Guild members said they don’t want to make that same mistake with new media, and that’s why they were walking picket lines last week. At press time, the strike was set to enter its second week today, Nov. 12.
The WGA is essentially arguing that its members are entitled to a piece of the Internet pie, namely payment for all use of their work on new-media platforms.
“Twenty years ago, the companies forced writers to accept an unfairly low residual for home videos so that the market could grow,” WGA West president Patric Verrone said in announcing the strike.
“As the chairman of one of the Big Six media conglomerates recently stated, the Internet is a source of additional income,” Verrone said. “That is why our position is simple and fair: When a writer’s work generates revenue for the companies, that writer deserves to be paid.”
The scribes have been haggling with the Alliance of Motion Picture and Television Producers over residuals for content — movies and TV shows — that is downloaded. In addition, the WGA is seeking compensation for content that is streamed online for free.
The revenue generated by downloads and ad-supported video streaming right now is not a huge pot of money: an estimated $500 million or so, although it’s growing. How much financial potential exists is subject to debate, but the writers want to be in on the ground floor.
The WGA, whose contract expired Nov. 1, had not only sought a doubling of residuals on DVD, it also has balked at the AMPTP’s proposal that the DVD formula be applied to downloads. The writers also want residuals for streamed video, a use that the producers have claimed is purely promotional and therefore doesn’t warrant payments.
When the contract talks broke off Nov. 4, both sides had given some ground on these issues. The WGA had withdrawn its demand that the DVD rate be doubled, and the AMPTP was asking for a short window for streaming for promotion, followed by residuals based on any revenue the producers get from streaming.
Under the existing DVD formula, writers get a cut of 1.8% of the producer’s gross, which is defined as 20% of wholesale receipts. The WGA wanted that rate doubled, to 3.6%. That would mean writers would be getting roughly 8 cents per DVD rather than the 4 cents they get now, according to the WGA.
The AMPTP claims that the writers’ residual rate on DVDs is not “discounted,” and actually looks pretty good when put in context, when it’s calculated on realistic sales rather than a per-DVD basis.
An average movie might sell 3.5 million DVDs, which at $18 wholesale per DVD is $63 million. Producers would gross $12.6 million, and pay out $2,280,600 in residuals. About $226,800 of those residuals would go to the writer, according to the AMPTP.
The producers argue that they need their revenue from DVDs to help offset deficits for the TV shows and movies they produce. The studios claim that six out of 10 movies never recoup their costs.
| * Forrester Research estimate for 2007 SOURCE: Forrester Research |
| $279 million: Paid downloads of TV shows and movies* |
| $190 million: Content owners’ share |
| $38 million: 20% of owners’ share of download revenue |
| $684,000: Writers’ 1.8% cut of the 20% |
“All windows and media are needed for the vast majority of productions just to recoup initials costs, much less break even or make a profit,” according to the AMPTP.
Going forward, the AMPTP wants the 1.8% DVD residual rate applied to the download of content for permanent use, and a 1.2% rate applied for content that is downloaded for “limited use,” for example, on platforms like Movielink, according to a spokeswoman for the producers, Barbara Brogliatti.
The WGA has emphatically said it doesn’t want the DVD rate applied to new media. The guild is asking for a higher rate, residuals of 2.5%, for the reuse of content on new-media platforms, such as the Internet and mobile devices.
Revenue for downloads and video-streaming revenue now is not big, but it is growing.
Adams Media Research is projecting that this year consumers will spend $110 million to buy and rent movies online, and $194 million to download TV shows on platforms such as iTunes, or roughly $304 million total, according to Adams president and senior analyst Tom Adams.
Forrester Research’s estimates for downloads this year are similar. Forrester is projecting that the paid-download market for TV shows and movies will be about $279 million, with about $200 million of that coming from iTunes, according to Jim McQuivey, a Forrester principal analyst.
Of that $279 million, McQuivey said that content owners only get about two-thirds, or roughly $190 million.
If the writers were to get residuals of 1.8% based on the DVD formula, their share of that $190 million would be $684,000, according to McQuivey. At this point, then, residuals on downloads for a full year would only be about equal to residuals on just three typical DVD titles.
Which means downloads are not much of a bonanza. Last month, NBC Universal president Jeff Zucker said his TV shows accounted for 40% of all sales on iTunes’ video store in 2006, yet NBC only garnered $15 million in revenue off that. NBCU has decided to pull its shows off iTune at the end of December.
Adams Media Research is pegging the money spent on advertising for streamed TV shows to be $250 million this year. Forrester is projecting that the total video-streaming pie will be $471 million this year, with only $240 million of that relating to professionally created videos, and therefore pertinent to the strike and writers.
“So one hand you’ve got $279 million in downloads, and on the other hand, about $240 million in ad-supported video revenue,” McQuivey said. “Between those two things, there’s about half a billion dollars in action going on.”
The AMPTP claims that in most cases, producers are not getting any of the revenue from the ads that accompany streamed TV shows — the networks are.
By 2011, Adams Media Research projects that movie downloads will be just over $720 million and TV-show downloads will be $733 million, while advertising on streamed TV shows will hit $656 million.
“Right now, the download market is tiny, microscopic,” Tom Adams said. “It’s certainly not something worth shutting down the industry over at this point.”
According to Adams: “The problem going forward is that the guilds are being made very concerned by some just absolutely ridiculous projections that many others are making about how big this download market could get, and therefore thinking, 'Oh my God, this is another $16 billion DVD market in the making, and we can’t let the same lousy DVD deal we’re stuck with apply.’ ”
Forrester sees downloads as a $1 billion to $1.5 billion business in the near future, with 10 times that potential for ad-supported video streaming in five years, McQuivey said.
He views the download market today as relatively small, but he said it represents “pure profit” for networks, without the manufacturing costs or risks associated with DVDs or tapes.
“It’s not a lot of money that they’re arguing over today, but even if it’s not a lot of money today,” according to McQuivey, revenue from sources like iTunes “is essentially pure profit” for producers.
“Yet they get to keep the lion’s share of the revenue,” McQuivey said. “So the writers are essentially saying this is already upsetting in DVD, but in the Internet space, even though it’s a small amount of money, in principle it’s ridiculous.”
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