Saturday, January 19, 2008

DGA Deal

Thursday, January 17, 2008

First Glance at the DGA Deal summary from United Hollywood


We're a group of volunteer WGA strike captains, and we're posting our reactions to the DGA deal summary that was released today. These are our thoughts alone. They are not official, they don't reflect the WGA's opinion, and frankly, they will probably include a few mistakes.

Which brings us to our second caveat: The DGA deal summary is just that, a summary. It's not the final comprehensive contract. That document, we've been told, is still being drafted by the DGA. So the unclear items in the summary will remain so until the DGA releases the contract.

Since the conversation is raging already, we want to weigh in with our preliminary thoughts. Caveats in mind, here we go:

Issues of Wage Increase, Residual Increase and Healthcare

From what we can see in the summary, there are no rollbacks and some decent increases. As rollbacks on just about everything were such a big part of the congloms' proposal to the WGA, we are, cautiously, optimistic here.

Jurisdiction on Internet Productions

The good: Content that is derivative of something already covered would likewise be covered. In other words, mobisodes, webisodes, whatever-isodes based on something that's already a series or a movie are automatically covered, no matter what the budget.

The bad: We can't tell from the deal summary language if that includes the WGA concept of "separated rights." And there are few concepts more important to writers than separated rights. When you create a character, you have merchandising, sequel and other exploitation rights to that character. Those rights can be a very important source of income -- just ask the creators of a character named Captain Jack Sparrow.

Original Internet-first content

The good: there's coverage for productions costing $15,000/minute, when before there was no coverage at all.

The bad: No minimums are mentioned. We don't know for sure, but that could mean the DGA didn't negotiate any. Also, no mention of separated rights in the summary for Internet-first.

Here is a nightmare scenario: Networks start making inexpensive pilots with a budget of $299,000 and put them up on the Internet (on say, Hulu) to gauge their popularity. It's bargain-basement R&D. If a pilot hits, it gets aired on conventional TV, but pays no residuals, contributes no health & pension, provides no separated rights... provides no protections at all. Fifty years of hard-fought creator rights would vanish.

The ambiguous: Regarding coverage of original content below $300,000 per episode, the summary says: "Original content below the threshold will be covered when a DGA member is employed in the production." That language is unclear. If a single DGA member is employed in a sub-$300,000 production, is the whole production covered (including btl crew)? Or just the DGA member? If it's the whole production, that's a "good." But if it's just one person? That's a "bad."

Electronic Sell-Through (aka downloads)

For the first 100,000 downloads of a TV show, the payment is the DVD rate: 0.3%. After the first 100,000, it rises to .7%

For features, the rate is 0.3% for the first 50,000 downloads and 0.65% thereafter.

The good: It's more than twice what we were being paid before.

The bad: What we had before was based on the miserable DVD formula. WGA, SAG and DGA had all agreed that that number really should be 1.2%, and the unions have actually sued the congloms over it, claiming that the use of the DVD formula for downloads is a misinterpretation of their respective MBAs.

So the 0.7% and 0.65% numbers are still terribly low. In addition, many downloads will not reach the 100,000 or 50,000 threshold, and will generate only the abysmal 0.3%.

It's frustrating to us that the DGA couldn't increase that number out of the DVD range. The DVD formula was based on the notion that "home video" meant a bulky plastic VHS tapes with enormous manufacturing and transportation costs. Those costs decreased dramatically over the years. But no increase in residuals. They decreased dramatically again with birth of DVDs. (You can slip them under a door!) But no increase in residuals. With downloads, the manufacturing cost is exactly zero dollars. And terabytes of storage are getting cheaper by the hour. But we still can't improve that DVD formula? Really?

Distributor's Gross

Payments for EST and, we assume, downloads will be based on distributor's gross, which is much better than producer's gross.

The good: This is what the WGA was asking for, and up until now, the congloms said it was a non-starter.

The bad: How will the accounting be kept transparent? The deal summary doesn't provide any guidance. Until we know how the DGA plans to guarantee that the distributor's gross is an accurate number, we can't know if this is meaningful. ("Net profit" points, anyone?)

Ad-Supported Streaming

For the first 17-24 days, no residual payments at all. After that first run, $600 for six months, up to $1200 for the first year of unlimited streaming. After the first year, 2% of distributor's gross.

The good: 2% of distributor's gross is a meaningful number, again with the caveat that the accounting has to be transparent.

The bad: In the near future -- and in some cases, the present -- rerunning television shows on the Internet will replace conventional reruns. This structure, as described in the summary, to our eyes appears to be the end of television residuals. Whereas a primetime network rerun would be worth $20,000, unlimited streaming on the Internet would be worth only $1200, assuming the episode is kept available for an entire year.

Now, as the companies point out, the current Internet streaming market cannot support a residual level that conventional TV can. It may in the near future, in the distant future, or never. So that's why it seems to us (as the WGA NegComm has said in the past) that the best strategy here is to grant the writer a percentage of real revenue. That is not only the best way to fairly compensate writers, but also a hedge for the companies. If and when the streaming market takes off, flat fees for reuse will be egregiously unfair. The percentage model could, in time, make up for the loss of TV residuals as advertising moves solidly to the Internet.

In years two through infinity, 2% of distributors gross is a meaningful formula. But 2% of what? Even if an episode is kept online for more than one year (and who's to say it would), the demand to view it will be minimal. After a year, the episode will likely be available on a DVD set, and has probably been available as a paid download for some time. The minimal number of streams will mean a minimal ad rate. So enjoy your 2%, writer.

If the ad revenue even in the first year of streaming turns out to be negligible, then giving writers a percentage is insurance that the congloms won't have to overpay. But if something takes off and becomes wildly successful, then a percentage-of-revenue model would reward the writer appropriately.

Sunset Provision

This provision apparently tries to address the fear that the unions will again fall into the DVD trap. It is meant to provide a framework to reevaluate the state of the market and adjust for it in three years.

The problem is, a contract expiring is supposed to provide exactly that structure and that insurance. If you've made a bad deal, you get to revisit it in a few years. We're unsure how the sunset provision is any more insurance or provides any more "teeth" than the ordinary process of a contract expiring. And, of course, we're concerned that all the assurances that the DVD deal was temporary were, in the end, empty promises.

In conclusion... There are some genuine gains here, some issues that need clarification and some points of grave concern that threaten to drastically undercut writers' compensation. The DGA deal, as we understand it, is neither reason for celebration nor mourning. Writers (and actors!) must resist the urge to get entrenched in a position on this too quickly. Parts of this deal will be the basis for a meaningful resumption of talks with the WGA, parts of this will not. Let's discuss it, let's debate it, but let's keep it civil and understand that the deal that gets everyone back to work will be the one that no one loves, but everyone can live with.

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