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A Nice Explanation of the Economics of the Writer’s Strike

December 26, 2007

Rob Long (whose NPR segments appear as podcasts and who came to my attention on in BloggingHeads segment) was kind enough to respond to an email of mine asking, in pertinent part:

Your post today about resetting upfront compensation made me remember a question that’s been in the back of my head for a while concerning the strike and the way writers are compensated: Does the WGA contract (the subject of the strike) set all terms of contractual relationship, or just those other than salary? Or does everyone operating under the contract get paid some form of scale such that every write in a given class makes the same amount and the there rules about the number of writes in each class that must be employed on a given project? Or perhaps something completely different?

The reason I ask is that if the answer is the first possibility, I don’t understand why the studios don’t just accept the WGA demands, but then lower salaries to make up for any expected lost revenue from internet revenue being shared with the writers?

His complete response is here, but the actual possible answers he gives are:

1.  That would be collusion, which is illegal, and the studios are scrupulously moral financial citizens.

(done laughing? I’ll continue…)

2. The studios — like the writers — all have different financial interests, too.  Sony and Paramount are mostly movie studios.  20th has huge web investments.  CBS is almost purely a television studio.  So aligning them all in one direction is pretty challenging, which is why they stick to what they can all agree on: no to everything, no to DVD residual increases, no to web revenue sharing, no, no, no.  

3.  Also: every concession they make to the writers carries with it an implied multiple of roughly 5.  Because they’ll have to give the directors the same (or better), and the actors, too, who get a little more because their residuals are split among cast members.  

So it’s easier just to say no, wait the writers out, get them good and broke.  And most of these guys aren’t great strategists — it’s hard to be, in a business driven by box-office and ratings. 

You see,  I’m not sure that in their multiple phone conversations, meetings, gatherings, etc. — and remember: these are all LEGAL conversations; the guild pretty much allows these guys to collude — that they’re not muttering about how great it would be if they all agreed to holding the line, when this is over, on fees and producer’s cuts and all of the compensation mentioned above, compensation that’s huge, agent (not WGA) negotiated, and compensation that is the source of competition between the studios.  Disney lowballs me on my producer’s fee?  I’ll go to 20th.  

But if Disney and 20th have decided, in the elevator, on the phone, in some non-discoverable venue, to cut those fees 30%, along with their other colleagues, it’ll probably stick.  Sure, in about a month after the strike, they’ll all be at each other’s throats again, competing and outbidding each other.

But for the first initial wave of hirings and renegotiations — when the writers are broke and need money — they’ll get their discount.  And they’ll reset the business.

Good stuff. I think 2 & 3 are probably good answers to my question (and provide and interesting glimpse at this business). I’m not persuaded that 1 is really a factor– not because the studios are doing anything illegal, but rather because I think it is possible for the studios to legally communicate to one another in a rather generic way that they would reduce upfront fees to in response to an increase in residuals.

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