Writers’ Strike Centers on Internet ‘Residuals’

January 25, 2008 at 6:40 PM EDT
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The Writer's Guild of America has been on strike for several months now, a strike called over a dispute on 'residuals' -- money made mostly by DVD sales and Internet streaming of television shows. Jeffrey Kaye of KCET Los Angeles reports on the status of the negotiating stalemate between the WGA and the networks.

JEFFREY KAYE, NewsHour Correspondent: Even though more than 12,000 members of the Writers Guild of America have stopped turning in scripts, much of their previous work is available on demand to anyone with a computer and a decent Internet connection.

Since 2005, networks and production companies have been putting an increasing number of programs online. And that migration to the Internet is at the heart of the labor dispute: How much should writers be paid when their material is shown on what the industry calls “new media”?

The writers point out that, as on TV, most Internet programs come with commercials. The networks don’t disclose how much they earn from the Internet, but online advertising overall is growing rapidly. It amounted to more than $20 billion last year in the United States, a 20 percent jump over 2006, according to PricewaterhouseCoopers.

SHAWN RYAN, Writer: So I click on and watch this episode, “Force Majeure”…

JEFFREY KAYE: Shawn Ryan has taken a keen interest in the networks’ use of the Internet, not merely as a viewer, but as the creator of two hit series, “The Shield” on FX Network, owned by FOX and “The Unit,” which airs on CBS.

Ryan is also a member of the Writers Guild Negotiating Committee.

ACTOR: People might think you can turn creativity on and off…

SHAWN RYAN: But sometimes companies don’t want to pay you for that creativity.

JEFFREY KAYE: As he clicked around the Web site displaying his program, he noted that, in order to watch “The Unit,” he had to first play the commercial.

SHAWN RYAN: Nikon is paying CBS to have this on the air. I’m going to pause this right now. I couldn’t pause an ad, but now that it’s back on the show, I can pause.

And so far, in the last year-and-a-half, two years, what they’ve paid writers, and actors, and directors based on this revenue is nothing. This strike has finally gotten them to admit that some payment is due, but the strike is continuing because we’re haggling over what that payment should be.

Both sides battle over residuals

JEFFREY KAYE: Writers receive initial fees for their scripts. If their programs are re-played or re-sold -- say, to cable -- they get additional royalties known as "residuals," payments that often sustain them between projects.

Currently, the writers get nothing additional for TV shows and movies streamed over the Internet. They've asked for residuals amounting to 2.5 percent of the producers' gross revenue.

The networks and studios are represented by the Alliance of Motion Picture and Television Producers. The AMPTP would not provide a representative for this story.

Before talks broke down, the companies were offering writers a flat fee of $250 for each hour-long program streamed over the Internet. Writers currently get $20,000 for each network rerun.

THOM TAYLOR, Analyst: It's been dangerous for the studios.

JEFFREY KAYE: Thom Taylor, a former entertainment journalist who now works at a global investment bank, says networks and production companies contend that the world of new media is just so new and uncertain that they need financial flexibility.

THOM TAYLOR: Their position is absolutely that it's too new to set any kind of formula that they are going to stand by for the next three years. And because of that, they proposed having a study to take place over the next three years and then bring it up at the next bargaining session every three years.

JEFFREY KAYE: The studios downplay the market value of online video. They argue that the main reason to put programs on the Internet is to get viewers to watch films and TV shows on television.

THOM TAYLOR: And they're also contending that it is for promotional use. When somebody is watching a movie on TV, they're drawn to watch that movie.

When they're seeing it on the Internet, their perception of it is it's used to essentially promote them to go back to watch it on television, if they've missed one episode of a series, for instance.

SHAWN RYAN: Well, they'd love to call it "promotion" because they don't pay us for any promotion. But the fact is, have you ever seen ads within an ad? I never have, because that's what they're trying to claim.

They're trying to claim that they can air an entire episode and run ads for Ford and Chrysler and Clorox bleach in the middle of it. And yet the main program is promotion and an ad itself, and yet there are ads that they're getting paid for within it? That doesn't make any sense.

Web-based content grows

JEFFREY KAYE: The writers point out that studios and networks have made new media a growing part of their businesses. In addition to putting TV programs on the Web, some companies are producing content specifically for the Internet.

"Roommates," for instance, is a program made for, which is owned by Fox. Fox has also formed a joint venture with NBC to create, where viewers can watch programs from both networks.

Networks are also producing content that viewers can download to their iPods and phones.

ORGANIZER: The house is now open, and we can proceed into the theater.

JEFFREY KAYE: But the work stoppage has also prompted many writers to take a closer look at new media.

PETER HYOGUCHI, Screenwriter-Director: Hi, everybody. Wow, you send out a couple of e-mails and look what happens.

JEFFREY KAYE: Some writers are developing an entrepreneurial streak, convinced that they don't need networks and studios as gatekeepers.

PETER HYOGUCHI: A lot of people are saying, "Well, the Internet, no one can monetize it. They can't monetize it. You can't make any money from it. It's just not viable."

JEFFREY KAYE: About 400 writers came together recently to discuss how modern technology allows them to strike out on their own.

PETER HYOGUCHI: You can, right now, take your HD movie -- say you have an half-an-hour movie you made on HD for zero money, and it looks great, maybe even has a star in it.

And you put it on an Internet site right now, for free, prior to that, you needed multiple billions of dollars, huge corporation, you know, to get it to the theaters, or to put it on a network. You needed advertising, a giant mechanism, absolutely out-of-control mechanism, to get your story to an audience.

Now, beep, it's there, potentially to millions of people.

Internet avoids expensive middlemen

KENT NICHOLS, In January of 2006, I said, "OK, I'm going to register"

JEFFREY KAYE: Kent Nichols is an Internet overnight success story. With a popular advertiser-supported show that he and his partners have put together on a shoestring budget...

NINJA: Are ninjas omnipresent? Well, I'm here, and I have got an omni-present for you.

KENT NICHOLS: We went from having five subscribers on that Sunday night to, like, having 12,000 by the end of the week.

JEFFREY KAYE: Now, with audiences in the millions, "Ask a Ninja" demonstrates how at the very least a cheaply produced program can gain a tremendous following.

And as viewers gravitate to the Internet, some venture capital is cautiously following to finance Web start-up productions and companies, among them, Austin, Texas-based ON Networks. It offers hundreds of episodes of 26 original, made-for-the-Internet shows.

The company hopes eventually to make money from advertising and reselling its programs.

ACTOR: Thanks for being on time. I hope it's not too early for you?

ACTOR: Oh, heavens no. I'm usually up by about 3 a.m. for morning yoga and a latte, so...

JEFFREY KAYE: One program is "Backpack Picnic," put out by a sketch comedy troupe.

RENE PINNELL, Director, "Backpack Picnic": OK, camera is rolling. And action!

JEFFREY KAYE: The $4,000 budget for each "Backpack Picnic" production wouldn't be enough for the catering on a typical Hollywood set. But Rene Pinnell, the troupe's director and producer, says the members of his company make a living.

RENE PINNELL: ON Networks gives us enough money each month to make these four episodes for the people that do the most work to quit their day job.

But right now, it's pretty much just enough to, you know, just to make rent and to get by without having to have a second job. Once the shows starts bringing in more money than they spend making it, basically, then it goes into a revenue share.

JEFFREY KAYE: Sharing revenue generated on the Internet is not solely a concern of striking writers. It was also the issue at the center of recently concluded talks between the major companies and the Directors Guild. They reached a tentative settlement.

New media will also feature in upcoming negotiations with the actors' union.