In "Who's Afraid of Digital Downloads," an early article about residuals for new media, attorney Brooke A. Wharton argues from the talent perspective about the problems that arise over redefining residual agreements based on new technology. Shee bases his case on the history of the current home video residual agreement. Namely that when the first deal was struck between Magnetic Video, a Betamax producer, and 20^th Century Fox the agreement was that Magnetic Video would pay a 20% royalty fee for the licensing of their library. This deal was followed by many of the studios. In negotiating the talent contracts, 80% of the gross revenue was set aside and the 20% was split up among the studios and guilds. Wharton argues that this was fair when the manufacturing costs of one video were as high as $40. However, now that costs have come down to around $3, it is inappropriate for the studios to set aside such a large margin of the sales figures.

            It is to this argument that Wharton adds the arguments for new media. She states that the production and distribution costs for new media delivery is close to zero and that the higher rates of television should apply rather than home video. She then backs off to say that this is going to be a major debate and refrains from emphatically defending the talent's position. She ends by saying that this fight is not just a fight for digital download residuals, but for the compensation and pay of talent in the new digital age. This question is of utmost importance and could set the landscape for digital media and distribution for years to come.

 

            The Summary of the Tentative 2008 WGA Theatrical and Television Basic Agreement is the end result of major negotiations between the American Motion Pictures and Television Producers (AMPTP) and the Writers Guild of America (WGA) following a WGA. As is evidenced by the focus of the document, the major negotiations occurred surrounding points of new media. There are many other details changed within the Memorandum of Agreement, however, focusing on the official summary it is clear that new media was the most important. The rules for new media fall into two categories: original product developed for new media and the redistribution of media through new media platforms.

            The first part of this agreement deals with original products developed for new media. First, the agreement establishes the guild's jurisdiction over this sphere if the project is developed by an established writer, the project is a derivative of an existing covered film or show, or if the budget is large enough. In this sense the guild has won the jurisdiction argument and has established itself as creating the minimum contract necessary for these projects. The agreement also explains the compensation schedules and exhibition windows before residuals begin.

            The second part of the agreement deals with the reuse of existing media in new media platforms such as the internet or mobile phones. This part of the agreement sets up some interesting implications. First, it differentiates between, electronic rental, sell through, and streaming. This is an important distinction that will largely effect how the future of internet distribution will work. It defines rental as viewer pay for limited access, sell through as viewer pay for unlimited access, and lastly ad-supported streaming in which the viewer does not pay for access to the television show or film. Important terms under the new agreement make rental and download rates higher than the physical media equivalents of home video, but the ad supported streaming, although higher then home video is less than ad supported television.

            The other major implication within the agreement is that it allows for promotional "clips" to be shown without residuals of up to 5 minutes. This is currently being used for programs such as Saturday Night Live where the clip is all that is necessary and may mean that short subject shows will get a lot of attention and reuse online.

 

            Why We Fight is a video produced by members of the Writers Guild of America during the Writer's Guild Strike of 2007-2008 to state and explain their position on what they were asking for in the negotiations. The video is both an editorial on the disagreement, but also represents a primary source of information that helped move the events of the negotiations. The video was distributed via YouTube, which is fitting with its content about the fight over digitally distributed media.

            The video lays out the background of the writer's demands. Namely that after television proved an important revenue stream for the repeated play of theatrical films and the syndication of television shows, the writers had rightfully convinced the studios to pay them a 2.5% residual for any replaying of a written work after the initial play period. The video states this as a given fair standard. It goes on to say that when the home video market came about, they agreed to reduce their residual by 80% for home video revenue in order to allow the studios to experiment with the new technology. This is due to the calculation formula that sets aside 80% of wholesale receipts before applying profit participation on the remaining 20%. The video continues by making the argument that not only should the current home video residual be raised to .6% as compensation to "give back what we've given up," but also that media that is delivered through downloaded content or streaming should be using the 2.5% residual for free television.

            The video does make one important relevant claim. It suggests that in the future, all television may be delivered digitally through technologies similar to IPTV or other forms of internet television. It claims that the studios will use this change to support paying the lower internet residual instead of the higher television residual. This claim is supported by evidence that studios that resisted new forms of technology in the past, using the threat to gain concessions from the guilds, have later embraced the technologies and earned more revenue as a result. While internet delivery of television and movies is not yet profitable, it may become the most profitable channel in the future.

 

            In their 2007 article, "Hollywood Labor Unrest Looms on the Digital Horizon," Hessinger and Liebenberg argue that not only are the question of residuals for new media going to result in a possible work stoppage (as they did,) but that fundamentally there is a flaw in the residual system. They liken the system to that of a contractor building a house. It is ludicrous to think that anyone would pay the contractor a small fee every year that the house stands for continued enjoyment of the house, but it is exactly this model that the talent guilds operate off of. They argue, however, that because this model is so engrained in the Hollywood system, that reform is preferable to abolishment.

            The article makes an important distinction between copyright law and contract law. In the terms of the talent guilds, especially the WGA, the talent has already signed over the copyright to the producers. In return for signing over the copyright, the producers agree to both a one time payment for services and residual payments based on the reuse of the material. Because this is not a question of copyright infringement, the negotiations occur not in the courts, but in arbitration and negotiation rooms.

            The proposed fix that the article suggests is that instead of taking the residual payments out of the gross revenue numbers, the residuals should be taken out of the profit numbers. They suggest that this would allow studios to recoup a profit before paying out residuals on projects that lose money. It does not seem appropriate that a film that lost a lot of money for a studio should be paying out residuals while the studio is still retaining a loss. However, this solution would not work in practice. It is very easy for studios to change their accounting methods to show no profits from many of their films. This would effectively erase residuals even on seemingly profitable films. These accounting methods may be questionable but are not illegal. Because of this, the new WGA agreement for new media bases the residuals of gross advertising figures instead of net profit figures.

 

 

            Deadlinehollywooddaily.com in spite of its long name is the source for all breaking news and great commentary for the WGA strike and AMPTP and SAG talks. Nikki Finke has created a blog that not only has been providing news and updates about the situations, but she has personally broken many of the stories, especially during the writers' strike. Her posts are decidedly pro-union and very against not only the studios, but the industry trade papers for reporting in slanted ways for the studios.

            Her position on all the union contract negotiations has generally been one of David versus Goliath. She has taken the position that the talent guilds deserve higher residuals, because they are the little guys who are being strong armed by the studios. Although her claims are not readily based on sound economic analysis, she does have a very keen understanding of the actual players in the discussions. She reports how the studio heads deliberately aim to horde profits while keeping the talent as under paid as possible. One of her best posts was supported by a video that juxtaposed the studio heads saying to investors how profitable online distribution was going to be with the statements to the WGA that there was no money in online distribution and that they would not agree to any residuals before they could "experiment" with the medium.

            Nikki Finke's position has nevertheless been backed up mainly by her ability to quote the hypocrisy of the studios. It seems that it has been her intention to keep the studios in line when it comes to presenting an accurate description of the effects of the new media contracts. Currently her posts are centered around both the SAG talks, and the WGA's complaint that the AMPTP is not paying the residuals agreed upon in the Minimum Basic Agreement that was signed to end the writers' strike. Her blog is evidence that new media is such unknown uncharted territory, that often personal emotions tend to outweigh any rational thought. It seems very possible that the future of digital media may be decided in irrational, territorial infighting rather than sound economic business plans.

 

The media companies have always been reluctant to address new technologies. It has always been there position to let smaller companies experiment in the new space, and wait until ubiquity before entering and taking over the new market. This happened with television, home video, and will now happen with new media. After seeing the music industry collapse by losing control over the distribution of their music, the film and television companies have decided to enter the new media space. They are currently battling with everyone from YouTube to the talent guilds over the future business model of new media. Representative of the whole situation is the negotiations, strike and agreement between the American Motion Pictures and Television Producers and the Writers' Guild of America. This battle over residuals had the studios defending the position that new media is still untested and unprofitable. This is an exciting time. The future is up for grabs and whoever has the best business model will win.