In Saturday’s “The Daily Loper”, I linked to a Los Angeles Times about the Hollywood guilds and their clamor for better treatment when it comes to download royalties. Make no mistake about it — the guilds (SAG, DGA, WGA, etc) might have chosen to play nice when it came to DVD royalties, but it wasn’t due to lack of interest. They were saving their energy for the real battle: downloadable media.
The LAT and Hollywood Reporter have made note of this brewing battle: the first target in the guilds’ sights is ABC. Which makes sense considering the popularity of Lost and Desperate Housewives.
Right now, Hollywood is in a bit of disarray (note to studios: never let them see you in disarray). Some studios treat downloads similarly to television; others are taking the “same as DVD approach”. While both treatments will ultimately come under scrutiny, it is those studios who use the so-called home video royalty calculation who will be on the front lines. Reason?
Under the current DVD formula, producers retain 80% of home video revenue to cover manufacturing and other costs, and actors, writers and directors receive a cut from the remaining 20%.
Naturally, a percentage of 20% isn’t going to fly — the guilds have been smarting on this point since they saw the video/DVD business turn into a studio cash cow. As a starting point, THR notes, guilds are looking to the more favorable Pay TV formula:
WGA East and West also said they will pursue legal action for the perceived violation of their contract. The writers believe that a more applicable formula would be that of pay TV, which pays a 1.2% residual rate out of 100% of revenue.
The problem for the studios, if the guilds do their homework, is that the 80% being retained to cover costs implies a more traditional distribution process. It harkens back to the days when physical product was manufactured, when days were spent on artwork and packaging, when warehouses needed to hold product, when trucks and planes and trains and ships needed to transport this product back and forth.
With downloads, costs will remain. Marketing, for example, is likely to grow. There will be new sorts of distribution costs — bandwidth isn’t free. Security costs will grow — or should we call them “anti-piracy”? The guilds are wholly focused on residuals right now, but it won’t be long before talent and other parties demand higher dollars under their participations agreements. Studios have been trying to head off that that particular battle by inserting more encompassing language into agreements, but the world is moving much faster than your average lawyer’s pen.
And, of course, consumers aren’t going to be quite as willing to shoulder price increases. Though the price threshold hasn’t been set, it’s pretty clear that consumers like the $1.99 price point for an episode of television.
There are a raft of uncertainties facing both the studios and guilds — while the latter doesn’t want to lock itself into anything, the former isn’t quite sure what it’s all going to cost, much less earn. Yet the first round of payments are due for the splashy iTunes debuts of Lost and Housewives.
For those of us who enjoy a good knock-down, drag-out fight, this is going to be more fun than the Oscars.
- The Daily Loper – March 4, 2006
- Guilds Cry For Share of ‘Lost’ and ‘Housewives’ Download Dollars: Episode sales to video iPod users are paid under the same formula as DVD sales.
- Search Results: ABC Download Pay Irks Unions (Note: Available to subscribers only. No day pass seems available)