Michael Russnow: Let's Have a Formula That Is Meaningful

Former WGAw board member Michael Russnow has been covering the strike on his personal site and recently began blogging "The Writers Strike for Dummies" on the Huffington Post. In his most recent entry, Russnow discusses the importance of setting precedents for compensation on the Web.

We believed the AMPTP when they cajoled us to accept the cable deal in 1981 with the understanding that when they stopped rerunning old black and white shows and started making serious money they would take care of us.

We believed the AMPTP when they cajoled us in 1985 to accept the definition of gross to be one fifth of the monies they received, because the VHS industry was new and those cassettes were expensive to make. When it became really profitable they would take care of us.

Well, they did become profitable, even more so when they switched to DVD and its much cheaper manufacturing costs. And of course, the cable industry grew and grew as it became more and more the norm for shows to rerun directly from their original traditional network home to cable networks like USA, Lifetime and Arts & Entertainment, and the ad rates for those new rerun shows soared through the roof.

And guess what, they didn't change the payment formula. [...] And now there's the Internet and all its possibilities, some of which are already here.

So while history certainly provides ample reason to be circumspect about the AMPTP's predictions and promises about new technologies, Russnow points out that it's incorrect to make a one-to-one comparison between prime-time reruns and online streaming:

[N]o one's suggested that either $20,000 or the $12,000 prime-time network residual fee that half-hour shows receive should be paid for reruns transmitted on the Internet. When the Internet replaces broadcast and cable as the main source of original programs and reruns the fees should more accurately approach the amounts writers, directors and actors receive in syndication, which are significantly lower than the prime-time rerun rates. These monies are in the low to mid-thousands for subsequent runs and descend in value as rerun usage increases until the payments are in the hundreds of dollars.

I'm also not saying we must absolutely have the syndicated rate, and perhaps it's time to recognize the vast dissemination of viewing possibilities. Just as there are many, many more cable networks than there are over-the-air channels, the Internet possibilities are infinite, yet it's clear that in the future a relatively manageable number of dot.com networks and film companies will dominate.

Let's have a formula that is meaningful and reflects the true worth of AMPTP afterlife profits, rather than the pitiful amounts they propose... .

Hopefully, both sides in the current informal talks can acknowledge that new technologies need new thinking and new payment structures. Check out Russnow's full piece for his thoughts on why the composition of the DGA and WGA memberships lend themselves to different deals and, to my knowledge, the first strike metaphor based on Charles Schulz's "Peanuts." (Who's the Red Baron in all this?)

TV Residuals and the DGA Deal: A SAG Perspective

The following was submitted by SAG board member and regular U.H. contributor Justine Bateman.

Remember how at the beginning of the WGA's negotiations, the CEOs made a threat about getting rid of residuals? Well, by my reading, the DGA deal does that for TV.

Are you ready to trade an entire year's worth of TV residuals for a one-time fee of $1,200?

Currently, writers and directors both make approximately $20,000 for the first prime-time rerun of an hour-long episode. The residual gradually decreases on any later reruns (if the writer or director is lucky enough to get more reruns). So the directors' deal potentially gives up 97% of the first prime-time residual while the corporations can "rerun" their work infinitely over an entire year.

It seems to me that if the DGA formula for streaming is ratified, the networks will be on a fast track to never, ever rerun our work on broadcast TV.

The DGA formula is based on current fixed residuals, not upon any measure of online revenue. And experts predict that that revenue will more than double over next three years. Today, advertising online doesn't begin to match that of conventional TV, but as ad dollars shift to the Web, why would the companies rerun content when they can stream it?

If this residual formula is accepted by the WGA or (god forbid!) SAG, I bet you will see more fiber optics get installed by the communications companies. The corporations will want everybody in the country to have the highest speed Internet so they can deliver everything over broadband.

And this isn't some vague future -- IPTV, with a set-top box that streams content directly from computer to your tv, is expanding market share right now, most notably in Europe and Asia, and is already the way many people watch tv -- it's replacing broadcast tv, but viewers still use their same tv set and see the same shows.

IPTV, and services like it, are exploding in popularity right now. And under the terms of the DGA deal, what people using IPTV see on their tv looks like a rerun -- but contractually, it's streaming.

I fear the DGA formula will, in one swoop, cancel out every single residual stride that older members sacrificed to gain in the 1960's. That would be shameful.

It's been said -- I personally have said it many times -- that this moment is like the dawn of television in the sense that the responsibility falls on us to establish the rates and terms under which we will work. But I'm sure the corporations have said the same thing themselves... in the sense that when TV began there were no residuals.

Content creators have lost millions upon millions on that twenty-year-old DVD deal, but at least we could make a decent living under the minimums for TV and film production plus residual payments for TV re-use. It's vitally important we get Internet re-use terms right. The Internet is not a "supplemental market," it's where we are all going to work. By my rough estimate, the formula that pays writers and directors $1200 would translate into $99 for actors.

And we can forget about international residuals too. The Internet is "international." And what about syndication market residuals? After a show has had its run in prime time, "syndication" will likely mean web sites. The health and pension contributions that BTL crew members in the DGA depend upon will gradually go away as there will be no residuals to support them. And I understand the pension and health over at IATSE is 60% supported by residuals. When that contribution disappears, crew members will have virtually no insurance or pension.

The above scenario is NOT a legacy for which I want to be responsible.

I urge all DGA, WGA and SAG members to look in their books for 2007. How much of your income consisted of residuals? Now ask yourself if you could get by if that number were reduced by 97%.

Just ask yourself that, and come back and tell everyone you want that deal.

-Justine

The Devil's in the Details

The other shoe has dropped. The DGA concluded their deal with the AMPTP. The congloms will spin their settlement with the DGA as proof that they are willing to close a deal quickly when their negotiating partners are reasonable business people. But we know that's just their high-priced PR consultants speaking. They didn't work out a deal with the WGA because they weren't willing to treat our negotiation seriously. That's all changed now.

The Guild leadership hasn't responded to the DGA deal, because the details of the agreement haven't yet been analyzed, so we'll have to wait before we really know how good or how bad the deal actually is. Regardless, the AMPTP now has to turn its attention to the WGA. They've avoided talking with the Guild in any meaningful way for two months. Now, they have no choice. Ending the strike means addressing our issues.

For the membership this is a crucial moment. Over the past few weeks, the pressures have been building precipitously. The strike has created economic and personal havoc for everyone in the Hollywood community, with terrible repercussions for the entire region. We all want this suffering to end. Within our ranks there are differing opinions about objectives and tactics. Emotions have been churned up.

What's needed now is clear-headed, strategic thinking. We've always known that we are one Guild among many and that, unlike other American corporations, the Hollywood congloms get to speak with one voice, using their superior resources to obstruct our objectives. Structurally, that puts us at an incredible disadvantage. What if all the Hollywood unions were, like the United Auto Workers, negotiating with one voice, picking off the studios, one at a time? What kind of deal would we have then?

In the next stage of the strike, the internal pressures on the membership will be severe. There will be some among us who will say, "Just settle! Take what the directors got and let us get back to work!" Others will go in the opposite direction and reject the DGA deal out of hand.

To engage the corporations, we have to be as strategic and clear-headed as they are. We shouldn't over-estimate our position any more than we should feel helpless. Notwithstanding the contentiousness of some, the membership is still unified and focused on the objectives of the strike. Walking on the picket line last week, there wasn't any question that writers feel a stronger sense of community and purpose than ever before in the history of the Guild. We have to rely on that strength to get us through the last part of the process. We have to remain unified and resolute, no matter what.

The Strike Is a Lawyers' Game: How to Play to Win

This piece is by WGA strike captain Alfredo Barrios, a former corporate attorney turned writer. It offers insight into what the AMPTP methods and rationale for undermining the writers' resolve. Thanks to Ashley Gable for submitting this to us. -JA

We�re two months into the strike, and I�ve noticed a certain confusion and fear emanating from certain quarters about how things have been �handled� by our �leadership.� Some ask: are we being too militant with our demands and �rhetoric� and all this picketing and chanting? Isn�t that what�s keeping the studios from �coming back to the table?� Shouldn�t we be nicer guys and gals? If we were, surely they�d come back, right? I mean, we have to show we�re �reasonable.�

From other quarters, people pose the question: why are the studios acting so insanely? Our demands are reasonable. Don�t they understand that they have a lot to lose? Surely, it�s the hardliners who are holding things up, right?

Regardless of what camp you fall in, everyone is grasping for an explanation of why the studios are acting the way they are. That�s because with the exception of a few carefully prepared press releases, a trade ad or two, and some supposed �leaked� stories, we haven�t heard directly from any of the CEOs about the strike. We�ve only heard from Nick Counter � their point man. Their lawyer.

I�m here to tell you, as a former litigator who spent several years at one of the biggest corporate law firms in the world, that we�re all in engaged in a huge lawyering game, and things are proceeding accordingly. For the record, I have never met Nick Counter, but I spent all of my years as a lawyer working for guys like him, in service of the types of conglomerates he now represents, against people like us.

So I�ll briefly spell out the rules of the game and my view of what it will take to win the strike � and by win, I mean accelerating toward a resolution with the studios on terms that are favorable to us.

BASIC RULES

First, understand the relationship between Nick Counter and the studios. It�s essentially a lawyer-client relationship. The AMPTP is run by lawyers like Nick Counter and Carol Lombardini. Think of it as an in-house law firm. Their goal is to �negotiate� deals with unions on behalf of their clients � the studios.

As lawyers, Counter and Lombardi have to justify their paycheck. What does that mean? They have to add value. They�ve promised to deliver a more favorable labor deal than the studios would get without them. Otherwise, there would be no point in hiring them (or more aptly, keeping them around). So our loss is their gain. And the bigger our loss, the bigger their gain.

Now here�s the thing to remember, fairness and reasonableness have NOTHING TO DO

with their approach. No corporate lawyer I�ve ever known has ever met with a

client and promised to get them the most �fair and equitable deal� possible.

That�s not their goal. Instead, they promise to save them a lot of money �

remember, added value. If the studios were genuinely interested in reaching a

fair and equitable deal, the CEOs and their CFOs would talk directly to our negotiating committee and financial people, and a deal could be reached today � by the way, this is what we�re driving towards. We will know we will have won when the CEOs and their CFOs talk to us directly � more on this later. Back to Counter�

So, what exactly have Counter and Lombardi promised their clients � the studio heads? Two things: a specific outcome by a certain point in time and peace of mind.

CEOs hate uncertainty. They run their businesses based on long-range plans that are based on long-range assumptions. So as a lawyer, you do your very best to put their mind at ease when faced with an inherently unstable situation � be it a lawsuit, a takeover deal, or a strike. You say to them, �You don�t have to worry about a thing. We have this under control.� Then you spell out what you believe (more often hope) is the most likely outcome. �We feel confident that we can
�get this suit dismissed at the pre-trial stage.�
�� get this deal closed by Christmas.�
��resolve this strike by_______ on ________ terms.�
The CEOs nod their heads happily, confident that their well-heeled, well-paid lawyers are looking out for their interests, and then go about their business.

So what is that timeframe and what are the terms? My guess is that Counter and Lombardi promised to hold the line on DVDs (still a significant source of revenue for the studios at $15.7 billion in U.S. sales last year) and to rollback residuals and the attendant pension and health contributions that flow from them. By now, we all know that no payments on new media equals a rollback in residuals. And given pattern bargaining, getting rid of our residuals means getting rid of residuals and attendant P and H contributions industry wide. A huge cost savings. Fairness and equity have nothing to do with it. Remember, added value.

By when? My guess is just short of killing pilot season. Writing off the rest of this season may have been worth the gains that Counter promised. We�re talking about rolling back residuals and P and H contributions not only in this year, but also well into the future.

So why not write off pilot season also? Remember, CEOs hate uncertainty. They can quantify the losses from writing off this season. But they can�t do that with a write-off of the entire upcoming pilot season. Too many variables. How will reality do? How will their advertisers react? How much audience will they lose permanently? On top of that, they forego a huge revenue injection from the upfronts � over $18 billion was reportedly taken in by the TV industry as a whole in 2007 (nearly double the box office take on movies for all of last year). And they face a second labor strike in June � SAG. Shareholders are only so patient� or forgiving. And remember, they like certainty, too. That�s why they�ve already been taking their money elsewhere � shares of media companies have been falling at a greater rate than the market at large (check out TheStreet.com�s December 20, 2007 article, �Strike May Rewrite Stocks� Script�).

Going back to CEO peace of mind. This comes in a couple of forms. First, lawyers tell their clients that they won�t have to get their hands dirty. Lawyers will be the bad cops on their behalf. They�ll serve as a shield for their clients. Lawyers always want their clients to feel comfortable � that�s part of what�s promised. �Go about your life. Don�t worry about a thing.� Second, it comes in the form of laying out how things will play out. �You can expect that the plaintiffs will engage in several months of discovery�� ��the company you�re hoping to acquire will seek a white knight,� ��the strike will lose steam and the writers will fragment.� All things that have a very good chance of happening. And when they do, the lawyer looks like a genius, and his client thinks, �Man, I�m in really good hands. I have nothing to worry about.� It�s about managing expectations.

THE LAWYER�S STRATEGY

Lawyers try to do three things to their adversaries: (1) get them to doubt the validity of their position; (2) undervalue whatever cards they�re holding (in other words, underestimate whatever leverage they have); and (3) kill their resolve.

How does a lawyer get an adversary to doubt his position? Well, in litigation, it comes by spinning the facts. In transactional deals, by spinning the financial numbers. And in a strike situation, by spinning both. One common technique is making a nonsensical argument so many times that it begins to take on the air of a legitimate one and eventually some people (judges, jury, the public in general and sometimes even your adversaries) begin to accept it as truth. Lawyers are masters of this. Think of these doozies: �If the glove doesn�t fit, you must acquit,� �Smoking doesn�t cause cancer,� and my personal favorite, �We don�t have a business plan for or any real revenue from the Internet.� Or how about that $130 million offer that the studios supposedly made us several weeks back? The one that didn�t actually add up. Facts and numbers are spun every day in the courtroom, in the negotiating room and in the press by lawyers.

Now, here�s the thing to remember. It�s the lawyer who does the spinning. No CEO wants to do it. Why? Because so many of them want to be known as �straight shooters� � i.e., guys who don�t lie. Plus, they like to be liked. And going out and spinning facts and numbers� well, that�s like acting like a lawyer. Like Nick Counter. That�s why they hired him to do it. They want to be comfortable. Notably, neither Counter nor any of the CEOs has actually done any real press interviews to defend their position. Not hard to see why: it�s utter nonsense. So they spin in press releases or �leaked� stories that are regurgitated by mouthpiece trade papers and other seemingly �unbiased� but wholly bought off parties.

And how does a corporate lawyer gets an adversary to lose confidence in whatever leverage he has? One way is to engage in positional bargaining. That means anchoring your negotiating position to an extreme and unprincipled number over such a long period of time that your adversary starts to doubt the cards he�s holding and eventually moves off of his number and gets closer to yours. That�s what the AMPTP has been attempting to do with its new media proposals � or actually, lack of proposals. They�ve anchored to basically zero payments for new media in the face of our fairly principled new media proposals. They�re hoping that doubt will creep into our psyche � �Wow, man, those companies are really holding to that number, maybe our bargaining position isn�t as strong as a I thought. Maybe we should take whatever the DGA gets.� And so on�

Once you start down that path, you�re losing your resolve. The corporate lawyer knows you�ll start to rationalize why you should take a really bad deal. And you start to buy into the arguments he�s making � �That lawyer of yours isn�t doing you any favors.� �I hate to tell you this, but you�re wasting a lot of time and energy with this case. It�s a loser.� �As a guy who knows, you should take what we�re offering you because it�s not going to get better.� Sound familiar? It�s the sort of stuff being put out by the AMPTP�s PR guru, Chris Lehane, who, by the way, is also a lawyer � and a classmate of mine from law school. Small world, huh? Couple this psychological warfare with the increasing expense of fighting� and people will crack.

Posture and overwhelm with superior power � or the semblance of power. That�s Corporate Lawyering 101.

So� how do we win?

OUR STRATEGY

In my experience, the guys that win against corporate lawyers and their clients � and believe me, I�ve seen it happen � are the guys that (a) never lose sight of their cards � in other words, aren�t fooled into believing that they�re holding garbage, and (b) play lots of offense.

I�ll begin with playing offense. That means taking the fight to the other guy�s client � the decision makers � the CEOs. Remember, THEY LIKE TO BE COMFORTABLE. That�s what their lawyer promised them they would be. So how do you take the fight to them? Well, in litigation, you bring them into the game by making them the target of discovery � you depose them, go through their papers, ask them all sorts of question. You take them out of their comfort zone. You make them the focal point of the case� they�re the bad guy. In transactional matters, say a takeover attempt where you represent the buyer, you go after the �entrenched management� that wants to deprive the shareholders of the real value of their holdings� they�re the bad guy. In a strike, you hold the CEOs accountable. Why? Because they are ultimately the bad guys� the buck stops with them, and they need to be reminded of that always. Counter is just their hired gun.

And by taking the fight to them. I mean, maintaining picket lines at the studios at peak levels, relentlessly picketing locations, continuing to put out creative videos that entertain and inform people about the strike, denying waivers to award shows and picketing those shows, seeking alternative ways to put out creative work on the Internet for pay, etc.

Playing this kind of offense serves a couple of purposes. First, when a CEO drives through the studio gates, or hears about how a location shoot was impacted by picketing (like for example, when an actor leaves the set or a day has been added to the schedule), or sees how his untenable bargaining positions are being ripped apart on websites, or is told about how his award show is falling apart, or reads how Google is about to form a competing entertainment powerhouse, it all collectively begins to call into question the promise that Counter made � i.e., that we would crumble. It�s a daily reminder that we are not losing our resolve. It makes him worry. His expectations aren�t being met. Things are uncertain again. And it begins to chip away at Counter�s credibility as the guy who could resolve the strike with minimal inconvenience to the studio CEOs.

This last point is important. Why? Because the way you win is by taking the lawyer out of the equation. Deny him the promise that he made to his client � i.e., that he would add value by battering all of us down. Once the CEOs begin to believe that we�ll stick to our guns until we get a fair and equitable deal, that�s when we�ve won. That�s when the CEOs and their CFOs will step in and begin to deal directly with us. Why not Counter? Because his job wasn�t to deal with real and fair numbers; it was to screw us. Once he fails at that, it�s time for others to step in. Trust me, it happens.

But it requires believing in the cards you�re holding � your leverage � and sticking it out. The bigger the show of resolve, the faster the CEOs will dispatch Counter. As profit losses mount and their share prices take bigger hits, the studios will realize that holding out for Counter�s promise looks increasingly like a fool�s game.

But the CEOs will only step in if they believe a fair a reasonable deal can be reached. That�s why it�s important to always maintain principled bargaining proposals on the table � as I believe we have throughout. Unlike Counter, I don�t believe we�re engaging in the positional bargaining. Having said that, I think we made one very serious mistake in continuing to keep our DVD proposals off the table. Bad faith bargaining � like the type that Counter has engaged throughout � can never be rewarded, and I have heard no compelling reason to keep our DVD proposals off the table. As I mentioned above, DVD sales in the U.S. alone were nearly a $16 billion revenue stream for the studios in 2007. I understand that DVD sales are declining, but they still dwarf revenue from the Internet � which is forecasted to total $4 billion over the next 3 years. And that�s the length of our contract: 3 years. So we gave up a piece of that greater pie for what? Nothing. Some might say: but it was either a DVD bump or a new media deal. Really? Says who? We have principled arguments to get an increased share of DVDs and a fair slice of new media � and, I believe, the leverage to get both.

As the upcoming DGA talks proceed, I predict that Counter will try to ram a really bad deal down the director�s throats. And he may succeed, given the makeup of that union�s membership and their historic appeasement of studios during labor talks. I suspect that whatever deal is reached will be slightly better than what was offered us (it certainly couldn�t be worse) and will be wielded like a stick to beat us into taking it as well. The DGA leadership will certainly have every incentive to spin it as a huge win for them and the industry. How could they not? It costs the studios nothing to take this approach. If we don�t take the same deal, they�re back to dealing with us, and the DGA is the only loser.

As for acting like �nicer� and �more accommodating� guys and gals� Well, let me just say that in all of my years as a corporate lawyer, �nice� and �accommodating� adversaries who never stuck to their guns and didn�t bring the fight to us never got better deals. They only get worse ones. So don�t buy into the our-leadership�s-too-militant line of argument. They�re not. They�re being appropriately tough. Trust me, you wouldn�t want it any other way. Now it�s up to the rest of us to hang tough with them.

The Shape of Things to Come: WGA, AMPTP, and the DGA

The trades would have us believe that the AMPTP will start negotiations with the DGA as soon as next week, if the AMPTP satisfies "the DGA's condition that it can establish 'an apropriate basis for negotiations'."

Why sit down with the DGA and not the WGA? Only the AMPTP knows the answer to that question, but for months, Nicholas Counter has said very publicly that he preferred to negotiate with the DGA. The AMPTP press releases blamed that on the writers, but the PR spin notwithstanding, the truth was pretty obvious. The AMPTP stonewalled our leadership because they wanted to wait for the DGA.

If the DGA does start negotations with the congloms next week, does that mean the WGA negotiations committee will become irrelevant, standing on the sidelines, reduced to being helpless observers? Certainly that's what the AMPTP would like us to think. But we know that isn't the truth. We know that our leadership is working behind the scenes, putting pressure on the congloms politically and economically. We know that our picketing and fan support has increased the public's awareness of our issues. We know too that an outreach effort to the individual companies was started when the AMPTP walked away from the table. The deal with World Wide Pants was the tangible result of that effort.

There will be even more opportunities to break through and settle the strike. The WGA leadership will continue to talk with companies like World Wide Pants that see the advantage to concluding an agreement with us now, rather than waiting for the inevitable conclusion of the strike.

So what about our sister guild, the DGA? If they begin negotiations with the AMPTP, let's hope their issues are the same as ours. Of course there will be differences as each guild's leadership pursues what's best for their members. But let's hope that they will succeed in pushing open the door to the internet and stopping, once and for all, the ridiculous proposals from the congloms that have come our way.

From the beginning of the strike, the WGA leadership knew that our contract negotiation was the first of many battles with the AMPTP for the future of all of Hollywood's unions. If the DGA begins their talks with the congloms, then we'll have another ally in that struggle.

Since the AMPTP has been so eager to sit down with the DGA, let's hope they conclude their discussions quickly so they'll come back to us.

The strike isn't over until we get a fair and equitable contract.