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Hollywood appears to have labor peace again. Let's hope the sequel three years from now is better.

February 12, 2008

The crippling strike by Hollywood writers is expected to end Wednesday, much to the relief of the workers and businesses that rely on film and TV productions. And in key respects, the deal appears to be a good one for both sides. The writers will get a bigger piece of the action online, though less than they’d originally sought, and the studios won't have to pay residuals on TV shows that are accessible on the Internet for only a short time. But before the Writers Guild of America and the studios celebrate the end of a walkout that cost the local economy an estimated $2 billion, they should remember why things reached the boiling point in the first place.

Many guild members went into the negotiations resenting what they felt was an absurdly low share of the revenue from DVD sales. The residual rate for home video hasn't budged since it was set in 1985, despite the studios' decline in costs and increase in profits from the shift from videocassettes to DVDs. The studios' refusal to sweeten those residuals led writers to fear that the rate set for online distribution also would remain in place long after the three-year contract expired. That's why they were willing to go on strike -- and stay there. To avoid a repeat, both sides have to be willing to change the compensation formula, if needed, three years from now.

More important, the studios and writers have to be willing to change their approaches in the face of the challenge posed by the Internet. A major problem for negotiators was the lack of information about what offerings will work online. The two sides can't afford to be in the same position when the new agreement expires.

With commercial-skipping digital video recorders proliferating and TV shows becoming a staple on file-sharing networks, the traditional TV business model could be in for the kind of painful disruption that has undermined the major record labels. One benefit of the strike is that it helped push the industry to prepare better for that uncertainty, as well as for the increasingly intense competition and dwindling audiences to come. Studio executives are talking about scuttling some of their more expensive and inefficient rituals, such as ordering dozens of pilots before choosing new TV shows and staging elaborate previews for advertisers, and writers are forming ventures to create material for the Web independent of the studios.

They're not new ideas, but those are the steps both sides need to keep taking even as they get back to work.

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