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Acting with trust

The studios and guilds have to get on the same page if Hollywood is to have another good year.

January 04, 2008

The year 2007 was boffo for Hollywood studios and theater chains, with almost $9.6 billion in domestic ticket sales, or 4% more than the previous record. Granted, the industry's artistic achievements may not have reached the same apex -- of the 10 top-grossing movies, five were sequels of sequels, and two were based on TV cartoons. Still, by the most common measure of Hollywood's financial health, last year was flush.

The ticket revenues obscure two less sanguine elements of the studios' fiscal picture, however. The box-office gains stem from higher ticket prices, not increased attendance. And according to analyst Tom Adams of Adams Media Research, DVD sales and rentals, which make up about 60% of the studios' revenue, sagged in 2007 as competition expanded from online video sites and other sources of entertainment. A brighter spot was licensing fees for the studios' TV productions, which continued their slow but steady climb. By Adams' estimate, the studios make more from those fees than they do from their cut of domestic ticket sales.

So as a new year begins, the studios seem to be approaching that same fateful point that the music industry did in the late 1990s: People love the product, but there are signs that they're not willing to spend as much on it as they used to. That's all the more reason for studios and their guilds -- writers, directors and actors -- to collaborate on new ways to make money and attract viewers. Collective bargaining has often yielded just that sort of partnership in other industries. But as UCLA professor Sanford M. Jacoby has noted, partnerships are built on a history of trust, something that's sorely lacking in the relationship between the studios and the writers union.

A recent report by Bear Stearns estimated that the gap between the writers' demands and the studios' offer was no more than $120 million -- an amount too small to hurt the studios' earnings. But as long as the writers don't trust the studios to share an equitable percentage of the revenue online, and the studios don't trust the writers to support new business models, that gap may be wide enough to keep them from reaching a deal. The two sides need to get back to the bargaining table and find contract terms that can restore trust. Think creatively, people. Isn't that what you do for a living?

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