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In battle of 'you screw us, we screw you,' power wins

It was 40 years ago that I learned my first Hollywood studio lesson as to "how it all works." I had made and reported a large feature sale to my company bosses. While discussing an allocation issue with a finance executive, he explained the underlying studio philosophy: "The producers screw us when they make movies for us, and we screw them when we release them."

As I saw it, that was the modus operandi very often during my career. The more powerful invariably exploit the less powerful.

The labor dispute between the writers and studios is a simple one. The mega companies believe that they are entitled to keep all of the money that their content earns, and the writers, like other talent, want as much of it as they can get their hands on. It is not more complicated than that.

In 1996, the Telecommunications Act was rewritten to allow, even encourage, both vertical and horizontal mergers in the business of producing and distributing content. This facilitated deals made without a willing buyer (a broadcaster) and a seller (a studio) who had to reach a negotiated bargain. The buyers and the sellers essentially merged, and we now have General Electric, Time Warner, News Corp., Disney and CBS/Viacom on one side of the bargaining table and the writers on the other. This makes the negotiations anything but fair, reasonable or equitable.

I have been around long enough to remember how the messy residual structures came about. Being, as it were, in "the used film business," I was responsible for earning money for the programs produced initially for the broadcast networks or for theatrical exposure. I worked for Columbia Pictures (twice) as well as for CBS, PolyGram and MGM. In my nearly 50-year involvement in the process, I can safely say that at the time that content is created, no one ever knew what future delivery systems would deliver revenue.

If you produced a movie in 1939, did you anticipate television? In 1945, did you anticipate video rentals? In 1970, did you anticipate DVDs? In 1985, if anyone suggested that delivery to a wireless phone would create revenue, they would have been institutionalized. And the system will continue to morph into newer things.

I am writing with the advantage of being separated from current events at "the studios": It would be my thought that the conglomerates are desirous at some point of eliminating any and all contingent compensation (residuals). The owners, I would hazard, would prefer that guild and union workers get paid for what they do as artists (writers, directors, actors) at the time they perform the services, and that is it.

I suspect that the notion of residuals came about when the studios did not want — or thought they couldn't afford — to pay upfront dollars to actors, writers and directors and hence came up with the deferred compensation notion of "residuals." "I can't pay you more now, but I will pay you more at a later time if the business is there to warrant it" was the pitch the studios used to convince talent to go along.

I wonder if there are many other industries that have this residual system. Do designers, architects, carpenters, painters and such have any sort of deferred compensation? I don't think so. They are hired to do a job and paid for what they have done without any contingent compensation.

I realize the studios have a problem in that they invest a lot of money in content that often fails in its "original use," and they don't want to pay any more money to the people involved in the failure for any ancillary delivery of that content. Suppose you spent a hundred million making a movie and it was a dismal boxoffice failure. How happy would you be if you were $50 million in the hole and the writers wanted part of the revenue from Internet downloads?

Of course, when something succeeds, the studios want to keep all the money that they can accrue from whatever distribution platform.

In this post-1996 era, the users of content are the same guys as the makers of the content, and they want to keep all the money. Isn't that what made America a great country? The studios want employees, not revenue participants.

It's hard to imagine that the stronger party (the studios) won't win in this most unfair fight.

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