Commentary: With biz at a crossroads, sharp turns from the current path are imperative
EmptyOur industry is in economic trouble, and it isn't ending soon.
The studios already know that bad times are a-comin', which is why they are letting so many people go. But firing staff doesn't solve the problem. So I offer here some tough medicine -- economic triage -- to get us through these tough times. And while some might not like this bitter pill, better to take it than have our industry bleed to death until bankruptcy. Because that is where it is going as we get destroyed by piracy, a free fall in ad revenue and a reduction in state tax credits. A previously mediocre business is now a loss leader.
Back to the future
The first and most important step is that we need to revert to the studio system that ended in the 1950s, where lead actors were signed to long-term contracts (up to seven years, the maximum generally permitted by law) with reasonable -- and fixed -- compensation. Imagine the benefits to Fox if it had put Leonardo DiCaprio under a seven-year contract before "Titanic" or Warners had locked in Tom Cruise before "Risky Business."
The studios "make" stars by putting them in successful films, and they take the financial risk, so it is nuts to let the actors reap the reward by charging studios more than $20 million plus a massive share of gross on later films. If the studios implemented this approach and focused on grooming and creating their own stars, they could hold down their production costs and, more importantly, avoid the massive giveaway of gross they now incur.
Before agents start sending me death threats, let me note that there are benefits for actors as well: guaranteed compensation for up to seven years, rather than the risk of homelessness with a work drought. And it would allow a reallocation of the excessive profits now paid to a few stars across a broader range of actors, as opposed to the lopsided current system of the few "haves" and a vast majority of "have nots."
Indeed, this proposal already is standard in the television industry, where actors are put under option for multiple seasons. But alas, even there it exists only in theory, which brings me to the next proposal.
Take the gloves off
The current lack of respect for long-term contracts is a joke. Often once a TV series has become successful, the actors all get "sick" or find some other excuse to breach their contracts, and everyone caves in to the extortion and ups their compensation. It is time to hold actors to their contracts -- including the longer-term agreements I advocate -- and sue them when they breach.
Yes, it will be ugly and expensive in the beginning, and one or more series might even require cancellation because of lower ratings. But after a few actors lose cases for millions of dollars and get enjoined from working elsewhere, they just might start honoring their contracts, and the industry can get back to business and bring costs down.
When residuals first snuck their nose under the tent, they were applied only to the then-tiny amount of TV revenue on theatrical films, since talent was paid their base compensation for the primary medium: theatrical. Remember that "residual" comes from the word "residue" and refers to the grime at the bottom of the pan.
Residuals then were applied in the 1970s to another ancillary medium called video, which through an unexpected fluke grew into the main event and now swamps theatrical revenue by a margin of 2-1. The guilds conveniently have forgotten history and now think that residuals on the primary media are a God-given entitlement. And the worst part is that residuals are paid based on gross receipts, even if the studio is losing its shirt.
It is time to dump residuals if this industry is going to survive. There is not a single other industry where union employees are entitled to a share of the employer's gross receipts. Please tell me why a Teamster driver should get a share of the "Batman" gross. And if SAG decides to commit suicide by going on strike, now is the time to fight this battle.
It is astonishing that the industry -- after watching the music industry be Napsterized 10 years ago -- is passively allowing itself to be pirated into oblivion. Kids around the world are watching films at home for free through peer-to-peer networks on the same day they are first released in theaters, if not before. Gee, I wonder why the increase in piracy matches the decrease in DVD sales?
The only solution to piracy is to offer a reasonably priced alternative, which means that VOD and DVD must be made available day-and-date with the theatrical release. We must break the hammerlock of the theaters at all cost, or we will go the way of the music industry.
The one approach that won't work is business as usual: Running at a loss is not an option.
Schuyler M. Moore is an entertainment finance attorney at Stroock & Stroock & Lavan.