Studios standing firm on DVD residuals payoffs
With negotiations starting next week, the PR battle between writers and studios has been triggered.Both sides began scrambling this week to portray themselves sympathetically, along with launching several well-aimed potshots at each other. Leaders of the Alliance of Motion Picture & Television Producers — the negotiating arm for studios and producers — plan to harp on a key message: They won’t give any ground on writer residuals — especially in the booming DVD market — because of the difficulties they face in operating profitably amid fast-changing business conditions. “Residuals were created to allow the Guilds to share in the success, but what they’re doing now is asking us to mortgage our future,” one exec lamented. For its part, the Writers Guild of America West mailed out its first Negotiations Update on Tuesday with its lead story headlined “Don’t Let Them Fool You.” “On the eve of negotiations, it’s not surprising to hear media moguls pleading poverty,” the article began. “But don’t be fooled. Despite what the congloms would have us believe, the overall revenue picture for the entertainment industry is remarkably good.” Though neither side would disclose specifics until negotiations start Monday, both have started issuing numbers to make their case. In a move designed to advance the argument that scribes are already well-compensated, the AMPTP plans, for example, to release stats showing an average residual payment of $654,000 per movie to writers for each Motion Picture Assn. feature between 1996 and 2000. The $654,000 figure comes from adding up all revenue streams — DVD, video, free and pay TV and foreign — and not including bonuses. Additionally, the AMPTP plans to point out that some of those top performing pics generated over $3 million each in writer residuals. The core of the studios’ argument is that DVD revenues — which amounted to $16.1 billion in 2003 and are certain to increase this year — are a necessity to stay afloat financially for the following reasons:
- Margins on filmmaking are in the 3% to 5% range and six of 10 films never recoup their costs.
- Costs of filmmaking have soared with average production rising 9% last year to $63.8 million per pic and P&A costs jumping 28% to $39 million.
- DVD costs have jumped, thanks to anti-piracy measures, expensive musical clearances and the inclusion of added features.
- Costs in other areas outside production, such as acquisition of scripts and talent participation, have soared to an average of another $60 million per pic.
- License fees for half-hour sitcoms and one-hour dramas have risen only nominally in the last five years while costs have soared. The average deficit on sitcoms is $350,000 per episode and $800,000 per episode on dramas.
- International revenues have slid due to the increased popularity of locally made shows.
- Only 12% to 15% of all shows ever wind up going into syndication, meaning that those shows must be the source for recoupment of the costs of the remaining shows.
- Networks are insisting on long-term contracts, beyond the standard four-year deal, and co-producing projects with suppliers, limiting the upside in syndication.
- Reality TV, which has little WGA coverage, is becoming entrenched on the skeds and may limit the resources that can be spent on traditional sitcoms and dramas.
- Though DVD revenues from TV shows are increasing, they have not made up for losses in international revenues.