iPod residual battle heats up

Round one of the digital demolition derby has ended in acrimony, to nobody’s particular surprise.

Hollywood’s actors, writers and directors have been told they’ll receive a far smaller slice of revenues from iPod downloads than they were hoping for.

Leaders of the WGA West and East, SAG and DGA issued statements Monday blasting the decision by ABC to cover downloads at the lower homevideo residuals rate rather than at the pay TV rate, which is four times higher.

“ABC’s unilateral decision to pay digital download residuals at the homevideo rate is a violation of our contract and an insult to our hard-working members,” said Writers Guild of America West president Patric M. Verrone. “It is unacceptable, and we will aggressively pursue all legal options at our disposal.”

Verrone’s East Coast counterpart echoed his complaints.

“The members of our guilds demand the companies pay what they are contractually obligated to pay and not a paltry residual rate based on an irrelevant homevideo formula from the age of Betamax,” WGA East president Chris Albers said Monday.

Alphabet net stayed cool, however, when asked to respond to the guilds’ outrage.

“The only question here is what the existing guild agreements provide,” ABC said in a statement. “We believe that the residual for sales and permanent downloads of programs to the iPod is covered by the homevideo residual formula. If the guilds have a different point of view, (they have) the right to challenge the company’s determination before a neutral arbitrator. In the end, this is simply a dispute over how to interpret a provision under agreements that provide the means for resolving that dispute.”

A lot is at stake in the initial battles over the growing number of new digital delivery systems and how the largesse will be divvied up in the creative community. The guilds feel they’ve been left on the sidelines of technological changes, going back to the DVD and earlier; iPods have thus emerged as the symbol of the guilds’ tough new attitude.

Though ABC’s decision had been anticipated by the unions, it will undoubtedly amp up the town’s labor tensions several notches. Nerves have been on edge since the fall, when WGA and SAG members elected leaders who had promised to take a far more assertive stance toward employers.

Thus, regardless of what happens with these complaints, guilds are uniting to make clear going into new contract negotiations next year that they’ll push hard for more out of the Internet than they got from homevideo.

SAG prexy Alan Rosenberg alleged Monday that ABC had violated the collective bargaining agreements by selling “Lost” and “Desperate Housewives” for digital download to iPods without first bargaining with SAG.

“ABC’s actions are flatly inconsistent with our collective bargaining agreements and with labor law obligations and fail to fairly compensate performers for the use of their work and images,” Rosenberg said. “SAG will pursue arbitration against ABC, or any company, which disregards their contractual commitments or attempts to deny our members just compensation.”

The Directors Guild of America also asserted Monday that ABC’s iPod payments were not consistent with terms of its collective bargaining agreements. “We will be filing claims against ABC and any other company that pays residuals on video iPod downloads according to the homevideo formula,” said DGA prexy Michael Apted.

The issue carries particular resonance among the creative unions because the current homevideo terms — which allow companies to exclude 80% of wholesale revenues from the residuals calculations — haven’t changed in more than two decades. The guilds conceded in the mid-1980s to lower-than-usual terms after companies contended that homevid was an unproven technology.

Verrone did not specify Monday which legal avenues the WGA would pursue but indicated earlier that it would likely mean arbitration. WGA West topper has also said that ABC’s choice of the lower rate would mean boosting efforts to organize writers who work in the digital arena.

ABC’s decision to go with the lower rate had been expected from the day four months ago that the net announced its alliance with Apple’s iTunes for downloading TV shows such as “Lost” and “Desperate Housewives” onto iPods.

NBC U, Showtime and several Viacom cable nets soon followed suit, while CBS recently started selling skeins through Google’s Video Store and its own Web site.

The unions have no formal agreements with studio and networks that specifically cover new delivery systems such as iPods. In the case of the iPod downloads, the four major showbiz labor unions (SAG, WGA, DGA and AFTRA) demanded an answer on Oct. 12 — the day ABC and Apple announced the iTunes pact.

The guilds and the companies have not disclosed dollar figures yet, but the residuals are expected to be minimal since payment is based on the number of downloads and the technology is too new to be widespread. Disney CEO Bob Iger admitted at an investor conference Monday that ABC has sold over three million downloads, which would be worth about $6 million.

The first batch of residuals checks are expected to arrive this week in guild offices. Guilds require that payment be made within 60 days of the end of the quarter in which the net received a licensing fee.

Unless the guilds succeed in their arbitration claims, the issue of residuals for downloads would likely be a key part of the WGA’s negotiations next year for its contract, which expires in October 2007. SAG, AFTRA and the DGA would likely start bargaining over the issue in late 2007 or early 2008 in the face of a July 2008 expiration.

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