Hollywood’s labor outlook just got a lot nastier.

Writers Guild of America negotiations entered the trench warfare stage late last week: Talks broke down May 5 with both sides sniping at each other and a deal nowhere in sight. The WGA spurned the studios’ three-year offer, announced a one-week break in talks and offered instead a one-year deal similar to the one SAG signed in February.

The upside for the Alliance of Motion Picture & Television Producers is that they could sign a deal without giving in on DVD and Internet residuals and jurisdiction over reality TV.

But the downside is daunting.

A one-year deal means the WGA, DGA and SAG contracts all would expire around midyear 2005 — creating the prospect of a unified union front to force the companies to give up a bigger slice of DVD coin; companies have been able to exclude 80% of revenues since 1984.

If the AMPTP isn’t able to make deals with SAG and DGA this fall, the strike threat would become serious enough to provoke the same stockpiling frenzy that overtook the town in early 2001.

AMPTP prexy Nick Counter asserts that studios and networks need the security of a three-year pact and notes the SAG one-year deal was due to the guild not having enough time to prep for full negotiations earlier this year. But the WGA says it won’t sign a three-year deal unless it includes gains on DVD, Internet and reality shows.

The WGA’s offer of a one-year deal appears designed to amp up pressure on networks, which begin their upfront presentations to advertisers May 17 in Gotham. Without a WGA deal in place, the nets would have to present a fall TV schedule dominated by reality shows, which are not covered by the WGA.

“It was specifically crafted to make it easy for you to say yes, so that the network season could proceed with certainty,” says WGA West exec director John McLean.

The AMPTP stresses it hasn’t made a final offer; speculation arose that a two-year deal might be the way to reach an acceptable compromise.