OPINION: Contract talks

By Paul Sweeting -- Video Business, 11/9/2007

As chairman of the advanced media committee of the Emmy Awards Shelly Palmer said at the Future of Television conference here Thursday, “If this isn’t settled in the next couple of days, I don’t think you’ll see anything happen until the Screen Actors Guild talks come up next year, because the companies are going to have the exact same conversation with the actors that they’re having with the writers.”

The current SAG contract runs through June 30 as does the Directors Guild deal.

Although the dispute began in part over the writers’ demand for a revamp of DVD residuals, WGA president Patric Vallone confirmed to Daily Variety that the guild would agree to keep the issue off the table were negotiations to resume.

That leaves the question of establishing a residuals formula for new, digital distribution platforms as the main issue dividing writers and producers.

“Part of the problem is that they’re fighting over something that nobody knows what it is,” chief research officer for CBS David Poltrack said.

The future shape of the TV industry is so uncertain, according to Poltrack, that almost any formula established today will almost certainly quickly become obsolete.

“The residuals formula that exists today, even without the Internet, is probably antiquated if you look at what’s happening with cable distribution,” added Blair Westlake, Microsoft corporate VP. “We’re seeing the beginnings of super-distribution of content and the key [for stakeholders] is preserving flexibility.”

BY “SUPER-DISTRIBUTION,” Westlake is referring to the phenomenon by which discreet release windows are erased and viewers and consumers of content also become distributors, because the content resides on a peer-to-peer system and consumers are incentivized in some way to distribute a work or by some other viral mechanism.

And it’s not just the residuals formula for writers that is antiquated. Very few of the contracts today governing rights or payments for content adequately take account of ubiquitous, viral distribution.

What we’re seeing in the current dispute between writers and producers over residuals for new media is simply the first step in what is likely to be a long and probably painful process by which the media industry comes to grips with the profound changes being worked by digital technology.

One reason the digital-rights management wars have been so endless and so intractable, for instance, is that content owners still cling to the notion that every copy, every use of their content implicates their exclusive rights and should be monetized, or at least specifically accounted for within a licensing scheme.

In a networked environment like the Internet, however, use-based or copy-based models have not been notably successful for monetizing content. Mostly, what they do is impose significant technical, legal and financial overhead needed to track, control or otherwise account for each copy.

In their bargaining so far, the writers have largely followed the same logic, insisting on calculating residuals based on some per-copy, per-use or per-title formula. They rejected, for instance, producers’ demands for residuals-free “promotional” repurposing of TV shows on the Internet on grounds that Internet distribution represents a value-adding use of their work.

THE PROBLEM for both the producers and writers, however, is that in a networked environment, value really changes hands at the point of access to the network, not from the exchange of copies on the network.

As the Supreme Court correctly diagnosed in the Grokster case, the monetizable exchange was occurring at the point of entry to the network: The more eyeballs that came to Grokster, the more it could charge for advertising.

The real problem for the content owners was not that someone was infringing their exclusive rights but that Grokster was not sharing the value it derived from that monetized exchange fairly with the other stakeholders in the network. It was an economic problem more than a legal one.

Shutting Grokster down, however, doesn’t really address the basic problem. For content owners to thrive in a networked environment, they’re some day going to have to figure out how to get a piece of the action at the point of entry to the network, where the real value is.

But so, too, will anyone with a stake in the revenue generated by that content. That means the vaunted but still elusive “new business model” everyone is always urging on content owners also is essential for the writers and other stakeholders.

Paul Sweeting is editor of Content Agenda. Get more of Sweeting's analysis here.