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APAR's WORKING WEEKEND: Rewriting the Math of Video Royalties

26 Jan, 2001 By: Bruce Apar

The pressure cooker of art and craft and commerce that is Hollywood hasthe heat turned up high in the tense negotiations that started last week between the major studios and TV networks (otherwise known as management) and the union representing film and TV scribes, the Writers Guild of America.

As one of their negotiating points, the writers feel strongly that they should be making a better living off the sale of VHS and DVD copies of their creations.

The last time a residuals agreement was reached between home video labels and the WGA was 1985.

The writers' residuals from prerecorded video are based on 20% of the wholesale cost of each copy, not 100% of the cost. Management's explanation is that the other 80% of the cost is sunk not in the intellectual property (i.e., content) that the writer provides, but in thephysical manufacture and distribution of the hard copy. By WGA's calculations, that means instead of a per-copy residual of 1.5% to 1.8%, the residual really is 0.3% to 0.6% per copy sold.

The WGA further uses estimates that the manufacturing cost of tapes and DVDs today is only $2 to $3 each versus $14 in 1985 to make its case that deducting 80% of the wholesale cost no longer computes, if it ever did.

There's another rationale we can think of that the WGA could have not too far in the back of its own mind. It's beginning to look more and more that this still-young year of 2001 will be a turning point for new distribution channels such as DVD and direct digital delivery of content to desktops, set-tops and even palmtops. Those platforms are poised to become primaryrather than residual windows for new forms of content, particularly short-form works that bear little resemblance to the feature-length Hollywood and TV programs that the WGA is focused on in its talks.

Better to plan for an entertainment future that looks dramatically different than today's than be victimized by it in the pocketbook.

In that regard, the WGA no doubt would find kindred spirits among many members of the VSDA.

Comments? Contact Bruce directly at:bapar@advanstar.com

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