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Directors, Producers Reach Tentative Deal

18 Jan, 2008 By: Erik Gruenwedel

The Directors Guild of America (DGA) and the Alliance of Motion Picture and Television Producers (AMPTP) late Thursday reached a tentative collective bargaining agreement for a new three-year contract, effective July 1.

The current DGA/AMPTP contract expires June 30.

In addition to wage, healthcare and residual upgrades, the new contract outlined increases in new media, including jurisdiction (directorial control) and compensation for original and derivative content appearing on the Internet.

“We managed to produce an agreement that enshrines the two fundamental principles we regard as absolutely crucial to any employment and compensation agreement in this digital age: … jurisdiction [and understanding that] the Internet is not free,” said DGA president Michael Apted.

Specifically, the electronic sellthrough (EST) residual rate for television programming will more than double the current rate (0.3%), to 0.7% per download above 100,000 downloads. The film rate increased to 0.65%, from 0.3%, for downloads in excess of 50,000.

For downloads numbering below those unit levels, residuals are based on what producers currently pay for DVD. That figure is 0.3% per TV and movie download, which is upgraded to 0.36% when worldwide gross receipts reach $1 million, respectively.

The exceptions are low-budget original shows on which production costs are less than $15,000 per minute, $300,000 per program, or $500,000 per series — whichever is lowest.

The new contract does not change the DVD residual rate, according to a DGA spokesperson.

Significant to the agreement is that global grosses will be based on the gross of the distributor — not of the producer — a key provision on which the DGA said it would not compromise.

The distributor's gross is the amount received by the entity responsible for distributing the movie or TV program on the Internet. Receiving a percentage of the producer's gross gets confusing if the distributor is Apple iTunes and the entity selling the TV episodes are the TV networks rather than the original producer.

Technically, the producer is the employer of the DGA (and WGA), and the distributor or TV network is not. When syndicating content on TV, it is the production companies, not the networks, that negotiate the deals.

With EST, however, the lines are blurred.

The distributor in this case is the network, the retailer is iTunes and the producer is the producer. Apple becomes a retailer just like Blockbuster or Wal-Mart.

For ad-supported streaming, following a 17-day period for free promotional streams, companies must pay 3% of the residual base (approximately $600 for a network prime-time one-hour drama) for 26 weeks of streaming.

Another 26-week period costs 3%, or $1,200, for one year. During a program's first season, the 17-day window is expanded to 24 days to help build the audience, according to the agreement.

“The formal negotiations that led to this agreement were preceded by weeks of tough and candid informal discussions,” said AMPTP president Nick Counter. “… The result is an agreement that breaks important new ground for our entire industry.”

The new contract, which was finalized in five days, would appear to put further pressure on the Writers Guild of America to end their nearly three-month strike with the AMPTP.

The WGA said it will “carefully” analyze the terms of the deal. Among its provisions — thus far rejected by the AMPTP — a flat 2.5% residual rate on all new media, including DVD, based on the distributor's gross.

“We will work with the full membership of both guilds to discuss our strategies for our own negotiations and contract goals and how they may be affected by [this] deal,” the WGA said in a statement.

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