The world's largest media companies returned to the negotiating table Monday with Hollywood screenwriters, seeking to avert a strike that could cost the entertainment industry billions of dollars and take popular TV shows off the air indefinitely.
Hollywood is bracing for the worst-case scenario after the Writers Guild of America warned advertisers and investors of the financial fallout and said members will most likely walk out May 2 if the new round of talks fail. Major TV programmers, such as Comcast Corp.'s NBC and CBS Corp.'s flagship network, are scanning their slates of upcoming shows to determine which ones can air without guild writers.
Negotiators on both sides are counting on cooler heads to prevail as they seek to avoid a repeat of the 100-day work stoppage in 2007-08 that cost the entertainment industry more than $2 billion, according to Milken Institute estimates. Yet the entertainment business, specifically TV, has undergone myriad changes that are creating new sticking points since the last strike almost a decade ago, and the writers say they haven't benefited.
"The digital revolution is catching up with TV, but the economic models haven't," said Darrell Miller, a managing partner and head of the entertainment practice at law firm Fox Rothschild. "They are fighting because the new media groups are reluctant to transition faster than they have to."
By new media, Mr. Miller means a budding cadre of TV giants, led by Netflix and Amazon, that have pushed Hollywood into the era of peak TV. The TV industry produced a record 455 scripted shows last year, more than double the number of programs that were made in 2009, according to FX, a cable outlet owned by 21st Century Fox. In just five years, Netflix has become one of the biggest financiers of original programming in the world, and Amazon isn't far behind.
Yet this golden age hasn't been so lucrative for the writers who made it happen. Writers say they are earning less per show because the business model for many of the newer programs differs from what came before them.
As recently as 2010, broadcast networks accounted for more than half of all scripted shows on TV, according to FX. The business model for broadcast television is generally kinder to writers, with most shows airing more than 20 episodes a season.
Less-experienced writers get paid a minimum salary per episode, while those with more experience negotiate for higher rates and a share of revenue from international sales. Those residuals are particularly lucrative and can provide years of income after a show goes off the air in the U.S.
Similar tensions have erupted around the compensation for commercial actors amid demand for far more video content than the old 30-seconds-of-TV model.
Most cable channels, premium cable channels and streaming services order fewer episodes per season, yet still require writers to work on them exclusively and often pay less for the same period of work. The number of series with fewer than 14 episodes grew by 40 between the 2013-2014 TV season and the 2015-2016 seasons, the guild said on its website. Meanwhile, the number of series with 14 or more episodes shrank by 1.
Netflix and Amazon, meanwhile, obtain global rights to many of their shows, which they supply to viewers in almost 200 countries around the world. While writers collect residuals for show streamed online, the guild says payments haven't kept up with the growth of those services.
Writers are also getting squeezed because movie studios are releasing fewer films each year, cutting into another source of revenue.
"In a time of unprecedented demand, TV writers are, illogically, earning less," the guild said. The organization declined to comment beyond the materials on its website.
Netflix isn't a party to the current talks, and negotiates with the guild separately.
The Alliance of Motion Picture & Television Producers, which represents media companies like Time Warner Inc. and Walt Disney Co. in the negotiations, has proposed a few solutions to compensate writers, including exempting them from exclusive commitments to a given show, according to people familiar with the plans who asked not to be identified discussing private negotiations. That would let writers line up a few jobs in the same year and earn more cash.
The producers say the guild is making too many demands and must prioritize its members' requests. Prior to the negotiations, the guild had indicated the future of its health-care insurance was the gravest concern.
The plan, called the Rolls Royce of plans by many in the industry, is on shaky financial ground. The producers' alliance, which represents production companies and studios and is known as the AMPTP, has offered to provide more money if the guild agrees to some cost-saving concessions, according to the people. The guild said the proposed cuts go too deep.
The guild showed up to the first-round negotiations with an enormous agenda, seeking pay increases for every category of writer. The demands caught the AMPTP off guard, and the producers have since complained that the guild has been unresponsive to its proposals.
"The WGA broke off negotiations at an early stage in the process in order to secure a strike vote rather than directing its efforts at reaching an agreement at the bargaining table," the AMPTP said after the initial round of negotiations. "Keeping the industry working is in everyone's best interests, and we are ready to return to negotiations when they are."
With three weeks to go before the guild's May 2 strike deadline, there's still time to reach an accord. The unions plans strike-authorization votes next week in Los Angeles and New York.
-- Bloomberg News