Residual pressure
WGA cites DVD, vid coin as contract points
"The formulas for residuals from video sales and rentals are based on a business model no longer relevant to the marketplace in 2000," declared WGA West exec director John McLean in the latest "Negotiations Alert" to WGA members.
The WGA, which is still hammering out its contract proposal, notes that it agreed in 1985 after a strike to exclude 80% of wholesale revenues from its residuals calculations. As a result, the 1.5% residual (which rises to 1.8% after $1 million in reportable revenues) is actually a 0.3% residual, the union argues.
The WGA agreed to the formula at the time to take into account the costs of homevideo manufacturing, which were $14 per unit, and distribution. The union notes that the manufacturing costs for a videocassette are now $3 per unit while DVD costs are $2 per unit and are expected to drop to $1 over the next five years.
"It's time for the companies to renegotiate this formula to accord artists their fair share of the value of the work they have created," McLean said.
However, companies will likely be reluctant to boost the residuals since DVD revenues are expected to grow significantly. The WGA projects that while VHS sales will drop from $8.1 billion this year to $6.7 billion in 2005, DVD sales will rise to $11.2 billion in 2005 from the current $2.7 billion.
"What all the analysts agree upon is that the sell-through market, which includes videocassettes and discs, will be fueled by DVD technology over the next five years and that video-on-demand pay TV will further expand revenue sources," McLean said.
Other key issues raised by the WGA include boosts in residuals for cable, foreign and the Fox network and abolition of the possessory credit on films. Studios and networks have indicated that they will point to pressures on profits created by fragmented TV markets and rising production costs.
The WGA, which faces a May 1 contract expiration, and the Alliance of Motion Picture & Television Producers have yet to set a date to begin negotiations. The AMPTP has said it wants early negotiations but the WGA has said the Alliance has not indicated it will take the steps needed on economic issues to justify starting early talks.
