Enjoy your favorite TV shows while you can. Many shows' seasons will end unusually early in the next few weeks, as the ongoing Writers Guild of America strike finally reaches the airwaves. Writers want a bigger cut of their work's video or online revenue, but studios say the money isn't there.
Shareholders in major media firms like Disney (NYSE: DIS ) , Sony (NYSE: SNE ) , Viacom (NYSE: VIA ) , News Corp. (NYSE: NWS ) , Time Warner (NYSE: TWX ) , and General Electric (NYSE: GE ) may see their firms' revenue and profits suffer, at least slightly. But I think Foolish investors should root for writers to win out -- and soon.
The 0.3% solution
Like authors and musicians, TV and film writers get a small amount every time their work makes money. According to a video from the WGA, the standard 2.5% residual earns writers two and a half pennies for every dollar made from TV broadcasts of shows they've written.
In 1985, studios convinced the WGA to slash film and TV writers' percentage on home video sales from 2.5% to 0.3%, to help the home video market get off the ground. The writers have kicked themselves ever since. DVD sales alone totaled $15.7 billion in 2006, reaping huge profits for the studios, but the writers are still getting 0.3%.
Writers originally wanted to double their DVD residuals to 0.6%, though the WGA says it ultimately withdrew that demand. But negotiations still dissolved over the one issue on which the writers wouldn't budge.
Private stream -- no swimming
The Internet is clearly the future of entertainment. Apple and Amazon.com are selling downloadable TV shows, and every major network now streams full episodes with unskippable ads.
But while writers do get a small residual on download sales, they earn nothing from those increasingly popular streaming episodes. The makers of The Office and Battlestar Galactica notoriously fought GE-owned NBC Universal to get any kind of payment for producing original "webisodes." The networks dubbed these mini-shows "promotions."
As viewers increasingly watch shows online, writers stand to lose an expanding pool of residuals under the current arrangement. The well-paid staffs of hit shows like Lost might not suffer, but according to the WGA, about half of its members are unemployed at any given time. The WGA says residuals from previous jobs often help keep these mostly middle-class folks in the business -- and in their homes.
The studios' side
The Alliance of Motion Picture and Television Producers, representing the major studios, says the Internet is too new to value. Like home video 20 years ago, the AMPTP doesn't want to set residuals until the studios can establish viable business models for Internet content. But its arguments seem disingenuous.
If there's no money in online content now, why did Viacom sue YouTube for $1 billion, accusing Google of illegally profiting off clips of its shows? WGA supporters compiled damning clips of CEOs like News Corp.'s Rupert Murdoch and Viacom's Sumner Redstone trumpeting the current and future revenue their firms earn from Internet broadcasts.
On its website, the AMPTP states that writers want a 700% increase in their download residuals. That's true. The writers are currently getting the 22-year-old 0.3% rate, and they're asking for the original 2.5%.
The AMPTP says it offered writers a cut of streaming revenue. That's also true, but the WGA counters that the AMPTP proposed no residuals until six weeks after the episode went online. In other words, the time when the most number of people would likely watch that episode, and when the network would earn the most from it.
Lastly, the AMPTP says the writers are unreasonably asking for a share of networks' advertising dollars. The writers counter that they want "a share of the revenue the corporations receive," a careful choice of words. As WGA member Marshall Herskovitz wrote in an L.A. Times editorial, a 1995 Federal Communications Commission ruling allowed networks to start owning the shows they'd previously just aired. Today, Herskovitz wrote, the networks insist on "owning part or all of every program they broadcast." The same corporations often own both the networks and the studios, sending most or all of the money shows make into the same pockets.
Three reasons why writers should win
As a writer, I definitely favor the WGA. But I'd like to offer three reasons why a win for writers could benefit Foolish investors, too.
1. The AMPTP's argument undermines legal downloading. The studios have appealed to consumers' consciences, claiming that illegal movie and TV downloads cost writers, directors, actors, and crew members their livelihoods. Now that the public knows just how little some of those people actually make from Internet sales, and how much the studios keep, that argument seems increasingly flimsy. With legal alternatives now available, more illegal downloads mean smaller revenue, lower earnings, and poorer performance for shareholders.
2. Happy writers produce more long-term lucre. Writers who can profit from their creations are more motivated to write great series and films -- works that will keep selling DVD box sets and Internet downloads for years, even decades to come. Reality shows may provide short-term ad dollars, but most can't match that long-term appeal.
3. Greed isn't good. The studios' position seems to be motivated entirely by the pursuit of profit. In this Fool's opinion, that's a bad way to run a business. Look at the banks and mortgage companies sickened by gorging on subprime loans. When companies ignore absolutely everything but the bottom line -- at the expense of employees, and sometimes customers -- stockholders often suffer in the long run.
One strike, everyone's out
Reality show producers aside, no one's winning from this strike. The networks lose viewers and ad revenue. The writers aren't getting paid, and the crews of their shows are unemployed. Meanwhile, viewers get dubious substitute shows like Farmer Wants a Wife.
The AMPTP and the WGA resume negotiations Nov. 26, and this Fool hopes they can find common ground. A quick end to the strike benefits everyone. And a better deal for the writers seems like the fairest, most Foolish outcome imaginable.