Rebuilding Hollywood in Silicon Valley's image

Last week I posted a rather pointed polemic titled "Suicide by strike" in which I argued that the big entertainment companies were acting suicidally in picking a fight with the writers at precisely the wrong time.

In this post, I more dispassionately outline my theory of why that's the case, and what I think may happen next.

The writers' strike, and the studios' response to the strike, may radically accelerate a structural shift in the media industry -- a shift of power from studios and conglomerates towards creators and talent.

First, some context. In Hollywood, the talent -- actors, directors, writers -- is unionized, and those unions engage in old-fashioned collective bargaining with the studios, also known as "the Man". That collective bargaining establishes the economic framework by which most of the talent gets paid.

Last week, the writers' union -- technically unions, but I'll use the singular form for simplicity -- went on strike for the first time since 1988 after an acrimonious breakdown in negotiations with the studios over a new deal.

Significantly, the actors' and directors' unions are due to renegotiate their deals with the studios soon as well; some people in Hollywood believe that the studios are being deliberately hostile to the writers in order to send a signal to the actors and directors to not expect much.

The writers are on strike primarily over the terms by which they get paid "residuals", or ongoing payments, for various forms of distribution of television shows and movies. In a simplified nutshell:

* Due to amazing historical circumstances around the birth of the VCR in the early 1980's, television and movie writers are currently paid approximately 4 cents for each DVD sold -- bearing in mind that the average sale price for a DVD is over $10, and the cost of manufacturing a DVD is less than 50 cents. The writers want that residual rate doubled to 8 cents per DVD, and the studios are refusing.

* Currently, writers are not paid for Internet downloads via online video stores like iTunes and Amazon Unbox. The studios want to extend the current 4-cent DVD residual formula to Internet downloads; the writers are holding out for more.

* The studios are refusing to pay residuals on Internet streaming of television shows and movies -- even when that streaming comes from their very own web sites and contains revenue-bearing commercials. The studios call all such streaming "promotional". The writers are howling with outrage that if the studios themselves are streaming complete TV shows containing commercials, that's clearly not just "promotional". The writers have a good point.

Taken on their own, these issues are most likely negotiable and solvable. However, trust between the two sides seems nearly nonexistent; the writers feel like they have been repeatedly burned by the studios over the last few decades; and the studios may well have a vested interest in beating up the writers in order to motivate the actors and directors to not push too hard in their upcoming negotiations.

Read more at Marc Andreessen's blog.