When things look darkest in Hollywood, there is always a cavalry
over the next hill.
In a town whose economy runs on the slimmest of margins, the
latest savior is the DVD, which has filled the coffers of the
studios, driven up the stars' salaries and altered the economics of
making movies and television.
Now the question is whether there is enough money in the DVD
windfall for everybody.
Dividing revenue from DVD's is the contentious issue in
negotiations between Hollywood producers, represented by the
Alliance of Motion Picture and Television Producers, and the
combined bargaining teams of the Screen Actors Guild and the
American Federation of Radio and Television Artists. The two sides
began meeting in Los Angeles last Monday to fashion a new
three-year film and television contract.
The dispute has already led to infighting over Robert Pisano, the
chief negotiator and national executive director of the Screen
Actors Guild, who also sits on the board and is also a shareholder
of the online DVD rental company Netflix.
More important, the dispute has raised the possibility of an actors'
strike. Most people within the industry believe that another
prolonged strike by the actors (the last was in 2000) would be a
crippling economic blow for the entire entertainment industry.
"No one doubts that the actors have the power to shut down the
town," said John Ptak, an agent at the Creative Artists Agency,
which represents the actors Tom Cruise and Tom Hanks. "The question
is - and it's the one only the actors can answer - if it's worth it
to them over DVD's."
DVD's are just the latest example of a technology that, like the
videocassette recorder in the 1970's, Hollywood studios greeted with
skepticism - if not outright hostility - only to see the
breakthrough add to their bottom lines.
In 1996, the year before the home DVD player was introduced,
consumers spent $6 billion buying VHS tapes, and $9.2 billion
renting them, with the studios taking in 75 percent of sales and 20
percent of rentals. In 2004, according to Adams Media Research,
consumers will spend $24.5 billion buying and renting DVD's and VHS
tapes. Almost $15 billion of that will be in DVD sales, and nearly
80 percent of that will go to the studios through their home
The explosion in DVD sales has changed the calculus of the
Hollywood hit. Last year, "Finding Nemo" sold $339.7 million in
tickets when it was released to the nation's movie theaters. It went
on to capture a greater amount - $431 million - in home video
(including DVD) retail sales and rentals.
Despite the inflow of cash, the studios have refused to change a
home video residual formula for the creative talent guilds that puts
only fractions of pennies of each DVD sale into the hands of most
actors, writers and directors.
"Sixty percent of studio films never, ever, recoup their cost,"
said a Warner Bros. executive who refused to be identified and who
has participated in several recent labor negotiations on the side of
the producers' alliance. "We need the huge profits of some of the
money makers to cover the losers."
The producers successfully held the line on DVD profits in recent
negotiations with directors and writers, but negotiators for the
120,000 members of SAG and the 20,000 members of Aftra have signaled
their willingness to fight harder for their piece of the pie.
At issue in the negotiations is a 23-year-old formula that was
designed when some major studios were not even in the home video
distribution business. The formula held 80 percent of home video
wholesale revenues for the distributor. (In the case of the major
studios, their home video distribution arms are kept on a separate
balance sheet.) Writers, directors and actors then receive a small
portion - 1.8 to 5.4 percent - of the remaining 20 percent.
To understand just how the formula works in the age of DVD sales,
however, look at Dave Chappelle, star of "Chappelle's Show" on
Comedy Central. Mr. Chappelle's show is wildly popular on cable - a
limited audience compared to network television - with around three
Last February, Paramount Home Entertainment, part of the Viacom
conglomerate that owns Comedy Central, bundled Mr. Chapelle's first
12 episodes into a DVD boxed set. It shipped just 35,000 sets to the
nation's video retailers.
"Paramount just dumped the DVD out there," said an executive who
helped broker the initial employment deal between Mr. Chappelle and
Comedy Central and who spoke on the condition of anonymity.
To the amazement of studio executives, sales of the boxed set,
which included many of the words that were bleeped when the shows
were broadcast, had reached 2.2 million units by the end of
November, and had returned close to $37 million in wholesale
revenues to corporate parent Viacom.
Mr. Chappelle's reward was a renegotiated deal with Comedy
Central that will also earn him several dollars for each future
boxed set of DVD's sold, paying him a total of around $25 million a
The reward for the rank-and-file actors who performed on
"Chappelle's Show"? They will divide 12 cents for every DVD sold,
the figure determined by the residual agreement.