Adams Media Research projects that paid downloads on iTunes and other services will more than double to $194 million this year -- roughly the cost of a big-budget movie.
"Profitability is next to nothing," said one studio executive who asked not to be named. "The notion of taking out more money from a business that's nascent just seems crazy to us. The problem is, we said the same thing about DVD and it became a $10-billion business."
Initially, many writers embraced the Internet as a way to connect with devoted fans who chat online about their shows. They crafted short features known as webisodes based on their programs.
But even that became a source of conflict.
NBC Universal last year tapped writers of prime-time shows such as "The Office" and "Heroes" on NBC and "Battlestar Galactica" on its Sci Fi cable channel to create webisodes. "We said, 'Great. That sounds like a cool idea,' recalled Ronald Moore, writer and executive producer of "Battlestar Galactica." "Then they said they considered them promotional and that they weren't going to pay actors, writers and directors for working. At which point I said, 'Thanks, but no thanks.' "
After the writers balked, NBC filed a complaint in August 2006 with the National Labor Relations Board, alleging that the guild was improperly holding up Web productions. The board later sided with the guild, although it did not address compensation.
As writers and studios repeatedly clashed on the new-media front, anger swelled across the union.
"There's been a tin ear at the companies to the growing level of frustration within the Writers Guild about how the companies have dealt with these new-media issues," said writer-director and past guild President John Wells of "ER" and "West Wing." Barbara Brogliatti, spokeswoman for the Alliance of Motion Picture and Television Producers, responded: "We have a tremendous regard for writers and their contributions. . . . We were willing to share revenue from Internet streaming even before we had recouped our costs. We had a proposal to that effect on the table when they went on strike."
Guild officials, however, said the proposal was unacceptable because residual payments would kick in only after six weeks of Internet play, and they objected to sweeping promotional language that would allow studios to stream full-length movies and TV shows without paying. "That would be like going to see the movie "Beowulf" and then saying, 'Hey, I just saw the trailer for "Beowulf," and it was two hours long and contained the whole movie,' " Lindelof said.
Those and other differences led to a breakdown in talks Nov. 4, paving the way for the strike.
Still, some modest headway could provide the basis for a deal when talks resume Nov. 26.
Writers, for example, dropped their demand for doubling DVD pay, and studios agreed to pay for Web episodes derived from scripted network shows.
"Producers and writers alike," said Forrester Research analyst James McQuivey, "are desperate to make sure they don't accidentally give the farm away."
Times staff writer Joe Menn contributed to this report.