Talks Between Studios, Writers Break Down

Setting the stage for a crippling strike in Hollywood this summer, writers and major studios on Thursday abruptly broke off nearly six weeks of contract talks after the two sides failed to resolve differences over pay issues.

Although the 11,000-member Writers Guild of America will continue to work under a contract that runs through May 1, the sudden collapse of the latest round of negotiations served to heighten the most tense labor period in Hollywood in more than a decade.

Although a strike may not be inevitable, because both sides still have two months to negotiate, a sense of optimism that existed while the talks continued has evaporated.

“We are just so far apart on the economics that there’s no way to bridge the gap,” said J. Nicholas Counter, president of the Alliance of Motion Picture and Television Producers, the negotiating arm for the studios.

Said Writers Guild President John Wells: ‘We don’t see that the money is there to close a deal.’

The breakdown of talks with writers Thursday could be especially perilous because it signaled that the studios may have an equally difficult time negotiating a new contract with the more militant Screen Actors Guild.

SAG’s contract expires July 1, and it has yet to schedule talks with the studios. The actors’ union struck the advertising industry for six months last year over payment for commercials.

Proof of just how far apart the writers and studios remain was evident from their conflicting estimates of the gap over pay issues.

According to writers, the studios are offering a net decrease of $2.7 million in total compensation over three years. But the studios claim they are offering writers a net increase of $30 million, or 11%, over three years.

The writers say they are demanding a package valued at $99.7 million, or a 3% increase, over three years. But the studios calculate the demand at $112 million and say it represents a 40% increase.

Writers argue that their demands are small in an era when studios will spend $140 million on a single movie like Walt Disney’s “Pearl Harbor.”

But the studios argue that one reason they are adamantly holding the line is that, by industry practice, any increases awarded writers will also have to be granted to other guilds, such as actors and directors, as well as trade crafts, such as cameramen and grips.

“When you multiply it across the board of our productions, it’s hundreds and hundreds of millions of dollars,” DreamWorks partner Jeffrey Katzenberg said.

Throughout the negotiations, people close to the talks have said Disney and Rupert Murdoch’s News Corp. have taken an especially hard line. But Disney President Robert Iger denied that.

“We’re behaving as one on our side,” Iger said.

Seeking to downplay the possibility of an actors’ strike, SAG President William Daniels appeared Thursday alongside Writers Guild officials to express optimism that the writers could reach a deal. “Whenever I’ve talked to the other side, they’ve given some indication that there will be a deal,” Daniels said.

A full-scale film and TV shutdown would do serious damage to the Los Angeles economy. Economists have estimated it could cost as much as $250 million a week directly and an additional $270 million a week as the strike ripples through the local economy.

Some in Hollywood suggested that Thursday’s salvos were part of the negotiating brinkmanship that is likely to continue as the contract expiration date approaches and that negotiators on both sides would be subjected to criticism that they caved in too early if a deal is struck now.

“One thing is for sure: The posturing always begins after talks break off. Everyone wants to position themselves as the good guys as a way to get the support of the community,” said producer Sidney J. Sheinberg, who as the former head of Universal Studios’ parent, MCA Inc., negotiated contracts with the guilds.

Added International Creative Management Chairman Jeff Berg: “It’s not new to the collective-bargaining process, even in the entertainment business, to go through a severe period of concentrated negotiations, then a cooling-off period.”

Writers said the breakdown of the talks underscores their view that studios want to continue to shortchange them at a time when the industry is prospering. Writers want pay formulas that will give them more money when their work airs on cable television, in foreign markets and when it is sold on videocassette or DVD. They also want the Fox Network, which now pays just 66% of what the other networks do, to pay more.

Studios viewed Thursday’s breakdown as further evidence that writers are naive about a sea of changes in a business that has seen a splintering of the network TV audiences, competition for entertainment dollars from such things as video games, and profits squeezed by soaring costs for films and TV shows.

“Their proposals are unrealistic because, even in good times, they are asking for increases that would not be justifiable,” Disney’s Iger said.

One area in which both sides acknowledged some progress was in “creative rights.” Writers want more power in filmmaking and limits on the use of “A film by” credits routinely awarded to directors. Proposals include a “grandfather” clause allowing directors who have received the credit to continue to do so.

The Directors Guild of America did not comment specifically on those proposals but did say it is disappointed that the talks broke off.

Under pressure to negotiate early so development of future projects won’t be halted, the two sides began meeting Jan. 22, with writers initially saying talks would go on for just two weeks. On Thursday, industry negotiator Counter confirmed that the studios initially asked writers for a three-year extension of the current contract.

“We started at zero,” Counter said.

Writers reduced their demand for payments on videocassettes and DVDs, said industry negotiator Counter, dropping from a 100% increase to 25%. According to writers, they want a penny increase, from 4 cents up to 5 cents, on what they receive for each video or DVD sold. But Counter said the studios believe that is still too high because they view both of those as primary sources of income for movies.

Writers also said that the studios have offered no increases for the reuse of television shows on cable TV and that studios want to reduce pension and health payments by $2.8 million, which Counter denied.

On the Fox payment issue, under the current studio offer, the network’s residual rate would rise from 66% to 75% the first year and 78% in the next two years of the contract. Fox has historically enjoyed a discount, negotiated when it was a fledging network.

Thursday’s break-off of talks came after writers spurned a new offer the industry put on the table. Writers were especially critical of what they characterized as “rollbacks,” or decreases, in the pay they get for network TV reruns. Overall, writers valued the rollbacks at $32 million.

Counter called the network TV proposal “an offset” that he characterized as “a trade-off for a substantial improvement in residuals.”

Katzenberg said that it is unfair to isolate any one part of the offer and that it should be viewed as a package.

For Hollywood, the continuing uncertainty means that future projects will probably be put on hold because producers don’t want to have to pull the plug during a strike.

For writers, it means that networks will continue the proliferation of programs that do not use writers. For example, around the time the talks broke off Thursday, Fox announced a second version of its latest staged, unscripted hit, “Temptation Island.” ABC is also set to reprise “The Mole,” another program in that genre, which concluded its initial run Wednesday night.

Although studios have said they hope a strike can be avoided, their hope is that a combination of unscripted programs, prime-time newsmagazine shows, movies already shot and other programs will blunt the effects of any work stoppage.

No new talks were scheduled, but both sides held out hope that they could get back together soon. Writers Guild officials said they felt it was time to provide details to members, which had been prohibited under an agreement between the two sides.

“We’re hoping that this will be a brief breaking off of negotiations, as opposed to a collapse of negotiations,” Katzenberg said.

For their part, the studios said they remain confident that a new contract will eventually be negotiated.

“In labor negotiations, particularly in this industry, there are no divorces,” Counter said. “We will make a deal at some point. The only question is when.”

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Times staff writers Claudia Eller, Robert Welkos, Brian Lowry, Lorenza Munoz and Sallie Hofmeister contributed to this report.