Heart of the Story: The Economy

In the end, negotiations between the Writers Guild of America and the Alliance of Motion Picture and Television Producers may have boiled down to a single well-worn phrase: “It’s the economy, stupid.”

Even before negotiations began in earnest between writers and studios in February, a sagging stock market, faltering advertising sector and layoffs across the entertainment industry served as keen reminders to both sides of just how much a strike could sting.

“Unlike 1988, when many wanted a strike, I don’t know of anybody who wants one today,” said Larry Lyttle, president of Big Ticket Television, a production unit of Viacom. “It’s imprudent to think, in this uncertain economy and with the elimination of jobs through the vertical integration of the business, that a strike would happen.”

In six months leading up to Friday’s tentative agreement, an economic boom went bust and American stock portfolios withered with the slide on Wall Street. Entertainment stocks sank as advertisers pulled back, hurting the big media companies that own the studios and networks that would have been most affected by a strike.

At the same time, unscripted programs such as “Survivor” and “Who Wants to Be a Millionaire” have become fixtures on network schedules, displacing dramas and comedies that are the lifeblood of Hollywood writers. Even the threat of a protracted strike prompted networks to spend more of their development funds on these so-called reality programs--as an insurance policy--than they otherwise would have.

The economic factors that had a bearing on Friday’s settlement pact will undoubtedly weigh on the negotiations in upcoming contract talks between studios and actors. The conventional wisdom this week is that actors will probably follow suit, particularly after the ungratifying results from their commercial strike last year, when the economy was booming.

“If there was ever a clarion call for scripted TV, it is now,” said Warren Littlefield, a television producer and former head of NBC Entertainment.

And the Internet meltdown struck close to home as Hollywood sites such as Digital Entertainment Network, Pop.com, Entertaindom, Go Network and Z.com fizzled, proving how tenuous online economics could be and undercutting the guild’s demands for a slice of the industry’s next big growth field.

Amid the guild’s saber-rattling came news of layoffs at NBC, AOL Time Warner and Walt Disney Co. that changed the psychological tenor of negotiations.

The effect a strike would have on Southern California’s economy also kept both sides at the bargaining table.

In recent weeks, Los Angeles Mayor Richard Riordan repeatedly emphasized the results of an economic study that estimated the loss of 81,900 jobs and $6.9 billion in income for Southern California if strikes by writers and actors lasted from May through October.

All agree that television rather than film was the biggest propellant toward a resolution. Though most studios have stockpiled movies for the rest of the year, the daily deadlines for scripted series make it difficult to build similar inventories in television.

TV writers and the networks each risked losing most of the upcoming fall season to a strike, with potentially devastating financial consequences to both in a work stoppage.

The networks, already worried about a downturn in advertising, were loath to pitch new fall schedules to advertisers in New York in two weeks without being able to guarantee that the shows would be made. For their part, writers were scared of giving away more ground to unscripted programs that they might never regain.

“Underneath it all is the power of reality programming and the fear by writers that if you lost two or three slots to reality they could be gone forever,” Dixon said.

Contingency plans developed by the networks were heavy on unscripted programs and alternative formats, which have exhibited surprising popularity in the last 18 months. Yet for all the talk about the value of strike-proof series such as “Survivor” and “Who Wants to Be a Millionaire,” networks would be far weaker heading into the fall season without such popular series as NBC’s “Friends,” ABC’s “The Practice” and CBS’ “Everybody Loves Raymond.”

As a result, analysts see the settlement as welcome news.

“It’s a sigh of relief from a Wall Street perspective,” said Jessica Reif Cohen, a media analyst at Merrill Lynch. “This removes a cloud over the network upfronts,” referring to the crucial period each spring when networks sell advance advertising for the new TV season.

A potential strike could have kept advertisers from making big commitments in the upfront. “I’m not going to buy ‘ER’ for $500,000 . . . if there’s a strike,” said Tim Spengler, executive vice president of national broadcast at Initiative Media Worldwide, a media buyer.

Even without a strike, Reif Cohen expects the upfront advertising market to be down by as much as 10% from the $8 billion media buyers committed to the six major broadcast networks last spring.

Television networks are just beginning to recover from several down quarters that analysts call one of the bleakest periods in years for television advertising.

“Overall, the picture is now the worst in a decade, if not more,” wrote Tom Wolzien and Chris West, media analysts at investment research firm Sanford C. Bernstein & Co., in an April report that estimated national spot advertising is running as much as 20% below last year.

Some top advertisers, such as Procter & Gamble, have said a strike might have prompted them to channel less money to network television and more to magazines with more narrowly targeted audiences.

“In a strike, cable will take money from the broadcasters,” said Jack Myers, chief economist for Myers Reports Inc., a research firm specializing in media.

Moreover, network viewing dropped 9% during the last strike, and cable executives have suggested a fall TV season without scripted series would amount to “summertime for cable.” This refers to the drop in viewing that networks normally experience from June to Labor Day, when prime-time shows are in reruns.

Although companies such as Viacom, Disney, General Electric and News Corp. own both broadcast and cable channels, the current climate has diminished their desire to rely on cable revenue to offset potential lost network revenue.

“The risk would be very great,” NBC President Robert Wright said. “The horse is the network.”

On the flip side, writers have feared they could have lost hours of programming to unscripted shows that they might not have regained at the end of a strike.

“Writers lost an estimated $600,000 a week when ABC put ‘Who Wants to Be a Millionaire’ on four times a week,” said Bob Sanitsky, executive vice president and head of worldwide television at International Creative Management, one of the leading talent agencies. “The networks love getting comparable ratings for a third of the price. We’re only a heartbeat away from a network putting a talk show like Jay Leno’s on prime time that will cost them $250,000 an hour.” By comparison, TV dramas cost $1 million or more per episode.

Scripted programming has nevertheless demonstrated its continued worth and appeal--including the record prices paid by cable networks in the last 60 days for reruns of shows such as “CSI: Crime Scene Investigation,” “The West Wing” and “NYPD Blue,” blunting the studios’ claims that they can’t afford to meet the writers’ demands.

Yet even if the guild fell short in some of its goals, WGA sources say the writers’ more militant posture was required--that only the threat of a strike could wring concessions out of studio negotiators.

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Highlights of the Deal

Fox Network: Fees paid to writers will gradually rise to the same level as paid by other major networks.

Foreign TV Residuals: The foreign formula is the same, but writers will earn a bonus on the sale of high-priced stories.

Cable TV Residuals: No change in what writers receive for network programs sold to cable. But they will receive more money for original pay TV and cable programs.

Creative Rights: Writers win the right to be on the set of film and TV productions. The sensitive “A Film By” credit issue is tabled.

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More Inside

Breathing Easy: Writers are happy with the settlement, A16

Actors’ Turn: Actors soon will begin talks with studios, A17

Key Gain: Fox agrees to match the rates paid by major networks, A18

All Too Brief: Career brevity is a factor in writers’ negotiations, A16