DVD Bonanza Spins Unrest

There is one bonus feature on DVDs that Hollywood studios aren’t advertising: a likely rise in labor tension due to the sudden explosion in digital disc sales.

The key point of disagreement is a contractual formula that keeps the largest share of studio DVD and videocassette revenue from counting toward residuals, the payments triggered when a film is sold in various formats after showing in theaters.

Looking ahead to a contract negotiation still more than a year away, Writers Guild of America Assistant Executive Director Cheryl Rhoden promised: “The issue of DVDs will be at the top of our list.”

The focus on DVDs isn’t surprising, given that some hit films now enjoy first-weekend disc sales that are even bigger than their box-office openings. Sony Pictures Entertainment’s “Spider-Man,” for instance, rang up more than $190 million in DVD sales on its first weekend, compared with record ticket sales of $115 million during its first weekend in theaters.

Overall, the film industry shipped 425.6 million DVDs in North America through the end of September, far outstripping sales for all of 2001, with this year’s holiday season yet to be counted. Guilds and unions won’t have solid numbers for 2002 until next year because of a reporting lag.

To be sure, the DVD boom already is providing some benefits to Hollywood labor: Discs are putting extra cash into the pockets of actors, directors and writers, while bolstering the pension and health plans of Hollywood’s blue-collar workers.

Leo Gaffner, an attorney for the International Alliance of Theatrical Stage Employes, said the amount flowing into the union’s health and pension fund from video and DVD sales will exceed $200 million this year, compared with $165 million in 2001.

The Screen Actors Guild said the combined growth in its payments from video and DVDs had been averaging about 6% but that is likely to be greater this year because of the flood of hot-selling discs.

For its part, the WGA said its annual kitty for writers from DVDs and videocassettes comes to about $30 million.

Through October, that number is up about 8%, and it’s likely to rise even further when fourth-quarter DVD sales are tabulated.

The boost from DVDs is particularly welcome for those working in Hollywood because the movie and television residuals pool has stagnated in recent years, with the slowdown in foreign and videocassette markets.

But at the same time, the DVD explosion is focusing new attention on the industry’s method of dividing the pie -- and labor is determined to grab a bigger slice.

Under deals worked out in contracts dating back to the early 1980s, when the videocassette business was just taking off, studios can exclude 80 cents out of every $1 in wholesale revenue from counting toward residuals. The theory: This offset reflects the cost of making, marketing and distributing a video.

Studios say that video and DVD sales are an integral part of a movie’s revenue package and often determine whether a film even makes money. Rather than view such income as a surplus to be “taxed” by the guilds, the companies say it is needed to fund new projects and cover a vast array of costs.

They also contend that the latest rise in DVD sales could flatten quickly once buyers have replaced their libraries of videocassettes with discs.

Both writers and actors tried to make the exclusion a central issue in their hard-fought 2001 negotiations, but the studios wouldn’t budge.

“We’ve never liked” the way the money is carved up “and still don’t believe the 80% exclusion has ever been justified,” said Chuck Slocum, chief strategist for the Writers Guild.

The Alliance of Motion Picture and Television Producers, which speaks for the industry on labor matters, declined to comment.

Under the current system, about 3 cents of every $1 in wholesale revenue goes to the workforce. Once the 80% exclusion is lopped off, writers and directors each get about 1.8% of what’s left.

Actors get 3.6% because there are more of them. About 5.4% goes to the pension and health funds of blue-collar workers such as grips, lighting technicians and electricians. (In addition, big-name talent often cuts lucrative deals that far exceed guild payments.)

Labor unions find the exclusion especially galling because DVDs are cheaper to make than are videocassettes. They also contend that many DVDs are reissues of movies that were paid for long ago.

“We negotiate this type of payment recognizing that the medium is growing,” said Pamm Fair, a national director for the Screen Actors Guild.

“But you never realize exactly what the potential is until you live it. Obviously, we’ll take a closer look at this provision of the contract to make sure our members are getting their share of the growth.”

Also eyeing the growth closely are Hollywood agents. Under an expired “franchise” agreement that long governed relations between agents and the Screen Actors Guild, agents didn’t get commissions on DVD deals.

If the current stalemate over a new arrangement between the two sides ever thaws, agents are likely to push again for a cut of their clients’ latest gold mine.

“This somewhat new but huge growth industry is permitting employers to offer less money upfront to actors, with the carrot of new revenue streams coming in from the home entertainment market down the road,” said Karen Stuart, executive director of the Assn. of Talent Agents.