By: Zev Foreman

Loyola Law School

4/30/2007

THE FUTURE OF RESIDUALS FOR TELEVISION PROGRAMMING IN

NEW MEDIA: A look at how Hollywood will attempt apply current, and adapt future
residual formulas to download for purchase and streaming content

1. Introduction

With the upcoming guild negotiations of 2007 and 2008, one of, if not the major

issue of contention will be how to come to an agreement regarding issues surrounding

new technology, means of distribution, and the payments connected to those means. This

paper will specifically address residuals for television shows in two of the larger areas

underneath the blanket topic of “new media”. The idea of new media is difficult to define

but generally it is accepted as any form of technology that is not old media, meaning

print, television and film. Generally this encompasses all forms of media that are

electronic, having to do with computer and the internet. The first is the area of

downloads for purchase, most notably the iTunes Video Store, and content for mobile

phones. The second area, which does not seem to garner so much attention, but is a

quickly evolving enterprise, is streaming media. This is done mostly by the major

television networks themselves. The discussion will be limited to three of the major guild

agreements. These agreements are between the Guilds and many producers including all

of the major networks, who since 1982 have been represented in collective bargaining by

1
the Alliance of Motion Picture and Television Producers1. The guild agreements to be

discussed are The 2005 Screen Actors Guild Television Agreement2, The 2001-2004

AFTRA National Code of Fair Practice for Network Television Broadcasting3, and The

2004 Writers Guild of America Theatrical and Television Basic Agreement.4

2. History

To understand why the topic of residuals surrounding new media is so important,

and a contentious, possibly strike producing issue, we first need to look to history. Before

the 1970’s technology for delivering dramatic content to viewers came in one of two

types of media. These were television, which people watched at home, and feature length

films which people tended to watched in movie theaters.5 Although films were shown on

television, the viewers had not control over when they could view these films. A

company called Magnetic Video attempted to change this by licensing the movie library

of 20th Century Fox in order to put movies on a new technology called Betamax Video

for people to buy, and be able to play in their own homes at their own convenience.

Magnetic Video negotiated to pay Fox a royalty rate based on 20 percent of total sales,

due to the costs involved in marketing and production of this new technology, as well as

1
Hereafter know as the “AMPTP”
2
Hereafter known as the “SAG TV Agreement”
3
Hereafter known as the “AFTRA Agreement”
4
Hereafter known as the “WGA Agreement”
5
The first “major” film to be shown on network television is arguably “The Wizard of
Oz” by the CBS Network in 1956, available at
http://www.pictureshowman.com/questionsandanswers.cfm#question6

2
the inherent risks in starting a new industry.6 . The general notion of the studio executives

was that people really wanted to go to the movie theaters in order to see movies. They

believed that consumers did not want to watch their grand films on the small screen of a

television set. They saw this idea as untested and did not want to commit to a formula for

payment before they knew where the industry was headed.7 Eventually, all the major

agreements the 20 percent royalty rate applicable to home video and consequently the

guild residuals were only paid based on that 20 percent rate. When negations during the

early part of the 1980’s occurred between the AMPTP and the guilds, a royalty rate based

on 20 percent of gross, has been the accepted industry practice. This has been a thorn in

the sides of the guilds for the last few decades, as home video sales have become a very

large and indispensable source of revenue for the producers. Meanwhile, people have

embraced the notion of home theater as televisions have become larger and cheaper, and

technology in picture and sound continues to improve. In addition the production costs

for making videocassettes and now DVDs has dropped sharply, further increasing the

profits of the producers.

With the continuing evolution of technology, new types of media and distribution

have brought about concerns that directly mirror those expressed during the beginning of

the home video talks. The producers are voicing similar arguments for lower residual

rates due to the unpredictability of the media and whether it will evolve into a significant

and profitable source of revenue. On the other side, the Guilds feel as if they got the short

end of the stick during the negotiations for the home video formula and they do not want

6
Brooke A. Wharton, Who’s Afraid of Digital Downloads?, Los Angeles Lawyer,
Vol. 29, No. 3, (May 2006)
7
Alex Ben Block, Upside or Down, Emmy Magazine, Issue No. 2, p. 40 (2007)

3
history to repeat itself. In case revenue for these new types of distributions explodes, they

want what they consider to be a fair share of the gross profits for their members.

3. Supplemental Markets

When dealing with issues of residuals, the guild agreements reference what they

call “Supplemental Markets.” SAG, AFTRA and the WGA Agreements all include in

their definitions of supplemental markets “Pay Television”, “Cassettes”, and “In-Flight”.8

In turn, each of these agreements also has their own definition for each subset of

supplemental markets.9 For each of these supplemental markets, residual payments

usually based on a producer’s gross income may vary drastically as it does in comparison

between the Pay TV and Home Video Rates.

(a) Pay TV

We will first look at a comparison between the various definitions of Pay TV of

the guild agreements. SAG’s definition for the Pay TV market is as follows:

…exhibition on a television screen in the home by means of a telecast, cable, closed-

circuit, satellite to home or CATV where substantially all the systems to
which the program is licensed meet the following tests:

• a) a separate channel with a separate fee…and/or

• b) the subscriber pays for the motion picture…and/or
• c) the subscriber pays a fee for an encoded telecast…10

8
The “In Flight” supplemental market will not be discussed as it is out of the scope of
this paper.
9
The AFTRA Agreement also includes “basic cable” in their definition of supplemental
markets but that will not be discussed here as it is outside the scope of this paper.
10
SAG Agreement, Art. 20.1 referring to Art. 20(a)(2) emphasis added.

4
 AFTRA and the WGA’s definitions for Pay TV are substantially similar to that of SAG’s

except that they refer to a “home-type television screen”. Nothing in any of these

definitions mention anything having to with the delivery of content through the internet

or for use on any other device other than the home type screen mentioned above.

Payments for Pay TV are listed in the chart below. For current programming SAG

and AFTRA member both receive 3.6% of the distributor’s gross, while WGA members

receive 1.2% of the accountable receipts (another term for “gross”). As in the rest of

these agreements, there is no common meaning of “distributor’s gross” or “accountable

receipts”. These are all defined terms and the definitions must be looked at in the

individual agreements to determine their meaning.

Pay TV Rates

SAG AFTRA WGA

3.6% of distributor Gross. 3.6% of dist gross if 1.2% of the company's
[SAG Codified Basic agreement reached after Feb. accountable receipts (the
Agreement §5.2(A.)(1)] 28, 1995 [AFTRA Agreement licensing fee). [WGA
Exh. D 3(A)(1)] Agreement Art. 51 (C)(1)(a)]

(b) Cassettes

The industry definition for “cassettes” is much more inclusive than it first seems.

The SAG definition describes a cassette as:

…any audio-visual device, including, without limitation, cassette, cartridge, phonogram

or other similar audio-visual device know known or hereafter devised, containing a
television motion pictured and designed for replay through a television receiver or
comparable device.11

11
SAG Agreement, Art. 20.1 referring to Art. 20(a)(1)

5
 The AFTRA and WGA definitions are extremely similar to that of SAG. These

definitions clearly cover all media that was subsequently produced after the cassette,

including laserdisc, CD and DVD on which a program could be stored. There have been

few arguments about whether these new forms of media are contained within the defined

meaning of cassette. Instead the root of the arguments for the application of a particular

residual formula comes from the definition of distributor’s gross.

Payments for the selling or rental of cassettes are included in the distributor’s

gross, but at a much lower rate. This is because of the history of home video discussed

earlier. The definition for Distributor’s Gross Receipts for Cassettes only include 20% of

the worldwide wholesale recipes derived by the distributor.12

Again, under the definition of cassettes, we see no mention of the internet or other

non-physical means of storage, or transportation of content.

Home Video Rates

SAG AFTRA WGA

4.5% of first $1M and 5.4%
thereafter based on 20% dist
gross. [SAG Codified Basic
Agreement §5.2(A.)(2)]
For regular TV: 3.6% of dist
gross if agreement reached
after Feb. 28, 1995 [AFTRA
Exhibit D 3(A)(1)]
For dramatic primetime TV:
4.5% of first $1M and 5.4%
thereafter based on 20% dist
gross. [AFTRA Agreement
Exh. D 3(A)(2)]
Video cassette residuals are
1.5% of the first one million
dollars ($1,000,000.00) of the
producer's gross; 1.8% of the
Producer's gross in excess of
one million dollars. [WGA
Agreement Art. 51 (C)(1)(b)]

(c) Comparison

12
SAG Agreement Art. 20(b); AFTRA Agreement Exhibit D 4(A)(1); WGA Agreement,
Art. 51 (C)(1)(b)

6
 As one can see, the difference in percentages paid to guild members between the

Pay TV and Home Video rates are negligible and sometimes equal. However, because of

the difference in definition for what constitutes the total receipts in “distributor’s gross,”

the Pay TV rate turns out to be between four and five time higher than that of the Home

Video rate for all of the guilds. This is one of the major issues of contention when it

comes to new media or content that is being distributed over the internet. The distributors

want new media to fall under a formula similar to that of home video, while the guilds

want this new media to be included under a formula similar to Pay TV. Next, we will

discuss the various means of distribution and the issues surrounding residuals in those

areas.

4. New Media Distribution of Content

With constant progression of technology come new forms of physical media

along with new forms content delivery. For television, this media has included cassette

tapes, DVDs and now Blue-Ray and HD-DVD. The delivery of this content was first

accomplished through over the air television, which was followed by cable television,

then Pay TV. While these forms of media and content delivery have been subsequently

encompassed by existing or new sections of the guild agreements, the story is a little

different when it comes to the newest forms of technology.

The rapidly increasing bandwidth of the average home internet connection has

made it possible for a consumer to purchase, download, or stream high quality video in

real time without the use of any physical media. The newfound ease of quickly

7
transferring large amounts of digital information initially led to the piracy and illegal

sharing of music and video. However, as the potential for digital distribution became

more apparent the companies that distribute these products saw potential for another new

revenue stream. They have since begun the process of embracing the idea of digital

distribution and exploring different ways to distribute their content over the internet. For

television, the two most common means for digital distribution are what we will refer to

as “download for purchase” and “streaming media.”

(a) Download for Purchase

We will first look at the issue of downloads for purchase and start by exploring

what that means. The iTunes Video Store is the best example of the success of this

particular business model with over 50 million television episodes, and 1.3 million

feature length films sold through the service.13

Generally a download for purchase model means that a customer pays a specific

price for a specific piece of media. In the case of iTunes it is $1.99 for a television

episode, $14.99 for a new release feature and $9.99 for other features. The content is

delivered via the internet, and viewable in the home. Once downloaded, there are

limitations to its use through built in DRM or Digital Rights Management. This limits the

amount of computers on which that specific piece of media may be played and in the case

of iTunes, neither the TV shows, nor the feature films may be copied onto any type of

external media such as a CD or DVD. These protective measures are specifically

implemented to prevent digital piracy or unauthorized copying of the material. This is no

13
Apple® Press Release, available at
http://www.apple.com/pr/library/2007/01/09itunes.html (Jan. 9, 2007)

8
different than a DVD that is purchased in a store, which contains a form of copyright

protection called CSS (Content Scramble System). A download for purchase is also

similar to a DVD in that there is no limit as to the number of times the file may be viewed

or in the amount of time the viewer may keep the file. For all intensive purposes the

buyer has the right to privately view that work in perpetuity without limitation.

(b) Ad Supported Streaming Media

Turning to the topic of streaming media, we have another issue. Streaming media

is a very new idea and appeared en masse only during the 2006-2007 television season.

While streaming media is delivered all over the internet through websites such as

YouTube, here we are only discussing legal distribution of full episodes of television.

Generally, this occurs when one of the major TV Networks, i.e. Fox, ABC, CBS, or NBC

chooses to post episodes of their shows on their website so that anyone with an internet

connection may view them. A person would navigate to the website where one or more

shows will be posted. A user would click on that show have to watch one or more ads

during the entire airing of a one-hour show. The user has the ability to navigate through

the show by pausing, fast forwarding, and rewinding and can access the show at any time.

In most cases the online show is accessible anywhere from a few hours to a day following

the live airing of the show on network tv.

There are however, a few major differences between pay for download, and ad

supported streaming media that are worth specifying.

9
 (i) Download v. Streaming

The first and most obvious difference between pay for download and streaming

content is that a viewer must pay for the downloaded content. In other words, the

streaming media is free, or rather relatively free. Streaming media, in most cases contains

advertisements, the same way network television does. These advertisements tend to be

much shorter in overall length than those aired during a full hour of television, but a

viewer must sit thorough them in order to go on to the next section of the episode.

The second major difference between pay for downloads and streaming episodes

is the amount of time and quantity of material to which a viewer has access. When a

consumer purchases a download, they have access to most, if not all of the episodes, and

to one or more seasons of a particular series. As mentioned before, they may keep it

forever and watch it whenever they choose. In the case of steaming television online,

only a limited number of episodes of the show may be available to the viewer and only

for a limited amount of time. As an, example a show such as FOX’s popular hit series

“24” is available through iTunes for download as well as streamed through FOX’s

website in partnership with MySpace. On iTunes, every episode from all five seasons is

available for purchase. Contrast this to the availability of streaming content. Only the last

five episodes from the current season of “24” are available to view.

The third major difference is the difference on limitation of use. With content that

is downloaded, there is more flexibility as to its uses for the consumer. Downloaded

content, while generally not being able to be copied onto a CD or DVD might be able to

be copied to a portable device such as a mobile phone or iPod. Additionally, new devices

10
such as home media centers and others allow content stored on a home computer to be

viewed on a home television. Streaming content can only be viewed during that time and

cannot be copied for later use.

The last major difference is the quality between content that is purchased and

content that is streamed. Generally purchased content is of much better viewing quality

than that of streamed content. The quality of streaming content can vary drastically due to

factors such as the amount of people attempting to access it, and the internet connection

speed of a user or network. While quality is constantly improving, downloads for

purchase tend to follow the saying of you get what you pay for.

(c) Mobile Phones

We will only touch briefly on mobile phone content downloads. Content that is

purchased for a mobile devices is bought primarily the mobile phone carrier. Many times

this is original content that is created solely for mobile devices. The consumer then pays a

fee, which might be a monthly fee allowing a certain number of downloads or a pay for

purchase where the consumer purchases pieces of content individually. Content created

directly for mobile phones falls under a separate portion of the agreement than content

that is produced for television and subsequently replays on a mobile device.

5. Which formula to Apply?

11
 At differing points in 2001, all of the guilds made agreements with the producers

represented by the AMTPT, with regards to content delivered via the internet.14 These

agreements come in the form of as sideletters supplementing the guilds’ basic

agreements. These sideletters directly address the issue of programs and motion pictures

transmitted via the internet and apply a rate equal to the Pay TV rate to that content. This

means that SAG and AFTRA members receive a residual payment equal to 3.6% of the

license fee paid by the licensee for the right to exhibit the picture and WGA members

receive 1.2%. However, there are major limitations to these sideletter agreements and

they do not solve the issues of a proper residual formula for either content delivered by

the pay for download model or the ad supported streaming model.

First of all, these agreements only apply to content for which a viewer must pay.

This immediately excludes ad supported streaming from being included at the rates

provided, as there is no payment made by the “subscriber.” Second, these agreements

only apply when the payment entitles a viewer to access the content for a limited period

of time or for a fixed number of exhibitions. This second requirement excludes all pay for

download purchase models, such as iTunes, because the consumer owns the content and

can view it indefinitely and as often as they chose.

Consequently, the agreements do little to address some of the largest sources of

revenue in new media, and do not begin to address the questions surrounding the current

forms of ad supported streaming content.

14
SAG Agreement, Sideletter 30; AFTRA Agreement, Sideletter 30; WGA Agreement,
First and Second Sideletters Re: the Exhibition of Motion Pictures Transmitted via the
Internet

12
 The parties did expressly acknowledge that this letter would not cover all existing

forms of internet distribution. In the sideletters there is a section entitled “Other

Exhibitions,” which states that:

For all other types of internet transmission including a sale of license of the right to view
the motion picture for an unlimited time, the parties acknowledge that the markets for
such other exhibitions are evolving, and that the basis for payment of residuals shall be
determined at a later time.15

The letter goes on to say that the producers contend that internet distribution is outside

the “primary market” and that both sides reserve the right to disagree and argue for

payment whether or not internet distribution is considered part of the so called “primary

market”. Eventually, if there is a disagreement about a residual to apply in the future, or

whether a residual formula was improperly applied, the grievance may be subject to

arbitration.16

(a) Download for Purchase

The stage is set for the confrontation over what the residual rate for a television

show purchased over the internet should be. On one side are the producers and

distributors. Their argument is that whether a show is purchased in a box or over a cable,

it is still a purchase to own and that the home video rate should apply. Consequently, that

is what some of the studios decided to do. Without consulting the guilds, the producers of

15
Id. Emphasis added.
16
E.g. WGA Agreement, Art. 10(A)(1)

13
ABC’s Lost began to make payments to the guilds based on the home video residual rate

(based on the 20% gross) for shows that were sold over the internet.17

The guilds have taken the opposite stance. They are asserting that some type of

rate similar to that of Pay TV, or the Pay TV rate itself should apply. SAG prexy Alan

Rosenberg has said that, ABC had violated the collective bargaining agreements because

they failed to first bargain with SAG.18 At first the WGAW took the position that The

Pay TV Formula should apply which would entitle their writers to 1.2% of the producers’

gross.19 Subsequently the Guilds reached the first agreement a residual formula applied to

downloaded content with no limitations on use.

The agreement reached in April of 2006 by the three major guilds and

Touchstone Entertainment was the first of its kind but also very limited in scope.20 It only

applied to a spinoff of “Lost” that ABC had produced for mobile phones. The agreement

said that ABC would pay residuals at the Pay TV rate, just as the Guilds had requested.21

Many hope that this agreement will be a model or at least a starting point for future

negotiations in this area and Touchstone has also said that they would look forward to

17
Dave McNary, Ben Fritz, Download drama: iPod residual battle heats up, Daily
Variety, Feb. 27, 2006, available at
http://www.variety.com/article/VR1117938995.html?categoryid=10&cs=1
18
Id.
19
Jesse Hiestand, iPod residuals concerns unify guilds: Guilds networking for video iPod
resids campaign, Hollywood Reporter, Oct. 15, 2005, available at
http://www.hollywoodreporter.com/hr/search/article_display.jsp?vnu_content_id=100130
6674
20
WGA Mobisode Agreement, available at
http://www.wga.org/subpage_newsevents.aspx?id=1951
21
Dave McNary, Ben Fritz, Guilds out of the online loop: Unions not told of Eye's
streaming plan Daily Variety, Aug. 15, 2006, available at
http://www.variety.com/article/VR1117948511.html?categoryid=1009&cs=1

14
doing future mobile projects on similar terms.22 However, because this is content that is

specifically produced for the mobile market and not shows produced under the primetime

or daytime contract that are reused in the mobile arena, this is still a tentative model when

for applying to other types of downloadable content. Other rumors of flat per download

residual payments circulated including talks involving SAG and AFTRA for a $0.02

residual payment every time a show is accessed or downloaded to a mobile device but no

agreement resembling this has officially been reached.23

(b) Streaming Media

There is no question as to whether residuals should be paid for content that is

downloaded and to which the viewer has unlimited access and use. That is not an issue of

contention between the guilds and the producers. However, when it comes to streaming

media, the first question that is asked, before asking which residual rate to apply, is

whether any residual rate applies at all.

Much like the issue of pay for downloads there are two sides to the argument over

whether a residual should apply to content that is streamed over the internet, and

specifically full-length television shows. The first argument that comes from the

distributors (the major television networks) is that streaming is so new, that a proper

residual is impossible to determine. An industry insider is quoted as saying,

“Downloading is an actual retail venture, but with streaming everybody is experimenting

22
Ben Fritz, Guilds map deal for 'Lost': Touchstone pacts for mobile spinoff, Daily
Variety, April 24, 2006, available at
http://www.variety.com/article/VR1117941983.html?categoryid=14&cs=1
23
The iPod Observer, Actors to Get "iPod Download" Royalties, available at
http://www.ipodobserver.com/story/26374%20(april%2018,%202006) (April 18, 2006)

15
right now… And everybody needs to experiment because we're trying to save our

business."24 Along the same lines, the distributors argue that their content is purely

promotional and therefore allowed to be used without paying any residual under the guild

agreements. Strangely, the producers, who are normally the ones paying the residuals,

have also been shut out of revenue possibly derived from the major networks streaming

this content online.25

To determine whether the full-length episodes being streamed online are

considered promotional we can look to the guild agreements. The AFTRA Agreement

has a section entitled “Use Of Recordings For Reference, File, Audition, Trailer Or

Promotional Purposes.”26 Paragraph 88 of the AFTRA Agreement states that producers

are allowed to use portions of a television program for promotional purposes. The term

“promotional purposes” is never defined in the AFTRA Agreement, yet Paragraph 88

does limit the excerpts to not more than 2 minutes in length. The streaming of entire

shows would seem to blatantly violate this provision. Similarly the WGA Agreement

allows for promotional use of WGA material. Unlike the AFTRA Agreement, the WGA

Agreement defines promotional use as, “for the purpose of advertising or publicizing the

specific program or serial or series from which the excerpt is taken.”27 In this definition

as well the exhibition of an entire show cannot be used for promotion. It is inherently not

an excerpt and not used for publicity.

24
Carl DiOrio, Guilds Seeking Residuals for New Media, Hollywood Reporter, Esq., Sep.
5, 2006, available at
http://www.hollywoodreporteresq.com/thresq/labor/article_display.jsp?vnu_content_id=1
003087371
25
Id.
26
AFTRA Agreement, Paragraph 88
27
WGA Agreement, Article 15 (B)(10(a)

16
 Another argument the networks put forward is that the showing is promotional

because it is used to help expand the audience of less successful shows. WGA West

assistant exec director Chuck Slocum answers this argument by saying:

… companies often contend that such Internet deals are promotional in nature -- running
for a limited time and designed to keep "bubble" shows on the air -- rather than
amounting to reuse, which would trigger residuals. Separate advertising has begun
appearing on such shows, possibly deflating the argument that such Net programs are
purely promotional.28

He continues by saying that a whole show is a reuse and cannot in anyway be considered

a promotion. This separate advertising was discussed during the overview of streaming

content and is a strong indicator that streaming content could become and may already be

a legitimate source of revenue for the networks.

Dave Poltrack, Executive VP and chief research officer for CBS Corp. has said

that 53 percent of people who watched a new show during the beginning of the 2006-

2007 season, did so online before viewing any episode of the show on a network.29 He

continues by saying that demand for advertising space surrounding online streaming of

television shows is exceeding supply and that:

Analysts estimate the market to be in the $300 million–$400 million area today [and]
they project growth to about $2 billion to $3 billion by 2010. If this market materializes
to the extent these analysts predict, it will add a second revenue stream for broadcasters.30

If his predictions are anywhere near true it would only serve to reinforce the Guilds’

desire to come to an agreement regarding the payments for these reuses of content

28
David McNary, Top bosses plot to prevent strike: Suits plan to propose study group,
Daily Variety, Apr. 19, 2007, available at
http://www.variety.com/article/VR1117963478.html?categoryid=13&cs=1&query=resid
ual
29
John Consoli, Forecast 2007: Network TV, MediaWeek, Jan. 1, 2007, available at
http://www.mediaweek.com/mw/news/recent_display.jsp?vnu_content_id=1003526040&
imw=Y
30
Id.

17
delivered via the internet. Reinforcing the Guilds’ argument that ad supported streaming

is different than free streaming is the deal negotiated with ABC for the “Lost” spinoff. In

the agreement the network would pay a residual rate for the episodes if they are shown on

the internet and if they are also ad supported. Without ads, no residual rate would apply.31

For the WGA, their residual negotiated under this agreement for ad supported streaming

content is 2%, which is actually higher than the 1.2% they receive under the Pay TV

formula.32 By looking at these initial agreements and making an educated assumption

about the future of both pay for download and online streaming content we might be able

to determine the future of residuals in this area of new media.

6. Future Residual Rates

While there have been calls for overhauling the entire residual payment system, it

seems unlikely that this will occur anytime soon. Instead, some amalgamation of current

residual schemes is likely to be used for this new media content.

(a) Download for Purchase

The download for purchase model, while not fitting neatly into the home video

model, is the next generation home video. While many of the arguments about

distribution and packaging costs, which were persuasive for a new technology, do not

apply to content delivered via the internet, the industry custom has been established, and

31
Ben Fritz, Guilds map deal for 'Lost'
32
WGA Mobisode Agreement, available at
http://www.wga.org/subpage_newsevents.aspx?id=1951

18
there my be no way to change this establishment. There might be some argument that

because of the lowered distribution costs than the percentage should be based on some

number somewhat higher than the established 20% but it seems unlikely that the

producers will give up this established jewel. It is more likely and maybe a better bet for

the guilds to give in the home video residual rate for pay for downloaded content in

return for a higher rate on streaming content.

(b) Streaming Content

A conservative estimate for the future residual rate for streaming content is that it

will resemble the residual rate recently negotiated by the Canadian guilds and that of the

ABC deal for the “Lost” mobile spinoff.33 This closely follows the current formula for

Pay TV. However, as mentioned above this amount might be able to be increased if the

guilds are willing to give in to the producers and allowed the home video formula to

apply to pay for downloaded content. With more and more people watching television

from their computers and the computer becoming more and more integrated into the

living room, it seems likely that in the not so distant future people might stream all their

shows to their televisions. Streaming has the benefit of fewer commercials, and access to

content on the consumer’s schedule. Why record shows when you can access them

seamlessly at your leisure?

7. Conclusion

33
Carl DiOrio, Canadian deal might serve as a U.S. blueprint,
The Hollywood Reporter, Feb 27, 2007, available at
http://www.hollywoodreporter.com/hr/content_display/news/e3i8aec0771911c1e0d2a136
47624f63b8f

19
 Based on history, emerging evidence34, and trends in technology, revenue from

the areas of download for purchase and streaming content will continue to grow. If true,

the Guilds will not allow the AMPTP to negotiate a residual rate that resembles their

mistake in agreeing to the home video rate agreed upon in the 1980’s. The producers will

have to agree to a rate closer to that of Pay TV. It seems that both sides feel they see a

future in new media and unless a mutually beneficial agreement can be reached, we

might be looking at the biggest entertainment industry strike since the WGA strike in

1988.

34
“Although many users prefer online video with no ads, 48% of all respondents and
67% of males 18-34 said their preference for monetization of the platform would be a
free ad-supported service with 10- to 15-second commercials. Only 4% said they prefer
paying $1.99 per video, and 3% answered that they would like a $14.99 subscription to a
service.” (Woodson, Alex, Online video a ‘powerful application’, Hollywood Reporter,
Apr. 21, 2007 available at
http://www.hollywoodreporter.com/hr/content_display/business/news/e3ib95b33f49d5e4
64a72068d1337b03368)

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