Wall Street Journal - "Hollywood Showdown"

Hollywood Showdown” – by Kevin Morris

It is that time again. Like boxers getting ready for the title match, they’re circling each other, trading taunts, and promising to deliver a knockout blow. Here in Hollywood, it’s the triennial Main Event: the Guilds against the Studios.

In one corner is the Association of Motion Picture and Television Producers, an alliance of media titans determined to hold back the rising tide of expensive movies and TV programs. Across the ring are three guilds of the creative class: the Screen Actors Guild, the Writers Guild of America and the Directors Guild of America.

Everyone you talk to is certain trouble lies ahead. The guilds, they say, have been taken over by a radical fringe — Showbiz Sandinistas — determined to make up for concessions to the studios in earlier days and ensure that artists get paid fairly in the Digital Age.

There hasn’t been a movie/TV strike since the disastrous stoppage in 1988 and the guilds, which have refused to submit to early negotiations, are acting like they want to rumble again. The bean counters at the studios, these days mostly component parts of media conglomerates, are preparing to take them down. A year ago, Nicholas Counter, president of AMPTP, was quoted in Variety stating “that the situation has gotten worse.” Nothing has occurred since then to change his mind. It’s like the end of a Quentin Tarantino movie: All the guys have guns and they’re all pointed at the head of someone else.

But they are missing something.

A strike would put over 100,000 actors, 15,000 writers and 13,000 directors out of work, right at the dawn of global distribution for filmed entertainment over the Internet and mobile devices. In case you’ve been under a rock, the long-awaited convergence of technology and content is here: Video streaming works, advertising on the Internet is thriving, and the “Old” media companies are nervous. Take Google’s purchase of YouTube and Double Click, add to it Viacom’s $1 billion lawsuit against Google, and you have all you need to know.

Given this backdrop, the guilds and the studios should consider the possibility that 130,000 unemployed artists might find something to do when they are put on strike. And in so doing, they may just start creating original content for the new media because it is easy and, well, they’re not allowed to go to the set or the lot. And once they do so they may enjoy the lack of interference from “suits” and become smitten with the ability to put their work out immediately and world-wide.

Right now, few big name actors, writers and directors have gotten into the game. But they might strike out in new directions if they’re put out of work — even if the guilds frown on it. Simply put: If you kick artists off a playground, don’t be surprised if they make sand castles at a new sandbox.

The distribution plays are already there. Today sites like Joost and iTunes are putting quality content out, either with pay-per-download or advertising support. Ad-supported sites will typically pay 60%-70% of revenues to the content provider. Venture capitalists and tech entrepreneurs are ready to supply capital and geeks to make it all happen. Perhaps more importantly, advertisers are spending and ready to spend more. Google has become Google by selling the Internet-equivalent of classified ads. Who knows what will happen when it starts selling expensive ads? An ad executive told me recently that every company he works with has doubled or tripled its Internet advertising budget for 2007.

Studios would do well to remember that it is not 1988. The threat from digital distribution is massive; just ask any unemployed music executive. The market caps of Google and the other Barbarians at the Gate are much larger numbers than Hollywood has faced before. One has to wonder if the studio chiefs are being arrogant by not defusing these labor issues more aggressively. Worse yet is the creeping feeling that über-executives at the parent companies are not committed to these assets at all. Do GE guys in Connecticut, who recently hired Citigroup for advice on spinning off Universal, really care about the future of the movies?

Of course, most of Hollywood is held hostage by the possibility of a strike. The list of people stuck in the middle includes agents, lawyers, managers, publicists, editors, electricians, grips, gaffes, gofers, interns, assistants, accountants, receptionists, hair and make-up artists — you name it. Everything from cash flows to production schedules to vacation planning for next Spring Break is affected. Every industry faces labor problems. But it is hard to look at this industry and conclude that a strike is in anyone’s interest.

The big winner in all of this will be Silicon Valley. A crippling strike, and even the stockpiling of movies and programming in anticipation of a strike followed by a slowdown, will greatly benefit both established and start-up net ventures offering content. The labor unrest could result in not only less product (strike) but poorer quality product (stockpiling). Whenever there is serious strike talk in the air we get a batch of creative lemons at the box office and on TV. That’s certainly not what Old Media needs. In many ways, in fact, this fight is just what New Media needs.

These boxers may well be racing headlong — and heedlessly — into a sucker punch.

Mr. Morris is the founding and managing partner of the Los Angeles entertainment law firm of Barnes, Morris, Klein, Mark, Yorn, Barnes & Levine.