Last week the Writer's Guild of America's (WGA) 12,000 members went on strike. By my estimates -- which could be way off -- the strike makes no sense for the members of the WGA.
Based on one scenario I calculated, the strike will cost the WGA $486 million in the next year. Here's how I got there: If the strike lasts six months, it will cost the WGA $540 million in lost wages -- assuming that the average member takes home $90,000. If the WGA wins what it's fighting for, it will get an additional $54 million. This represents a doubling of their payments from DVD sales to 8 cents per DVD sold -- worth $35 million assuming 2007 DVD sales of 863 million units -- plus $19 million -- which is 2.5% of the revenues from new media such as Internet downloads of the shows they write -- which one analyst expects to total $775 million in 2007.
From what I've read, the WGA may already be withdrawing its proposal for doubling its per DVD pay. But it's currently sticking to its guns over the 2.5% share of new media revenues. This is important for historical reasons. During the last WGA strike in 1988, work stopped for 22 weeks and was estimated to cost the industry $500 million. The WGA ended up settling for what it now regrets was a too tiny portion of home movie revenues which ended up dominating the industry -- constituting 73%, or $4.8 billion of 2004's total -- with the other 27% from theater sales.
So the WGA does not want to make the same mistake with New Media, which includes internet downloads, IPTV, streaming, smart phone programming, straight-to-internet content, and other "on-demand" online distribution methods, along with video on demand on cable and satellite television.
By my estimation the cost of the strike will come closer to making sense if New Media grows rapidly over the next several years. One analyst makes the following projections for New Media revenue growth:
- 2007: $775 million
- 2008: $1,194 million
- 2009: $1,838 million
- 2010: $2,831 million
- 2011: $4,300 million
If the WGA gets 2.5% of that revenue, it will receive a total of $273 million in New Media revenues between 2007 and 2011. In my estimation this would still not make the strike worth doing. But I welcome any help from readers on how to make a more accurate estimate since I am not familiar with all the contract details.
Meanwhile, I have had no luck trying to quantify how much the strike will cost the 350 members of the Alliance of Motion Picture and Television Producers (AMPTP). I can only imagine that once the producers have used up their reservoir of new shows, fewer people will watch re-runs. And eventually, the smaller audience will cost the producers in advertising revenue. However, while the WGA is on strike, the producers save themselves quite a bit by not paying the striking writers.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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