ABC Widgets
June 2009 · Volume 15, No. 15

Back to Newsletter


SAG Contract Ratified; Now What?

By Jonathan Handel

In a stunning defeat for the hardline Membership First faction, SAG's TV/theatrical contracts passed overwhelmingly on June 9, by a 78%-22% margin (almost 4 to 1), those numbers according to the guild.

Significantly, even in the faction's stronghold, the Hollywood division, the vote was an enormous 71% to 29% in favor, or almost 3 to 1. In NY, it was 86% to 14%, and in the regions it was 89% to 11%. There was a large turnout-35% of eligible members voted, well above the typical 20%-25%. The ballots went out to 110,000 paid-up members.

The contracts provide $105 million in wage increases, increased pension contributions, and other gains, according to the guild. Included in the two-year agreements are 3.5% annual increases in compensation, a significant benefit in an economy that more often features givebacks, wage cuts and pink slips. In new media, the guild got essentially nothing it couldn't have had a year ago (and nothing the other unions didn't get), underlining the ineffectiveness of the hardliners' strategy of stalemate and bluster. Its members also lost an aggregate $85 million over the past year as a result of working under the expired contracts' minimums, this estimate according to the guild.

The overwhelming ratification is an amazing end to an almost 12 month stalemate, and calls into question the hardliners' ability to make any headway in the upcoming SAG board elections. On the contrary, the results suggest that the moderate Unite for Strength faction should make significant gains. That's because only Membership First will be defending seats in Hollywood, whereas no moderates or independents are up for reelection. Thus, the moderates can only gain, at least in Hollywood. In NY and the regions, Membership First has little support, so, there again, the moderates should prevail. Those elections began this week, with nominating papers available at the guild. Balloting will conclude in mid- to late September.

Another question is the SAG presidency, which will be decided in these elections as well. Incumbent president Alan Rosenberg announced last week that he'll seek a third term. Given the membership's overwhelming rejection of his vote No position, that may be an uphill climb, especially if the moderates/independents put forward a high-profile candidate.

A key question: With the SAG contract ratified, will the entertainment industry finally get back to normal? Unfortunately, no. For the analysis, start with the film industry. Although we'll see a brief spike in production, the business we once knew may never reappear in its previous form.

Here's why:

Labor unrest: It's not going to end. The 2011 negotiations start within 18 months, a scant period of relative peace, then it's off to the races again. Production could stop in spring 2011, as it has in the past as the business awaits the outcome of contract negotiations, meaning that script acquisition will probably slow beforehand. The specter of a joint writers-actors strike hangs over 2011, and future union negotiations in any case will feature continuing unrest as new media evolves relentlessly.

The Internet: It's devaluing content, for several reasons.

  • Supply and demand. Supply -- online content, both legal and pirated -- has ballooned, but demand stays relatively constant because of audiences' limited leisure time as well as the price of content.
  • Loss of physical form. We tend to value intangibles less than physical things: For instance, people who would never shoplift a DVD may have no compunctions about downloading a pirated movie or sneaking into a movie theater.
  • The ease of obtaining content online. When it's easier to get something, it loses perceived value.
  • Ad-supported business models. No-cost content just seems less valuable.
  • Piracy. This needs no explanation.
  • New platforms. User-generated content and pirated content quickly flood new platforms, whereas traditional media companies delay for fear of cannibalizing existing revenue, offending distribution partners and violating license agreements.

Industry trends: Domestic box office scarcely increased from 2002-2008, while admissions dropped. The more lucrative DVD business peaked in 2004 and is declining.

The recession: Hedge funds are a distant memory and state tax credits are imperiled by budget cuts. Presales and gap financing are harder than ever to realize, and Indian and Middle Eastern sources haven't lived up to the hype.

New media also threatens the studios' grip on home video, which may leave them primarily in the content creation business. That's a problem, because the economics of development and production are inferior to those of new media distribution. The former is an industrial process, painstaking and manual. The latter -- largely the province of Silicon Valley -- is post-industrial and automated.

All of this could mean fewer movies, fewer jobs, lower salaries, diminished budgets for non-tentpoles and caution instead of creativity.

Scripted television shares many of these woes, driven by many of the same factors:

Labor unrest will affect television in 2011, especially if SAG makes common cause with AFTRA and/or the WGA. New media issues will be more urgent and imminent in 2011. The studios and AMPTP will have to factor in the unions' greater unity in formulating their approach to negotiations. Frankly, they're going to have to be more flexible than they were in this round.

The Internet is affecting television in a very similar fashion to its effect on feature films.

Industry trends and the effect of the recession in television have a different dynamic from those in feature films, but are equally worrisome. The recession has reduced advertiser spending, especially by car companies and financial institutions, which are traditionally big advertisers. Cable and, now, the Internet are driving down salaries and residuals for talent and increasing the quantity on non-scripted fare on network primetime. Such programs have dramatically lower budgets than scripted programming.

Thus, the results in television are similar to those in film: fewer scripted programs, fewer jobs for talent, lower salaries, diminished budgets and, except in cable, caution instead of creativity.

With the picture so bleak, one has to ask: Will Hollywood survive? No doubt, but it may not thrive in the fashion to which we were accustomed. Welcome to an era of changed expectations. Welcome, in other words, to the new normal.

Jonathan Handel practices entertainment and new media law at TroyGould. He can be reached at (310) 789-1201 and jhandel@troygould.com. He blogs at www.jhandel.com and the Huffington Post, among other outlets, and is the author of the short book How to Write LOIs and Term Sheets. This article is adapted from an article from the author's blog and another (also by the author) on Variety.com.

Back to Top

Back to Newsletter