Hollywood dinosaurs and the Internet

Not that this tops the list of things that matter to geeks, but if you live in Los Angeles like I do, it's hard to avoid news about such things.The Director's Guild of America (DGA) recently cut a deal with the Alliance of Motion Picture and Television Producers (AMPTP) in a record five days.

Not that this tops the list of things that matter to geeks, but if you live in Los Angeles like I do, it's hard to avoid news about such things.

The Director's Guild of America (DGA) recently cut a deal with the Alliance of Motion Picture and Television Producers (AMPTP) in a record five days. This matters to the ongoing Writer's Guild of America (WGA) strike, because Hollywood unions tend to engage in pattern bargaining, wherein one union will follow the broad outlines of the contract previously negotiated by another union. The same sort of thing occurs in the automobile industry, with contracts negotiated by GM often reflected in later contracts negotiated with Ford or Chrysler.

The precise details of the contract would probably bore anybody who isn't a member of one of the Hollywood unions, but it does have ramifications for the digital revolution. As I explained in a previous blog, Hollywood unions, for all their proletarian protestations about fighting the big bad studios, are part of a system that keeps costs high and helps to keep studios safe from competition. It's a wide-ranging system that includes copyright rules that have de facto non-existent expiration dates, the net effect of which is to price out of the market smaller studios who can't afford union-negotiated contract fees or copyright licensing.

The DGA contract managed to extract some of the Internet distribution-related fees desired by the WGA, which I consider to be completely fair. Creators should be compensated for work that is distributed over the Internet, however studios choose to make money from that distribution.

These negotiations, however, aren't just about getting fair compensation. They are also about creating competitive barriers that protect union members from outsiders. The WGA insists on the right to unionize reality TV sets (yes, reality TV is really unreality TV, something which should be obvious if you ever watched anything starring Paris Hilton). In the DGA's case, they insisted that content created for Internet distribution ONLY be directed by union-member directors, as explained by DGA president Michael Apted in his defense of the DGA deal:

To the contrary, we made it clear to the companies before we even sat down at the table that there could be no contract unless it enshrined two fundamental principles that, in our view, are absolutely crucial to any employment and compensation agreement in this digital age. The first is that jurisdiction -- that all jobs be union jobs -- is essential. Without that proviso for new-media production, compensation formulas are meaningless. The second is that the Internet is not free. Content creators must receive fair compensation for the use and reuse of their work online.

The DGA, in winning this concession, just guaranteed for itself exclusivity with respect to the biggest source of media investment in existence. That was previously the case for traditional media distribution channels, and is now the case for the Internet. This suits DGA members just fine, a group that, like all Hollywood unions, purposefully keeps membership barriers high in order to control supply in a fashion that would be familiar to members of the OPEC oil cartel or participants in the DeBeers diamond cartel. It suits the studios just fine, too, as higher costs makes it harder for smaller competitors to get off the ground.

These groups truly are dinosaurs fighting over the spoils of a changing industry. To continue the analogy in useless directions, however, the meteor has already struck ground. The digital media revolution isn't something that can be reversed. At best, it may be slowed, as locking up all the professional talent, the primary sources of revenue, and the tools of cultural expression through high fees and exclusivity contracts will do that. The future, however, is far less certain than in the less technologically-advanced past, which may have a lot to do with the acrimony of the current contract negotiations.

If there is such a thing as a harbinger in media creation, it would have to be the music industry. That industry lies at the forefront of the digital revolution, mostly because the barrier to entry fell faster with music due to the nature of the tools required (which lent themselves more readily to software) and the small size (relatively speaking) of music files. CD sales fell 19% in 2007, which matters, as CDs accounted for 80% of revenues in 2006. Further, digital music sales appear to be slowing, according to a recent article in the January 12th edition of the Economist.

Music companies are discovering that the traditional fee-based model doesn't work in the Internet age. Free, in other words, has to be a part of any distribution strategy.  The Economist predicts that music companies will be much smaller in future, and many of the current ones won't exist for much longer.

Music is a different industry, to be sure, but there are enough similarities to conclude that serious changes lie over the horizon as download speeds accelerate and Internet distribution becomes more common. Smaller is likely to be better in the digital future, and that doesn't bode well for the studio / union system.

The age of the studio / union system, in other words, may be coming to an end. For consumers and even paradigm-busting creators of media content, that's a good thing. For the beneficiaries of the old system, however, the future isn't necessarily an economic catastrophe, but it will surely be very different.