Internet Video-On-Demand

(October 2005)

As Internet Video-On-Demand (iVoD) grows, agents and the Guilds must hold the line together on revenue definitions.  The 80% revenue exclusion that typically applies in the home video market is not applicable to Internet-delivered content.

As agents and Guilds move forward in negotiating deals in new technologies, it becomes important to remember the lessons of the past. 

During the 1985 WGA negotiations, the studios argued that those companies licensing video rights to distributors were negotiating a rate of 20% of distributor's gross, due to the costs of production and distribution of the cassettes.

In addition to the argument that the distributor had to bear high costs, the WGA was told that individual contracts with profit participants defined video receipts as 20% of the distributor's gross, and the studios could not give a better definition to the Guild than to the highest paid writers and directors.  That meant that the Guild's demands in video were refused in part because of existing contracts negotiated directly with the employees' representatives which had become the “industry standard.”
In 2001, the Companies negotiated a deal with the WGA (that SAG and DGA subsequently agreed to) that rentals via the Internet are to be paid based on 100% of distributor's gross (1.2% on 100%). (Rentals are when the content delivered via Internet self-erases or relocks.)  The Companies have balked at accepting the same arrangement on sales. (Sales are when the content delivered via the Internet remains accessible to the consumer indefinitely.)  The Companies have said they have no business model yet for sales. 

It is true that sales via the Internet, in which downloaded files do not self-erase, may replace a portion of the DVD market.  It is not true, though, that the payment should be the same.  The technology is different; the payment should be different.  A videocassette/disc distribution company must manufacture, copy and ship a motion picture distributed on DVD.  Compare that with sales via the Internet: the technology, and therefore the costs to the Company, are exactly the same as for rentals via the Internet.  There are no additional costs attributable to sales, and all representatives (agents and Guilds) involved in negotiating those definitions must vigorously continue to resist the argument that the video rates should apply - history has shown us we are impacted by the positions of the other, and, in this, we must stand together.

In summary, the appropriate residual for both rentals and sales of motion pictures via the Internet is 1.2% of 100% of distributor's gross.  This is the standard formula and applies to Internet delivery and any other case where the film or television program is delivered electronically.  Historically, the home video formula applies only when the consumer has to carry the film or television program through the front door because it was sold already recorded on physical media.

If you have any questions, please call Grace Reiner at (323) 782-4703.