Advertisers and Agencies: The WGA Strike is Yours to Solve

What's most fascinating about the Writers Guild of America strike is that most in the industry who are not closely aligned with one side or the other don't have strong opinions on who's right and who's wrong. Most strikes that I recall – and there aren't any in recent memory – polarized huge segments of society. Auto workers. Flight controllers. Baseball players. If you recall these strikes, you can probably recall whose side you were on.

The challenge with the striking writers is that it's far more difficult to figure out your position. On the surface, it is reasonable for writers to get a piece of the digital action. But how can studios and networks determine at this point what a reasonable share of gross revenues will be when the marketplace is still in its infancy? Everyone in Hollywood knows that a percentage of net revenues is always zero, and the industry shift to adjusted gross is also unworkable. If the writers receive even a small percentage of gross revenues, then the actors and directors, whose contracts expire in mid-2008, will want equal or greater shares. It's not unreasonable to buy into the reality that content producers could ultimately be giving up a significant chunk of profits and ultimately make distribution in new media unprofitable.

It was obvious in the mid-1990s when David Houle and I built Television Production Partners, a production studio funded by advertiser dollars, that the economic models of network television were collapsing. While the West Coast community clearly understood this at the time and welcomed the direct involvement of advertisers, ad agencies (with one or two notable exceptions such as Bill Cella) and most of the network sales departments fought the advertiser consortium every step of the way. It was then… and is now… all about control more than it is about economics.

There is no obvious viable solution to the strike, which is the core issue that will either result in rapid resolution and capitulation by the writers, or result in a long drawn out battle of attrition. Opinions are mixed on which scenario is most likely. With the holidays approaching and actors, directors and even producers refusing to cross picket lines, there seems little motivation for the writers to make peace. There is no acceptable model that the studios can buy into that would bring the parties together. The dynamics favor a long battle with an unsatisfying conclusion for all. It's time to think out of the box. In more ways than one.

Let's assume the strike continues into the new year. Let's go one step further and extend the strike past next June, when actors and directors will officially join the WGA action. Broadcast network erosion this year is already approaching 10% compared to last year's ratings, which were off significantly from the year before. Even with ratings adjusted for live +3 day viewing data, how can the networks present a slate of programming at Upfront presentations? What will the broadcast nets even look like by that point? Lucy reruns plus four nights a week of American Idol, Big Brotherand Dancing with the Stars?

Although last year's Upfront marketplace suggested advertisers have an unlimited willingness to pay premiums for the power and results that television advertising delivers, they will be forced to consider other options. And once they leave, it's unlikely they will return. Agency media buying executives will be very hard pressed to convince their clients that continued premiums are justified for reality shows, news programs, reruns and compilations of user generated videos. Cable inventory value will skyrocket, driving costs beyond what many procurement officers will consider acceptable. Video in alternative formats such as online and mobile are simply not yet sufficiently developed to offer real alternative value.

Which brings us full circle to the strike and to a solution. The writers are asking for a future stake in an emerging medium. They want to define in absolute terms what that stake will be even though the industry has yet to be created. It's not like a venture capitalist who is investing money in return for a stake in future revenues. The writers are delivering a service to an existing product and receiving payment for that service. They want a guaranteed piece of future action without anyone knowing what that action might be or its value. It's not unreasonable on the surface.

But you know what. Advertisers are also contributing to the mix. It's their money after all that is funding the business to begin with. Shouldn't advertisers have a stake in future revenues generated from the media properties they are underwriting --– investing in? Shouldn't they receive more than just a 30-second spot? Shouldn't they have a piece of the action if a show succeeds and generates a long tail of revenues from digital distribution? Wait…wait..wait. That sounds familiar. Oh yeah, that was the business model Houle and Myers created in 1993 that the agencies and network sales groups rejected even though the studio and programming community embraced.

So here's the solution. The economic model today is broken. Let the writers, directors and actors make an investment in fixing it by ever so slightly reducing their current deal for first and second run rights and by reducing their current residuals deal. Let the advertisers step up and agree to pay a one percent premium on all network television ad expenditures for the next several years to fund a pool for distribution to writers, actors, directors and related unions. Let the networks and studios contribute matching funds.

In return, advertisers who agree to contribute will receive a long-term discount off their future digital ad spend with the networks. When the next contract negotiations are due, the industry will have better intelligence and the issues can be better sorted out. It's too convoluted a model as presented here, but there is something in this idea of advertiser involvement. There was something viable in the TPP model 15 years ago and there still is today. Bottom line, the future of the TV business model is at stake. Advertisers, agencies and network sales departments cannot afford to be passive. They cannot afford to avoid the confrontation. They cannot afford to say "its' not our business." They cannot afford to stick their heads in the sand and ignore the obvious, as they did when a solution was presented in 1993. Advertisers and Agencies: This Strike is Yours to Solve. Network business executives. Get involved. Your future is at stake.