Happy Holidays and Best Wishes for a Successful and Healthy 2008. Here's my suggestion for a happy end-of-year resolution to the Writers Strike.
In the first week of the Writers Guild of America strike, I offered a solution that has been gaining momentum over the past two weeks. "It's time to think out of the box in more ways than one," I wrote on November 9. So here's the solution. Let the advertisers step up and agree to pay a tax on all network television ad expenditures for the next three years, beginning in September 2008, to fund a pool for distribution to writers, actors, directors and related unions. This pool of funds will provide compensation for the writers', directors' and actors' contributions to the digital rights expansion producers need and want, without requiring long –term economic valuation of the new media marketplace. A one percent tax on broadcast and cable network spending represents an estimated $400 million annually, $1.2 billion over three years. Two percent = $2.4 billion. The networks and studios can't complain about this solution. The unions can't complain. While advertisers and agencies might protest at first, this Strike Tax will actually be self liquidating. As Sarah Fay, CEO of Carat U.S. and Isobar pointed out, "the strike is a huge issue for advertisers."
If the WGA strike stretches into the summer and is joined by Screen Actors Guild and Directors Guild members, then the recent gains experienced by the networks as a result of returning late night hosts will be lost. This has the potential to destroy network television as advertisers know and love it. By ending the strike, advertisers will avoid suffering losses to their business resulting from under delivery on their required advertising exposure. They will assure the sustained viability of network television as a powerful medium for their messages, and they will support the industry as it transforms to a digital marketplace. In last year's Upfront, advertisers agreed to pay substantially increased costs because network television is worth it. An additional one or two percent in costs might ultimately be extracted from the networks in negotiations, but networks will make it up by avoiding the substantial ratings declines the strike is causing and will continue to cause.
This strike already has only losers. What's finally beginning to be realized is the real losers are the advertisers who underwrite the network television business because they need it for their own business well-being. Ultimately, they stand to be the biggest long term losers. Their history suggests they will stay neutral and stay above the battle. That would be a mistake. Advertisers need to get involved. They need to get involved now. They need to determine if the Strike Tax or an alternative is a viable solution to bring the AMPTP and the WGA back into a new three way conversation. They need to take fiduciary responsibility for the nearly $40 billion they invest annually in the broadcast and cable network television industry.
Plus, advertisers can take credit in the critical eyes of American consumers for helping to bring back their favorite television shows and saving some marginal series from almost certain oblivion. Media agency executives including Fay, Group M's Rino Scanzoni, and MPG's Charlie Rutman have expressed their desire for reasonable negotiation and an early settlement.
Following last week's exclusive JackMyers report that advertisers and agencies were in active discussions with members of the writers' negotiating groups, additional media agencies have stepped up and expressed an interest in participating in the solution. The one to two percent Strike Tax provides an opportunity for these agencies to introduce a relevant new issue into the discussions. Of course, agencies can't speak for their clients, but they can urge the American Association of Advertising Agencies media committee to engage with both the WGA and AMPTP (Alliance of Motion Picture and Television Producers). Agency executives can ask their clients to push the Association of National Advertisers to become involved. The two trade groups can poll their members to gain consensus regarding the Strike Tax. If the consensus favors advertiser involvement in the negotiations, each trade group should identify two representatives who can join the negotiations and facilitate bringing the AMPTP back to the negotiating table now.
If advertisers and agencies fail to act, the challenge, as I commented in my original column on November 9, is "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. The dynamics favor a long battle with an unsatisfying conclusion for all." As 2007 comes to an end, strike dynamics continue to point to either a major concession by the writers in mid-January, which their leaders are adamant will not happen, or continued hostility through mid-March at the earliest and more likely through early Summer when other unions can join the fray.
The AMPTP members and leaders are gaining confidence that strike economics and politics are swinging in their favor. The Directors Guild is entering into early discussions with the AMPTP to resolve their issues prior to their own strike deadline next June. The Directors have conducted extensive research that reportedly argues in favor of a more moderate negotiating position than that taken by the WGA. Late night talk shows are returning to the air, and striking writers who are being economically hurt realize the networks and studios have no incentive to be conciliatory.
As we have reported, while it is reasonable for writers to get a piece of the digital action, the digital marketplace is in its infancy and studios and networks are not yet able to determine future economics. Yet, they are making money. Ironically, the strike will drive consumers to view more off-network programming online, on iPod and mobile phones, and through the purchase of DVDs. Writers won't get their fair share of these increased online, mobile and iPod revenues. Their premature concessions on DVD revenues in their 1988 strike is writers' "Remember the Alamo" call to action that keeps them on the picket lines today. In future years, they hope, as networks and studios reap billions from ancillary revenue streams, the writers are insisting through their strike that they not be left out in the cold.
To accomplish their goals, they will need a strong backbone and the organizational will power to sustain the strike well into the new year. Their adversaries do not expect them to have that staying power. There are only four realistic scenarios. One, the writers concede most of their demands and return to work in January. Two, the advertisers and media agencies step in and offer to mediate and help fund a solution through a Strike Tax. Three, the strike continues into the Summer and the networks introduce some new formula that concedes a share of unknown gross profits after having completely disrupted the business and accelerated major industry restructuring. And finally, the courts intercede and empower the WGA to negotiate with individual studios and networks, changing the power structure. The only solution that offers a win-win-win for the AMPTP, the WGA and other unions, plus advertisers is option number two: the advertisers step in. With option one, the inevitable is simply delayed for a few years. With option three and four, the writers gain a Pyrrhic Victory but the industry suffers and advertisers suffer.