WGA UNVEILS NEW LOW BUDGET AGREEMENT

June 14, 2002

WGA UNVEILS NEW LOW BUDGET AGREEMENT

The Writers Guild has announced a new agreement for indie films with budgets of $750,000 or less. In order for the agreement to apply, all writers on the project must request its use in writing. Moreover, in exchange for the deferral, the writer of an original screenplay must perform all writing services. No other writer can be employed without the approval of the writer of the original script.

The new low budget agreement permits the deferral of all or part of the purchase price for an existing script, and the deferral of all or part of the compensation for a first rewrite. However, upon commencement of principal photography, if the budget is more than $500,000, the Producer must pay the writer at least $10,000.

Full payment of the deferment is due upon receipt of monies from any source after recoupment of the total production cost, or commencement of commercial distribution, whichever occurs earlier.

All other provisions of the MBA continue to apply, including obligations in regard to residuals, credits, pension and health payments and separated rights.

VIDEO RETAILERS CHALLENGE REVENUE SHARING

Revenue Sharing is a practice that allows video retailers to obtain cassettes of films for a reduced cost if the retailer agrees to share rental revenues with the distributor. This permits the retailer to stock numerous copies of new films for a nominal cost. The traditional agreement between studios and retailers required the retailer to buy tapes at the full wholesale price which could be substantial ($20-$50). Because of the first sale doctrine under Copyright Law, retailers could repeatedly rent out the tapes to the public, and retain all the revenue for themselves.

Blockbuster had entered into revenue sharing agreements with a number of major studios. Independent retailers objected on the grounds that this arrangement allowed Blockbuster an unfair competitive advantage. Revenue sharing was not invented by Blockbuster, and independent retailers could obtain tapes on a revenue sharing basis from such companies as Rentrak. The independents charge, however, that the favorable terms granted by major studios to blockbuster were not available to them. Blockbuster’s share of the market rose from 27% to 40% during this period, although other factors may well have been responsible for this growth. Blockbuster is owned by Viacom.
This week the retailers’ case came to trial in U.S. District Court in San Antonio, Texas. Viacom Chairman Sumner Redstone testified that he didn’t ask for any exclusive deal with the major studio suppliers.

If successful, the suit could have a significant impact on how tapes are distributed to the home video market. Of course, Blockbuster recently announced that it was not going to renew some of its revenue-sharing deals. And with the tremendous growth of DVD’s (which are not distributed on a revenue-sharing basis) revenue sharing may come to an end anyway.