TELEVISION—Fox Success Becomes Issue in Labor Talks

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When negotiations for a new labor agreement between industry representatives and the Writers Guild of America begin in earnest later this month, executives with Fox Broadcasting will be in the awkward posture of arguing against their own success.

As viewership and advertising revenue at Fox creep closer to the big three ABC, CBS and NBC the guilds want to do away with the discounted residual rates that Fox pays its talent, bringing that network up to par with its older, more established competitors.

Fox, meanwhile, will be in the delicate negotiating position of touting its gains which have led to more jobs and higher paychecks industry wide while downplaying its progress in closing the economic gap with the larger networks.

Foreign residuals, video and DVD sales and cable payments will be the big-ticket items when writers and actors, whose contracts expire two months after the writers’, sit down to hammer out a deal with the Alliance of Motion Picture and Television Producers. But the Fox question promises to have significant economic implications for the “fourth network” and could put a wrinkle in the AMPTP’s efforts to present a unified negotiating front.

“This is a fundamental question of parity,” said Charles Slocum, director of strategic planning for the WGA (West). “There’s no reason (that Fox) can’t pay the same rate as the networks. It’s the same work, it’s the same writing, it’s the same producing and it’s the same audience.”

Fox, for its part, is staying silent on the one issue that would affect its bottom line exclusively. Fox spokesman Scott Grogan remarked only that the network hopes “smarter heads will prevail and a strike will be averted,” declining to comment specifically on the question of Fox residuals.

However, AMPTP officials, who will represent all the networks in the labor negotiations, see it a different way.

“We expect that there will be some give and take on the issue,” said AMPTP spokesman Barry Liden. “In some areas, Fox viewership has increased dramatically like sports. But the area we are dealing with is mostly traditional drama and comedy. Fox may have increased somewhat in viewership overall, but it’s not at the same level as the (big three) networks. That’s a fact.”

Number crunching

At issue is the amount of money that Fox pays writers and actors for programs that appear two, three or more times on the network. Currently, Fox, a unit of News Corp., Rupert Murdoch’s international media empire, pays the standard network rate for first-run programming. (Writers get a minimum of $26,645 for a one-hour show and $18,116 for a half-hour show.) For additional runs, however, Fox compensation starts at two-thirds the minimum network rate of $17,567 for a one-hour show and $9,665 for a half-hour show, Slocum said.

Over the past decade, the Fox residual scale has increased incrementally from 40 percent of the network rate, to 50 percent and now 66.6 percent. Slocum and others contend it’s time to put Fox, which debuted as the fourth network in the fall of 1986, on equal footing with ABC, CBS and NBC.

“They clearly belong with the big three,” Slocum said. “They have a cost-per-thousand when they sell their ads to Madison Avenue advertisers that’s the same as the networks. It’s time for the price to come up.”

The cost per thousand represents the amount a network can charge advertisers based on each 1,000 viewers. So, although Fox continues to trail the larger networks in overall viewership, the guilds argue that it attracts a highly coveted younger demographic that allows it to charge premium rates.

“You can’t compare when Fox was the new kid on the block and in its infancy to where it now,” Screen Actor’s Guild spokesman Greg Krizman said. “It’s the difference of how you a view a baby and somebody whose ready to go off to college.”

According to Neilsen Media Research, Fox averaged 9.9 million primetime viewers nationwide during the November ratings sweeps period, down slightly from its 1999 level.

So far this season, Fox is averaging a little more than 10 million viewers in primetime, putting it fourth behind ABC (13.5 million), NBC (12.8 million) and CBS (12.3 million). Although the WB Network and UPN made significant gains in 2000, they lag well behind the other networks in overall viewership, with a primetime average of about 4.5 million.

“The last television season was not a good year for Fox. This year has been more promising,” said Spencer Wang, an entertainment industry analyst with ING Barings. “I characterize Fox as a network on the rebound. I think the major question for them and the other networks is not the strike but the advertising market.”

In recent years, Fox has narrowed the gap with the big networks not so much by attracting scads of new viewers as by grabbing a larger piece of a shrinking pie. Overall, primetime viewing was down about 5 percent in 2000 from 1999, according to Neilsen.

During previous negotiations, the larger networks supported Fox and the smaller networks in locking in a lower residuals scale. That cooperation could wane as Fox continues to make up ground on its longer-toothed network cousins. And with any deal contingent upon unanimous agreement among the studios, Fox risks tarnishing its growing clout in the industry by jeopardizing a potential settlement over inflexibility on the residual issue.

AMPTP’s Liden said it’s too early to say how the Fox issue will play out.

“(The writers) have suggested that the Fox rate should be 100 percent of the network rate. I don’t know if that’s something that we would agree with now,” he said. “The question is where between 66 percent and 100 percent that number should fall.”

Setting the table

Earlier this month, writers released their own projections in response to statements made by AMPTP officials that complying with guild demands would cost studios and independent producers up to $2.5 billion over three years. The WGA has countered that increased compensation for writers, actors and directors whose contract expires in 2002 would cost the studios and producers closer to $725 million over three years, with the writers’ share accounting for $161 million. Increased residuals paid by Fox would amount to roughly $8 million of the $725 million, the WGA said.

Writers have called the AMPTP’s numbers inflated and even outrageous, but Liden insists they are realistic.

“We stand by the figures,” he said. “They are based on 20 years of bargaining experience.”

Unlike the WGA, the Screen Actors Guild and American Federation of Television and Radio Artists have yet to present a formal list of demands to the studios. Writers and the AMPTP are scheduled to begin negotiating Jan. 22. With Fox and several other parallel issues under consideration, Krizman said SAG will be watching closely.

Current contracts for writers expire May 1and for actors July 1.

“It’s possible that one (negotiation) will have an impact on the other. There will probably be something to be learned from the process,” Krizman said.

SAG’s position on Fox residuals will not be known until the union’s proposals are released around the second week of February. And while Krizman refused to speculate on what SAG’s position will be, he acknowledged that actors are concerned with the same issues as writers.

“Fox is getting more viewers and it’s growing.” he said. “There has to be recognition that the situation as it now stands has changed since when Fox was formed.”

The bottom line for Fox is that the network needs to protect its position while being flexible enough to help avoid a protracted strike, Wang said.

“These things usually come down to the last minute,” he said. “Right now it’s a nasty game of chicken.”

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