The Internet is creating a whole new battleground for Hollywood labor unions.

Online content is not only a major factor in the Screen Actors Guild's strike against commercial producers, it's a key point in current contract negotiations between the Writers Guild of America and the makers of Internet entertainment.

Because the Internet is such a new medium, there is no existing contract covering guild members who work on Web productions. So the Writers Guild has drafted a contract that seeks to secure union wages and benefits for scribes creating these online shows.

The document focuses on determining what "netcasters" are earning as a way of eventually creating a residual payment system identical to the one that currently exists between television producers and the writers of TV content.

Grace Reiner, WGA director of contract administration, said the contract is best viewed as a starting proposal, a point from which the guild and producers can negotiate.

"Everybody in the Internet industry is trying to figure out a business model and it's changing every 30 seconds," she observed. "Every new alignment, every new transfer of ownership, every new failure causes everyone to rethink things."

Using the television model

Like many organizations, Hollywood's guilds have been groping around for a way to get a fair share of the Internet future for some time now.

The WGA believes Internet programming is best handled as television product, so contracts with Web producers should be similar to those with TV producers. But for now, it recognizes the fledgling market is not generating anything near the revenues of television programming.

As a result, the WGA contract team decided to allow an 18-month grace period, that started in June, during which time writers and webcasters could work out compensation without input from the guild. In exchange, producers are required to send the guild a quarterly earnings report so the union can determine how much money is being made from Web shows.

"We didn't want to price ourselves out or appear inflexible to a market without any center or base," Reiner explained. "We want an idea of what people's business models are."

This is the guild's approach to generating residuals payment for repeat screenings for Internet product. The WGA residual formula is based on a minimum percentage of a producer's gross earnings, and if writers on the Net are to be paid in this fashion, the guild needs to know exactly how much money is being made. "If they're not making any money, our demands will be different," Reiner said.

What happens after the 18-month grace period expires? Web producers that sign on to the guild contract will be forced to comply with whatever agreement is reached with the Alliance of Motion Picture and Television Producers. In other words, after 18 months webcasters will be required to pay the same residual formula as TV producers pay.

The draft contract also addresses how payment will be handled if Web content gets developed into movies or TV shows. This kind of deal is becoming increasingly common.

Last week, Revolution Studios (the company started by former Walt Disney Co. studio chief Joe Roth) purchased the animated series "Lil' Pimp" from Mediatrip.com for the purpose of creating a full-length motion picture. Earlier, Icebox.com licensed its animated series "Starship Regulars" to Showtime. Universal Studios Inc. recently licensed UrbanEntertainment.com's "Undercover Brother," and there are still other examples.

What the WGA wants to do is protect the rights of scribes who created such works and to be sure those working on the property, once it passes over to traditional media, are covered by union contracts.

A bridge to the future

Web producers are not currently bound to use the guild's draft contract. Reiner said some companies are using it as a basis for negotiations with the guild, but would not provide names. She pointed out that the WGA considers the contract a bridge to the future when Internet programmers actually make money.

That certainly isn't the case today. The Web content industry is characterized by smaller companies that are frenetically trying to make things work with few profits to show for their efforts.

Producers, both big and small, are reluctant to talk about the guild contract. Officials with DreamWorks SKG, which is co-developing Web animation site Pop.com, declined to comment, as did officials with Icebox.com. Contact with three smaller Internet companies also failed to garner comments.

"The majors don't want to deal with the unions yet on this (Web content residuals) issue," Reiner said. "They don't want to state an opinion prior to negotiations because they may want to use the issue at the bargaining table."

One Internet executive requesting anonymity noted, "The problem is, how can the guild account for residuals on the Net? Television is easy to monitor. If a show runs, you see it. But what standard do you apply to the Internet? Do you charge by hit numbers, time the length of stay at the site, add up how many pages were viewed? Nobody is making any money on the Net anyway."

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