The Writers' Strike

The lack of agreement concerning the writer's strike at NBC is costing not just the writer's their salaries, but also the network, advertisers, and actors, to name a few. According to this article, at the recent Golden Globes show, “NBC lost millions of dollars in ad revenue, and award winners were deprived of instant publicity that could provide a box-office bump.” Last year's Globes ceremony had 20 million viewers, compared to a mere 5.8 million this year. NBC normally earns over $15 million from advertisements, but they will receive much less this year. The Hollywood Foreign Press Association lost a $6 million license fee from the network.

NBC and the writers have been at a standstill since December 7, 2007. While they continue to argue, more and more dollars will be lost to many. Plus, viewers won't get to watch the shows they enjoy. It seems that everyone is losing out here, but yet, still no agreement.


Dr. Tufte said...

This demonstrates another bit of irrationality that economists are aware of, but can't yet explain.

There is an experiment called the ultimatum game. One player is given, say, $100. Their role is to split it into two parts, one for them and one for the second player. The role of the latter is either to accept the offer, or refuse it - in which case neither gets any money.

The rational thing for the second player to do is accept any offer at all, because it is better than nothing. Yet, they don't: there is a big dropoff in the probability of acceptance in the area of a 40/60 split.

The result indicates that people put a lot of value on punishing the transgressions of others. Why is that? I don't know. I do know that it certainly could explain a whole bunch of nasty, retributive behavior that humans share.

Perhaps the writers' strike is a symptom of this?

Grace said...

In reading this post & comment, I had a thought about what I see as lost opportunities in business. Dr. Tufte referred to the irrationality that exists among people in that they would rather accept or refuse rather than compromise. They ignore the concept of "something is better than nothing."

An example of this is the local newspaper. I have been approached by sales reps to purchase a subscription to the newspaper. I don't choose to make time during the week to read a daily newspaper, but I wouldn't mind getting a subscription for the weekend prints. Each time I have inquired about this option I have been told that this is not an option. Therefore I choose not to purchase a subscription to the newspaper. This illustrates the all or nothing concept: they want all of my business (all 7 days of the newspaper) and if I won't commit, they won't provide another option.

How often do you see this in business. We provide a product offering but we package it a certain way. We expect the consumer to purchase the product just as we have packaged it with no allowances. Well, what if they want part of the package but not the whole thing. They may walk and take their business elsewhere if we aren't willing to budge.

One more illustration of this concept: go to a hotel in the middle of the night and check in to a room. The majority of rooms were most likely purchased earlier in the evening, so the remaining vacant rooms are lost revenue opportunities unless some last minute stragglers check in. How willing are the desk clerks to negotiate on room price. Are they sticking to $100/room and willing to let you go to another hotel if you won't pay the price? $100 or nothing? The smart clerk would negotiate to a more appealing price because $75 for the room is $75 more than what they would have had if you had not shown up.

Think win-win rather than all or nothing!

Bitsy said...

I agree that coming to a compromise is better than taking a hard position that results in lose-lose for everyone. But coming to a compromise requires some trust and negotiation in good faith. The level of trust between the Studio Alliance and the Screen Actors Guild is very low now because of past agreements on how video and DVD residuals are paid to the writers. Twenty years ago the Studio Alliance was unsure of the future DVD market and negotiated a 0.3% residual rate for videos and DVD's. The writers have felt this was a gross underpayment as the popularity of DVDs skyrocketed. The studio earn more of their income from DVDs than they do the movie box office.

The major issue of the strike is that now the residuals for "new media" are on the table. New media is movies and television shows that are either delievered digitally over the internet, or streamed directly to your television, like On-Demand movies. The writers are demanding a 2.5% residual rate (nearly 10 times what they got for the DVD residuals), and the Studio Alliance is proposing to apply the DVD 0.3% rate for new media because the market is new.

The writers are not trusting that logic a second time, and so to impasse.

carter said...

I don't know why people are so prideful. These writers are trying to help themselves by hurting others. The writers don't realize the negitive effects that their strike has on my life. The lack of good entertainment at home has cost me hundreds of dollars in alternative entertainment.
People will hurt others even if they could be better off without doing so just to prove a point.

Reagan said...

The answer to this issue is everyone has to play the same game to win. The writers union and the networks are playing two different games so no one is winning. The networks are losing big money because they refuse to play along. This problem can be solved by looking at the shopping system customers have developed. Customers like to walk into a store and tell the business owner what price they are going to pay, however, the business owner has a hard time playing that game. The business owner knows their margins and overhead and if they want to make an income they can't play the game. Contrary to Grace's post, in reality it's a little more difficult to just cut margins and sell a product at the price a customer dictates and everyone goes away happy. So for both sides to win they both need to play the same game. Business owners increase their prices above the margins they need to cover bills and pay themselves. Then when a customer ask for a lower price they can lower it, maintain profitably, and everyone wins. If networks want to stop the bleeding they need to figure out the rules of the game and start playing.

Gavin said...

Extra Credit - Dr. Tufte
The ultimatum game is an accurate assessment of the negotiations. The writers are more interested in punishing the corporations rather than concentrating on their own well-being. Humans are taking a stand on morals and principles that are certainly not reflected in their writing.

Trinity said...

Dr. Tufte- Perhaps our assumptions that people are rational and make decisions in their best interest is not always the case. Perhaps screenwriters are both vengeful and irrational which made the negotiations even more difficult.

I recently was in an ultimatum experiment and was able to convince someone to accept a 1/99 split and a 20/80 split. Both were very rational MBA students that understood they were better off in both cases.

William said...

Dr. Tufte,
It seems to me that this symptom may be realized. It seems that everyone, especially in the show biz, wants it their way and if they can't get it then they don't care who suffers. The TV companies are willing to sacrifice profits in order to "have it their way." Obviously this makes no sense, but then again humans are not rational.

Reagan said...

Dr. Tufte-Extra Credit

I don't think this was a case of the ultimatum game but that is where it ended up. Writers are the so called brains to TV programming and they had legitimate issues with their pay, the work being performed, and the revenues generated from their work. They were not going to accept any offer that didn't meet their demands from the onset of the strike. Some of the comments regarding this post supposed that the writers would rather punish the corporations rather than take care of their own well-being. Why would they do that? This all started so they could take care of their own self-interests, not to punish their employer.

TheFindlay said...

Dr. Tufte
Economists can’t explain everything, get out of here! The writer’s strike was about greed and push executives. From what I have read, the writer’s simply wanted to be compensated for doing the work they were required to do. There was no reason for a strike or a deal to be made. The NBC yuppies needed to pony up what the writer’s deserved. Good thing they figured it out too because that was a long “The Office” break!

Dr. Tufte said...

-1 on Carter, Reagan and thefindlay for various mistakes.

It's 3 months on now, and I've got ask: if this wasn't all about irrational payback, then what concrete things have come out of this that we know about?