Spring 2008

Legal Eagle

Top entertainment attorney Ken Ziffren reflects on his role in the recent Directors Guild negotiations and the future of the industry.

1. Has the role of the entertainment attorney changed since you founded your firm in 1979?

On the transactional side, which is where our firm [Ziffren, Brittenham, Branca, Fischer, Gilbert-Lurie, Stiffelman, Cook, Johnson, Lande & Wolf] has always existed, I think it’s changed in that the lawyers tend to become more business-like as opposed to what I’ll call ‘legal.’ There’s more creativity and more participation in the clients’ professional lives in respects other than just plain doing deals. There’s a planning aspect, there’s a strategic aspect, and especially when we are representing corporate-type entities, you have to be equipped to handle the various issues that arise in terms of technology and things of that nature. So in that regard, I think there’s been a bigger change in that the lawyer is getting closer and more intimate with the client’s business.

2. You have been a consultant to the DGA for going on eight or nine years at this point—how did you first come to consult for the Guild?

Jay Roth and I had known each other for a while from other activities, some Guild stuff. I had done a great deal of transaction and participation work for many years for directors and the industry in general. My initial work for the Guild started with the 1998 television residual study. The guilds had recently negotiated a provision that gave them access to detailed information about the TV business. The DGA brought me onboard as a TV ‘expert’ to help with implementation.

3. Can you describe your role in the recent negotiations?

Well, I had numerous meetings with Jay and with the staff over a two-year period to consult about various developing approaches for the then-upcoming round of negotiations. Because we knew that new media would be a significant negotiations subject, the Guild wanted to get the views of a lot of experts in the business and so Michael Apted and Jay organized a weekend leadership retreat in the spring of 2006 at a hotel in Santa Monica and we had half a dozen “outsiders” come in and tell us their views of where the business had been, where it was going and how technology delivery systems had affected and would affect the industry in the future. Out of that retreat, the Guild selected two or three of the individuals present and then reached out for another consulting firm. The consultants were, in essence, given an assignment to develop unbiased forecasts of the future of new media through various models. I was involved in a number of those meetings and I commented throughout the process on the research. Eventually, the reports of the various consultants were delivered and then melded into a single report, which the DGA staff then shared with the Negotiating Committee and the DGA National Board. And then during informal and formal negotiations, I was in contact with Gil [Cates] and Jay as a regular sounding board.

4. What was your involvement in defining ‘distributors’ gross’ and the development of provisions relating to accessing information?

The process that led to the final agreement on the definition of the term ‘distributors’ gross,’ data access and related subjects came out of a meeting that Gil Cates and Jay Roth had with Bob Iger and Peter Chernin. They agreed that these key issues should be handled by a small group of people who were expert in these areas in the real world. Gil and Jay designated myself and [DGA general counsel] David Korduner as the DGA negotiators, and Peter and Bob designated Mark Pettowitz and Howard Kurtzman as the studio negotiators for the AMPTP. I started the ball rolling by having a couple of preliminary conversations with Mark.

David Korduner and I then drafted the preliminary proposal on ‘distributors’ gross’ agreements and allocations, record keeping, reporting, and audit rights. We presented to Mark and Howard—went back and forth, had a couple of meetings, had several conference calls. Basically, by the time the negotiations formally started for the DGA and AMPTP, our part of the deal was essentially done. There were a few dots and commas and semicolons that needed to get resolved, but I’d say we were 98 percent done by the time the formal negotiations had started. When the formal negotiations had concluded, our roughly five-six pages of materials were included in the overall agreement that the parties had negotiated.

5. Did you ever share that information with the WGA?

When the WGA heard that we had closed our deal, they called over, I believe to Jay, and asked if they could see and/or discuss with us the pertinent provisions of this arrangement. The DGA agreed, so David and I sat down with [WGA general counsel] Tony Segall, [WGA assistant executive director] Chuck Slocum, and [consultant to the WGA] Alan Wertheimer at my office on the Friday immediately after the DGA announced its deal and we handed them the five pages and went over it line by line with them and spent about an hour and a half answering questions about it. They all seemed to be quite satisfied and pleased with what we had negotiated. The WGA subsequently requested some minor clarifying language changes that we all agreed to incorporate—making the final ‘distributors’ gross’ language between the WGA agreement and the DGA agreement identical.

6. What do you see as the most complex challenges facing the industry in the short-term?

Short-term, I believe it’s to try to explain to the two performers’ unions the concept that this is not a watershed moment and that new media is evolving. It’s better right now to have access to the information that’s needed to try to track the new media industries and their business patterns. If the other guilds can understand that concept, then we can get back to work again in full force and follow the trends that the industry may take in new media. And so that is, to me, the major short-term issue and hopefully that will get resolved before June 30, or long before, if possible.

7. And long-term?

In the long-term, we’re dealing with two industries—TV and features—where the growth rate is probably flat or down over the next three-five years. New media, while it may eventually be additive to existing distribution structures, will be cannibalistic in the short run, and that will present a major challenge not only to the studios, but obviously to the guilds in terms of how talent is employed and what structures are desirable or necessary to either maintain or augment their current income. Additionally, it’s just knowing more and more as time goes on about what new technologies are available and whether they are again additive, cannibalistic or both, and how to manage those in a way that’s good for talent—and the industry.

8. Do you see VOD, ad-supported streaming and paid downloads—as simply the next generation in the delivery of entertainment—or is there a true difference between what’s going on now and how entertainment has been delivered in the past?

I think that the new technologies will impact the feature industry a lot differently than the television industry. Right now, movies have distinct ‘windows,’ periods of time in which they are exhibited in different formats—starting with theatrical release, then DVD sales and rentals, PPV/VOD, then airing on pay/cable television, then free television and so on. The studios’ goal is to maximize profits in each window before moving on to the next format. Over time, those windows have compressed with the clearest example being the theatrical window (time in movie theatres) which has shrunk considerably as DVD and other delivery methods have encroached.

To date, the industry has profited greatly from this windowing structure where the owner/distributor of the product maximizes returns by charging more for ‘the sooner and the better,’ from a quality point of view, when you see the movie. And showing films in theaters is at the top of the chain from both a time and quality point of view. Because this structure is embedded throughout the business, I think that the overall sequence of windows will remain in place, however, the newer methods of delivery-including streaming and downloads-will continue to compress the length of each individual window.

The television industry is in the midst of a major transition and just where it’s going is unclear at the moment. In today’s world, there has been incredible growth in the number of outlets and the number of channels and the variety of programming that you can access in the home not to mention the many different delivery systems to receive that content. This is a change in how the business model works because if you’re able to skip through commercials, then the basic underpinning to the broadcast business is going to be a lot different than it was 5, 10, 20, 50 years ago. And the ad model will also change.

9. Do you see streaming, downloads and VOD eventually overshadowing DVD rentals and sales?

Well, in the feature world, I hope not and I don’t think so. I think packaged goods have basically improved the profit picture at the studio level and therefore at the talent level as well. The new technologies, to me, at this point, do not offer the same profit margin or quality viewing that one can get from the packaged goods. And so I would hope that we’ll encourage new media sales, as opposed to rentals, because again, the profit margin on the sales is much, much better than it is in a rental mode, and therefore, more of those dollars stick to the studios, which enables them to pour the money back in to new production which creates employment, and that’s what I look for.

On the TV side, it’s less clear but I believe that as representative of talent, I don’t want a lot of disintermediation. I want there to be strong networks that are willing to spend money on high-quality drama, sitcoms, and other genres. And if we’re moving to the three- and five-minute program, it concerns me that in one sense, viewers are being deprived of good stories that take time to tell, and on the other side, that the talent pool would be shrinking because there won’t be enough support for the long-form (if you can call 22 minutes long).

10. Ever wanted to be a director?

An easy ‘no.’ Perhaps I’m unique, I admire the creative process, but I don’t look to emulate it. I’m thrilled just watching good TV and good movies and prefer that and exercising my brains in financially-creative ways as opposed to artistically-creative.

10 Questions

Question and answer sessions with prominent figures outside the Guild about current creative and business issues.

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