Thursday, November 08, 2007

Unions in Hollywood

The big news in my corner of the world is the writers’ strike. And I do mean my corner; CBS Studio Center is located just one-half mile down the road from my home, and I walked past the picket line yesterday on my way to get a sandwich at Subway.

So it seems only right that I should comment on the strike, and I do have some thoughts – but most of them aren’t conclusions. What makes it difficult to analyze the situation is my confusion about a more basic question: why are unions so powerful in the entertainment industry, when unions are generally weak and in decline in most other sectors of the economy? If you’re familiar at all with the entertainment industry, you’ll have realized that virtually every profession in it, from the actors to the writers to the directors, is unionized.

When I’ve posed this question to non-economist friends (including some in the industry), they have often pointed to various unusual or unique features of entertainment, such as its heavy reliance on creativity or its tendency to create superstars. But these features don’t really explain anything for me. Yes, the industry does rely on creativity; yes, it creates superstars; but why would these things make unions more powerful? There are missing links in the economic argument.

I have a hypothesis, though I’m not terribly confident about it. The entertainment industry is characterized by projects – films and TV shows – that require shifting constellations of players (studio, actors, director, writers, etc.). This is what makes the Kevin Bacon game fun – you can connect any actor to any other actor via a sequence of projects. I think this structure might enable a union-based equilibrium that would not be sustainable in industries with a more traditional structure. Imagine a studio trying to run a non-union production. Unless it’s doing a low-budget independent film, chances are it will want to employ at least some union members – if not now, then in some future project. But those players won’t participate in this project if it’s non-union. Why not? An actor – just like the studio – might want to do one non-union project, but he also wants to take part in future union projects. If you’re a union member, you can get kicked out for taking non-union jobs. The same goes writers and directors. While any given player – studio, director, writer, actor – might be willing to go non-union for a single project, they avoid doing so because they could get blackballed on future projects that require union participants.

Thus: Lots of people stay in their unions (by avoiding non-union projects) so they’ll be able to work in future projects that require union players; and future projects will indeed require union players because so many people are staying in their unions. Yes, it’s circular, but circularity is the essence of many an equilibrium: you drive on the right because everyone else drives on the right, and they drive on the right because you, among other people, are also driving on the right....

Anyway, that’s just my best guess. As I said, it’s really a mystery to me. It makes me feel better that Tyler Cowen is also perplexed by the power of unions in Hollywood. Feel free to offer alternative hypotheses in the comments... but if you do, be specific about the mechanism. I'll offer more thoughts on the strike in future posts.


SAG & AFTRA said...

When you get a better grip on the answer do share it with us. I suppose you can start to answer the question by answering other related questions. Why has union membership been on the decline for many decades in other industries, for instance, and why are those same reasons not applicable to the entertainment industry? What are the current gripes of the writer's union members? I think they want a cut of the perceived income from their labors in the "new media," in particular the internet. Perhaps it is easier to get a share of those residual-like profits if they are part of union bargained benefits.. There is big money to be made from residuals from reruns, which can last for many years. The big shot actors and writers can hire entertainment lawyers to negotiate contracts favorable to them, but can the small fry writers and actors afford to? There is power in numbers, which is one of the appeals of unions. The union contract is a relatively cheap alternative to the high cost of attorneys. If what I said was wrong or of no help, then you're on your own.

Glen Whitman said...

SAG/AFTRA -- wow, you sound a little upset. I hope you're upset at the situation and not at me, because I didn't think I'd said anything upsetting (yet, anyway). I wasn't trying to say who's right or wrong, just trying to understand why things are the way they are.

Why has union membership been on the decline for many decades in other industries, for instance, and why are those same reasons not applicable to the entertainment industry?

That's a rephrasing of my original question, and I don't know the answer. I offered my best guess.

What are the current gripes of the writer's union members? I think they want a cut of the perceived income from their labors in the "new media," in particular the internet.

Yes, that is one of the big gripes, and I'll talk about it in a future post. But I don't think the nature of the present gripes does much to answer my question. Unions were powerful in Hollywood long before the "new media" came into being.

The big shot actors and writers can hire entertainment lawyers to negotiate contracts favorable to them, but can the small fry writers and actors afford to? There is power in numbers, which is one of the appeals of unions.

True, but that is the appeal of unions in every industry. It doesn't explain why unions are powerful in this industry but weak in so many others.

Anonymous said...

Sorry, if I came across as upset, I'm not. I was just trying to add something to the discussion. No offense meant. My father was a bit-part actor, who's been dead for over 20 years. We, the heirs, still get 10 & 20 dollar residual checks occasionally. We even got a check for less than a dollar, once or twice, I think. I guess it's computerized, but it seems like it's more trouble than its worth, really. But there you have it, people keeping their end of an ancient bargain. That's nice.

Ran said...

A theory: In industries with many, many companies, and not much to cause a worker to choose one over another, these companies will naturally compete with each other for workers, and naturally do their darnedest to treat workers as well as they can afford. Conversely, unions can't really help very much, because there's no big organization representing all the companies, and what, are unions going to negotiate separately with each company? By contrast, in industries with very few companies (oligopsonies, I think they're called?), the companies don't have to compete as much for labor, and conversely, it's easy for unions to negotiate with each of the companies.

I'm not sure if my theory both makes sense and explains the facts — being a Michigander, I'm more familiar with the auto industry, which also continues to have powerful unions — but there it is for the picking apart. :-P

Ran said...

By the way, I think your explanation makes a lot of sense, except that if actors (and writers and so on) didn't support the unions anyway, you'd expect some union workers to be willing to work with people and studios who've previously done non-union projects, and so on. That is, if they weren't pro-union, they could allow the union to weaken, which would eventually result in its falling apart. The fact that no studios seem to do non-union projects suggests that actors and writers and all really do support the unions.

Tim Lee said...

Glen, my sense is that unions are powerful in Hollywood for the same reasons they're powerful in the auto and airline industries: the movie industry is capital-intensive, slow growth industry. There are large up-front costs to enter the market but little potential for industry growth. As a result there aren't a lot of new firms entering the market. Without non-union competition breathing down their necks, they have little reason to risk the kind of protracted strike that would be required to break the power of the unions.

I think the airline industry is a few years ahead of Hollywood in this respect. Southwest has been slowly destroying the airlines' profit margins, and so the unionized airlines have been forced into some really nasty labor disputes with their workforces in order to compete. Northwest has essentially outsourced most of its airplane repair functionality to Mexico and laid off most of their unionized mechanics. My guess is that the dispute has done horrible things to Northwest's corporate culture, and that they wouldn't have undertaken it if they hadn't been forced to do so by Southwest's intervention.

If I'm right, the Hollywood union's days are similarly numbered, because technological progress is dramatically reducing the amount of capital you need to become a video producer and distributor. Once Hollywood can credibly tell its unions "we need to make these cuts or we're all going to go out of business," they'll suddenly have a lot more flexibility.

Steve_Roberts said...

Unions do best when there are large capital investments, and the owners have achieved a measure of price leadership, and the unions can enforce sanctions against non-union labour. Unions can then divert the entrepreneurs share of the cake into their members pockets, for a while. In the UK think mining, shipbuilding, railways, etc. Of course competitive conditions erode price leadership and therefore the returns to union membership, which is why their last bastion is the non-competitve ("public") sector.

Nicholas Tabarrok said...

The answer to why unions are so pwerful in the entertainment industry is actually quite easily explained. It is because unlike in most other unionized industries, it's the INDIVIDUAL members of the unions in the ent. industry that the management / owners want to work with. For example, TOM CRUISE is a member of SAG, (I use him as an obvious example, but evey other known actor is as well) and if the studios and producers want to make a film with Mr Cruise, and we all do, we have to come to terms with SAG. Similarly, Steven Spielberg is a member of the DGA, same issue. Though writers are not household names, it's the same issue, there are very specific individuals who the studios want to be writing their TV shows and screenplays. Unlike labourers (which is largely who the unions represent in other industries) where it doesn't matter if Joe or John or Mary is stacking the boxes, flipping the burgers or ringing the cash registers and management can easily hire a non-union member to do the same job, in the film busienss we need to work with specific individuals who happen to be union members. Thus the power of those (comparativley) few empowers them all.

Brandon A said...

Thank you for bringing these issues up. I'm really desperate for an analysis of the film industry from a free market economist that intimately understands the industry.

I think the theories about projects being capital-intensive make the most sense.

If anyone is interested in a behind-the-scenes look at the mentality of the WGA, I found a very interesting transcript of a Q&A with WGA leaders about politics in the WGA.

Anonymous said...

There is a lot of non-union untapped talent out there. I wonder why no one ventures out to find it?