Hollywood scripts its own Halloween horror

(Fortune) -- This must be some screenwriter's idea of a Halloween prank, setting the contract between the Writers Guild of America (WGA) and the Alliance of Motion Picture and Television Producers (AMPTP) to expire on October 31. But can anybody in Hollywood appreciate how frightening the situation that's now coming to a head really is?

Maybe it takes an outsider. "The television business," says Bob Garfield, co-host of NPR's On the Media, "is very much at risk. The fragmentation of audience is causing a drop in revenue which is affecting quality of product which will result in further loss of revenue and so on, in a spiraling vortex of ruin." Scary stuff!

The ostensible dispute in Hollywood, as surely you've read by now (and as I myself recently wrote in "Drama inside the actor's union,"), revolves around how to treat residuals in the digital age. The writers -- not to mention the actors and the directors -- want to get paid when their work reappears on computer screens and cell phones, just like they've always been paid for TV reruns.

The producers are loathe to give up that extra income. So far, the parties are not negotiating, they're just yelling at each other. A messy, self-destructive showdown is all but certain. It could happen right away; the WGA membership has voted overwhelmingly to authorize a strike starting as soon as November 1. Or it could happen seven months from now in June, when contracts expire with the actors' unions (SAG and AFTRA) as well as the Directors Guild.

But what if residuals are beside the point? That's essentially what Garfield has been saying -- on air, in an influential column for Advertising Age, and to anyone who will listen, for several years now.

"In order for there to be a downstream," Garfield says, referring to residual income, "there must first be an upstream, and it's the upstream that's in a stage of collapse. If I were a writer or actor in Hollywood, I'd be far less concerned about getting my share of the downstream revenue and much more concerned about whether I'm gonna have any kind of job five years from now."

The issue comes down to this: Who's going to pay to produce expensive, high-quality television in the first place? Where does the up-front financing come from in a Tivo world where network schedules and channel lineups become irrelevant; where audiences are increasingly fragmented; where TV signals and radio waves give way to Wi-Fi; and where a business plan built on the premise that a single medium can reliably deliver millions of viewers to national advertisers suddenly looks awfully sketchy?

"There will still be content," says Garfield. "But who creates it and who controls it and how it's distributed I think is very much a wide-open question. And even more wide open is how they're gonna make a buck on it."