(FORTUNE Magazine) – Movie and television studios are bracing for a potential labor showdown with actors, writers, and directors, even formulating strike contingency plans. "We have no choice but to prepare for the worst," says chief studio negotiator J. Nicholas Counter. Newly elected "activist" presidents at the Screen Actors Guild and Writers Guild of America, West, abruptly fired their negotiators this fall and signaled their willingness to strike--despite the fact that two years remain on the unions' contracts--over issues like getting a bigger cut of juicy DVD profits.

Hollywood has traditionally ignored the unions, counting on their propensity for infighting and their inability to band together. But both new presidents, SAG's Alan Rosenberg (who worked with the Black Panthers in college and later played a divorce lawyer on L.A. Law) and Patric Verrone at WGA, say they mean business this time. Four years ago a six-month SAG-only strike against advertisers cost Hollywood millions. WGA's film and TV contract runs through November 2007; SAG's and the Directors Guild's expire in June 2008. But basic cable contract negotiations with SAG start in late December and could provide a taste of what's in store for the next couple of years. "The writers can strike all they want, and no one will care that much," says one studio executive. "But the actors and directors can close down the whole city."