It could be the perfect Hollywood ending. With only three weeks to go until the Oscars, Hollywood’s feuding writers and studio chiefs are reported to be close to a deal that will end the three-month strike that has brought production of films and TV shows to a halt and caused more than $1 billion of damage to the LA economy.

The breakthrough comes as new ratings figures suggest that American networks have lost almost a quarter of their viewers because of the strike, with one channel suffering a 50 per cent decline.

Hit TV shows such as Desperate Housewives and Grey’s Anatomy are off the air because of the work stoppage. YouTube was up 18 per cent at the end of last year.

If a contract can be signed by the end of next week — as expected — then the Academy Awards will be spared the fate of the Golden Globes, which was called off last month because actors would not cross writers’ picket lines to attend. Instead, the ceremony was turned into a press conference and the organisers lost their $6 million broadcast fee.

According to reports from inside the negotiations, a breakthrough was reached on Friday, when both sides reached a compromise on royalties paid to writers for TV shows and films streamed online and supported by advertising. “I know they made significant progress,” said one source, who declined to be named. A deal on iTunes downloads is also thought to be pending.

No specific terms have so far emerged. The studios, represented by the Alliance of Motion Picture and Television Producers, have so far been insisting that shows streamed online are “promotional”, and therefore should not involve a royalty payment. The writers, representing the Writers Guild of America, have been demanding a percentage fee based on advertising revenues.

After three rounds of on-off talks since November, when the writers’ last union-negotiated contract ran out, the outline of a deal appears to have been reached. The agreement will have to be endorsed by the boards of the WGA’s East and West Coast branches and then ratified by its rank-and-file members.

The thaw in negotiations began when the Directors Guild of America instigated its own talks with studio chiefs and reached a deal in five days. This helped the studio chiefs and writers get back to the negotiating table, with the writers offering to give up demands for reality TV and animation unionisation, while also promising to keep pickets away from the Grammy Awards. A WGA deal will also help the Screen Actors Guild renew its contract when it ends in June.

The fate of the Oscars, however, remains in question, with the event scheduled to take place on February 24. The organisers have vowed that they will produce some kind of show, with or without union support. Without the WGA’s support, however, it would have to be dramatically scaled down, and would cost the studios muchneeded publicity.

The WGA has defended its strong-arm tactics, saying that it is fighting for the online future and that the deal currently being negotiated will set the terms of the writers’ compensation for decades to come.

The Los Angeles Economic Development Corporation has estimated that the strike has cost the region’s film and TV industry at least $650 million in wages, with more than another $1 billion in lost earnings attributed to the ripple effect on the local economy. The last big writers’ strike in Hollywood was in 1988 and went on for 22 weeks, during which time TV ratings declined dramatically.

Many “orphaned viewers” never returned to network TV, going to paid-for cable channels such as HBO instead.

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