The Production Companies are not holding out on DVD and Internet fees to the writers because of the the writers. Most people agree that the writers need to get some portion of that money, and the few pennies the writers are asking for isn't a material issue in themselves.
The issue is that this strike is expressly being hailed as precedent for the other union contracts (SAG and the Directors Guild (DGA)) in the entertainment field that will be coming up later this year and early next year. In fact, the directors guild came very close to backstabbing the writers guild behind the scene on this issue. The writers were at one point convinced to hold off on a strike pending the upcoming directors guild negotiations later in the year or in January. However, it came out that the directors were secretly negotiating with the producers without the writers, and for a deal that was likely to undercut the writers. That pissed the writers guild off (understandably), and became a driving factor in the strike. The WGA had to demonstrate that it had influence, right away, before the directors issue could officially come to the table later in the year.
Which of course just highlighted the precedential nature of the WGA strike for the future directors and SAG negotiations.
So now the Producers feel stuck that if they settle with the WGA then all the other unions will grab their piece and, at a time when business is relatively bad, cause some serious damage to the production companies. Meanwhile, the WGA is stuck having to strike now or else have to deal with the risk of the other unions cutting a deal without them. Which means it is unlikely for either side to really want to settle until the next round of union contracts comes up in late December or early January.
