A breakthrough in contract talks has been reached between Hollywood studios and striking writers and could lead to a tentative deal as early as next week, a person close to the ongoing negotiations said Saturday.

The two sides breached the gap Friday on the thorniest issues, those concerning compensation for projects distributed via the Internet, said the person, who requested anonymity because he were not authorized to speak publicly.

A second person familiar with the talks, also speaking on condition of anonymity because he wasn't authorized to comment publicly, said that significant progress had been made and a deal might be announced within a week.

The people did not provide specific details on the possible agreement. Major points of contention include how much and when writers are paid for projects delivered online after they've been broadcast on TV.

The studios have been insisting that programs be streamed online for a certain period, deemed promotional, during which writers would forgo residuals. When payment kicked in, the companies sought to limit it to a flat $1,200 fee, while the guild wanted a percentage of a distributor's revenue.

The Writers Guild of America did not immediately reply to a request for comment. The Alliance of Motion Picture and Television Producers, the trade group representing the studios, declined comment, citing a news blackout agreed to by both sides during the talks.

Guild leaders have said they are fighting for a piece of the future, reflecting the widespread belief that Internet-delivered entertainment fare would inevitably claim an increasing and perhaps even dominant market share.

Although work remains to be done on elements of the agreement, prospects for a deal appeared solid, said those close to the situation. The tentative agreement would have to be approved by a majority of guild members.

The guild, whose 3-month-old strike has brought the entertainment industry to a standstill, began informal talks with top media company executives Jan. 23 in an attempt to reach a new deal covering governing work for film, TV and digital media.

Negotiations between the guild and alliance negotiators collapsed Dec. 7 after the alliance demanded that proposals for unionization of animation and reality shows be taken off the table. The guild refused.

During the negotiations impasse, the Directors Guild of America began its own talks with studio chiefs and swiftly reached a tentative deal that was announced Jan. 17 and covered some of the digital media issues key to the writers guild.

Major studio executives called on the writers guild to begin informal talks, which essentially are standing in for formal negotiations, according to those familiar with the situation.

The guild extended its own olive branch before the informal talks started by withdrawing the reality-animation unionization proposal and by deciding to keep pickets away from the Grammy Awards. It has since decided to allow the music ceremony to proceed with full union support.

However, the fate of the Feb. 24 Academy Awards has remained in question, with the guild so far declining to grant its blessing to the show. A union refusal to cooperate with the Golden Globes decimated the ceremony, which was boycotted by supportive actors.

Oscar organizers and producers have vowed they will stage some type of show, with or without union support â€" but a writers guild deal would allow this ceremony to proceed in its full, star-studded glory, providing an invaluable promotional showcase for movie studios and their films.

Hollywood's striking writers and major studios have reached the outlines of a new employment contract, resolving key sticking points over how much writers should be paid for work that is distributed over the Internet, people familiar with the negotiations said Saturday.

A final contract could be presented to the Writers Guild of America board as early as Friday, according to three people close to the talks who asked not to be identified because the negotiations are confidential.

The 3-month-old strike is expected to end once the board approves the contract.

The tentative deal came after two weeks of talks that culminated in a marathon bargaining session Friday that was attended by News Corp. President Peter Chernin, Walt Disney Chief Executive Robert A. Iger and Writers Guild of America negotiators David Young, Patrick M. Verrone and John F. Bowman.

Progress had been made in previous meetings on payment for work sold online, but Friday's session saw a breakthrough on the most contentious issue: compensation for the free streaming of films and TV programs over the Internet.

Representatives of the Writers Guild and the Alliance of Motion Picture and Television Producers, which represents the studios, declined to comment, citing a media blackout.

Attorneys from the studios and the guild were meeting over the weekend to discuss contract language for the proposed agreement, which would need to be ratified by the union's 10,500 members. Even before a vote by members, the strike would probably be called off if board members strongly endorse the deal.

There are some issues that have yet to be resolved, including defining what qualifies as promotion on the Internet. The debate centers on the extent to which networks can run video clips and other materials on their websites to promote TV programs before paying writers.

Both the writers and the studios faced rising pressures to find a way to end Hollywood's costliest strike in two decades.

Concluding the strike would allow thousands of workers who lost their jobs when television production shut down to return to work. It would also allow the broadcast networks to salvage the upcoming fall season. Production of pilots is scheduled to begin this month.

An end to the strike would also ensure that Hollywood's most glamorous party, the Feb. 24 Academy Awards, would air on ABC as scheduled. Last month's Golden Globes were dramatically scaled back after writers and many actors refused to cross the picket line. The Oscars would likely have faced similar boycotts.

The writers began their strike Nov. 5 in a fight largely about securing their future as digital technology transforms the film and TV industry.

Writers fear being shortchanged as the studios rush to distribute their TV shows and movies on the Web, cellphones, video iPods and other devices. The payments they receive when their material is reused, known as residuals, help writers weather the feast-and-famine cycles of the business. Studios, confronted with rising marketing and production costs and flattening DVD revenue, have been reluctant to commit to the guild's new-media pay demands when the economics of the Internet and other digital technologies are uncertain.

The latest round of discussions began two weeks ago after directors quickly negotiated their own accord with studios.

In Hollywood, the first union to reach a contract often sets the template for the other talent unions in a process known as pattern bargaining.

The tentative writers' agreement is largely modeled on the directors' pact, which doubles residual payments for films and TV shows sold online, secures the union's jurisdiction over shows created for the Internet (above certain budgets) and establishes payments for shows that are streamed on advertising-supported websites.

A number of top screenwriters and TV writer-producers known as show runners had in recent weeks lobbied their leaders to use the Directors Guild deal as template for their own agreement, eager to put the town back to work.

The directors' deal, however, stirred a debate among striking writers. Many complained that the directors' contract offered meager residuals on shows that were streamed free on advertising-supported websites. Another criticism was that the directors' deal limited the union's jurisdiction over shows created for the Web at a time when online entertainment is burgeoning.

That complaint was echoed a few days ago by the Screen Actors Guild, whose leaders publicly disparaged the directors' contract.

On Friday, however, studios offered some key concessions to ease those concerns and keep the talks on track. Those included more favorable pay terms for streaming than those offered to directors. Studios also offered "separated rights" provisions for shows created for the Web, ensuring, for example, that writers would receive extra compensation and credit for online shows that spawn TV pilots, two people close to the talks said.

Writers made some important concessions of their own earlier when they dropped demands to unionize work on animated movies and reality TV shows -- both of which had been viewed as non-starters by the studios.

The agreement was negotiated on the studio side by Chernin and Iger, who had been designated by the heads of the other studios to negotiate on their behalf.

That stood in contrast to previous sessions with the writers in which top media executives weren't at the bargaining table and were led instead by Nick Counter, president of the producers association, and labor relations executives from the major studios.

Having done the heavy lifting, Chernin and Iger will now step back and rely on labor relations executives to formalize contract language this week.

Guild negotiators Young, Verrone and Bowman on Monday are expected to brief the union's 17-member negotiating committee and board of directors on the proposed contract.