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What a weird thing to be debating. The fact that I hate writing phone dialogue makes it even funnier for me.
I can only tell you that O.S. for phone conversation falls under common usage. Try reading some produced screenplays and not screenplay "how to" books written by English teachers. 7/8 of all the scripts I read these days use O.S. for the disembodied phone voice.
O.S. means a character in your script can hear and react to a voice or a sound that is not in frame. V.O. is narrative and your character cannot hear it. That's common usage.
If you don't believe me try Paul Haggis - Oscar winner and highest paid screenwriter in Hollywood.
from In the Valley of Elah
INT. HANK'S ATTIC OFFICE -- NIGHT
The phone rings in Hank's ear, until:
OPERATOR (O.S.) Fort Rudd, how may I direct your call?
HANK First Sgt. Arnold Bickman, Criminal Investigations Division.
OR
INT. DEERFIELD HOME - HANK & JOAN'S BEDROOM -- NIGHT
Joan sits on the edge of the bed; speaks into the phone.
JOAN Hank?
HANK (O.S.) I'll find him.
If you don't trust Haggis then from the first few pages of Simply Scripts there are also Sean Penn, Aaron Sorkin, Jeffrey Blitz, Allison Burnett, Judd Apatow, Darren Aronofsky, etc.
From everything I have read this seems pretty straightforward...
V.O. = the voice is talking to the audience, usually left for narration.
O.S. = The voice is talking to another character, or talking to themselves but not physically on screen at that moment. So a phone call would indeed be O.S.
So the use of O.S. or V.O. is purely dependent on who your characters voice is talking to. I am pretty sure that you cannot use V.O. if your characters can hear the dialogue.
I have a character moving from one room to another in a house. While in the other room, off camera, the sounds of him banging pots and pans can be heard by characters remaining in the first room. I know his dialog is to be labeled (O.S.). What about the banging pots and pans heard by the characters in the first room? Do I need to specify in the action line that (obviously) the sounds are emanating from off screen?
INT. LIVINGROOM - DAY Steve walks from the living room to the kitchen, leaving Karen and Bob behind sipping tea.
>Steve BANGS pots and pans, drops one with a loud CLANG!
STEVE (O.S.) Munkey mud!
>Steve's pot and pan BANGING resume.
Karen and Bob look at each other amused.
Do I need to specify what is obviously off screen as such? Forgive me. Sometimes I become... frustarated with what's "confusing" to 1/4 of the readership when it's a no-sh!t-Sherlock to everyone else.
INT. LIVINGROOM - DAY Steve walks from the living room to the kitchen, leaving Karen and Bob behind sipping tea.
>Steve BANGS pots and pans, drops one with a loud CLANG!
STEVE (O.S.) Munkey mud!
>Steve's pot and pan BANGING resume.
Karen and Bob look at each other amused.
INT. LIVINGROOM - DAY
Steve walks from the living room to the kitchen, leaving Karen and Bob behind sipping tea.
The THUNDEROUS ROAR of pots and pans RING out in the living room.
STEVE (V.O.) Monkey mud!
The ROAR continues.
Karen and Bob look at each other amused.
I'm assuming that the camera never left the living room, here. For this reason, I gave Steve a (V.O.) instead of an (O.S.). His dialog would most likely be added in post.
I always took it to be a question of diegetic vs. non-diegetic. If the dialogue has its source within the world of the film -- be it from a phone, or the next room, then it's O.S. If it's non-diegetic, like a narrator telling the story, it's V.O. Recordings are a whole other ball game, and then you get into areas (like I had in a recent script) where someone on a TV plays a recording of someone else's conversation from a few hours earlier, where things get quite complicated.
That's my understanding of it, at least. So at the risk of disagreeing with Phil, and I'm probably flat-out wrong, I'd say the dialogue is diegetic, and therefore O.S.
I always took it to be a question of diegetic vs. non-diegetic. If the dialogue has its source within the world of the film -- be it from a phone, or the next room, then it's O.S. If it's non-diegetic, like a narrator telling the story, it's V.O. Recordings are a whole other ball game, and then you get into areas (like I had in a recent script) where someone on a TV plays a recording of someone else's conversation from a few hours earlier, where things get quite complicated.
A voice over the phone is within the film, but it would be a (V.O.). The same goes with a 'ghostly' voice. Or the invisible man's voice. Voices in your head. Etc...
If the dialog is recorded separately from the scene, it would be (V.O.).
It sounds to me like the kitchen is connected to the living room, and most likely without even a door between them. He's 1 room over, in the vicinity of "where we are" in the scene. He could literally pop his head into the room at any time.
No?
Also, just to throw this out there, in the example, since we know from the Slug that we're in the living room, there is no reason to use "living room" again in the opening line, underneath the Slug. It's redundant and a waste of space.
So, instead of, "Steve walks from the living room to the kitchen, leaving Karen and Bob behind sipping tea."
A better way to write it would be, "Steve walks into the kitchen, leaving Karen and Bob behind sipping tea."
Yeah, in that instance of Steve walking into the kitchen, I would use (O.S.) instead of (V.O.). He's still "in" the scene, he's just walked to a different part of the house. He is, indeed, off screen. With phone conversations, I've always used (V.O.), however.
Phone conversations, 2 way radio conversations, etc. - use (V.O.), as the "voice" is not emanating from the vicinity of where the scene is taking place.
Yeah, in that instance of Steve walking into the kitchen, I would use (O.S.) instead of (V.O.). He's still "in" the scene, he's just walked to a different part of the house. He is, indeed, off screen. With phone conversations, I've always used (V.O.), however.
I received the impression that Steve walked into another room where he couldn't be seen. Shouting from a difference section of the house would be recorded later and added to the scene in post to make sure it sounds right.