Do residuals have a future?
A panel discussion about what's happening to residuals, why we're scared, and possible solutions.
Andy Bobrow: Hi, welcome to the experiment. We’re doing a podcast with keyboards instead of microphones. And for this session, we’re talking residuals. We’ve got a great mix of writers working in different genres, formats and at different levels. And me acting as host. So here goes nothing.
We’ve all been talking a lot privately about the fast-changing world where streamers have changed the business model right beneath our feet. They’ve created a world with drastically reduced residuals and fast disappearing profit participation. And I think we all agree that this is an existential moment for the WGA. So the big question is what is happening to residuals and what should happen to them? So we should start by defining the problem.
Holly Sorensen: The problem is that the reuse of our work was once a fairly large part of the average writer compensation. Our contractual package was created on the broadcast model, where one or more reruns of a show in the same season or hiatus was a nice chunk of money, marathons of a show the networked aired to prep for a new season was a nice sum of money, and success made one lots of money in syndication. All that was the money writers used to fund their kids college or save for a mortgage. It was often much more than their negotiated rate and script money. That revenue stream no longer exists. There was true reward for success. Not a bonus, lets be clear - it was part of compensation. Now we don’t even know what success is. So does it make sense to negotiate better minimums on an old model, or do we insist a new model be created?
Angela Workman: It seems to me that the streamers have broken the old model. Better minimums is like treating the symptom and not the cause.
AB: Yeah, I agree. We could say they broke it to fuck us over, or we could say it just broke because technology changed the distribution. Either way, since there's no resale of the material anymore, the method we used to use for calculating the value of our work is broken. And like you say, getting higher minimums, that's lovely and we should always be pushing, but the question is do we also give up on pinning our pay to the popularity of the work? That for me breaks a core principle of the union.
Eric Tipton: I would also agree with Angela and they broke it on purpose. Let's not forget to include how the feature model is also changing with streaming. Points, box office bonuses, re-use on other platforms -- that stuff is all pretty much going away now too. So, yeah, there needs to be a new model. Top to bottom. Call it a license fee, call it something else, but there is no longer a "residual".
We went on strike in '07-'08 largely because we saw the threat that streaming technology could/would pose in the not too distant future. We may not have been able to see just HOW the model would change, but we knew change was coming. Now here we are. Unfortunately, because of other changes in the business over the last few years the folks who would have been our natural allies in figuring out a new system -- namely agents -- now have different problems of their own.
AW: Yes, that's right. And to bring in a personal anecdote - because it might be useful to anyone reading this discussion, who might think this is just an old boomer issue or whatever - I have a long in development feature project with an A list director producing. I am also an EP on the project. A streamer recently picked up the rights, when we still had a beautiful A list star attached. I was paid previously for many drafts but once the streamer secured the rights it was clear that my contractual residuals and profit participation would probably disappear. I asked my very accomplished team what to expect about that, and no one knew. The rules had changed, and they were, and still are, trying to understand the new landscape. It's become very clear that we (that is to say, we the WGA, our MBA) no longer hold sway. Rules no longer apply. And if it can happen to this high-profile director/producer, it can happen to anybody. No one is guaranteed anything via our business model anymore.
AB: I remember '08 when this all was set in motion. We knew we had to have jurisdiction over streaming, which we got. But what was set in motion back then was that the value of the work was about to stop being measurable. Or at least as measurable. Because with the subscription model, they know how many people are watching it, but it may actually be impossible to know what that means in terms of revenue. You could measure new subscriptions, but what happens when the subscriptions plateau, and then it’s all about retention? Or you can know how many streams there are of a specific show, but then you’re getting into streams as a percentage of total streams divided by subscription revenue. And with streamers like Amazon and Apple, the streams are not even the whole product, they’re just a perk handed out to entice people to buy something else.
I remember reading that what solved the strike was the language of this "imputed value" idea. That we can just say "here's what it's worth now" and then we can haggle with them over a made-up number, not tied to revenue or a sale price. Certainly we could continue to focus on minimums (we should), and we could try to push up the imputed value and maybe that’s the way forward. But where I believe we're at right now is similar to where we were at the formation of the union, when we traded our author's rights away for this brand new concept called residuals. Like, this is that moment. The moment where we need a brand new concept that preserves the core principle that a writer's compensation has to reflect the popularity of the work they created.
AW: Agree on every point. I'm really afraid that if we simply "double minimums" (or increase them in any meaningful way, really) that streamers will find a way (it doesn't seem very difficult) to end residuals entirely.
ET: Oh, for sure they will and, as some people have said, doubled minimums doesn’t mean an increase in the writer budget for a tv show.
Sean Sansiveri: I’m following this as a person who hasn't made much money from residuals (yet). So far my writing income has been from development, not staffing. I don’t know how many other guild members are like me, but my path hasn’t been the traditional one where you start out by getting staffed. I’ve been able to pitch and get consistent pilot script deals. So I’m very interested in residuals, but I have to say they may not have a big effect on me in the short term.
AB: Your path will probably become more and more common, since big 22-episode network seasons are a smaller and smaller percentage of the job pie.
This might be the time for me to admit I felt out of my depth on the specifics of residuals because it’s such a patchwork of methods and formulas, so I just went and crammed a bit. The guild has a really good explainer for members right here: https://www.wga.org/members/finances/residuals/residuals-survival-guide
Here's my summary: There are 2 basic systems for calculating residuals:
Revenue-based residuals are a percentage of gross receipts or a percentage of a sale. That’s like syndication, dvds, digital sales, rentals, in-flight - basically anything where either some company pays your studio for your stuff, or a consumer pays directly for your stuff.
Run-based residuals are for network reruns and also for streamers who are their own studio. With run-based residuals, there is a "Residual Base," which is just a number that’s negotiated along with the schedule of minimums, and residuals are a percentage of that number, which gets paid out per year of use.
So for an hour-long Netflix series, after a 90-day free window, they take the residual base ($27,588), divide by 45% in year 1 ($12,400), 40% in year 2, etc, down to 1.5% in year 13 and beyond. For every streamer other than Netflix, there’s a second divisor that gets applied because they have fewer subscribers. For Apple, Amazon or Hulu, you take the residual base, divide by 45%, and then divide again by 65%. So that $12,400 becomes $8060. On Peacock, that second divisor is even lower. So problem #1 is that this residual is the same for a blockbuster show as it is for a show that 3 people watch, and problem #2 is that the residual amount is more appropriate for the show that 3 people watch than it is for the blockbuster.
I have to say, I really have no idea why the Residual Base is negotiated separate from the script minimums, like why it’s not simply the same number. But the Residual Base is always some degree lower than a single script minimum, and then of course the actual residual is a percentage of that.
Chap Taylor: Maybe I'm wrong about this, but while there is a problem figuring out the value of something - since streamers don't sell it to anyone - there is absolutely a way to determine if something is popular. The streamers know to the minute how many times something gets watched, how long it's watched, and probably the demographic and economic profiles of who is watching.
Sarah Conradt: I just saw this, where Netflix says how many hours of Dahmer were streamed in its first week.
If streamers CAN determine how many hours a show/movie is watched, which clearly they can as listed here, how are they getting away with not rewarding the writers for that?
ET: I honestly think it’s as simple as “they don’t want to.” So if we were all just blue-skying here -- not taking the current model into account at all -- what would a new model -- one that's really 'win-win' for all parties -- look like?
What should fees look like? Our stake? In perpetuity, etc.
CT: The first blue sky demand I would make is getting that data. Streamers have all the power because they refuse to divulge how many people enjoy our work. The first demand I would make is that anyone employing WGA writers must release the viewership data of the thing they wrote (at least to the Guild and/or the writers).
Next, smarter people than I have thought about this, but I would tie ongoing payments to the popularity of the project. Establish tiers connected to previous residual levels, triggered by number of views, or longevity on the service. They may claim there is no value, but what they really mean is there is no subsequent revenue stream. Which is their problem. Our work clearly still has value, since that is how they are building their assets.
Finally, it looks like many of these streamers are going back to advertising, in which case we could ask for a piece of the advertising revenue tied to the program. That's how Tik Tockers and Instagram stars make millions. By getting a cut of the advertising dollar.
ET: My vote is to turn it into two revenue streams for us. We get a piece of the revenue from the ad-supported tier, and then a separate "license fee" tied to amount of usage on the ad-free tiers.
AB: I have to believe that the number of streams is a number they will guard with their lives. I'm making assumptions here, based on my years in the ad business, but raw viewership data is their family jewels. They would never want their competitors to see it. I bet they don’t even share that shit with their bankers. So even though the streamers have incredibly detailed stats about viewership, they will never willingly give up control over who gets that information. They're happy to brag about Dahmer, but that's their choice and they will protect that choice with everything they've got.
So if we're onto the blue sky phase of this discussion, I'll toss out a moon shot: An independent 3rd party that receives the stream count from every streamer and releases limited or abstracted information to all parties in a way that doesn't muck around with their trade secrets. I like your idea of a tiered system, Chap. And I’m picturing like a system where Price Waterhouse or whoever says "Dahmer reached the threshold for top tier residuals, so Dahmer has to pay X.” Though I do think this is an uphill battle.
HS: We have to account for the fact, however, that the bigger importance of our work to a streamer is a show that gets someone to buy a subscription. It doesn’t matter if that show goes on for 50 episodes. It can be only 8. Is there a compensation model or bonus structure for occupying a trending spot?
AB: I was wondering that too. Like, could we create value tiers based on who's on the front page? Of course, the front page looks different for every consumer, so it can’t be based on that specifically. But is there a trustworthy way to put shows into like gold, silver and bronze tiers? Could that be this 3rd party solution? Or could we even give a streamer an option, like “every show is at the highest tier, but you can place a show into a lower tier by providing us (or the 3rd party) the stats for that show.” That way, they don’t have to give up proprietary information, but if they want to downgrade a show, they can play along. If a show then has a resurgence, we could challenge the downgrade. It also pays writers to try to pump their shows on social media. Because don’t forget, we’re now part of the marketing. Everyone is.
Matt Nix: One relatively straightforward idea would be to just have a pool of points designated for writers at streamers. Not the same as residuals but a way for writers to participate in success if a show goes for years or becomes super popular.
This is based on a system already in place for creators and profit participants at streamers. The way those "points" work - they're not really points, just an artificial reward system - is for every one you have, you get a certain pre-arranged amount each year starting in year two. There are point-based bonuses for a show's popularity on a service, for awards, for longevity on a service, etc. The per-point amount goes up each year until it hits a ceiling in year five (this is all from Disney+, other services are slightly different but the idea is the same). Point is, it's a pre-existing mechanism for rewarding success that makes more sense than residuals, which were, after all, based on a per-broadcast model which makes no sense for streamers. But on the writer's end, it's not that different than residuals were. A popular, long-running show puts more money in your pocket. If it continues to be popular on the service, that means more money. It also sets us up to make future negotiations easier - we can fight, for example, for the top 10 shows to get bonuses rather than the top three. Or for the threshhold for a popularity bonus to be lower. But we're at least arguing for participating in success.
AB: Okay this is such an aside, but I’m really curious about it because Sean is General Counsel & Head of Business for the NFLPA and I need to exploit that somehow in this conversation. Sean, is there any sort of corollary situation in the NFL? Like, is there any scenario in which players get any sort of revenue share? Anything for them being used promotionally or in video games or anything like that?
SS: Absolutely. In 2021, the NFL generated nearly $18 billion and the players (a unionized work force just like us) received roughly HALF of that in the form of salary and benefits. True revenue sharing is exactly the reason (i) salaries are so high in professional sports and (ii) the industry is thriving. Moreover, the union helps to monetize players’ images and likenesses through licensing deals (e.g., video games, trading cards, NFTs, Jerseys, content). This results in incremental revenue to the players but also funds the operations of the union. Not a single dollar from union dues is spent on union operation, staff salaries, etc. One Hundred percent of union dues goes into a “war chest” to fight the next strike or lockout. With currently over $1.1B in assets, the real benefit of such a structure is to shift the leverage of negations with the employers.
AB: Okay I honestly thought you were going to say there’s no real corollary. Is player compensation actually tied in some way to NFL gross receipts, or are you saying it's just that they've been better about paying the talent?
SS: Yes, it is true revenue sharing with worker compensation tied directly to gross receipts. And every year the entire system is audited to ensure the cash is spent on players.
AB: Wow, that is the holy grail isn't it? I mean, it would take some creative adjustments to fit our situation but I did not realize there was even a precedent for this. So we have some stuff to chew on and I think we should meander this conversation back to something that came up earlier. A few people on the WGA board have coalesced around this talking point of doubling minimums. And it seems like the board is signaling that minimums are the new ballgame, or that drastically increasing minimum upfront payments will compensate us for the shrinking (and probably disappearing) residuals.
Tyler Hisel: In my mind, reasonable minimums allow buyers to take chances on newer, unproven writers knowing that they only have to pay massively upon lasting success. Make them pay massively up front and they'll just never take those chances. Or in the case of TV staffing, they'll just never hire lower/mid-level writers
AW: I agree completely.
AB: Different minimums for different levels might be able to counteract that though. Labor unions do this kind of thing for factory jobs (at least I think so. I don’t have firsthand experience in the UAW but I believe there are union-negotiated pay bumps for higher level employees). So like maybe we raise minimums but still have a lower-tier minimum for entry-level writers. We already do give studios a discount for staff writers. They don’t get script fees. And I think there’s also a weekly discount in certain situations.
HS: Unfortunately, many jobs at many levels have already gone away, because the industry is contracting. I don’t think paying much higher salaries would adversely affect younger writers, and I don’t think they need a smaller bump. If you write a pilot or a bible that everyone is excited about, they will buy it. If you write a sample they are crazy about, they will want to see what you can do in a room.
In my experience, network and studio execs love hiring lower level writers. They love discovering writers. Its what gets them excited, just like most of us. A big increase on a low level salary will not break the bank. But it will give that writer an actual income.
I’m not convinced residuals are the only thing we should be focused on, because the longevity of a show isn’t necessarily meaningful to a streamer. A subscription is. If you make residuals expensive when they are not important there won’t be scripted reruns. What they cannot do without is new programming. New programming is our trump card.
AB: That point is hitting me hard. I hadn’t thought of it that way. No one is talking about Squid Game and it’s only a year later. I bet streams for Squid Game fell off a cliff within one quarter. People are talking about season 2 of Squid Game though. So the value of Squid Game to Netflix is the brand, not the episodes. If you were a writer on Squid Game season one, the massive popularity of that show could only help you if you were paid per stream, not per quarter. (I just looked it up and of course there was no staff, everything was written by Hwang. And his compensation I’m sure is fine. So bad example, but the point is episodic writers on hit streaming shows probably would do better by stream than by quarter.)
HS: It is a brutal time to be negotiating a contract because the business is in a nebulous place. It’s the first time the guild cannot say that “The corporations are making huge profits across the board”. We now know they were reporting profits, but they were not making real profits. Wall Street knows it. China knows it.
They have to replace that income, but how? Will they find a way to fix the streaming model? Or will they go back to the advertising model, as they’ve suggested, and even the syndication model that existed before? Will new players from new industries come into the marketplace with a wholly different paradigm? Will we ever get all of those jobs back that the syndication gold rush set in motion? We simply don’t know.
Which is why I think we have got to center the writer and their value and their creative rights in the conversation, no matter what the platform. Truly make the writer as central as the athletes in that example. Writers say often, “we’ll never get that back” or “the horse has left the barn.” (Okay, I hope they don’t say that.) But it really is to me the perfect time for realignment. For the big asks. The idea of doubling minimums isn’t interesting, but the idea of spiking them to survive any platform - this is the price of doing business with a WGA writer - is interesting. The idea of assuring a limit on time for consideration, for payment, for a greenlight - and other creative rights- is interesting. I like that someone is thinking outside the box. It’s what we need right now.
ET: I hard agree we need out of the box thinking.
HS: It might be helpful for this conversation to distinguish reruns from residuals. Reruns were the fairly immediate reuse of the same show on the same network. A short term reuse is very valuable. Long term residuals seemingly are not, to streaming. (We’ve lost both, and both were income in the old days, we dont talk about reruns anymore - in fact, you made close to your original script fee for the first rerun. Thats more than you make in a year of streaming residuals.)
AB: Yeah, the summer network rerun is gone. Some lucky writers do get a little windfall when a network is plugging holes around holidays. And with streamers, we’re giving them a very big window (90 days I think) to run the content without any extra charge. So that’s the short-term reuse you’re talking about, and we’ve really let that go.
HS: John Sloss who is a smart man said something in San Sebastián recently that he wants indie producers to try to get streamers to rent new films, not buy them because they value fresh use. Then the indie producer can line up deals in ancillary markets. This is closer to how films were sold in the olden times, but has some interest for tv too.
AB: It’s the license fee model, which is still network television for the most part. That really brings something else into focus for me: The license fee model of broadcast television was good for us, and it evolved that way because of government regulation. I have no idea if the guild is looking into this option, but so many of our fears would subside if we could get the government to treat streamers like TV networks and prohibit them from owning the content. Ironically, our natural allies in that fight ten years ago would have been the studios. But it didn’t go that way, and most of them solved their problem by becoming streamers. Like you said, the time window for a show looks so different now.
HS: Well, as we’ve all found out, at least recently, most streamers don’t want to deal with studios. They want to make it and own it outright. And there was another government protection for us, and I’d love someone to tell me how it dissolved: You couldn’t at one time just automatically vertically integrate. If you wanted to sell the next use - syndication - you had to sell it to the highest bidder. Not just the next level of your own corporate pipeline. That is gone too.
One thing in all this craziness has not changed. Writers create the shows, and writers run the shows. No matter what new model arises, they absoultely have nothing without us. They need us to do that. Sometimes they pay us a lot and treat us with respect, sometimes neither, sometimes a combo. But I think we need to step up and talk not just money, but what they have done to our time without paying for it. That is also something for which we need new paradigms. The time it takes to make decisions, pay us, pull triggers, write shows, greenlight shows, make shows, post shows, market shows, air shows. Truly so many of writers current problems exist because there is no longer a ticking clock.
CT: That was well thought-out and a smart way of looking at the issues before us, Holly. I absolutely agree that time is an important component. I do wonder if you are underestimating the re-evaluaton that is taking place on monetizing libraries. Warners has basically done a 360 and is hawking all of their IP to be exploited by other companies. This may not apply to Netflix/Amazon/Apple, but my sense is almost everyone has realized that spending huge amounts on shows that pop for a month is a bad idea. My uneducated guess is all of them are moving back toward advertising and multiple tiers of revenue. In other words, network TV.
I think even the big streamers are going to be putting many of their features in theaters, not just to placate directors but because they realize they are leaving a lot of money on the table, and because theatrical exposure drives cultural awareness.
I can't speak to the impact of doubling minimums on TV with expertise. I am almost positive it will be the end of any new blood in features. I don't believe studios are going to take a chance on paying inexperienced writers $300K to write a feature, when they can hire an experienced screenwriter with credits and a track record in development. And my suspicion is it has to impact TV development. Are we doubling pilot fees, too? Because if so, I believe it will skew the marketplace even more toward buying shows from the same 10 mega-producers, even if they aren't actually writing them. It means that any junior or mid-level exec is now going to have to sell up new writers to their bosses at twice the price point.
HS: Well, the pilot marketplace might become akin to the old feature spec script marketplace. It also feels like maybe they are aware that the mega producer deals are not necessarily all panning out. Of course they like them for attracting talent, and unfortunately we are in a place that is alllll about IP, which those producers get.
One day someone will do the math and show them the cost benefit analysis of the original idea vs. IP. That original ideas are buzzier, cheaper, more acclaimed. Original ideas created “The golden age of TV.” And at the end of the day, what do they want in a pilot? What they wanted in a feature spec. They want the new idea, they want the fresh or unique voice or point of view, and it no longer matters if you are showrunner level. If you have a rep and can get in a room, you can sell a pilot if it is great. That is a very new thing, and it has engendered a whole new level of “supervising showrunners” - and that is another compensation issue.
AB: These are all really interesting points and I think we should revisit this, but let’s wrap it up for now. I really like this format, and not just because I got to give myself the last word. Let’s keep these conversations going because this streaming business is truly the most important conversation writers need to have right now. So let’s revisit this, maybe with new voices joining, and let’s also get into some easier topics, like how we got started and how we stayed in? Thank you all for participating.