In an Idled Hollywood, a Residuals Dispute is Once Again Key

Curator's Note

As screenwriters strike and performers picket, among the hot-button issues in both walkouts are residuals, seldom explored in depth, because few understand what residuals are, why they matter, and how they work. The unassuming name suggests an afterthought. But the reality holds a valuable lesson for workers in every industry—and for scholars too.

The what: As I explain in my book Entertainment Residuals, residuals are “union-negotiated royalty payments that writers, actors, directors and others receive—from a studio, producer or distributor—when a movie, TV show or Internet production is rerun or is reused in different media.” (There are also commercial residuals.) They’re distinct from the “profit participations” that top creatives receive, which can amount to millions of dollars, and are negotiated by agents and attorneys. Residuals range from zero to tens of thousands of dollars, and are collectively bargained particularly by the Directors Guild of America (DGA), Writers Guild of America (WGA), and the performer’s union SAG-AFTRA. But due to somewhat arbitrary line drawing, most crew, visual effects workers, extras, animators, and many others don’t receive residuals.

The why: My modeling suggests that in aggregate across all the relevant unions, annual residuals amount to almost $3 billion. That’s a significant sum (and of similar magnitude as aggregate annual profit participations), although it’s paid out in about 6 million paper checks annually.

The how: Residuals are calculated according to dozens of formulas, the choice of which depends on the medium a product was initially made for (i.e., theatrical exhibition, broadcast TV, various types of cable, DVD, a streaming platform, etc.) and the medium it’s now being used or reused in (which could be the same or different), as well as the union, the creation date and other factors. The residuals summary chart (the media component attached above) shows a snapshot in time and is color-coded to each formula’s basis, such as the producer’s gross (blue cells), the worker’s initial compensation (pastels), or something else.

The dispute: Residuals have driven almost every Hollywood strike since the 1930s, including today’s. Residuals for traditional products are generally based on reruns or gross receipts such as license fees, making them higher if a movie or series is more successful. But residuals for most products made for streaming don’t scale that way, and depend on the number of subscribers, but not a show’s viewership. Thus, a hit like Netflix’s Wednesday pays the same as a flop like a hypothetical Tuesday. The WGA and SAG-AFTRA want a success overlay—perhaps a pro rata share of the platform’s gross (not the producer’s) that would supplement the existing formula. The companies don’t want to pay more, and abhor a precedent based on the distributor’s gross rather than the producer’s.

The lesson: Residuals give creatives a durable connection to their work product and a share in the enterprise’s success, as stock options and profit pools do for tech workers and privileged executives. Some people ask, why should anyone get residuals?—but if we understand “residuals” as part of a class of dis-alienating reward mechanisms, perhaps the better question is, why shouldn’t everyone?

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