Residuals Revelation: Network Primetime Residuals as Chilly for SAG/AFTRA and DGA as WGA (exclusive analysis)

All four unions agreed to cap certain residual formulas at 2010-2011 levels, but only the WGA announced this publicly.

When the WGA announced its studio deal earlier this spring, a notable concession by the union was that network primetime TV residuals were frozen at 2010-2011 levels. These residuals apply when rerunning a non-cable TV program on network primetime TV – for example, if a network TV show is rerun on network primetime TV, the residual is payable.

These residuals are often among the most lucrative for guild members. They’re vexing to the studios, however, for exactly that reason, and also because the residuals don’t diminish even if TV profits do.

In fact, these residuals usually increase year to year. That’s because, unlike residuals based on license fees or other gross receipts, network primetime residuals are directly or indirectly keyed to salary minimums, which increase several percent per year – 2% per year under the 2011-2014 contracts, for example, amounting to an increase of slightly more than 6% over the life of the contract. (Slightly more, rather than exactly 6%, because the increases are compounded.)

In addition, there’s little or no recent precedent for freezing residuals. On the contrary, even the WGA’s pay TV residual increased in this year’s contract.

Thus, it was surprising that the WGA agreed to freeze network primetime residuals – especially when the other above-the-line unions, which had negotiated first, hadn’t made the same concession.

Or so it appeared. Although the DGA didn’t announce it at the time, a THR review of that guild’s deal as posted on its website discloses that the directors made exactly the same concession – despite the fact that a DGA press release issued when the board approved the deal said only that “The standard rate increase for minimum salaries and residuals bases will be 2% in each year of the contract.” The DGA uses a table of “residual bases” for network primetime residuals that are slightly lower than the table of DGA minimums. In the 2008 negotiations, the residuals table received annual bumps. In the 2011 negotiations, it didn’t.

Because the 2% is an annual figure, the concession on primetime network residuals is 2% in the first contract year (2011-2012), just over 4% in the second and just over 6% in the third, for a total foregone increase over three years of 12.25% (taking account of the effect of compounding). In future contract years, the shortfalls will continue to mount, unless the residuals figures are brought back in synch with the latest minimums.

SAG and AFTRA made a related concession, and also did not highlight it publicly. The SAG/AFTRA residual structure for network primetime reruns is slightly different from the other two unions: for each rerun, the actor receives the same compensation as he or she received initially, but subject to a ceiling, or cap. In the 2005 and 2009 contracts, that ceiling was increased twice over the life of each contract. In the 2011 negotiations, there was no increase.

As a result, an actor engaged for a day or two at scale will probably still see an increase in residuals over 2010 – because scale (i.e., minimums) have increased, and a couple days at scale falls short of the cap and is thus unaffected by the freeze. However, an actor employed for a longer period or at a higher salary can hit the cap, and would thus see residuals at the same level as he or she would have under the previous contract, rather than an increase.

Another factor mitigating the effect on actors is that the ceilings, even when they increase, usually do so only about half as quickly as minimums. In other words, even absent a freeze, the ceiling would probably only have increased 3% or 4%, not 6%, over the life of the 2011-2014 contract.

Although neither the Directors Guild nor the two actors’ unions mentioned these issues publicly, the DGA ratification materials sent to members did note the freeze, according to a source. The SAG/AFTRA materials did not.

In addition to network primetime residuals, there’s an argument that the freeze – and, thus, the same percentage impact – applies in some cases when other non-theatrical product is rerun on network TV. However, the contract language is not clear on this point, and in any case those types of product – programs made for pay TV, home video, basic cable or new media – are seldom rerun on network primetime TV.

Residuals for other usages are unaffected, such as DVD, basic cable programs rerun on basic cable, or theatrical films run on television, as well as streaming or download of films and television shows. That’s because these residuals are either based on a percentage of gross or have other formulas that don’t relate to network primetime residuals.

In light of the shifting economics of the television business, the unions’ concessions may not be surprising. A negotiation is not a shopping spree – you don’t get everything you want – and least of all in a tough economy. Both management and labor have to pick their battles and achieve a contract package whose overall cost is acceptable to both sides.

And how much money are we talking about here? We can answer that question for writers, thanks to detailed figures in the WGA West’s recent annual report. WGA West members’ primetime network residuals amounted to almost $25 million in 2010. A 12.25% hit works out to just over $3m, or about $1,000 on average over the life of the three year contract for each of the 3,000-3,100 TV writers who receive earnings in a particular year.

Over the next three years, that’s about $350 per year foregone for the “average” TV writer. Of course, people who write for network TV would see a larger impact, while those who write primarily for pay TV, basic cable or theatrical movies would see less of an effect. Those who write solely for theatrical movies would be completely unaffected, of course.

The parallel figures for the DGA, SAG, AFTRA and WGA East can’t be calculated, because they haven’t released detailed reports of the sort that the WGAW did, but a couple of conclusions are possible.

Regarding the DGA, the aggregate network primetime residuals figures ($25m and $3m) should be similar to the WGA’s, because the DGA residual bases for half-hour and one-hour shows are similar to the WGA applicable minimums used in the residuals calculation and because most shows rerun in network primetime are both DGA and WGA. However, the average impact on an individual director is impossible to determine without knowing how many active TV directors there are in a particular year.

As for actors, the impact is probably less on average than on writers, because of the way ceilings work, as discussed above. Also, the SAG/AFTRA concession is more likely to affect actors making above scale or working for more than a day or two on an episode.

Returning to the writers, network primetime residuals are only about 15% of total WGAW TV residuals. That’s not a lot, and as a percentage of total TV earnings (initial compensation, residuals and any deferments or other compensation) the figure is even lower.

Still, who wants to forego what might be $350 per year? For union members accustomed to annual bumps in their network primetime residuals, the compromise may be disappointing – and, for actors, the lack of publicity on the issue perhaps more so.


Twitter: @jhandel