SAG-AFTRA's New Commercials Contract Explained: Who May Benefit

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The new agreement adds flexibility to attract non-union advertisers and agencies, as well as advertisers mystified by the cost structure of their commercials or who simply want more certitude.

If there were an audience award for labor contracts, the new SAG-AFTRA commercials contracts would easily take the laurels. Ratified by the membership May 8 on a 96.85 percent "Aye" vote (with turnout undisclosed), the agreement had previously garnered unanimous thumbs ups from the negotiating committee and SAG-AFTRA’s board, The Hollywood Reporter has learned. That unanimity is believed to be without parallel in the often fractious union, at least in the last few decades.

And labor and management have both praised the new pact. “We needed to rethink how a commercial is used [in the mixed linear and digital world] in order to still pay actors fairly while allowing the predictability, flexibility and simplicity that advertisers and agencies need,” SAG-AFTRA national executive director David White told THR. “The new provisions breathe new life into the contract.”

“It’s an incredibly innovative agreement [and] took a lot of trust between the parties,” said Reed Smith’s Stacy Marcus, chief negotiator for the advertisers and ad agencies. “We have a common goal: to increase the production of union commercials.” The contract is worth about $1 billion per year, she added.

Paradoxically, the bargaining parties simplified the agreement by making it more complex.

To be precise, they worked together to add new options for advertisers, while leaving existing approaches intact as well. Now, brands and agencies can choose between two “lanes.” One is the traditional but complex approach, largely unmodified from the previous iteration of the three-year agreement except for rate increases and some discrete tweaks, while the other lane — the so-called Alternate Compensation Structure (ACS) — is itself a menu of three new bundles from which to choose.

The traditional approach may still appeal to experienced advertisers and agencies that know its ins and outs, but the ACS is intended to satisfy the needs of those who recoil at the complexity of the traditional structure. That includes currently non-union advertisers and agencies, as well as advertisers mystified by the cost structure of their commercials or who simply want more certitude.

The key feature of the ACS is that it involves prepaying use fees (residuals) and related fees in a lump sum upfront, in return for which a range of uses are covered. That contrasts with the traditional approach, in which use fees and so-called holding fees become due periodically. That may not sound complicated, but the devil is in the details, as a contrast-and-compare reveals. Under both schemes, talent is paid initial compensation for services, referred to as a “session fee,” but that’s where the similarities pretty much end.

Traditional Approach

In the traditional approach, the session fee also serves as the first holding fee, and secures the right to use the commercial for a single “cycle,” typically 13 weeks but sometimes extendable to 17 weeks. For additional cycles, up to the maximum period of use (MPU) — typically either a year or 21 months — additional holding fees are due for each cycle. The holding fee grants limited exclusivity, but to block the actor from appearing on other, “non-competitive” products’ commercials, additional exclusivity fees can be paid.

In addition, “use fees” — residuals — are due, depending on the type of commercial and the amount of use. However, in most cases, the session fee is applicable against the use fees, and the holding fees generally are applicable as well.

The rules — and, notably, the calculation of use fees — vary depending on the type of commercial. Key commercial types for linear media include:

* Class A: Commercials broadcast simultaneously in 21+ cities and/or as the program sponsor.

* Class B or C: Commercials broadcast simultaneously in 6-20 cities (Class B) or 1-5 cities (Class C).

* Cable: Commercials broadcast on cable networks.

* Wild Spot: Commercials broadcast on individual non-interconnected broadcast stations.

Other commercial types include “dealer commercials” (commercials made and paid for by a manufacturer and customized by local dealers), seasonal, foreign, industrial (such as point-of-sale), theatrical (in-cinema), local cable, public service announcements, Spanish-language and so-called unwired networks such as ITN.

The cycle length, MPU, applicability of session and holding fees, and calculation of use fees all vary depending on the type of commercial. Cable and wild spots can be especially complex, since fees are calculated by adding up unit weights assigned to each cable network or media market, with units based on number of subscribers or television households, respectively. There are floors and unit caps to contend with as well.

In addition, the previous 10 to 15 years saw the development of various types of digital spots: for internet (which was newly clarified in 2019 to include OTT ad-supported video services such as Hulu), “new media” (which in the advertising world means mobile only), social media and low-budget “digital” (an umbrella term which encompasses internet, OTT and new media). Internet and new media ads are further subdivided into ads made for internet or new media, and ads moved over to such media, i.e., that played in a different medium originally. Cycle lengths are four weeks, 30 days, eight weeks or one year, rather than the 13 weeks more common in linear media. Once again, MPUs, applicability and use fees also vary by type.

Alternate Compensation Structure

As a simpler alternative to this thicket of rules, the new 2019 ACS adds a side letter with three new options — Upfront Full, Upfront Digital and Upfront Flex — each of which involve a significant upfront payment (in addition to the session fee) that covers certain amounts and/or types of use. Session fees are not credited, there are no holding fees, and the MPU is one year.

* Upfront Full costs $20,000 and gives the advertiser 10 Class A uses and unlimited other uses.

* Upfront Digital costs $3,825 and gives unlimited digital (Internet, new media and OTT) uses.

* Upfront Flex costs $8,000 and allows the advertiser to pick and choose different types of uses on an a la carte basis with simplified pricing that applies against the $8,000 payment and overages due if the use exceeds that amount. Class A uses are $100 each; any and all cable is $3,400; all wild spot use is $2,000; and so forth. For instance, 30 Class A uses plus cable and wild spot would result in an $8,400 total, with a $400 overage due.

One result of the new flexibility: If an advertiser is making a spot intended for digital use, there are now five separate options to choose from — three traditional and two ACS (the third ACS option, Upfront Full, would be overkill for a digital-only ad). Under ACS, all digital use — whether internet, new media or OTT — is categorized in a “single digital silo,” said Reed Smith’s Marcus.

In both the traditional and ACS structures, commercials can be modified to some extent (via “tags” and “edits,” also known as “lifts”) without incurring fees, but outside of certain parameters, the modifications are deemed to result in the creation of a new commercial, with additional fees due. The ACS treats edits and exclusivity somewhat differently from the traditional approach.

The entire ACS is nicely summarized in a series of charts prepared by advertising law attorney Brian G. Murphy of Frankfurt Kurnit Klein & Selz, who also has summarized the changes to the traditional contract. “There is a lot to digest,” he writes.

For more on this subject, visit THR‘s labor page.