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Solving the Fight over Union Residuals
The Writers Guild of America has been negotiating with the Alliance of Motion Picture & Television Producers for a new collective bargaining agreement. The current agreement expires on Oct. 31, 2007. The current agreements of the Directors Guild of America and Screen Actors Guild of America end on June 30, 2008. This article summarizes some of the key conflicts that may trigger threatened guild strikes. Most of these issues relate to the income base and calculation of residuals. This article suggests a simple and fair alternative method for calculating residuals that eliminates all the contentious issues, not just in the pending negotiations of the guild agreements, but also in practice.
Residuals are contingent payments based on a percentage of a film's gross revenue. The majority of residuals are paid directly to the guild members, but some payments are also made to the guild's health and pension benefit plans. Residuals are calculated in the following manner:
- Residuals on theatrical films are only calculated based on video and television revenues, not theatrical revenues.
- Residuals are always calculated based on all or a portion of gross receipts. Thus, they are payable regardless of whether the film company makes a profit. From the film company's perspective, this is by far the worst aspect of residuals.
- For film companies that distribute their own videos (as opposed to sublicensing video rights), only 20% of video revenues are included in gross receipts as a deemed royalty.
Here are some of the issues being fought over:
Video and DVD. The guilds agreed to include only 20% of video revenues in gross receipts as a deemed royalty back in the early 1980s, when manufacturing costs were much higher and video revenues were much lower. In its infancy, video was analogized to merchandising and it simply made sense to calculate gross revenue to the film company based on the sales margin of each unit. The only problem is that margin has now vastly increased, while the 20% royalty has not. Video and DVD have now grown to be the largest income source for theatrical films and are of key importance to the guilds (in particular because residuals do not apply to theatrical revenues for theatrical films). The guilds are just not happy with the 20% royalty theory any more.
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