The Great Hollywood Levy Scandal

May 7th, 2007 · 3 Comments
by Kassia Krozser

One of the things lurking on the edges of our memory is the state of foreign levy payments to talent in Hollywood. The LA Weekly brought that memory back, loud and fast. On the surface, this seems like a case of an unpaid $20 million — a mere pittance by Hollywood standards, as we well know due to our ten million dollar underestimation of Spiderman 3’s opening weekend domestic box office gross — but the reality is always far more fascinating than the surface.

This is going to get worse before it gets better.

We strongly encourage you to read the entire article. Our brief analysis cannot begin to touch the entire issue. Think of what we have to offer as the Cliff Notes version of a sordid Hollywood tale. The amazing thing here is that it’s a scandal without sex, drugs, or rock ‘n roll. Stunning, no?

Regular readers will recall our mention of these levies. Established in the late 1980’s and early 1990’s in Berne Convention countries, the levies were established to, ostensibly, reimburse copyright holders for lost revenue due to new media. At the time of establishment, said new media was largely blank videotape used to record favorite shows. Sort of like taping songs from the radio but far more permanent and potentially revenue busting.

As with all good ideas, the problem of revenue distribution quickly became apparent. While the various collection societies quickly developed mechanisms for distributing the funds — for example, hours of programming aired in a specific territory — the mechanisms for identifying actual copyright holders was less clear. Territorial rights in Hollywood are rather fascinating, if you care to look. Suffice to say we’ve cared more often than the average human and have, on occasion, been baffled by the circular rights sometimes held.

So (and we are totally oversimplifying for the sake of your attention span…you want to get to the article for yourselves, we know), the guilds and the studios hatched a plan. The levies would be divided according to a simple formula: “…85 percent for the studios, 7.5 percent for the DGA and 7.5 percent for the WGA…”, leaving out the Screen Actors Guild, but what the hey!, they’re just actors.

While the story focuses on what happened at the WGA (Writers Guild of America), it would be interesting to hear what’s happening to this money at the DGA (Directors Guild of America). Because the WGA has apparently neglected to properly disburse approximately $20 million in levy money. What’s more, it has failed to properly disburse monies collected on behalf of non-WGA members. You know, money that the WGA was not entitled to in the first place.

Back in the days when we were a tadpole creative accountant — ah the innocence! — we learned an important lesson about other people’s money. In distribution arrangements, the studios don’t own the money. They get to take a distribution fee, but the money belongs to someone else. This is a lesson that the WGA should have learned because it’s gonna come back and bite them in a big way.

There are lawsuits and revelations about how copyrights are registered in Hollywood — similar, in some ways, to the way copyrights are registered in the publishing industry. There’s even a whistleblower involved. While we follow the reporting done by the Weekly, we take exception to one itty, bitty assertion in the article:

The WGA and DGA effectively agreed that moguls like Rupert Murdoch, Sumner Redstone and the late Lew Wasserman were to be awarded the status of having written their studio’s screenplays and directing their studio’s movies. Faceless corporations like Disney, MGM and Universal got away with the fairy tale that they were “authors.”

We grew from tadpole creative accountant to full-grown frog, and those levies are generally reported under the standard definition of gross receipts in most gross and net proceeds definitions. We also believe that most of the studios pay residuals on these monies, though we don’t know the intricacies there. Yeah, yeah, yeah, it’s not a 100% of the collections what with distribution fees and residual rates and all that, but given that the WGA is taking a fee for their efforts, it doesn’t totally suck.

However, the split of money — with the lion’s share heading for the studios — is in direct contrast with the process being utilized by other countries. So much so that the WGA was forced to sign an indemnification clause, protecting the societies from an eventual lawsuit:

There was good reason to believe American writers might one day sue, since the contrast with the way foreign-levy payments are handled in Europe and other nations is so stark. Under terms of the Berne Convention, in France, for example, foreign levies have been divided equally among authors, performers and producers since 1985, when the French government established Literary and Artistic Property statute No. 57-298. Similar statutes were enacted elsewhere: one-third to authors, one-third to performers and one-third to producers.

But let’s get back to the fate of non-WGA members. The guild has been collecting — and holding — money for these individuals for extended periods of time. They held themselves out as agents for non-WGA affiliated talent and, apparently, made scant effort to contact these individuals (the articles cites the case of Beverly Gray, noting that she’s not hard to find in Los Angeles; so true, we have her business card in the upper drawer of our desk). What is not clear from the article is if the WGA assesses the 5% fee it charges its members, ostensibly a handling charge, to these non-WGA members.

In this case, the guild should serve as a pass-through. They are not entitled to a cent of the money they’re collecting on behalf of non-members and, if rumors about holding the money for years are true (and since we’ve been hearing these rumors for just as long as the levies have existed, we suppose so), they owe considerable interest. Yeah, courts love that sort of thing.

The article also highlights a key point: figuring out who to pay is not as easy as it sounds (fair and balanced, that’s us). Certain rights, such as residuals and participations, are passed down to heirs via wills. What should be simple rapidly becomes complex, the more heir involved. Then there are those who move and don’t leave forwarding addresses. You laugh, but it’s more common than you think. These payments are not necessarily due every quarter — sometimes years can expire between payments and the post office stops forwarding after a certain period of time.

This gives us a little sympathy for the WGA when it comes to its own members; even the examples cited tend to overlook the facts. Staff are not looking at names on the batches of “undeliverable” checks. Yeah, there needs to be a better process, no doubt about it, and it appears there was a concerted effort to cover up or muddy the fact that the WGA wasn’t working too hard to find the payees, but it reminds us that keeping your records up-to-date with those who owe you money is critical.

And, yes, non-WGA members? There should have been some earth-moving to find them. Not the WGA’s money, you know. Though it’s certainly not the absolute definitive resource ever, the Internet Movie Database might have helped. That’s what it’s there for.

This is going to get worse before it gets better. SAG is involved. Writers, directors, and others are realizing they’re losing out on money. And the WGA doesn’t look too good here. Yeah, it’s time to pop some popcorn and sit back to watch this one play out.

File Under: Square Pegs

3 responses so far ↓

  • Will // May 7, 2007 at 8:08 am

    Writers have nowhere to turn. I am an aspiring one and held out hope for screenwriting because, hey, at least these writers had a union.

    Novelists don’t and they get screwed accordingly.

    Seems like the WGA is not any better than no union representation at all.

    No wonder our sotrytelling culture is declining. The US refuses to find a way to support its writers.

  • Stefan Avalos // May 14, 2007 at 11:09 am

    I invite you to look at the article I wrote for FADE IN magazine about this subject. I also went into great depth about the DGA.

    It will be on newstands this week, or you can read it online now (a rarity) at

    Will, don’t despair. Things will get better.

  • Scott // Mar 7, 2008 at 9:56 am

    Go here:
    Gives extensive proof and commentary on WGA Levy scandal as well as many other secret agreements.