The Funny Thing About Settlements

January 14th, 2008 · No Comments
by Kassia Krozser

So naturally, I am reading all the news about this entity and that entity cutting deals with the WGA directly. I am also imagining all the major producers gnashing their teeth in frustration. Oh, man, this has got to rankle. And not necessarily for the reason you think.

Residuals — the basis for this two-month old strike — are, by and large, easily calculated. Though creaky and cumbersome, the formulas used to pay various types of talent are monolithic. Or, if you will, percentages might vary, but the methodology remains the same across all guilds. Oh, to be sure, over the decades, specialized calculations have emerged for this producer or that, but these are relatively rare exceptions.

The business of paying residuals is easily managed by the studios. Depending on the age of the system, the process can be pretty manual or highly automated — enter the rules into your program and spit out the results. Checks get delivered to the guilds for disbursement (or maybe the guilds now get some sort of electronic payment with enough detail to disburse payments in a more cost effective manner). The next quarter, the process begins again.

Independent producers who strike non-standard (non-standard at least until the strike dust finally settles) deals are essentially changing the formula. Rather than the wholistic “this calculation applies to all WGA members”, the process is more “this calculation applies to these individuals while that calculation applies to those individuals”.

Suddenly things grow more complex. Run-based formulas are tweaked. Percentages are varied. The definitions of what constitutes a particular type of media shift from producer to producer. A standardized process is thrown into disarray.

How this impacts the major producers varies. In theory, an independent like Lionsgate (the next plum to be picked) manages its own residual accounting. This might be accomplished in-house or via a third-party service (in which case, the service has to have flexible enough systems to handle these exceptions). But when you have the newly reconstituted United Artists, which is, if you will, merely a boutique division of MGM, then exceptions must be carefully managed by staff who may or may not have the ability to parse out individuals from guilds.

This becomes even more interesting as you consider the way ownership rights shift in Hollywood. While some producers are ostensibly “independent”, they operate under the aegis of a major producer. The independents create content, but the majors handle the burden of accounting and whatnot. And, of course, independents with good track records and shiny, lucrative libraries are often purchased by bigger houses. When an entity buys an independent producer, it also buys said producer’s existing contractual obligations.

As independent producers negotiate directly with the WGA — and they have incentive to do so by the mere fact that weathering long financial droughts is not an option — the majors are understandably unhappy. Not only is precedent being created left and right, but uncertainty is injected into what was once a fairly placid system.

While the studios will continue to maintain a strong grip on motion picture content, the fact of the matter is that the audience is discovering new ways to enjoy entertainment media. The smart companies who meet the WGA even halfway are better positioned to take advantage of evolving consumer behavior.

And the ones who continue to negotiate as if the world is flat? Well, let’s just say they’re hurting their future.

File Under: Square Pegs