To Fix Streaming Residuals, Guilds Can’t Give Up on Data Transparency

First, let’s state the obvious: Some level of compromise is going to be needed to end the ongoing Writers Guild of America strike and to prevent further labor unrest as the Directors Guild and SAG-AFTRA enter their own tense negotiations with the Alliance of Motion Picture and Television Producers (AMPTP).

That said, if there’s one issue in particular on which the three guilds should not budge easily, and on which they should absolutely show inter-union solidarity, it’s success-based streaming residuals. This is a vital economic issue for entertainment industry workers, one that will form the backbone of their compensation as Hollywood’s principal business model shifts inexorably toward streaming.

The Take

Simply increasing the amount paid out in these residuals, furthermore, is not going to be enough, for the current residuals formula is not only outdated for the current era of streaming, it’s absurdly simplistic considering the complexity of streaming viewership data.

That’s because streaming residuals are currently calculated based on a service’s domestic subscriber totals, with a sliding scale of five tiers determining the amount writers and other talent will be paid. The residual bases noted below are multiplied by the corresponding “subscriber tier” percentage as well as another percentage based on how many years it’s been since the content in question was released.

In other words, unlike the methods used to calculate TV residuals for decades, there is no accounting for success in this model. Under the current streaming formula, residual payments for a monster hit like “Wednesday” — which ranked among Netflix’s top 10 English-language shows for a grand total of 20 weeks — are exactly the same as those for any other “high-budget” hour-long series released on Netflix the same year, even one that never charted in the top 10 at all.

Streamers’ international subscriber totals are also barely factored in, with a flat additional 35% of the domestic residual total tacked on each year for content on global services.

As a result, while streaming residual payments have grown exponentially over the past decade, residuals for high-budget SVOD content were barely higher than those for basic cable and network TV syndication in 2021, according to the WGA West’s most recent annual report, despite the vastly larger audience for original SVOD content at this point.

Hence the guilds’ drive to revise the numbers. High on the DGA’s published list of priorities for negotiations with the AMPTP is securing “meaningful increases and structural changes to streaming residual formulas that account for the global growth of the audience.”

The simplest and most obvious solution here, besides adding tiered provisions for international subscribers, is to base residual payments on a show’s total hours or minutes streamed, the viewership metric used by both Nielsen and Netflix’s Top 10 charts to quantify streaming content’s performance.

But simply basing payments off an entire season’s or series’ performance wouldn’t make sense either. PlumResearch data shared with VIP+ shows even megahit “Wednesday” had a lower completion rate than one might expect — just 66%. Writers of later episodes in the season would therefore be unfairly compensated for the performance of earlier episodes were the formula based on raw viewing time.

A truly fair streaming residual system would therefore require greater transparency around streaming viewership, at the very least on an episode-by-episode basis, and more ideally addressing the multiple factors surrounding a show’s value, such as how many new subscribers it brings into the streamer’s ecosystem.

Unfortunately, studios are reluctant (to put it mildly) to share any further data on streaming content’s performance beyond the limited pool of already available information.

VIP+ has bemoaned this lack of transparency in the past, and it’s worth admitting to a journalist’s natural preference for more available data over less. But it’s also worth questioning the studios’ approach here. For as much as streamers gain from keeping a black box around data, they also stand to lose a great deal of money by keeping the residual formula as-is.

As it stands, streamers must shell out the same payments for content that’s generating minimal viewership as for hits — likely no small reason for the studios’ new strategy of pulling little-watched content off of their SVOD platforms, which eliminates the obligation to pay any residuals for that content.

Of course, this is yet another reason it’s so crucial for the guilds to secure a new residual formula; surely a relatively small payment is preferable to no payment at all. But if recent reports are to be believed, the data-transparency issue could very well fall by the wayside as the guilds prioritize simply increasing residual minimums and save the battle over data for another day.

There’s an argument to be made that waiting could pay off: Slowing subscriber growth means advertising is going to become more and more important to streamers’ bottom lines in the years ahead, meaning more pressure to share data will soon come from already-frustrated advertisers. By the next round of negotiations, in 2026, it’s possible that much of the data the guilds want will already be more readily available.

Not for nothing, the studios may also be under less financial pressure by then, and more willing to shell out bigger sums for hits once the economics of streaming have improved somewhat.

But dropping the data issue now will also set a precedent, and sacrifice a valuable confluence of guild passion and leverage at a critical moment. Securing greater transparency will be difficult, to be sure, but the potential power of all three guilds combined is not to be underestimated. This is their moment, and they should seize it.

Source: Variety