The Beginner's Guide to Film and Television Residuals
Anthony De La Rosa
Greenlighting a project is the exciting time when you can hit the ground running and finally start pre-production! As you’re working to attach the right talent and get those cameras rolling, it’s important to understand all of the nuances that could impact your project for years to come. One of these nuances are the residuals.
Residuals are complicated and could have a huge impact on your budget. In an effort to greenlight your project, don’t forget to create a plan and hire the right financial analyst to manage paying out the residuals to your talent and crew members after the project is released. Doing your homework ahead of time and bringing on the right professionals to your team will help with structuring the residuals and staying current on Guild rules, so you aren’t stuck with financial penalties later on after the project is released.
So, What Are Residuals?
Residuals are union-negotiated payments that writers, actors, directors, and others, receive from a studio, producer, or distributor, when a movie, TV show, or internet production (streaming services or titles released for free on consumer platforms - i.e. social media platforms - which are called advertising supported streaming), is rerun or reused in a different medium.
It's important to note, however, that residuals are different than royalties as they are negotiated through the various unions in Hollywood at a fixed rate. Royalties, on the other hand, are independently negotiated and percentage rates can fluctuate depending on the caliber of the talent and the project.
Types of Residuals
There are two types of residuals that you should be familiar with:
1. Variable Residual (also known as a percentage-based payment):
This type of residual takes into account the gross income (not the profit) of a title that is sold by a company, studio, or distributor and then applies each particular Guild’s percentage rate to the gross income. That number then gets divided amongst the qualified talent on the project.
Typically, the DGA (Director’s Guild of America) and the WGA (Writer’s Guild of America) have equal percentage rates, while SAG (Screen Actors Guild) has about a 3x increased percentage rate because they include a larger pool of talent with actors.
Depending on which made-for market that a project is released on (Syndication, Basic Cable, Network TV, New Media) can impact the variable rate, based on the different rules in effect by the Guilds. For example, projects made for Basic Cable and then released on Netflix (New Media) can see a change in the residual rate.
2. Fixed Residual
This is a flat payment based on different criteria and a formula that has no relation to the income of a project. In some instances, a particular talent could have more fixed residuals than the money that was brought in by a project. When the studio, distributor, or producer submits the revenue for the project, then each Guild’s percentage rate gets applied to it and distributed to that particular talent, based on how much time they worked and how much money they were paid. These factors give them a greater share in the residual.
Every time a title reruns in a particular market (Syndication, Basic Cable, or Network TV), the fixed rate is applied with stipulations. Network Television has the highest percentage rate; Basic Cable and Syndication have declining scales, meaning the first rerun pays out the highest fixed percentage rate, and then declines in scale to a minimum fixed rate that goes into perpetuity.
Fixed residuals are designed for initial release in the made-for market, but once the project is released in other markets, usually become a variable residual.
Late Penalties (LPLD) are applied if an employer misses a deadline to pay the designated residual payouts. SAG and DGA can charge up to 12% interest a year, and the WGA can charge up to 18% interest. Sometimes, grace periods are given, but not always. For instance, the DGA often begins charging interest the very next day if a residual deadline is missed.
New Media Platform Residuals
Because New Media allows viewers access to content 24/7, the residual percentage rate is structured differently. If a project is up on a streaming service, the percentage rate is applied for the first year, then continues to decline until year thirteen; from there, the smallest percentage rate is applied in perpetuity.
Newer platforms with smaller viewership numbers are given a discounted residual rate (i.e. Apple and Peacock), but as viewership increases, as in the case with longer established platforms like Netflix, residual rates significantly increase as well.
Who Receives Residuals?
- Actors (with speaking lines), Voice Over Actors, and Stunt Performers
- Director, Unit Production Manager (or UPM; they manage the budget), First Assistant Director (who manages scheduling), and the Second Assistant Director (who ensures that the particular talent are on time to set)
- Credited Writers (meaning they have contributed to the story or teleplay, or combination of both in a significant way)
- Musicians, usually in the form of a live studio band on a talk show (i.e, The Late Show with Steven Colbert, American Idol, or The Voice)
- Below the Line (BTL) Crew Members, however, do not directly receive residuals. Rather, they are paid into a pension fund. Once a BTL crew member retires, they are able to tap into a health and welfare fund (applicable to BTL members in the Western thirteen states only). These are crew members who are the general members who work on the set directly or facilitate the production of a film (i.e., Costume Designers, Lighting Crew, Camera Crew, Prop Makers, Post-Editors, etc.)
The Future of Residuals
Today, New Media platforms are booming with the demand for more content high. With that, brings new complexity when it comes to structuring residuals. The only other time in history when residuals underwent such a significant change was in the 1980’s when Basic Cable, Paid Home TV, and Home Videos hit the markets, but even then creating the rules was simpler. Since then, the Guilds have begun to renegotiate rates and put mandates on New Media markets every three years. These complex changes are requiring additional skilled financial analysts to create residual contracts and the industry is working hard to meet this demand.
Entertainment Partners acknowledges this gap, and thanks to EP Residuals Department, we are developing a training program to nurture and cultivate the next generation with the skills to structure residual contracts during this golden age of content creation.
To find out more about how the EP Residuals team can support you in your next project, visit our residuals page today!