A Soulful Study of the Entertainment Industry Players and this Summer's Strikes: What's Next? A Reckoning or Reconciliation?

This summer of strikes has produced anger, distrust and disrespect. The ongoing climate driven tragedies in Maui and the war in Ukraine can leave us with a feeling of overwhelm and despair.

On the other hand, the surprise blockbuster hit "Barbie" and the "T-Swift lift" shows us the power of women, love and how soulful stories and songs can touch a deep cord in humanity and also increase happiness and give the economy a boost at the same time.

This week the WGA is considering an AMPTP proposal. Will Artificial Intelligence (AI) continue to grow stronger or will this be the summer where Souls prevail? Will talent be allowed to fairly share in the proceeds of the work they produce on Netflix and other streaming powerhouses?

How the strikes will end is a story that has yet to be written, but for now it looks like people and not AI will write the ending.

The following article looks at the players in this summer's saga and considers the past and the origins of how residuals or profit sharing with studios began, or did not begin.

Chapter 1: The?Players

The AMPTP

The Alliance of Motion Picture & Television Producers (AMPTP) is a trade association responsible for negotiating nearly all the industry-wide guild and union contracts, including SAG-AFTRA and the Writers Guild of America (WGA).

The AMPTP acts as the entertainment industry's official collective bargaining representative and negotiates with the Guilds on behalf of over 350 motion picture and television producers (member companies include the production entities of the studios, broadcast networks, certain cable networks and independent producers).

Carol Lombardini is the President and chief negotiator for the AMPTP, and she has worked at the AMPTP since it's formation in 1982.

The WGA

The Writers Guild of America (WGA) bargains collectively on behalf of writers.

Ellen Stutzman is the chief negotiator for the WGA. She was recently promoted after the WGA's long-term Executive Director David Young went on medical leave in February 2023. ?Ellen started as a researcher for the WGA 17 years ago.?Prior to becoming the Chief Negotiator, she served as the WGA Assistant Executive Director since 2018.

SAG-AFTRA

In 2021, Duncan Crabtree-Ireland became the National Executive Director and Chief Negotiator for SAG-AFTRA. He was originally hired in 2000 as Associate Hollywood Resident Counsel.

David White stepped down as the SAG-AFTRA National Executive Director in 2021, but is currently listed as a Senior Advisor. (Originally hired by Bob Pisano)

Netflix, SAG and Bob Pisano

Netflix’s Rise to the Top

Netflix is one of the Employers included in the AMPTP; however, this is the first it has been included in the AMPTP negotiations.

Netflix, unlike many of the other AMPTP members, started in Silicon Valley as a disrupter and it has risen to the top of the Streaming Video On Demand food chain with over 232 million subscribers according to https://www.statista.com/statistics/250934/quarterly-number-of-netflix-streaming-subscribers-worldwide/.

Netflix started in 1998 as a DVD delivery service then pivoted to streaming services in 2007.

It has a history of shrewd business practices. It produced "Squid Games" and according to one LA Times article, some writers and producers feel "exploited" by Netflix.

Netflix recently invested $2.5 billion in Korea to develop content outside of the jurisdiction of the US and the Guild agreements.

SAG & Bob Pisano

Who was Bob Pisano and what does he have to do with Netflix and/or SAG?

A. Robert Pisano (Bob Pisano) was hired to lead the Screen Actors Guild (SAG) as it’s National Executive Director and chief negotiator on 9/11/2001.

The following screen shot was taken from Pisano's statement before the Commodity Futures Trading Commission in May 19, 2010 and describes Pisano's roles in the Entertainment Industry:

Pisano's statement before the Commission in May 2010 didn't appear include any information about his connection to Netflix. Why?

Before Bob Pisano was hired by SAG in 2001, Pisano served on the Netflix Board of Directors.

According to a Fortune Magazine article cited below, Pisano disclosed the fact that he was on the Netflix Board to the SAG Board who hired him anyway.

“SAG’s board says it reviewed the issue before it hired the former studio executive in 2001. Back then, Pisano disclosed his Netflix seat and revealed that he owned 100,000 options to buy Netflix stock for $3, according to Steve Fried, who sat on SAG’s search committee.”

2002 - Pisano hires David White.

On 7/17/2002, Bob Pisano hired David White, a colleague who worked at the law firm Bob Pisano had previously worked, to be SAG’s General Counsel. (White subsequently served as SAG's Executive Director for 12 years from 2009-2021 and is currently listed as a Senior Advisor on the SAG-AFTRA website.)

2004 - Pisano sued by SAG members - Conflict of Interest?

In 2004, Pisano was sued by two members of SAG for an alleged Conflict of Interest because of connection to and involvement with Netflix.

According to a Fortune Magazine article from 2004:

“And speaking of actors: as head of the Screen Actors Guild, A. Robert Pisano is supposed to protect the thespians who make Hollywood dramas. But these days he’s starring in a drama of his own.

Earlier this year [2004] the guild began bargaining for a new contract with the Association of Motion Picture and Television Producers (AMPTP). The union wanted AMPTP studio members to give them a bigger share of DVD movie sales. As it stands now, screen actors get only about 15 cents in residuals for every $20 DVD. Yet profits from DVDs have fattened studios’ bottom lines and lifted a slew of new businesses, such as Netflix Inc., which with a market capitalization of $1.6 billion ranks as the world’s largest online DVD rental firm. As Netflix notes in its 2003 annual report, “DVD is clearly the rocket propelling studio profits and growth.

The actors believe they have a persuasive case, but some SAG members doubt that their chief negotiator Pisano can strike a fair deal. Pisano is SAG’s national executive director and chief executive officer. He is also one of seven directors who sits on the board of Netflix. “There’s no way he should be in a collective bargaining position,” says Scott Wilson, a SAG member. According to Netflix’s annual report, one of the biggest risks to its future is “potential labor activism,” like SAG’s demands for higher DVD residuals. “How does a director of such a company represent a union that uses strikes as its only leverage?” SAG member Tom Bower asks.

SAG brass claim that Netflix is not a party to SAG negotiations and therefore poses no conflict for Pisano. Besides, SAG’s board says it reviewed the issue before it hired the former studio executive in 2001.

By last year Netflix had gone public, and its stock price had climbed to about $50. SAG’s board voted to renew Pisano’s contract for another three years just as more union members were learning about Netflix. The studios — Columbia, Dreamworks, Paramount, Twentieth Century Fox, Warner, and Universal Studios — not only have a revenue-sharing agreement with the DVD rental firm, they own 6% of its stock.

In February, Pisano sat down to bargain with the AMPTP and negotiated a one-year contract extension. Actors got no increase in DVD residuals. By the time SAG’s membership ratified the contract, Pisano had cashed some of his Netflix options and netted $2.4 million — five times his $450,000 union salary. Meanwhile, Wilson and Bower have hired a labor attorney to persuade SAG that Pisano should either step down from the bargaining table or resign from Netflix. The issue may simmer until autumn, when Pisano, SAG, and AMPTP are expected to open contract talks with, what else? A bid for higher DVD payments.” https://money.cnn.com/magazines/fortune/fortune_archive/2004/06/28/374389/index.htm

2004 - SAG asks to be named at co-defendant with Pisano.

In November 2004, SAG asked to be named as co-defendant in the Bob Pisano lawsuit alleging Conflict of Interest. According to a Variety article:

"We had to ask to be named a co-defendant, because we’ve got constitutional interests at stake,” said David White, SAG’s general counsel, in an interview with Daily Variety, adding, “The SAG board decides who’ll be its CEO, its chief negotiator, and what staff represents its interests. Two members don’t have the right to interfere in the democratic process that happens in the board room.” See: https://variety.com/2004/scene/markets-festivals/sag-suits-up-with-pisano-1117913589/

Ultimately, the conflict of interest lawsuit was dismissed and the appeal was dismissed by “agreement of parties.”

2005 - Pisano exits SAG.

In 2005, Pisano left the Screen Actors Guild.

“The Membership First faction of the guild’s Hollywood board pushed for and succeeded in getting the guild to sever all ties with Pisano rather than keeping him on as a consultant, as had been expected (Daily Variety, March 2) — even though paying out the remaining two years on his contract will be more expensive than keeping him on as a consultant. His current base salary is about $419,000 annually.”

Whether and/or how Pisano helped/hurt SAG and/or Netflix is still up for debate, but some of the statements made by Netflix in the SEC filing appear to rely on developing "strategic relationships with top studios and distributors" in the Entertainment Industry.

"We [Netflix] have entered into revenue sharing agreements with studios that lower our upfront costs [residuals?] of acquiring titles, minimize our inventory risk and increase the depth and breadth of our library." (Emphasis added)

With respect to digital distribution to consumers Netflix's SEC statement provides: "We intend to utilize our strong relationships with the studios to obtain rights to acquire and deliver filmed entertainment through emerging digital distribution platforms as the become economically, commercially and technologically viable for those subscribers who prefer digital distribution." See screenshots below taken from SEC documents on-line. (Emphasis added)

Chapter 2: Residuals - What are they, why do they matter and how does Netflix pay residuals?

What are residuals?

Residuals are deferred compensation - payments for the reuse of a film on various media (TV, DVD,Streaming). Pension and health payments are also due on "deferred compensation."

Why do residuals matter??

Many Actors and Writers experience lapses in employment when a series ends or theatrical film gets in the can. It can takes days, months or years until their next project gets a green light. Residuals offer a way for artists to survive when the going gets tough and to share in the revenue generated as a result of their hard work and blood, sweat and tears given to make a picture successful. Whether or not that success should be shared is really at the heart of the strikes this summer and at the heart of the strikes in 1960 and 1980.

Residuals have been and are a primary reason that the Entertainment Industry has been shut down in the past and today. There are many others outstanding issues in the summer of 2023 strikes, but residuals are of paramount importance.

The history of profit participation and residuals is outlined below.

In 1934, the Marx brothers negotiated the first profit participation term in their employment contract. That contract gave the brothers 15% of all monies received by the studio for two movies, “A Day at the Races” and “A Night at the Opera.”

1n 1937, the Screen Actors Guild obtained it’s first collective bargaining agreement with various studios. The collective bargaining agreement is a contract that outlines the minimum terms and conditions of employment. The 1937 agreement outlined the minimum wages and conditions and other items like travel pay, but it didn’t include any residuals or payments for the reuse of a film. Ronald Reagan also became a SAG member this same year.

The 1950’s brought with it the modern-era net profit participation. Jimmy Stewart’s agent, Lew Wasserman, negotiated a net profit participation with Universal Studios for the movie, “Harvey.”

Net profits are generally much lower than gross profits because studios are allowed to deduct many costs associated with distribution, production, promotion, prints and advertising, overhead, etc. Talent is not the only thing creative in Hollywood, the accountants in Hollywood are just as creative.

In 1960, both SAG and WGA went on strike win the right to get residuals for the reuse of theatrical films on television. The SAG strike ended on April 18, 1960, when the SAG agreed to forego residual payments on films made prior to 1960 in exchange for receiving residuals on all films made from 1960 going forward. SAG also got a one-time payment of $2.25 million from producers to form a SAG pension and health plan. About two months after the SAG strike ended, Ronald Reagan resigned from the SAG presidency on June 7, 1960 “for production interests” in accordance with the sagaftra.org website.?

In 1980, SAG went on strike again for pay-tv and home video residuals and in 1981 WGA went on strike for the same residuals. In 1980, Ronald Reagan the former SAG President, was elected the 40th President of the United States.?

Guild residual formulas are complex and are generally based on gross receipts, not net receipts. More in depth information on residuals can be found in the following articles.

What is the pattern and practice Netflix established when it comes to paying residuals?

Residuals are paid in accordance with various formulas found in the collective bargaining agreements negotiated by the Guilds.

Netflix did not become a party to the Guild's collective bargaining agreements until 2019.

Unlike DGA and SAG-AFTRA, the WGA chose not to trust Netflix's method for paying residuals and won a multi-million dollar award against Netflix last summer.

What happens when a theatrical film is later released on Netflix??

It depends.?

Under the DGA and SAG-AFTRA collective bargaining agreements it appears residual payments have been substantially less than the what the WGA thought was appropriate.?Why did DGA and SAG-AFTRA go along to get along with Netflix? We may never know.

The WGA, rather than accept what Netflix wanted to base the residual payments on, chose to go to arbitration and fight Netflix unlike the DGA and SAG-AFTRA.

In August 2022, the WGA won an arbitration award against Netflix that resulted in Netflix paying more for the theatrical films that were released on Netflix.?

“Netflix negotiated new deals with the DGA and SAG-AFTRA that allow Netflix to pay residuals on significantly less than the cost of the film. Netflix then tried to force the WGA to take this ‘pattern’ deal. Since it was clear the new formula negotiated by the other Guilds undervalued these ‘imputed’ license fees, the Guild instead took the dispute to arbitration.

During the arbitration, the Guild showed that when Netflix licensed comparable theatrical films from third party producers it almost always paid a license fee that exceeded the budget. The industry refers to this model as ‘cost-plus.’ The Guild argued that Netflix must apply this cost-plus model to its own films and impute license fees in excess of the budget for the purpose of paying residuals. The arbitrator agreed and ruled that the license fee should be 111% of the gross budget of the film.”

Summer of 2023 - Strikers Discussing Residuals (Or Lack Thereof)

Many Actors on strike have taken to the streets and to their social media feeds to explain that they are getting paid literally pennies in residuals for their hard work through many years. For example, Netflix’s “Orange is the New Black” is compared to HBO’s “Game of Thrones”, but the back end residuals can’t be compared.

Likewise, many WGA members have also expressed disappointment about the lack of residuals on money makers like “Suits”.

Opinion: I helped write the surprise Netflix sensation ‘Suits.’ My reward? $259.71

In addition to residuals, the use of Artificial Intelligence is an issue that has stirred talent and the public alike. Many fear that AI will destroy the Entertainment Industry and reduce jobs and also create content that is not diverse or soulful.

How and when will the strikes end?

Will the AMPTP members agree to share in the profits or will it be the end of the Entertainment Industry as we know it?

That is the trillion dollar question.

(Excerpts from Book - "SOS-2023: The Summer of Strikes" )

About the Author:?

Pamela Conley Ulich is an expert on legal and business issues in the Sports and Entertainment Industry.?She has over a decade of experience teaching Entertainment Law classes.?She is a Lecturer in Law at USC Gould School of Law where she teaches “Dealmaking in the Entertainment Industry” and is writing “A Soulful Guide to Dealmaking in the Entertainment Industry and Life: Grit, Flow and Equanimity for All.”

Pamela launched her career at Wholner, Kaplon, Phillips, Young & Barsh, a Union-side labor law firm and represented below-the-line workers such as Teamsters and IBEW and helped get a Gissel Bargaining Order remedy before the National Labor Relations Board in Los Angeles.

In 1994, Pamela was hired as Associate General Counsel for the Directors Guild of America.?She represented Directors in high profile cases involving creative rights, film credits and residuals. She also litigated and negotiated multimillion settlements between the Studios, the Networks and the DGA.?

In 1998, Pamela served as Hollywood Counsel and Litigation Supervisor for the Screen Actors Guild and developed dynamic legal strategies that generated positive outcomes.??She managed the legal team and litigated cases relating to actors’ compensation, upgrades, meal penalties, the reuse of actor’s performances and residuals.

Pamela recently participated in the 2023 Beverly Hills Bar Association panel on Mediating Strikes and also served on the planning committee and co-moderated panels for topics in the entertainment industry such as: “Strike: The Legal Weapon of Last Resort” and “The Digital Millennium Copyright Act – You have to Pay to Play” for the LA County Bar Association.?Pamela co-authored a leading article on Runaway Production published in the Loyola Entertainment Law Review and in the Congressional Record in 2001.

In addition to practicing and teaching law, Pamela was elected to serve on the Malibu City Council in 2004 and was re-elected in 2008. Pamela served Malibu as the Mayor, Mayor Pro Tem and City Councilmember and was termed out of office in 2012.

Pamela received her J.D. from the University of Maryland School of Law, a B.A. from the University of California, San Diego, a Teaching Certificate in Higher Education Pedagogy from Harvard’s Bok Center for Teaching and Learning online, a 200-hour Hot Power Fusion Teacher Training Certificate and a 300-hour Advanced Yoga Teacher Training Certificate.?