Summary

• The WGA and SAG-AFTRA strikes are not just about pay and residuals, but also about working conditions and limitations on AI usage.
• The streaming revenue model has broken residuals, as writers and actors are typically paid a flat fee regardless of a project's performance.
• Re-aligning the interests of studios and creatives in the streaming model would require changing the revenue model, but this may negatively impact audiences who have become accustomed to the current unlimited binge model.

The WGA and SAG-AFTRA are striking simultaneously for the first time since the 1960s, and until they each reach an agreement with the Alliance of Motion Picture and Television Producers, new movie and television production is at a virtual standstill. While there are numerous demands being made by the respective unions, from restrictions on AI to new standards for basic working conditions, money is one of the biggest talking points, specifically focused on revenue sharing for streaming content, which doesn't typically pay residuals to actors or writers under current agreements.

AMPTP previously engaged both the WGA and SAG-AFTRA in negotiations before failing to reach an agreement, although a new deal was struck with the Director's Guild of America before their began to strike. The DGA agreement allows some movies to continue in a limited capacity, such as any pre- or post-production that doesn't require work from any writers or actors. Without an agreement in place, studios are beginning to revise their release calendars, even delaying some nearly-complete films since writers and actors will also be unavailable to participate in marketing due to their strike commitments.

The Biggest Issue in the Writers/Actors Strike Isn't Just Pay and Residuals

Pay for writers and actors is a major focus in much of the coverage and conversations surrounding the strike, particularly in videos and interviews of writers and actors on picket lines, it's actually not the biggest source of disagreement between the two sides. The AMPTP negotiations included a number of concessions when it comes to payment, but some other major factors such as working conditions and limitations on the use of AI are some of the biggest issues standing in the way of a new deal.

As a new technology, there's no existing laws or contract agreements in place to protect writers and actors from AI. In the case of writers, this means anything they write could be analyzed by an algorithm and used to generate new scripts imitating their style without pay. In the case of actors, this means their likeness could be used to generate CGI characters and replace without paying them, which is particularly a threat to background actors. To move forward on this issue, writers and actors want to be able to control the rights to the use of their work or likeness.

Why Pay and Residuals Are Such a Big Focus in the Strikes

While residuals aren't the biggest sticking point, it's the topic that gets the most attention, largely because of the impact of the streaming revenue model's impact on traditional pay structures for writers and actors. Historically, residuals were a fairly straightforward calculation: all eligible of the cast and crew of a movie or TV show earned a percentage of revenue generated by the project, so higher box office earnings for a movie meant everyone earned more, and higher viewership for a TV show meant everyone earned more. With streaming, most writers and actors are paid a flat fee, regardless of a project's performance.

It's hard for the general public to conceptualize some of the more nuanced aspects of the strikes, so it's easier to sum up all the complaints as being about money. While some Hollywood success stories give the impression writers and actors are all movie stars with a long line of big paydays, the reality is the majority of writers and actors working in the industry are struggling to get by, and the strikes are a good opportunity to improve that. Audiences may not have much sympathy for the pay for big-name stars, but awareness of the pay and conditions for the writers and background actors outside the spotlight is important.

How the Streaming Model Broke Residuals

Since studios aren't transparent with streaming data, the pay structure for talent typically doesn't include residuals based on a show's performance. Netflix, for example, classically pays writers and actors up front including an amount similar to what they'd be paid in residuals of a show were a big hit on TV. There's a number of issues with this model. While some have voiced an appreciation for the higher guaranteed rate, others criticize it due to a lack of transparency and for not providing the kind of continual revenue stream they might see from a more traditional payment model.

The biggest reason the streaming data isn't clear is because, unlike traditional movies and television, there's no clear relationship between streaming viewership and revenue. With movies, more ticket sales or rentals mean the movies make more money, and with television higher ratings mean more ad revenue, licensing opportunities, and digital rentals, so it's easier to calculate residuals as a share of the revenue from the project. Since streaming subscribers pay a fixed monthly price regardless of what they watch or how much they watch it, it's much less clear how each individual piece of content impacts the platform's revenue.

Why the Studio Won't Agree to Pay Streaming Residuals

On one hand, the old hard profit motive is a simple explanation behind the studios' refusal to structure streaming residuals around performance, or even provide transparency around viewership metrics, but on the other hand, the fact that those numbers don't have a clear impact on revenue breaks the traditional residual model. Historically, the incentives between creators and producers were aligned: more eyeballs on each piece of content meant everyone made more money. Under streaming, high viewership shows could have little impact on subscriptions and low viewership shows could bring in a new niche audience.

This model doesn't only make it impossible to directly attribute streaming platform revenue to any particular piece of content, but it also creates a disincentive to spend money on anything that doesn't drive new subscriptions. This isn't just a problem when it comes to how writers and actors are paid, but it's also at the root of many of streaming's other big problems like Netflix canceling popular shows or HBO Max shelving an almost-completed Batgirl movie or any of the other projects suddenly removed from streaming platforms. Traditional movie and TV revenue models incentivize studios to spend more money to increase viewership, while the streaming model punishes the same thing.

Structuring pay around performance in an environment where viewership doesn't directly correlate to profit only makes streaming "content" even more commoditized than it already is. If viewership increases make content more expensive without increasing revenue at the same time, it'll create more scenarios where a company is financially incentivized to scrap completed projects like Batgirl, cancel popular streaming shows, or pull legacy content from the platform outright. In order to fix the problem, the streaming model itself needs to change.

How The Easiest Solutions to Streaming Residuals Would Impact Audiences

While there are many ways to re-align the incentives of studios and talent to create a revenue model that gets everyone on the same team again, most of the solutions would negatively impact audiences. The clearest example of this is the recent return to ad-ed models. When streaming content is served with ads, it creates a clear relationship between the content and revenue, so studio ants actually know which projects directly increase revenue, and therefore which projects (and creatives) to spend more money on. Digital rentals and pay-per-view structures have the same effect. Unfortunately, the fixed-price binge model breaks that.

The theatrical revenue model depends on studios attracting customers to each project, and the ad-ed television model depends on a show getting the audience to come back week after week. This typically means studios are incentivized to optimize quality and pay enough to attract the talent necessary to do that. With streaming, where the audience is already subscribed to a platform at a fixed monthly rate, the studio is incentivized to spend its money trying to attract new audiences while spending the minimum possible to retain audiences. As Jason Blum pointed out in a New York Times Op-Ed, the streaming model doesn't incentivize studios or creatives to make the best movies possible.

Re-aligning the interests of studios and creatives would involve changing the streaming revenue model so that the high-performing content reliably produces more revenue like it does with theaters and television. This can be done with ad-ed tiers, shifting to a pay-per-view model similar to the Disney+ "Premiere Access" plan trialed during the pandemic, adding streaming caps to different plans, or shifting to a credit system similar to how Audible works. Of course, consumers would react negatively to most of these changes having adjusted to the unlimited binge model available now.

The unfortunate reality is, the commodification of TV and movies, where everything is now simply "content" is a direct consequence of a streaming model that values binge-able content over artistic creations. Many of the WGA and SAG-AFTRA demands seek to improve that, but an agreement that ends the strikes likely won't solve the problem inherent in the streaming model. It'll take a miracle to find a solution studios, creatives, and audiences will all love, but hopefully the strikes help push the industry in the right direction.