What Are Residuals in Film and TV Production?

By Gilbert Galvan  | 

Royalties are common in many industries, perhaps most ubiquitous in the worlds of book and music publishing, where the right to publish or republish a work is conveyed in payments that comprise a percentage of that work’s sales. Basically, a royalty is a payment you get when your work is used and reused. If you’ve ever been close with a performer or producer in the world of film and television, you’ve probably heard of residuals. A residual payment is also a royalty, usually paid to any above the line talent – the principals any time that a film product is distributed anywhere in the world. If your television show goes into syndication or reruns, the talent responsible for making it (and starring in it) get paid. If a movie plays on a streaming service or cable television, the talent responsible get paid. The history of residuals and reuse markets are a bit more complicated, however, and the deployment and execution of those payments, as well as calculating and understanding them, requires diligent accountants, streamlined systems, and other offerings from companies like Extreme Reach Payroll Solutions.

A Bit of History
In the 1950s and earlier, actors worked directly for studios. They signed contracts, were paid a salary and received no royalty or residual payments. When their work on a specific project was done, they moved on to the next role. As television became an established medium and sources for secondary income were realized by studios, unions like the Screen Actors Guild (now SAG-AFTRA) fought (and went on strike) successfully to produce the compromises that led to residual payments. Over time, as network television became more structured, reruns became popular, and cable television emerged as a competitor, guilds (also known as unions) negotiated with the studios to achieve the most favorable arrangement for their members. SAG-AFTRA, the DGA (Directors’ Guild of America) and the WGA (Writers’ Guild of America) each aimed to ensure their members — all principals in TV and film production —  received long-term financial security and compensation in return for their labor. And that continues today with new agreements formalized every few years between unions and studios. Residual payments are updated as needed to reflect a changing industry which now includes many digital channels and streaming services that provide on-demand viewing.

The calculations of who gets paid, and how much, is more complicated than you might imagine. Film actors, for example, are covered by different residuals rules than those in television. Stars get paid more at the time of production, but rules have been created to ensure that all covered talent receive a piece of the pie. The residuals market has also expanded to include some crew and musicians. Some guilds pay their members directly, like actors (usually quarterly), and others take residual money into a fund and disburse from there. The IA (the union for most of the crew) puts their residuals money into the pension plan for its members. Residuals rules are not a one-size fits all concept, each entertainment medium (i.e., home video, pay television, new media, etc.) has its own set of rules that have been negotiated and codified. Even more complicated is that residuals for any piece of film or TV recur in perpetuity. Almost no matter how long ago it was produced, if a piece of entertainment airs somewhere on the globe, that residual payment is going to its principals. (Even after they die!) Add to that, royalties for character-reuse. A writer who creates a new character on a TV show is entitled to compensation whenever that character appears, even if later episodes are created by another writer. In short, the complexities add up to a potential accounting nightmare. Enter accountants and residuals professionals.

For years, and even still, much of production accounting and calculating residuals has been a highly manual process built around spreadsheets. Cast lists are created manually, time limits (what percentage of pay a principal receives) are manually entered and calculated, and the payments themselves are confirmed and processed by an individual making each invoice themselves. I saw this from the inside when I worked in studio residuals departments and different payroll companies, where legacy systems commonly slowed setups, payments and calculations. I became energized to change the game and help in finding better solutions for the industry. I’ve gone from working at SAG-AFTRA to in-house at a studio, and then making my way to payroll companies in my search to streamline the residuals process and modernize the way residuals are managed and paid.

When I came to Extreme Reach Payroll Solutions after years of working throughout the Entertainment Industry, we set out to further modernize this process. If principals get paid more accurately and on time, studios and producers can stay out of potential legal or financial jeopardy. At ERPS, we’ve developed a modernized residuals system to better manage the complexities of today’s Entertainment industry. We built the first user interface that allows us to instantly account for new rules and agreements with simple automation. When the guilds settle on, say, new streaming residuals rules, we can apply those new rules instantly and generate faster payment turnarounds. Add to that our new estimation tool that allows producers and studios to simply create pre-production residuals estimates for HBSVOD projects, and you can see why it is that we are on the forefront of residuals processing. During this time of slowed and uncertain production schedules and an abundance of reruns, residual payments are more important than ever to actors, writers, crew, and directors.

The foundation of residual payments in the 1950s and ‘60s built an industry that more equitably includes its talent, and the result of sharing that long-term income has been a healthier industry. The push-pull of union and studio negotiations (and strikes) often comes to a head over residuals, and their importance should not be underestimated. Thankfully, diligent accountants and companies like ERPS make the execution and processing of these royalties simple. It’s not just a win-win, it’s a win-win-win-win: happy studios, happy unions, happy writers, actors, and directors, and happy accountants. In perpetuity.

Gilbert Galvan
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