Streaming has truly revolutionised the way entertainment is consumed around the world. Long gone are the days where you see your latest blockbuster or tv series box set at home, you would have to go and purchase the tape and have a never-ending collection of physical media in order to have instant access to your favourite films or shows.
The definition of “home video” however is something that appears to be exploited by at least one giant streaming corporation in order to maximise its profits, specifically in regard to residual royalties in particular.
Disney + has been making headlines this week in Variety after a court case involving Bill Nye, headline performer of “Bill Nye the Science Guy”, progressed with a significant ruling in regards to this very area. Bill took the mouse house to court back in 2017 in relation to his show being streamed and residuals he received from this. Bill argued that operating costs to stream shows and movies for the global entity, and other streamers like them, were far less than they had been in the past when all media had to be distributed by the content provider via physical means such as VHS, Laserdiscs, DVDs, and Blu Rays.
Since the introduction way back of video tapes, Disney has had an agreement in place where 80% of all royalties revenue is kept by them, with only 20% going to performers involved in the shows that are distributed. Of course, when tapes had to be manufactured, distributed and sold physically, this would have had high costs, but in the age of streaming, most content can now be uploaded for mass consumption digitally at the click of a button, with overheads previously associated with physical media drastically reduced.
In the lawsuit that Bill bought to court, he argued that due to these minimised costs, royalties’ proportions given to performers (whose old shows and movies were being added to streaming platforms) needed drastic review to reflect this fairly, given how much extra profit the streaming corporations were now making.
The significant ruling this month in the long progressing case however, has found the courts siding with Disney. Judge David Cowan ruled that Nye’s original contract allowed the studio to continue to classify streaming and download revenue as “home video,” with 80% royalty headed straight to the animation and entertainment giant remaining in place. Nye is currently set to launch an appeal regarding this ruling.
It will be very interesting to see how this case progresses in the appeal stages, as if the appeal is successful, it may potentially set a precedent for how profits in regards to streaming is distributed in general across all the platforms, especially for shows and films made before the age of streaming when residual contracts were more reflective of physical media.
In terms of how Disney compares to other streaming platforms in this area, there is limited information available. However, it does appear that costs in general for streamers are lower, partly thanks to COVID-19, leading to a rise in streaming subscriptions, and far less advertising needed to promote awareness of them. Brand Equity has recently run an article regarding Netflix, who have cut their global advertising spend by 23%, whilst increasing their subscriptions in general. As running costs have decreased, it is therefore likely that revenues to the streaming giant are also going through the roof.
According to the site “Netflix’s total marketing costs, which include advertising, have dropped as a percentage of total revenue from 15 percent in 2018 to 13 percent in 2019 and 9 percent in 2020.” Indeed, with the advent of social media, users are pretty much advertising shows themselves, thereby helping the platforms increase their profits even more without any of the advertising legwork that used to be needed. It is therefore highly likely that there would be money to spare to increase residual contracts for historic shows uploaded, given the high profits being made and the low costs associated with them.
Actor and performer royalties in general are an area where there is a lot of money involved, so it is no surprise that this court case has emerged, and there may well be others like it in the future, as streaming becomes more and more popular. Take an immensely popular show such as “Friends” for example, which is streamed on Netflix, as well as syndicated on channels in general around the globe. With 236 episodes available, 6 main cast members in nearly every episode, all appearing for roughly the same amount of time, there are potentially millions of dollars at stake on an annual basis for each of the 6 actors.
How Entertainment Works explains this in more detail, but the overall message is clear: If you happen to be a principal player in a highly popular show that is potentially getting streamed millions of times around the globe, there is no doubt that royalties’ revenues are going to go through the roof, arguably even more so than when there was just physical media or set broadcast times on television stations only. Therefore, in this new streaming age, it is imperative that any performers involved with shows or movies for the main steamers have some good negotiation skills to maximise their revenues overall, to reflect the new digital age.
An interesting case in point where this involves a property that is arguably both old and new at the same time is the much anticipated “Zack Snyder’s Justice League”. HBO Max is due to stream this in the near future, and originally when this was announced, it was stated that it would be split in to several parts. However latest reports on The Direct now state it will be just one four-hour single shot epic. The reasoning for this? Actor’s contracts from back when they were filming the original version of the movie a few years ago.
It appears that the actors and their agents indeed took part in some hard negotiations, to reflect they weren’t too happy with the idea that there would be multiple “episodes” but would only be getting royalties to reflect one movie, which was the agreement when the film had originally been shot some years ago. This therefore has led Warner Bros. to put all planned episodes together back as just one movie, to get around the issue of paying the actors residuals for multiple episodes, which would no doubt have cost the studio a lot more in the long run.
Again, it appears that this streaming giant is also aware that in order to maximise profits, minimising residuals but also trying to be fair to the actors involved is a highly considered factor in the age of global streaming. It appears highly likely that the decision to have the upcoming release be made in to one movie rather than a series may have been highly influenced by royalty revenue factors, and actors representatives may well have asked for some very high residual revenue to reflect what will no doubt be a highly streamed movie.
In terms of new original content, there appears to have already been some recognition of the importance of residuals and increasing pay to actors involved with projects that are new and exclusive to each service. Back in 2017 Netflix, Hulu and Amazon all signed a 3-year agreement that actors in their original shows would see an increase in residual payments, and rather than getting the residuals annually, they would be paid within 90 days instead.
It was also a landmark agreement, as residuals for foreign showing of series were also considered as well for the first time. As the original report on Engadget stated, a world-wide streaming show can be up to 300 percent more lucrative during its first 2 years of transmission, than those distributed domestically only. This again illustrates the gigantic global scale of profits that are available in the digital streaming age we live in when it comes to entertainment.
There is no doubt that the issue of residual royalty is going to remain a key aspect of streaming business for many years to come, and any new content made, sounds like it will have some very serious discussions around the negotiation table when it comes to this topic. Given that streaming services business model also relies heavily on pre-existing historical content to bump up their content, the current court case that started this article needs to be watched very closely. If the appeal is successful and Bill does manage to change proportion of residuals given to him, it won’t be long before other performers, producers or creatives involved with historic shows will be asking for similar adjustments.
In order to reflect the higher amounts those who have contributed to the new original content have been receiving. If that does happen, then it is going to leave streamers with an interesting choice. Do they cut back on obtaining historical pre-existing content to avoid an inevitable slew of retroactive contract negotiation and invest more in original properties, or will a blanket agreement be made for all content, be it old or new, to be treated the same in terms of residuals? Only time will tell, but this appears to be an issue that won’t disappear any time soon.
Scott Crittenden
Sources: Variety, Brand equity, Entertainment, The Direct, Engadget
