The WGA has released a trove of data to support its bargaining position that writers are not sharing the record profits reaped by the major companies over the last decade. The union also released figures showing that its health plan is in dire condition – facing more than $145 million in projected deficits over the next four years, leaving the plan basically broke and with less than two months of reserves by the end of 2020.
“The entertainment business is thriving because of the content WGA members create,” the WGA West states on its website. “This content has fueled the global growth of the media companies and the meteoric rise of online video distribution. The companies which control this content have reaped the rewards many times over. Writers deserve a fair share of this unprecedented prosperity.”
“The entertainment industry has never been more profitable,” the guild says. “As illustrated in the chart below, in 2016 the six major media companies that dominate film and television, and employ almost all Guild writers (CBS, Comcast, Disney, Fox, Time Warner, and Viacom), reported almost $51 billion in operating profits. Those profits have doubled in the last decade and continue to grow.
Television writers are being especially hard hit, the guild says. “During this ‘peak TV’ era, when more television is being produced than ever, and when everyone who works in television is finding a sellers’ market for their skills, why is the average TV writer seeing their income go down?”
There are five critical reasons, the guild says.
- The number of episodes, and therefore, episode fees are half the traditional number on many series.
- These fewer episode fees are being amortized across more than two weeks per episode.
- Writers are held exclusive and under option even when not working on these short season series.
- Residuals are too low in the emerging rerun markets.
- Script fees remain unequal to the network rates for the growing areas of the industry.
The guild said that the shortened season – 10 to 13 episodes – that has come to dominate the industry, while “great creatively” in that they offer “the luxury of tight story arcs,” pays for only half of a traditional full season even though it usually takes the writer off the market for a full year.
|Count of Series By Number of Episodes|
|Number of Episodes||2013-14||2015-16||Change|
|2 to 13||165||205||40|
|Percent of Total|
|Number of Episodes||2013-14||2015-16||Change|
|2 to 13||63%||68%||5%|
“To make this underpayment worse,” the guild says, “these short season series take advantage of the looser calendar to do more writing before production starts, take more days to shoot each episode, and spend more time in post. Writers can find themselves working a span of more than three weeks per episode. In this model everyone else on the production gets additional pay for the additional time, except writers.”
|Writers at up to 2 weeks per episode||44%|
|Writers from 2.1 to 2.5 weeks per episode||27%|
|Writers from 2.6 to 3 weeks per episode||11%|
|Writers over 3 weeks per episode||18%|
“The traditional TV calendar equated each episode fee with two weeks of work and an experienced writer’s deal was often over-scale,” the guild noted. “By having this episode fee spread over three weeks, the deal has now been driven down to guild minimum. The writer is no longer being paid for experience, and any writer-producer can find him or herself earning the same as a story editor.”
|Percent of Writers at Minimum|
As a result, the guild says, “Writer-producers at all levels of experience have seen their compensation for a year of working on a series drop, at the median, between 8% and 26%. Even showrunners not on overall deals have seen their compensation drop 21%.”
|% Change in Median Earnings from 2013-14 to 2015-16|
Making matter worse, the guild says, “After the season is over, most writers find themselves held exclusive and under option for the next season. Sometimes these holds last a year, because some of these short-season series don’t have a firm air date when produced and the second season writing room can open more than a year after the first season room closed. After earning a half a season’s salary at minimum, writers can find themselves both losing health coverage and unable to pay the bills.”
Residuals used to help, the guild said, when the network residual was a staple of TV writing for decades. “But now fewer than half of network episodes are repeated on the network. The studios are monetizing them at greater than network revenue by selling episodes to subscription VOD services such as Netflix, Amazon and Hulu, and by putting them on ad-supported VOD services such as cable VOD, on the network’s own Apple TV app and website and on Yahoo. But the SVOD and AVOD residuals are a small fraction of the network residual, even combined.”
|Residuals for Initial Reuse|
|Residual||Half Hour||One Hour|
|Ad-supported VOD (26 weeks)||$676||$1,228|
|Basic Cable runs 2-5||$7,311||$13,288|
|Pay TV 1st reuse year||$4,200||$7,200|
|High Budget SVOD 1st reuse Year||$4053||$7,367|
“The fee for each script is inferior to the network standard,” the guild said, “even though it’s just as many pages and the series are as compelling creatively and as complex structurally. Today, there is no reason scripts for the CW, basic cable and SVOD ought to be cheaper than network scripts.”
|Script Fees By Market|
|Half Hour||One Hour|
|Basic Cable||$14,621||$26,575 or $28,297|
|High Budget SVOD||$14,621 or $26,043||$26,575 or $38,302|
“The cumulative effect of these factors,” the guild said, “is that in a time of unprecedented demand, TV writers are, illogically, earning less.”
The vast profits reaped from the globalization of markets for American films and television shows has also expanded faster than writers’ incomes.
On the feature film side, the guild says that “The domestic box office is a key source of industry revenue, but the market is largely mature. This is because Americans have been moviegoers for decades. The story in much of the rest of the world, where going to the movies is a newer activity, is quite different. The film business has experienced an influx of customers thanks to rising incomes and theater construction globally. In the past decade, international box office has grown by almost 70 percent, from $16 billion in 2006 to $27 billion in 2016.”
“And American media companies have benefitted from this growth, dominating the global box office with films written by WGA members,” the guild said.
“Collectively, five companies – Disney, Fox, Paramount, Warner Bros., and Universal – account for almost 60% of the $38 billion worldwide box office.”
The media companies are also reaping huge profits from selling American content to an expanding global subscription TV market, which includes 757 million subscription TV households and $250 billion in revenue outside the United States, according to the PricewaterhouseCoopers, which projects that the international market will add 100 million subscription TV households by 2020.
Revenue from subscription video on demand will be another major bone of contention when contract talks resume on April 10. “Fueled primarily by the licensing of American television series and films, coupled with significant investment in original production, SVOD is the newest and fastest growing form of content distribution,” the guild says. “Industry analyst SNL estimates that Amazon, Netflix, and Hulu spent almost $9 billion licensing and producing content in 2016. With revenue streams flowing from domestic and foreign sources, PwC estimates global SVOD revenues of more than $13 billion in 2016. Netflix already has 41 million international streaming subscribers and Wall Street firm MoffettNathanson expects this number to double by 2020. And in December 2016, a second major global SVOD player emerged on the scene when Amazon announced that its Prime Video service was expanding to 200 countries and territories. There is no apparent slowing of growth on the horizon in the SVOD market.”
“The transformation of the business from primarily domestic to truly global, and the rise of SVOD providers, has created the ‘peak TV’ era we are living in,” the guild says. “The transformation has also led to the rise of ‘risk free’ television, where series, regardless of their domestic success, can be in profit from day one.”
This new paradigm, the guild says, is fueled by “the on-demand availability of almost all content,” which has lifted the time constraints of primetime viewing hours. “Viewers can now watch this content anytime, anywhere, and the companies have monetized this convenience. This structural change, combined with the extremely lucrative global expansion of distribution, has reduced the ‘syndicatable number’ of episodes to 8 – as opposed to the old number of 80 – and transformed what used to be ‘deficit financing’ into ‘instantly profitable.’”
But the elephant in the bargaining room is the guild’s failing health plan. “Our health fund is in need of additional contributions because health care costs continue to increase much faster than inflation,” the guild says. “It has operated at a deficit in three of the last four years. The one positive year, 2016, resulted from the happy confluence of higher than usual contributions due to ‘peak TV’ employment levels, lower health costs due to fewer million-dollar illnesses, and higher than usual investment returns from its conservatively-invested reserves. But last year’s $5.1 million surplus did little to offset the $31.5 million deficit of the prior three years.”
|Health Fund Financial Results and Estimates|
|Year||Contributions & Premiums & Investment Income||Benefits & Costs||Net Surplus or Deficit||Reserves at End of Year||Reserves Stated in Months of Expenses|
|2011||$102.2 million||$94.3 million||+7.9 million||$198.7 million||23.0|
|2012||$112.0 million||$103.5 million||+8.5 million||$205.7 million||21.3|
|2013||$109.7 million||$116.7 million||-$7.0 million||$199.1 million||18.8|
|2014||$122.1 million||$127.1 million||-$5.0 million||$192.9 million||16.0|
|2015||$123.3 million||$142.8 million||-$19.5 million||$174.0 million||14.4|
|2016||$150.2 million||$145.1 million||+$5.1 million||$179.9 million||13.2|
|2017 (est.)||$150.0 million||$163.2 million||-$13.2 million||$164.4 million||11.0|
|2018 (est.)||$153.7 million||$179.4 million||-$25.6 million||$136.4 million||8.3|
|2019 (est.)||$157.2 million||$197.8 million||-$40.5 million||$93.3 million||5.2|
|2020 (est.)||$160.4 million||$216.6 million||-$65.8 million||$34.6 million||1.8|
“Looking forward, contributions based on writer earnings are expected to grow 3% per year,” the guild says. “Health costs are expected to grow 10% per year overall. So, starting with a base of 2015 and 2016 together, and incorporating those expected trends, the fund is projected to run deficits for the next four years, and beyond. The recent deficits have been, and will be, funded by reserves. These reserves, and earlier surplus years, had been funded by prior increases in employer contributions. Now, an era of record profitability, is the time to reverse the current trend to deficits with additional employer contributions. Employer contributions to the health fund are currently 9.5% of compensation, subject to certain caps. This is one percentage point lower than contributions made to the DGA health fund. And for most television writers, who only receive contributions on a base of Article 14 minimum, the effective contribution rate is 6%. For television writers on overall deals it’s even lower. Increasing the contribution rate along with addressing areas where the companies currently have a discount on contributions are critical to the financial health of the plan and have been a focus of negotiations.”
|Expected Growth of Health Fund Revenues and Expenses|
|Category||Expected Annual Growth Rate|
|Contributions on Earnings||3%|
|Medical & Hospital Costs||8%|
|Mental Health Costs||10%|
The guild says that the recent deficits are the result of rising health costs, with several cost components are rising faster than others. “First among these is the category of medical and hospital costs. This group of expenses accounts for about half the plan’s costs and is expected to grow 8% per year. Included in this category are the most typical covered expenses – doctor visits and hospitalizations.
“The second category of note is mental health. These costs have increased dramatically for our plan over the last few years. The Mental Health Parity Act of 2008 required that most health plans uncap mental health visits in the same way medical doctor visits are uncapped. While this is a useful benefit for our members and their families, it’s a large cost increase.
“A third category worthy of note is pharmaceuticals. This category accounts for 20% of the plans’ costs and is growing the most of any category – 12% per year.
“Specialty drugs are a runaway cost throughout the health insurance industry and our plan is not an exception. Martin Shkreli and the makers of the Epi Pen grabbed headlines by increasing costs on tried and true medications for which they controlled the market. Other exceptionally expensive drugs are more significant to the bottom line of plans such as ours. Revolutionary hepatitis C cures can cost up to $84,000 per treatment. A multiple sclerosis drug costs up to $51,000 per month. A cystic fibrosis drug costs $44,000 per month. These are typical of new drugs that are effective, but exceptionally expensive.
“Long term issues also remain to be addressed: The excise tax in the Affordable Care Act is mischaracterized as a ‘Cadillac Tax,’ as if plans that provide an adequate benefit are a luxury. It would require plans like ours to pay a 40% tax on the value of the health insurance members receive over a certain value. What it would force plans to do is increase deductibles and co-pays to the point where they do not incur this tax. The supposed motivation of the tax is to force patients to think as consumers, which is both misguided and ill-founded. It is misguided because price comparison shopping is neither practical nor desirable for a sick and worried patient. It is ill-founded because the price information is not available to a patient seeking care. Cost management can be done by plans, but it won’t be achieved by forcing them to cut benefits to avoid a bankrupting tax.
“Cost containment is a constant effort at the health fund,” the guild says, but “the fund continues to face deficits. Employer contributions must be increased and the guild will continue to look for ways to reduce costs to the fund that minimize the impact on members.”