What Are Residuals? The Complete Guide to Understanding Residuals in 2023

Residuals are recurring payments that actors, writers, directors, and other talent receive when TV shows, films, or other media that they worked on continue to be aired or distributed after the initial release. Understanding what residuals are and how they work is key for those working in the entertainment industry.

Residuals provide a vital stream of income to writers, actors, directors and others involved in the creation of TV shows, films, and other media. They help compensate creative talent when their work continues to have value after the initial release.

A Brief History of Residuals 

The concept of residuals originated in Hollywood in the early days of network television in the 1950s. At the time, shows were performed live, so there were no opportunities for reruns or syndication.

However, with the advent of videotape in 1956, shows could now be recorded and replayed multiple times. The studios wanted to take advantage of this by airing shows repeatedly without paying actors and other talent anything additional.

In response, the Screen Actors Guild (SAG) went on strike and negotiated the first residuals agreement in 1960. This established the principle that actors should share in the profits when studios reuse their performances.

Over the next decades, residuals were expanded through negotiations by talent unions like SAG and the Writers Guild of America (WGA) to account for reruns, syndication, home video, DVDs, streaming, and other secondary markets.

How Residuals Work 

Residuals are governed by collective bargaining agreements negotiated by entertainment industry unions. There are separate deals covering TV, film, and new media.

The agreements specify formulas determining how much talent will be paid based on factors like the length of the performance, how long the production runs, and where it is reused. For example, network primetime TV residuals are much higher than cable or streaming.

Some key elements of TV residuals include:

• Reruns: Actors, writers, and directors receive payment based on the number of times a show airs after the initial broadcast. Rates vary depending on the platform (network, cable, streaming).
• Syndication: When shows are licensed to air on other networks, local stations, or cable, residuals are paid based on a formula including the performer’s pay rate, the length of the show, and the license fee received by the producer.
• Foreign airings: Performers receive residuals when shows air internationally. Rates vary by country.
• New media: Reuse on platforms like streaming triggers residuals under newer contract terms specific to “new media.”

One notable aspect of residuals is that they are not paid as a percentage or royalty. Instead, they are fixed payments determined by set formulas and rates. This means residuals do not rise if a show becomes a huge hit. The system is designed to provide a baseline of compensation, but not profit participation.

Who Gets Residuals 

The specific eligibility for residuals depends on union contracts, but in general they are paid to:

• Actors
• Writers
• Directors
• Composers
• Other talent like stunt performers

However, not all performers qualify for residuals. There are tiered categories that determine which actors earn residuals based on the size of their role and whether they are union members. Major roles earn the full rate, while some smaller parts earn reduced residuals or none at all.

Why Residuals Matter 

At first glance, the concept of residuals may seem overly generous. Some ask – shouldn’t an actor’s pay end when their work is done?

However, there are strong justifications for the residuals system:

• Recurring value: When a show airs repeatedly for years or decades, the studios continue to profit from the actors’ work. Residuals let them share in that success.
• Leverage: Without residuals as leverage in negotiations, studios could reuse performances without limitation or additional pay. This would weaken actors’ bargaining power.
• Steady income: Residuals provide actors and writers a stream of income between projects, during periods of unemployment, and after retirement. This helps sustain careers in a volatile industry.
• Fair pay: Many actors and writers earn modest pay upfront. Residuals help compensate them fairly as their work continues to earn profits over time.
• Industry standards: Residuals are deeply embedded in the Hollywood ecosystem. Eliminating them would cause massive disruption.

Overall, residuals remain a vital part of how actors and other creatives are compensated as the entertainment industry evolves. While the details are constantly renegotiated, the underlying concept persists as a way to provide fair pay for reuse of creative work.

Residuals vs. Royalties 

Residuals are sometimes confused with royalties, but they refer to distinct concepts:

• Residuals are payments for actors, writers, directors, etc. when a TV show or film is reused. Governed by union contracts.
• Royalties are usage-based payments to creators such as musicians, authors, songwriters, based on copies sold or licensed. Often negotiable.

A few key differences:

• Residuals are fixed payments based on formulas, while royalties are percentage-based.
• Residuals are tied to union contracts and collective bargaining. Royalties are usually individually negotiated.
• Residuals apply narrowly to film/TV talent. Royalties have a broader usage across content types.
• Residuals focus on reuse of existing work. Royalties also apply to new sales/licenses.

So in summary, residuals refer specifically to the reuse payments for actors and other talent in the film/TV industry, while royalties have a wider meaning across creative fields.

Residuals in a Changing Media Landscape 

Two major shifts have created challenges for residuals in recent years:

1. Decline of reruns: As platforms proliferate, the value of hit shows and films has become less about rerun potential and more about buzz and subscriber draws. Reruns matter far less today.

2. Rise of streaming: Streaming residuals were initially lower compared to broadcast networks. This means far less income for talent even as their work is watched more than ever.

These shifts have made residuals less lucrative for actors and writers. For instance, a hit network sitcom in the 90s would earn large residuals for decades through syndication. Today, a popular Netflix show may have high viewership but limited residuals potential.

In response, unions have sought to update residuals formulas through collective bargaining. But studios strongly resist increased streaming residuals that would cut into their profits. Ongoing tensions over residuals will be a key issue facing negotiators, with major contract expirations looming in 2023.

The Future of Residuals 

While residuals emerged from the early TV landscape, they remain a meaningful way to ensure fair compensation as distribution models evolve. Updating residuals is critical so talent can share in the value created by on-demand availability and global audiences.

At the same time, residuals were designed for an era of greater predictability in how content was reused. As consumer behavior fragments across platforms, residuals structures based on fixed formulas will likely need to become more flexible.

There are also calls to reassess which participants are included in residuals – for instance, extending eligibility to more crew members beyond just talent.

Residuals will surely remain a complex, often contentious subject as the media universe transforms. But maintaining a fair system of additional pay for reuse of creative work will be essential to avoid labor unrest. The core Residual principle – that those who create successful films and shows deserve to share in their ongoing value – will continue to hold true.

Conclusion

In summary, residuals provide a stream of income to actors, writers, directors and other talent when their creative work is reused in secondary markets like reruns, syndication, DVDs, and streaming platforms.

These recurring payments were established through collective bargaining by Hollywood unions as a way to ensure fair compensation as studios profit from rerunning filmed entertainment. While the media landscape has shifted, residuals remain important to provide leverage in negotiations and steady income between projects for creatives in an unstable industry. Updating residuals for the on-demand era remains an ongoing challenge facing studios and talent guilds. But the core principle of compensating talent for reuse of intellectual property will likely persist as an established industry practice.

FAQs: Residuals