My Pencils Down article got a lot of links, which led many first-time readers to the site. Most had little experience with screenwriting or the entertainment industry, so it’s no surprise that the concept of residuals was, frankly, odd.

My friend Jeff often jokes (half-jokes, I think) that he wishes he got residuals on spreadsheets he made in 2003. He’s articulating a familiar frustration: Why should screenwriters get paid extra money years after they finish their work? After all, plumbers don’t get residuals. Neither do teachers, secretaries or auto workers.

So I want to explain why writers in film and television get residuals, and why they’re at the heart of the ongoing WGA strike.

The standard analogies

Let’s say you’re a Nashville songwriter. You write a song that Carrie Underwood records and takes to number one. You get paid royalties for writing that song: albums sold, radio plays, the generic Christmas Muzak version. A hit song is worth a lot of money. A moderately successful song is worth a moderate amount of money.

Or let’s assume you’re a novelist. You’re John Grisham, and you write a legal thriller that half the folks on a given flight are reading. You get paid a royalty for every book sold. Like a hit song, a best-seller is worth a lot of money. A book that doesn’t sell as well earns the author less.

In both examples, the way an artist makes money is not necessarily upfront (writing the book or song) but over the course of years. These creative works are annuities that keep generating money, for both the writer and the publisher. Every year, copies are sold. Every year, writer and publisher make money.1

I’ll stop here to say that if you don’t think songwriters or novelists deserve royalties, I’ve lost you. Everything else I’m about to say is predicated on the belief that a creator (i.e. songwriter, novelist) is entitled to profit from the success of his or her work. If you disagree — if you think that once the publisher writes a check, all bets are off — thanks for reading this far. We’re done.

If you’re still with me, let’s play hypotheticals. What would happen if songwriters and novelists didn’t receive royalties?

It would be a lot harder to make a career in either field.

Most songs don’t become hits. Most novels don’t become best-sellers. Songwriters and novelists may only create new, money-generating work every few years. Royalties are what pay the bills in the meantime. Without royalties, very few people could afford to write songs or books for a living. These pursuits would become hobbies for the rich, or patrons of the rich. (And in fact, Western literature was largely written by the people who could afford to write.)

→ Royalties allow for a middle class.

Publishers aren’t interested in financing the American dream, however. They simply want books and songs to sell to the world. They have a straightforward and related interest in keeping royalties flowing:

→ Royalties allow for a larger pool of talent.

Without royalties, there would be fewer people who could maintain a career as a songwriter or novelist. There would be fewer songs and books to publish. It’s in the industries’ best interest to keep writers writing, generating new work to make the publishers money.

Residuals are royalties with special sauce

Writing a screenplay is a lot like writing a song or a novel. The writer goes off and struggles to compose something that is a perfect combination of fresh and familiar, which will hopefully appeal to a large enough proportion of the intended audience. Just like songs and books, most screenplays never make a cent for their creators. Books sit unpublished; songs go unrecorded; screenplays remain unproduced — locked forever in 12 pt. Courier.

But a few make it. A few become movies.

And in the process of converting written words to filmed entertainment, a bit of legal sleight-of-hand takes place. I’m going to oversimplify it to make it comprehensible, but the longer, more accurate version matches the shape of what I’m about to explain.

Whether you write a song, a book or a screenplay, you’re protected by copyright. More than that, you’re acknowledged as the Author of the work, which has important (but eye-glazingly complicated) implications under international law, including certain inalienable creative rights. When movie studios read your screenplay and decide they’d like to make it into a film, they hit a few snags. Two examples:

  1. As the Author and copyright-holder, you the writer control the ability to make derivative works, such as a movie. Or a sequel. Or a videogame.
  2. Some of your inalienable2 creative rights as Author (e.g. “no one can mutilate or distort the work in such as way as to be prejudicial to the honor or reputation of the author”) are potential nightmares for a company about to spend $100 million on a movie distributed worldwide.

So a compromise was made.

Screenwriters would sell the “authorship” of their screenplays to the studios,3 and allow themselves to be classified as employees. Original works would thus become works-made-for-hire.

In exchange, screenwriters would get a host of benefits and protections covered by the Writers Guild of America (the WGA), which as a labor union can only represent employees.

The WGA would also collect royalties on behalf of screenwriters. Royalties were renamed “residuals,” since only “authors” collect royalties. 4

If this strikes you as a kludge, you’re not alone. It’s graceless and awkward and weird. It’s completely unlike what happens in playwriting, even though playwriting and screenwriting are close cousins.5

I’ve described the process in terms of a screenwriter working on an original script by herself, but the same basic machinery applies to adaptations or television shows. Staff writers sign contracts which perform similar legal judo, making their words the company’s words.

In exchange for higher guaranteed payments (“minimums”), residuals don’t start accruing in a work’s initial window (theatrical release for a movie, first broadcast for a TV show), but rather down the line, especially when it comes out on home video.

That’s what the current WGA strike is a largely about: the residual rate for home video, and especially work distributed through the internet.6

You’ll note that the studios aren’t talking about eliminating residuals altogether. Even in one of their earlier proposals for “profit-based residuals,” they were acknowledging that writers are entitled to them. Without some form of residuals, the charade of authorship-transference ceases to be mutually beneficial.

What’s more, I suspect that the wiser members of the entertainment industry recognize what publishers have long understood: you want to keep a lot of writers on hand. You never know which one is going to create the next Desperate Housewives.

Residuals are like the research and development fund for the industry.

Why you don’t get residuals for old spreadsheets

Coming back to my friend Jeff, let’s look at why that spreadsheet he made in 2003 doesn’t earn him residuals.

When he created it for his boss, he was an employee of the company. Copyright-wise, everything he did for them was a work-for-hire. They owned it outright.

When a screenwriter writes a script, she’s transferring this bundle of authorship rights to a corporation. In exchange for these legal and creative rights, she gets paid an upfront fee and royalties (called residuals).

Readers from the technology and medical fields might recognize an analogous situation with patents and intellectual property. It’s not uncommon for an inventor to get paid per unit for the right to use some proprietary innovation. So it may help to think of screenplays as “literary inventions,” subject to a strange but industry-standardized procedure to protect both creators and corporations. It’s not pretty, but it gets the job done.

Why gaffers don’t get residuals

While the process of making a movie begins with the screenwriter, it ultimately involves dozens — sometimes hundreds — of professionals, from grips to gaffers to art directors to truck drivers. Most of the people working on a movie receive no residuals.7 Is that fair? After all, these people work long hours, sometimes in very difficult conditions, and make a huge contribution to the finished film. Why don’t they get residuals?

Because residuals are royalties paid to an author. They’re not a bonus. They’re a guaranteed payment to the writer in exchange for giving up copyright and authorship claims.

In the heated rhetoric surrounding the strike, both sides have made misleading claims about the economic status of writers in Hollywood. The studios like to portray writers as greedy millionaires, while the WGA holds them up as middle-class victims of corporate fat-catting. Neither is accurate. Most writers aren’t millionaires — yet the Hollywood middle-class would be the envy of most of America.

The reductionism to “the rich fighting the super-rich” misses the real issue: the internet will replace television, and the industry needs to come to terms with what that entails. The WGA strike will end with compromises over the residual rates. The eventual IATSE strike will be about the definition of what a “program made for the internet” means, how much their members must be paid, and when overtime kicks in.

How to explain this to your buddy Brooks

The take-home lesson, in case you need to explain to a friend who blames “greedy writers” for why The Daily Show is in repeats:

  • Writers get royalties: for books, for songs, for literary works.
  • For legal reasons, studios want to be considered the “author” of a movie. So screenwriters transfer “authorship” to the studios, in exchange for a bunch of rights, and residuals.
  • The studios and the WGA disagree about what rate is fair for work distributed over the internet.
  • Since internet distribution will eventually replace DVDs, a bad rate would result in a pay cut for writers.
  • That’s why there’s a strike.

Thanks for reading. Feel free to pass it along, or Digg it.

  1. Note that this is quite different from a Jasper Johns painting, or any other artwork which increases its value because of its singularity.
  2. As in, “you can’t give them up, even for money.”
  3. If you’ve ever stayed through to the end of movie credits, that’s the reason behind that block of text reading, “For the purposes of international law, Big Movie Studio is the author of this film (motion picture).”
  4. There’s another history behind the term “residuals,” referring to the practice of keeping performers on hand as backup for electronic recordings. That’s a partial answer to the question, “But wait, why do actors get residuals?”
  5. Playwrights retain copyright. If screenwriters were to hold on to copyright and “license” the movie rights to the studios, the whole thing would become incredibly problematic for reasons Craig Mazin has [explained artfully](http://artfulwriter.com/archives/2005/12/reprint_we_dont.html).
  6. The current DVD residual rate is 0.3%. The studios’ proposed residual rate for the internet is…zero. Because work on the internet is defined as “promotional.” That’s ballsy, frankly.
  7. Although depending on which guild or union they belong to, residual-like payments might form part of their pension and health fund.