The original post for this episode can be found here.

Scriptnotes, episode 14: How residuals work

John August: Hello, my name is John August.

Craig Mazin: My name is Crag Mazin.

John: And you’re listening to Episode 14 of Scriptnotes, a podcast about screenwriting, and things that are interesting to screenwriters.

Craig, this is my second favorite time of year.

Craig: Hold on, did we discuss? Your first favorite time of year is when all the new fall shows are on.

John: Exactly. My second favorite time of year is, can you guess what?

Craig: Well, this is it, so it’s Thanksgiving.

John: No, it’s not the holidays at all. It’s the Academy Awards screeners.

Craig: Yes, of course. It’s screener time.

John: It’s screener time. For people who aren’t working in the film or television industry, this is the time of year when they show a lot of movies that hopefully will be getting awards come awards season. If you are a writer in the film or television industry, they will start sending you DVDs of the movies they want you to consider for award attention at the end of the year, or actually, after the end of the year.

Basically, the best movies of the year — or the movies that the studios want you to think are the best movies of the year — they will start sending you DVDs and hoping that you will play those DVDs and watch those movies and vote for those movies.

Craig: Right, which is kind of cool, because I don’t think anybody cares about the WGA Awards. When I say anybody, obviously we care about them, the people who make the movies care, and the studios, but the people at large, the audience, I don’t think are motivated to go to movies because something wins a WGA Award. I’m flattered that we get these things in the first place.

John: I think part of the reason why WGA membership is included is you want the overall buzz for your movie to increase. If a bunch of screenwriters are talking about your movie, that will hopefully convince other people who are voting for the more prestigious awards, like the Academy Awards, the Oscars, the Golden Globes, the BAFTAs.

[loud rustling from Craig’s side]

What are you doing to yourself there?

Craig: Thank you.

What I was doing to myself? That was the cleaning lady. The office cleaning lady came in, and I think we should keep this, because the thing is she’s really nice. The deal is that I’m sitting here at my desk, and I’ve got this microphone and headphones on, talking to a computer. All she hears is one side of the conversation.

I think she was already pretty convinced that I was insane, but now it’s like she’s literally going to go home and say, “There’s this one guy, I don’t know, he’s basically pretending he’s an astronaut or something, talking to his computer.” [laughter] You’ve got to keep this in, it’s great.

The thing is — this is such a digression — all she does is she comes in, I’ve got this office in this great old building in Pasadena. This woman comes in every day around this time to change the bag in my little trash can. I never have trash. I don’t make trash in my office, so she just comes in and changes an empty bag. There’s never anything in there, and yet often times she’ll come in, and she’ll hear me. Sometimes when I’m writing, I start doing the dialogue. She hears me talking to myself all the time. And now this.

John: Good stuff.

Craig: Yeah, it’s embarrassing.

Anyway, you were making an excellent point.

John: If we’re going to digress about offices, I’ll tell you my office story. Right now, I’m working at home, which is easy and great, so I can stumble into the kitchen any time I want. Before this, I had an office over in Koreatown. We were in this office building, and it was a perfectly fine office, and we also used it for pre-production and post-production on The Nines, so it was useful for that.

The building maintenance guy, the handyman who is sort of always around, was this guy named Oscar. It was a situation where there were shared bathrooms down the hall. I remember at one point going to the bathroom, and somebody must have been smoking in the bathroom — really smoking a lot in the bathroom.

It was uncomfortable to be in the bathroom. I found Oscar and I told him, “Somebody’s smoking in the bathroom, maybe you could figure that out. If you know who’s doing that, maybe you could stop them.” He really took it very seriously, “I’m going to figure out what happened.” Then two or three weeks later I walk into the bathroom, and he’s smoking in the bathroom. [laughter] It was Oscar. I just respect that he looked me right in the eye and he lied right to me that he was going to take care of the situation.

Craig: What did he do when he saw you looking at him? Did he just shrug and be like, “Yeah, that’s right?”

John: I didn’t see the cigarette lit in his hand. What it was, I walked into the bathroom at one point, and he was opening up this stall, and he had his pack of cigarettes and newspaper. Basically, he’d gone in there to do his morning business and have a smoke of a cigarette, and he had lied straight to my face.

Craig: I love it, I love it. I want people to also notice something if you wonder who the daddy of this podcast is. Wasn’t that you telling your story, and then saying, “What are you doing over there? You are making a noise while I am talking on my podcast!”

John: Yeah, there’s no way we’re going to be able to filter out all that stuff. I thought you were maybe changing into some sort of evening frock.

Craig: I am customarily. This is my changing time of day, where I do get into my evening wear, usually made of a Saran Wrap material.

I wish you could’ve seen the look on her face when she walked in.

John: And you have your personal valet who comes in to help dress you.

Craig: Yeah, totally.

John: Have we discussed Downtown Abby, by the way, talking about valets?

Craig: No.

John: Do you watch… You don’t watch any TV shows, so do you even know what Downtown Abby is?

Craig: No.

John: Downtown Abby’s so good.

Craig: What is it, is it a BBC show?

John: Of course it’s a BBC show. It’s the best BBC show you could ever dream of. It’s like Upstairs Downstairs, and it takes place at this manor house, and you have the first season takes place at the very start, leading into World War I. The second takes place during World War I. It’s Upstairs Downstairs: you have the rich people, you have the servants, and it’s all amazing. It’s such a good show that after watching it the first season — which aired on PBS here, but we actually pulled it off of NetFlix — we had to watch the second season, but it was only in Britain. It was airing live in Britain, and it’s not going to come to the US until January.

We had a friend who was going to London anyway, so we gave her some money, and said, “Will you buy us an iTunes gift card while you’re there?” And with a British iTunes gift card, you can actually download Downtown Abby from the UK iTunes. I feel like it’s basically legal. You’re paying money for it.

Craig: It’s legal, of course. It’s just you’re jumping through some annoying hoops. I remember doing that with — there’s this wonderful Irish sitcom called Father Ted. I don’t know if you ever heard of Father Ted. Spectacularly funny show, and it was only on I think for two seasons maybe, because tragically the creator and star of the show died, very young.

My wife and I visited a friend of hers in Ireland, and she introduced us to the show and I loved it. I bought the videotapes, but they don’t play here, and I spent God knows how much money to convert them from PAL to NTSC, because this was — it was 1998 or something like that. It’s a great show.

John: Someone tried to remake Father Ted, I remember seeing that as a…

Craig: You can’t, because the show, it’s really sick and hysterical, but you have to be a Catholic country to even give a damn about what half the humor is about. Really funny show. This podcast is so far flung from — what were we talking about?

John: We were talking about screeners. This time of year, the studios hold screenings of the movies that they want you to vote for, but they also send you DVDs, and they will also send you printed scripts if you ask them to. Unless you beg them not to send you a printed script, they’ll send you a printed script. DVDs have started coming, and so far this year, we’ve gotten 21 DVDs, which is a pretty good haul.

Craig: That’s a serious haul. We get all the movies that you think we would get, but then we get some movies that are kind of popular fare, where they’re fishing.

John: I will quickly read through the list of what we’ve gotten, just so people know what movies we are talking about. Beginners, Bridesmaids, of course, Cars 2, Contagion, The Deck, The Guard. — What is The Guard?

Craig: I don’t know.

John: I see it on my list here, I don’t know what it is.

Hannah — I liked Hannah, but Hannah, I barely remember that it was this year.

Craig: It’s not going to win anything, but cool.

John: I can’t really see it winning something. I liked her a lot.

Craig: It’s a good movie, I just don’t think it’s an award movie.

John: The Help, which is an obvious choice. Higher Ground, which I don’t recognize at all. Jane Eyre, which I liked a lot and sort of got overlooked. Midnight in Paris, sure, of course. Pariah, which is a Sundance movie that I worked on at the Sundance Labs, which is great. The script is great, I haven’t seen the final movie, but the movie doesn’t come out until Christmas Day, so they’re already sending it out. It’s one of those movies where they basically know that it has to get a lot of critical acclaim and attention or else no one’s going to go see it.

Craig: It’s kind of cool that you get to see it before it’s in theaters.

John: Pirates of the Caribbean: On Stranger Tides.

Craig: Good luck.

John: Yeah, maybe it’s a visual effects thing.

Craig: Yeah, that’s true. I don’t think screeners are going to help, if you haven’t seen it by now.

John: The Skin I Live in, the Pedro Almodovar movie. Take Shelter, no idea what that is. Tree of Life.

Craig: Tree of Life, I saw that.

John: Which I don’t really want to see on a small screen, but I didn’t see it when it was out on the big screen, so I’ll try to get to a screening of it. Warrior, which I know a lot of people liked. Winnie the Pooh, which we watched, which is really, really sweet, and really, really young. Just super young. I take it you have not seen this movie.

Craig: Yeah, I haven’t seen it.

John: Your kids are too old for the movie.

Craig: Yeah, they’re past Winnie the Pooh.

John: What’s so odd about it is the storybook itself is kind of illustrated, so the characters will walk across the printed words, or the letters will fall into a hole, and they’ll climb up the letters to climb out of a hole. It’s actually a very clever way of doing it. The movie’s like 50 minutes long — it is super short.

Gnomeo and Juliet. Harry Potter and the Deathly Hallows, always a good choice, and J. Edgar was the most recent one to come.

Craig: I don’t know where The Hangover 2 screeners are. They must be lost in the mail, I guess.

John: There will be screeners, won’t there be screeners?

Craig: I don’t think so, I don’t think so. No one gives awards to sequels anyway.

John: Sent one out for Cars 2.

Craig: I don’t think they should have done that.

John: I’m not sure they should have done that either. We were talking about how there’s so many animated movies this year that are going to be up for contention. I wonder if this is going to be the year that Pixar’s not one of the movies in the animation category.

Craig: That’s actually a great question, because Cars 2 is their least well received film. There is a lot of other competition, the other studios seem to be raising their game.

John: Craig, when you get… I should explain again to listeners. The studios will send you a card saying, “Please verify your address, because we’re going to start sending you screeners.” You’re supposed to, for the Oscar screeners, they actually make you photocopy your Oscar card, and send that back in.

I don’t think they make you do that for WGA. They’ll ask you a lot of times as a tick mark, do you want DVD or Blu-Ray? A couple of years ago there was a big deal about each of the screeners was individually watermarked, and there was all this storm. Now they just send you stuff by FedEx, and they ask you to sign for it, and I guess they figure that’s good enough.

Craig: Yeah, I have a feeling that a lot of the security that surrounds these screeners has less to do with actual concerns about piracy than it does with maintaining a certain consistency in appearance about of being concerned about piracy.

John: Yeah, it’s security theater.

Craig: Yes, exactly. They really need to say, they are deeply, deeply panicked over piracy, and for good reason. By the time we get these screeners, the piracy has occurred. You’re right, it’s security theater.

John: The topic of DVDs coming to us is a good segue to our main topic for today, which is how residuals work. This is a good screenwriting or film industry 201 class. It’s not simple, but it’s not that difficult either, and I think it’s often very misunderstood.

I was at a WGA thing just last week, and another screenwriter said — we were talking about the Big Fish musical, and he’s like, “You’ll get royalties, just like we get residuals?”

I’m like, “Yes, and I understand why people want to think of residuals like royalties, but they’re really not the same thing.” They’re like royalties only in the sense that you’re getting paid down the road for work that you did earlier, but the actual way they work is vastly different than how royalties traditionally work.

Craig: They’re cousins, but they’re not the same.

Residuals exist because we don’t have copyright. When you do have copyright, one of the rights that you have is to be compensated for reuse of your work. You write a book, that book is republished, and when it is duplicated, you are compensated for all those duplications. When you write a play, and it is performed each time, that is a reuse of your work. In this regard, you are compensated fairly for the continual exploitation of your intellectual property.

As screenwriters, we don’t own intellectual property; we are employees. The studios own the copyright. How are we to be reimbursed for the reuse and continued exploitation of the work we create? Enter residuals, which were negotiated many years ago.

John: I actually looked this up, so do you want to hear the years?

Craig: Yeah. Sure.

John: I think the crucial framing for this is that residuals are only talking about the aftermarkets. They are never talking about the first use of something.

Craig: Correct.

John: So if you are writing a television show, that first time it airs on network television, or in some cases the first window in which it airs on network television, is considered the first use. You’re not paid residuals for that.

For a movie that you wrote for movie theaters, its first run in movie theaters or really any run in movie theaters is its first use. You are not getting residuals on that.

Craig: Correct.

John: Back in the old days, that is all there were. There weren’t residuals, because there weren’t aftermarkets. Basically movies showed in theaters, so they didn’t show anywhere else. TV was, once upon a time, just a live medium. It wasn’t rebroadcast later on.

Residuals first came up in TV, because you could rebroadcast something. So, 1953 was the first residuals for reuse of major television stuff.

Craig: Right.

John: That was limited to five payments. Only the first five times it re-aired were you paid something again. 1960 was the first residuals for reuse of theatrical motion pictures, what we call movies on free television. So, if you wrote that James Bond movie and it played on ABC, you were paid a residual. That was the first time that happened.

1971 was the first residuals for home video. Pay television and all of the other things that are like that, for both theatrical and for television. A lot of times, when we think about residuals, we really are thinking about DVDs and videotapes and things that people buy, even though showings on TV are often as lucrative, or even more important than the things that people buy at the store.

Craig: That’s right. Yeah. That’s all correct. The only interesting addition is that, for feature films, for whatever reason, exhibition on planes has always been considered part of the primary release of a movie. So we don’t get residuals for exhibitions on planes. I don’t know why.

John: Yeah. Maybe did they originally have projectors on planes and that was partly how they did it?

Craig: I don’t think so.

John: Or did it happen so close to the theatrical window that it was considered part of that?

Craig: It’s possible. I can’t imagine that planes were lugging around projector systems. But you never know. It’s interesting. I’ll ask one of our monks at the Guild why that came to be.

But certainly for motion pictures, the big residual base for us is pay and free TV. So, when they rerun our movies on network television or free cable television or pay cable television or home video, which used to be VHS. Then, when the VHS market gave way to DVD, it became DVD.

Now, as the DVD market gives way to online rentals and online purchases, that. That is all considered home video. Home video, since a very contentious negotiation in 1984, has been the battleground in residuals between our Union and the Company’s for going on 30 years now.

John: Yeah. So, before we get into the numbers, we should talk about who gets residuals. You get residuals if you are the credited writer on a movie that was written under a WGA contract.

Craig: Right.

John: Crucial to understanding this is that animation is not covered by the WGA. So Frankenweenie or Corpse Bride or Titan AE, the writer of those movies — me — I don’t get residuals on those. That would be awesome if I got residuals on those, because those end up selling a lot of DVDs.

Craig: That’s right. Not one Pixar movie has ever paid a dime to the writers in residuals, even though they have accrued many, many multiples of billions of dollars. It is unfair. I want to actually talk about why it is unfair for a second, because that ties into the whole point of residuals.

Residuals are not profit-sharing. They’re not designed to be something where the writer gets paid off in success the way that you hear about actors sometimes getting first dollar gross or back end deals or a percentage of the profit.

Residuals are designed to compensate us for, in part, the arrangement by which we don’t maintain copyright over the material we write. They are designed to compensate us for the reuse of our authorship. It doesn’t matter if the movie was a bomb at the box office.

If you keep printing DVDs, and people keep buying them, our authorship must be compensated for reuse. It’s not for the labor that we did. It’s not for the hard work. But for the reuse. That’s why it is, to me, a bedrock principle for any professional screenwriter to attempt to get payment for reuse. Unfortunately, in the world of animation, it doesn’t happen.

John: There are frontiers at which some people are getting WGA residuals for things that are kind of like animation, like motion capture for example. Some motion capture films have been written under WGA contracts and people really have got residuals.

I don’t know for a fact that Tin Tin is WGA. But I feel like it could be, because I know some of the Zemeckis movies have been.

Craig: Well, yeah. mo-cap is a battleground. That is something that we know that, in concert with the Screen Actors Guild, we are going to be fighting over, in the either the next negotiation or negotiations to come.

Obviously studios would love to see mo-cap be exempt and considered animation and thus the purview of IATSE, which does not procure residuals for its employees. We are going to see what happens.

John: This is a bit of a digression, but when we say residuals are something that writers get, we are not the only people that get residuals.

Craig: No.

John: Directors get residuals. Actors get residuals.

Isn’t it true that at least one of the other below the line unions, residuals kick into some part of their pension fund or something?

Craig: It in the Directors Guild, the director gets residuals. The way the Directors Guild works is that half the residuals that come to the Directors Guild for their members get apportioned off into the health fund. The rest are distributed amongst their members as opposed to the Writers Guild, where we get all of the residuals that come to the Guild.

In the Directors Guild, the Directors get the lion’s share of residuals. But a certain amount of residuals are also apportioned out to first ADs, second ADs and Unit Production Managers.

John: It does make it a little bit murkier, that sense that residuals are something to acknowledge copyright and authorship. It’s a use of that term for something that isn’t quite what we are talking about here.

Craig: Well, it’s not for the DGA. Look, that was their decision to make. But, for the Writers Guild I think it is very much a question of authorship, which is why you qualify for residuals if you get credit. Because our credits signify authorship.

John: Yeah. Yeah. So we should say that if you share credit on a movie, you end up sharing residuals. There is a formula for how that all works. So, if it is an even split between two writers on written by, they will share that 50-50.

Story credit is granted 25%. So, if you have got sole story, but shared screenplay, you get 25% plus half of the 75%. I’m not going to try that math here on the air. But it is a straight formula.

Craig: Yeah, that’s right. It’s also important to note that sometimes there isn’t a story credit, because it’s an adaptation. In those cases, the same amount of money still comes in. It’s just it all gets apportioned to the screenplay credits. Written by signifies a combination of story and screenplay.

John: Exactly. So, there are two kinds of residuals. We are mostly talking in the feature world. So one kind is moot. But, as I was looking up and doing some research for this, there are fixed residuals and there are revenue-based residuals.

Fixed residuals or something that kick in much more in television. So, as you write an episode of a television show, and then years later it rebroadcasts on Fox at five in the afternoon again and again and again, you get paid a flat fee for that. Am I saying that correctly?

Craig: Yes.

John: You get paid a flat fee based on that it was a show of this length. It aired on these markets and that’s how much you are getting paid.

Craig: Yeah. Those residual rates in television, the flat residual rates are actually based on the minimums scale. That’s why every three years, when we negotiate our contract, we always seem to be really vested in getting a 3% bump, or in this last one, a 2% bump I think, or 2 1/2%.

You think, “Well who cares if we are getting an increase in scale, because none of us get paid scale?” Well, it sets the residual rate for TV writers. That’s why it matters.

John: Yeah. It’s not an insignificant amount. If you got sole credit on a one-hour show that was rebroadcast later, your residual could be $20,000.

Craig: Yeah. Now, that is a little bit of a unicorn. It used to be, back in the day, when you and I would watch the networks unleash their fall campaign ads, there were a lot of network reruns. The network would run a show in prime time and then maybe a month later he would say that show pop up again.

Networks rarely do that now. They rarely rerun those shows. So even though the highest form of residual for television is I believe is a true network rerun, they just don’t happen.

John: Yeah.

Craig: It’s kind of a bummer.

John: Yeah. But we get more television. So that’s good.

Craig: There you go.

John: Yeah. For the users, it’s actually probably better.

Craig: Yeah, for the viewers it’s better.

John: Movies only have one fixed residual that I can think of or find. It’s relatively new and called the script publication fee.

Craig: [laughs] Yeah.

John: So if you write the feature film, the studio basically will pay you $5,000, which is theoretically so that they can include the script of the film, the screenplay of the movie, on a DVD. It’s sort of a gimme.

One weird thing and one separate right that we do hold onto is the screenwriter has the right to publish the screenplay. So they are basically pre-buying the right to publish that screenplay.

Craig: On the DVD, which they never do.

John: On the DVD.

Craig: What happens, and this comes down to the kabuki theater of labor management negotiations — I believe that came out of 2001; I may be wrong about that, I think it is 2001 — out of that negotiation, basically we were asking for a bump in in-home video for theatrical.

They were saying, “We are not touching this formula. We are not going to budge an inch.” So, we came up with this creative way to just tack on another $5,000 for everybody. It is such baloney. The language is baloney. The money is real.

John: It’s a check. It comes.

Craig: Yeah. It’s a check. It comes. Exactly.

John: Yeah. It’s actually one of the first checks you get for residuals, because they know what it is and they send it to you.

Craig: That’s right. That’s right.

John: So, we were talking. Those aren’t the only kinds of fixed residuals that you’re dealing with. So television has a lot of fixed residuals. Features only have that one fixed residual, the script publication fee.

Most of what feature writers are talking about are revenue base residuals. Basically you get a percentage of whatever the distributor’s gross is in those aftermarkets. So, it’s not the distributor’s gross of film rentals. We’re not talking about the money that is coming out of the box office at the theater.

We are talking about the money that they are making off of DVDs and iTunes sales and the sales they are doing through ABC and every place else.

Craig: And iTunes rentals as well. Yeah.

John: iTunes rentals, yeah. So those formulas are slightly different percentages. But 1.2% is the best way to think about it. 1.2% for…

Craig: Well, not really.

John: Talk to me Craig.

Craig: Well, it was 1.2%. That was sort of the number. Then, in 1984, the Writers Guild noticed that it wasn’t collecting 1.2% of the gross receipts that the companies were getting for VHS sales. They were getting 1/5 of that.

So they called up and said, “You have made an accounting error.” The company said, “No, we haven’t. See, we have this thing now, where we have decided that the 1.2% actually applies to what we call producers gross. Producers gross is 20% of the actual gross. So we are not giving you 1.2% of 100%. We are giving you 1.2% of 20%.”

In the rest of the world, that’s called getting screwed. You’re not getting 1.2%. You are getting .3%.

Did I do that math right? I think I did.

John: You did. Yeah.

Craig: So, long story short, we went on strike. We lost. We went on strike again in 1988. We lost. We have fought this battle over the decades. The formulas remain unchanged for DVD and VHS.

We essentially get .3%, roughly. It escalates at a certain point. But minorly. .3% of the gross. Now, that means if you go to Best Buy — and you’re that guy that is still buying DVDs at Best Buy, so you are my grandma — let’s say they sell them to you for $15.

Best Buy keeps a chunk of that money. Then the rest goes back to the studio. That is the gross that we get .3% of. Someone worked it out roughly to be a nickel a sale.

John: Yeah. So, technically my 1.2% is accurate, in terms of the terms of the contract? But it’s not accurate in terms of what studios are actually taking back?

Craig: Well, they enshrine that 20% language in the contract. Unfortunately, we got stuck. Now, an interesting thing happened in 2001.

In 2001, I don’t know if anybody remembers, but we almost went on strike. This was when John Wells was President. I think the first go around. There were a lot of big issues at the time, trying to get Fox to treat writers like they were an actual network instead of a fledgling network and all the rest of it.

But we got this little interesting thing out of there that I don’t think anybody realized was such a big deal at the time. We got the companies to agree to pay a full 1.2% — not .3%, but a full 1.2% — of Internet rentals.

Now, in 2001, when that deal was made, the iPod had yet to be introduced. There was no iTunes. Nobody rented movies on the Internet. So this was a remarkable bit of foresight by John Wells and our then Executive Director, John McLean, to extract that deal.

In the ensuing years, the companies realize that they blew it on that one. They refused to make a deal on sales. They said, “Okay, fine. You caught us with our pants down on this 1.2% for rentals. But for sales, we want to stick with that .3%. So, if you are going to buy something over the Internet, we just want to give you .3%.” That was essentially the biggest issue. That’s called electronic sell through. That is the biggest issue that led into our last strike.

John: Yeah, the Internet was always what the headline was for the strike. It was like, “Oh, how are we going to do it with the Internet,” and you always heard about web series, but it’s really sell through and rentals. It’s how people are going to be buying their movies in the next decade.

Craig: Yeah, and streaming for television shows. The television side is actually very complicated, because there are so many ways to deliver television shows, and it’s often difficult to calculate revenue. Is it ad supported or not ad supported? Does somebody buy a subscription to a site that then streams lots? It gets tough.

For movies, it’s actually very easy. You’re selling units or you’re renting units, how much per unit do we give? I remember sitting down with John Wells in 2005, this is two years before the strike. I said, “Look, they’re saying .2 or .3, rather, we’re saying 1.2 for sales. Where is this going to end up, in the middle?”

He thought that’s oftentimes where these things end up. In fact, after a very long strike, that’s where we ended up, pretty much in the middle. For electronic sales, it is .6 and change, and again with escalators for an electronic sale.

We do very well on rentals, iTunes rentals, we do great. iTunes sales, we do twice as good as we used to do on DVDs. DVDs, we still take it in the shorts.

John: Yeah, we do, but DVDs are going away.

Craig: Yeah, they’re going away. The scary thing for us as writers is unlike the last iteration of the extinction cycle, where DVDs eliminated VHS and then some, Internet hasn’t quite replaced DVD in terms of grosses. The studios are not making as much money per movie as the used to, at least not through downloads and rentals yet, over the Internet. They’re panicked because they see this enormous cash cow fading, and they don’t see the Internet quite booming the way they would have hoped. But it’s also new.

John: It’s new. Here’s the difference that I saw: VHS tapes, they were priced fairly high, and eventually they brought the price down. They were able to introduce DVDs at really, a pretty high price point, given how little they cost to make, an individual DVD. It cost them less to make a DVD than it was to make a VHS tape.

The form factor of DVDs, people liked collecting them, and people wanted to have big collections of DVDs. People would go out and buy all these things, and studios could go back and reissue old movies on DVD, or new box sets of things that were slightly remastered. They could keep churning their old library titles again and again and again on DVD. People loved it.

I don’t see that you’re going to be able to do the same kind of thing with digital downloads, especially because they want to sell ultraviolet or other ways that you have a film locker, you could hold on to things. I as a user don’t really want to hold on to things, I just want to be able to watch whatever movie I want to watch whenever I want to watch it, and it’s challenging to find a business model that makes sense for everybody across the board that makes that possible.

Craig: That’s kind of the secret, hidden, possibly good news here. You’re right, the age of possessing media is over. We have transitioned, some people dragging, kicking and screaming, but so be it. We have transitioned into an era where media is defined by our access to it, not by our possession of it. When it comes to movies and television shows, if we decide we want to watch something, we just want to be able to click a button and watch it. Since the technology is available, why shouldn’t we?

The good news is that’s a rental model. We do well on rentals. It’s also for the studios, the upside is there are literally no physical costs, beyond a bunch of servers. If they could get their acts together and create their own distribution for this, they don’t have to print materials, boxes, CDs, they don’t have to pay for shipping, and they don’t have to handle the returns, the destruction of the old copies or any of that stuff. The question is whether or not people will actually be trained to do this as opposed to whatever else, watching something else because they don’t want to.

John: Right now, looking at the on demand streaming through places like Hulu or Netflix. To me, what I see as the challenge when figuring out our residuals is Netflix or Hulu, they’re making block deals for a bunch of titles from a studio. There’s no guarantee that you as the writer are going to be nicely apportioned for that block of movies they ended up licensing.

Craig: Yeah, that’s the other thing. I don’t know how the studios handle that accounting. They have to in some way or another, because you’re right, if you write a big hit movie, you don’t want to split things evenly with movies that were duds.

That’s a challenge, and the other challenge is that we haven’t quite gotten to that place where the way the iPod essentially saved the music business and created that business model. We haven’t gotten there yet. We need the iPod of TV, we need whatever Steve Jobs is cooking up, or was cooking up, I should say, before he passed away.

The sort of Apple TV device that allows people to look at their big 60-inch screen in their home theater, and then through that screen, quickly buy a movie that plays right there and then and is stored right there and then, because that’s what we need.

Right now, I think it’s easy enough to go on iTunes and rent a movie. I actually don’t think people like watching movies on computers or on their iPads, frankly. I think they really want to watch them in their house, on their big TVs. Why not? They paid for them. If we get there, let’s see what happens.

John: While we’re getting there, let’s talk a little bit about the practicalities of residuals, and what that means to individual screenwriters. Residuals get paid out every quarter. If you write a movie for Sony, Sony will send you a check. They actually send a check to the WGA, and the WGA forwards the check to you for the amount of residuals that you’re owed.

If you have just one movie with a studio, it’s just the one check that comes. If you have a bunch of movies that are through a studio, like I had Charlie’s Angels and the second Charlie’s Angels and Big Fish, those all get lumped together. You can’t actually figure how much came from each movie until you go online and sort it all out.

Those checks come to your home or to your office, but it’s more fun if they come to your home. They come in a green envelope that’s a very unique color. Whenever you’re going through your mail, “Oh my God, I’ve got a green envelope.” Then the fun comes in trying to guess how much the check is for. You open up the envelope carefully so you can see which company it is, or which title it is, and then you guess based on your recent history how much you think that residual check will be for, and it can be for a lot more than you thought.

I picked Go because it was a movie that I’ve had residual checks for the longest, and I think was illustrative of why residuals matter. I can talk you through Go, and I’ll just give you the real numbers on Go.

Go was a movie I wrote in ’96, the movie came out in 1999. All in, I was paid about $70,000 for Go, that was them buying the rights to the script, and me rewriting the script and production and everything else, I was paid about $70,000. The movie was moderately successful, it made about $17 million in box office. The budget was $5.5 million, so nobody was really losing money, but with advertising, they had probably… they weren’t really making money theatrically on the movie.

My first residual check for Go came in November 1999, it was for $36,000. That’s a lot of money, that’s duties, sales, probably was on a run on HBO at that point. That was great, that’s DVDs sold. Checks keep coming. I remember Rawson Thurber, my old assistant. When he wrote Dodgeball, he called me after Dodgeball came out. He was like, “I just got a residual check for Dodgeball, it’s so great, I didn’t realize these things would come!” I was like, “Rawson, you know they’re going to keep coming. They come every quarter.” He had no idea, it was Christmas for him.

The checks keep coming on a movie, and so my most recent check for go was in August 2011. It was for $1,863. A lot less, but still money.

Craig: That’s the life cycle of these things.

John: Exactly, there’s a long tail, it tapers down. The lowest I got for a quarter, I just looked it up, was November 2007, I got a check for Go for $428, which is still money.

Craig: It’s money.

John: It’s money, it is actual money. I pulled up from the WGA site, and I totaled up all the Go of it all. It actually ends up being serious money. All together for go, $337,000.

Craig: That’s great. That’s a great example, because the movie wasn’t a juggernaut at the box office, it was a little film, but it had a life on video, it had a life on cable, and I assume it has a renewed life online. The point is you authored it, and you should get that money.

By the way, let’s also point something else out, because I like to reverse engineer these things. You made, what did you say, $370,000?

John: Yeah, $337,000.

Craig: Perfect, let’s just say $350. You made $350. Do the math, that is somewhere between .3 and one percent, depending on what the formulas were, and how it ran and all the rest of it. Let’s also point out how much the company has made for using that.

John: I came into this podcast having reversed the math at 1.2 percent, but that was really the wrong figure. My number for what they made is going to be too low. At 1.2 percent, they made $28 million.

Craig: They made more than that.

John: They made a lot more than that.

Craig: They made a lot more than that, and then you realize just how much money a movie can make, because a lot of movies can break even at the box office, then the rest of it. And what’s the expense, what is the overhead? This thing exists permanently and requires no maintenance. It doesn’t have to be cleaned, it doesn’t have to be fed. It just sits there and is duplicated as you need it.

John: The reason why wanted to put some real numbers on that is we end up talking about these esoteric things, like is it .3 percent or is it 1.2 percent, and it actually does genuinely matter. The reason why we go on strike, whether it was the right choice to go on strike or not, the reason why we fight for these things, $337,000 is a lot of money.

I’ve been lucky to be able to write other movies since that time, but if I hadn’t written, haven’t been successful in the time since then, that would be money that I would really, really need. It matters for everybody who actually gets a movie made.

Some questions that would come up, I think people were asking questions, so let’s get to them right now.

If you die, what happens to your residuals?

Craig: I believe that they are assigned to your survivor and your estate, as it were.

John: Exactly, they really are an ongoing asset. They do persist, it’s not one of those things like a health insurance thing. It’s not that kind of benefit that just goes away, it’s only while you’re alive. It does keep going on.

People ask, “Do you pay taxes on residuals?” Yes, you pay taxes on residuals, they’re income.

Craig: You also pay dues on your residuals.

John: You do, you pay your 1.5 percent. I think WGA already takes those out before they send it to you.

Craig: That’s right, when you get the little statement, they just ask you what your writing income is? Then you fill that out, you send it back to them, they send you back a bill with the calculation of that, plus they’re filing your residuals along since they’re collecting them.

John: Do you pay your agent or your manager commissions on residuals?

Craig: You do not.

John: You do not.

Craig: You do not, and for excellent reason, even though agents will bitch and moan about this incessantly. Very simple reason: they didn’t negotiate it, the Writers Guild did, so why should they get any percentage of it?

John: They shouldn’t get anything, they did nothing.

Craig: No, I deny them their money.

John: Anything more we need to wrap up about residuals?

Craig: I would just say to tie back to something you kind of hinted at there, in addition to the kind of intellectual justification for why we receive residuals, there is a sort of a moral one as well, residuals do help keep a lot of writers going in between these jobs that we do. This is not always a steady business.

When the companies attack our residual base, they are making it once again very hard for professional writing to be a sustainable career. If I could speak to them now, I would say, “Hey guys, keep in mind that you can’t starve your labor force to the point where they can’t actually bounce back and write another great script.”

You need people to stick with it, even if they have one or two years where they’re off, or they can’t find it, or they’re just not writing the stuff you want. Residuals are what keep people going, so it’s mission critical that we maintain those, fight for those, and seek to improve them every three years. There we go.

John: Great, thank you so much for this talk on residuals.

Craig: Thank you, and of course, thanks to our fine cleaning lady.

John: She does excellent work.

Craig: I’m sure right now she’s at home, staring at her husband, saying, “There’s the weirdest white guy. There’s no one there, he’s talking into a fake microphone.”

John: Yeah, it’s going to happen. All right, thank you, sir.

Craig: Talk to you next time.