From ‘Suits’ To Nuts, Streaming Residuals Explained

From ‘Suits’ To Nuts, Streaming Residuals Explained

September 22, 2023

About six weeks after the Writers Guild of America went on strike for the first time in more than 15 years, eight seasons of Suits landed on Netflix.

All nine seasons had already been available on Peacock, but the “Netflix effect” rapidly proved itself once again. The streamer unexpectedly struck gold. 

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In its first week on Netflix, Suits clocked 2.3 billion viewing minutes across both platforms, according to Nielsen streaming data. Its reign would continue for the rest of the summer, as the title soared above 3B viewing minutes the next week and stayed there for nearly two months. As of Nielsen’s latest report, Suits is still performing unfathomably well, tallying 2.7B viewing minutes during the week of August 20.

Suits isn’t the first series to find new life on Netflix, and it certainly will not be the last. But although the deal with Netflix had likely been made well before the strike, the timing couldn’t have been more prophetic. As writers — and eventually the actors — were marching in the summer heat for better pay, especially from streaming residuals, Suits became a perfect case study.

Coming on the heels of celebrities like Aaron Paul and Mandy Moore — whose respective hits Breaking Bad and This Is Us are consistent crowd pleasers for streaming platforms — insisting they were making pennies in residuals, everyone began to wonder: How much are the writers and actors receiving from a massive success like this?

Put simply, the answer is not much, but not nothing.

What are residuals?

Residuals are guild-mandated payments made to actors, directors, writers and others involved in the making of film and TV as compensation for cable reruns, syndication, DVD release and licensing to streaming media. They are just one of several ways that creatives are paid for their work.

In streaming, there are two common types of residuals.

A fixed residual is paid to writers and actors involved in shows created for new media, which is determined based on a formula agreed upon in each union’s minimum basic agreement. Residuals for shows created for streaming are calculated using a formula that factors in the length of the program, the size of the service when the program was written, and the exhibition year.

The WGA formula can be viewed here. The SAG-AFTRA formula is broken down here.

There is also a revenue-based residual, which applies when a film or series is licensed to a streaming platform, and it is a percentage of the fee paid to the studio by the distributor. 

Suits, produced by Universal Studio Group’s UCP, would fall under the latter category, because it originated on cabler USA Network and was licensed to a streaming service. In this case, NBCUniversal has licensed Suits both to its own service, Peacock, and to Netflix. In most cases, both Peacock and Netflix are paying a fee, and the residuals owed are 1.2% of the license fee to writers and 3.6% to principal performers. 

“So you take that total number that Netflix paid UCP, and you divide it by [the number of episodes] … multiply it by 1.2%, and that’s what a writer gets paid,” a top agency partner told Deadline.

Since Netflix only licensed the first eight seasons, that equates to 124 episodes. Although the license fee for Suits has not been officially disclosed, sources told Deadline that it is in the range of $200,000-$400,000 per episode, which would put the deal between $25M and $50M.

Let’s cut the difference and assume Netflix paid $37.5M to license the show. This would mean a writer would make 1.2% of the fee paid for each episode they wrote, paid out over the term. That’s $3,629.

A similar equation applies for actors. Each principal performer would receive a pro rata share of 3.6% of the fee paid for each episode. So, again, for a $37.5M licensing fee for Suits, that would be $10,887 per episode equally split among all principal performers over the length of the deal.

These same equations apply for Peacock, which is technically licensing Suits from Universal Content Productions. But, since they are both within NBCUniversal, it may have been licensed for a lower fee, given that the deal extends over a longer period.

Not much, but not nothing

The current streaming residuals model is not too dissimilar to how writers and actors were paid residuals for reruns and syndication. Generally, a network would pay a fee to the studio to air a certain number of episodes of a show over a specific time frame. Once the time frame was up, the network had to pay for the rights all over again, and residuals were due each time. 

When calculated individually, those residuals might not have amounted to much. But collectively, along with residuals from foreign sales, they were able to support writers and actors by providing robust and consistent income between gigs. That is no longer the case. 

“Broadcast is diminishing, year after year after year, and even if you do a broadcast show, your residual is going to be greatly cut,” Breaking Bad star Bryan Cranston previously told Deadline while walking the picket line. “When we first started coming up in this business, a long time ago, we relied on residuals to be able to pay our bills. I mean, part of the equation of working [in film and TV] was residuals, international residuals, DVD sales and things like that. But those are gone.”

Not only do longer licensing deals mean less frequent and ultimately lower residuals for creatives — as streamers begin snatching up the global distribution rights to more series, there isn’t anywhere else to sell them.

“When I started in the business, shows would get sold into not just multiple territories but multiple platforms, and each platform and each territory engendered a new residual for the writer,” a longtime entertainment attorney told Deadline. “If you’re limiting yourself just to streaming, that’s only one platform, and that platform, at least currently, has an unfavorable residual.”

Is a big payday even possible anymore?

As previously mentioned, residuals are not the only way that creatives are paid out for their work on the back-end — and they probably were never making anyone rich on their own. In addition to base pay and residuals, there are plenty of other payouts writers and actors can negotiate in their contracts, including profit participation. 

Generally, the creator of a show is able to negotiate profit participation, which means a direct payment dependent on the profitability of the series, once they are fully vested. Sometimes, principal performers are also able to negotiate profit participation. 

Such was the case with Friends, which Netflix reportedly paid $100 million to keep on the platform for just one year in 2018. Of course, even with the guild’s current residual payout, that is a fairly lucrative deal for everyone involved. But creators David Crane and Marta Kauffman, as well as the show’s stars, likely profited much more from that sale than just the licensing fee residual.

In those cases, their contracts often include a clause that requires them to be paid another (much larger) percentage of whatever profit the studio makes from the show, in perpetuity. This type of payout requires much more leverage to acquire, and it’s not what the guilds are currently fighting for as it is not laid out in the minimum basic agreement. 

Besides, those paydays seem to be fewer and farther between. As streaming becomes the norm, there is less opportunity for shows to become as ubiquitous as Friends. It’s only after being sold over and over across different mediums, like cable and syndication, that a series could get enough eyeballs to become coveted monetarily. 

“I just don’t see how somebody makes a Friends now and becomes uber wealthy,” the attorney said. “I don’t think that’s ever going to come back. I really don’t. There may be some unicorns out there, but I do not think the future holds a place for all of that.”

That’s partly because series are gatekept on one platform. But, a lack of transparency from studios about how shows are performing on their platforms has also put creatives in a more difficult position when they attempt to negotiate a new contract. 

Deadline previously reported on how the rapidly changing business model and a refusal to give access to meaningful audience data has made it harder for the guilds — and competing studios within the AMPTP — to settle on a new model that would work for everyone. However, even outside of the MBA, writers and actors find themselves in a less powerful position when it comes to bargaining with studios on their own terms.

“When Netflix has opened their kimono to some of our highest paid showrunners, it’s crazy how specific they can be,” one agent told Deadline. 

Lack of transparency isn’t exactly new. Even pre-streaming, it wasn’t uncommon for lawyers and agents to get involved to make sure their client got the proper payout and didn’t fall victim to “hokey studio accounting practices,” as another agent put it. But still, third parties like Nielsen were able to shed some light on how shows were performing. And the frequency of deals made across cable and syndication also gave creatives an indication of how lucrative their show was. 

“In virtually every instance where we’ve been involved in a successful show, we’ve had to audit the studio and the client has had to fight to get information and to be compensated properly,” the second agent said. “I’m hoping, coming out of this, there’s greater transparency in the way that we all handle our business amongst one another.”

One piece of a larger puzzle

Linear television shows licensed to streaming platforms have become just one small piece of a large puzzle in the WGA and SAG-AFTRA fights for better pay for members.

In fact, amid the recent buzz around Suits, creator Aaron Korsh has said he believes his show and others like it better exemplify the gains in the 2007-2008 writers strike, not the industry’s current deficits.

The last strike allowed writers ownership over content created for and distributed on new media platforms. Without it, it’s unclear if he and the rest of the writers would be entitled to any residuals at all. 

“I cannot believe how prescient they were, it was really amazing,” he said, adding that he expects the guild to focus its negotiations on shows created for streaming. 

“Right now, we’re in an era where far more shows are made for the streamers. So now the specific residuals for shows that are made for streamers are much more important,” he continued. “That’s more of what we’re going after in this strike. That’s not to say that I don’t think we could do better in residuals for all shows. I think we could and we will.”

What is the solution?

One of the ideas proposed by both the WGA and SAG-AFTRA is to establish a success-based residual model that allows members to share in the success of their content on streaming platforms (presumably, whether they were created for streaming or not). While the WGA suggested a “viewership-based” residual model, SAG-AFTRA asked for a 2% share of the revenue generated from streaming content. 

In its August counterproposal to the WGA, the AMPTP offered to provide viewership data in “quarterly confidential reports” that would allow the guild to restructure its proposals for residual payments in the future but would not currently result in any direct compensation. So far, the AMPTP has not returned to the negotiating table with SAG-AFTRA since it rejected the guild’s revenue share proposal. 

“We need minimums that reflect the actual value. The last contract negotiation was done at a time when streaming just wasn’t that valuable, and wasn’t that evolved,” the entertainment attorney said. “The guild, I think as a consequence, and just to get the deal done, agreed to minimums that in today’s world just don’t make sense. So what they’re pushing for there is residuals that will replicate the residuals their clients see on more traditional exhibitions. We just need to find the number that’s commensurate with the value.”

While Korsh said he doesn’t know the specifics of the Suits deal with Netflix, he suggested perhaps an escalator clause be added to future contracts, which he’s “pretty sure” that NBCUniversal didn’t include in its deal to license Suits but would have required Netflix to pay out even more depending on how the series performed on the platform. 

“I think they should have,” he told Deadline. “Had they done that, the amount of money Netflix would be paying NBCUniversal would go way up. Therefore the residuals to the writers would go way up, because the formula is based on how much NBCUniversal gets paid.”

Where the guilds will land on the residuals front remains to be seen, and the WGA is currently hashing that out with the AMPTP in Sherman Oaks. Whatever the case may be, both guilds have been adamant that the future of the industry hinges on finding a new way for their members to make a livable wage, which includes restructuring the current residuals model. 

“If the statistics that the WGA and SAG are providing in terms of what percentage of their constituents are making above the poverty line, then they’re committing a good chunk of their life and their career to an industry that hasn’t really rewarded them in any significant way,” the agent told Deadline. “A handful are rewarded … but not the lion’s share of the membership, which our industry wouldn’t survive without.”

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