5 Things You Need To Know about Residuals

One of the biggest question marks when trying to ensure profitability on a film or TV project is the residuals payment obligation. The talent guild agreements are filled with nuanced rules that can end up costing an unsuspecting producer or distributor much more than anticipated.

Here are five tips to keep in mind, both when estimating the total cost of your film and when negotiating licensing deals to make sure they’re profitable.

1. Leaving someone off the cast list results in more than hurt feelings.Improper verification of the residuals cast list (i.e., getting it wrong) can generate claims and additional costs. Here are some common errors in creating the residuals cast list:
   • Omission of SAG- AFTRA Talent
   • Upgraded Extras
   • Talent in re-shoots
   • Stunts and stunt coordinators in second unit
   • Choirs hired in post-production
   • Talent called to loop or re-voice
   • Talent in clips or excerpts from other films or recording used in film
   • Celebrity look-alikes, sports stars, political cameos hired outside normal casting
   • Nude body doubles hired as principals
   • Failure to properly calculate SAG or IATSE residuals proration
   • Failure to recognize special agreements or waivers negotiated at the time of production
     
2. The first million is the sweetest. Under all collective bargaining agreements, residuals on the first $1 million reportable receipts from Home Video are payable at lower percentages.  In cases of shared distribution territories, agreements should detail which entity gets the benefit of these lower residual rates. In cases where the agreements do not make this clear, it is to the distributor’s benefit to make the first Home Video reporting.
   
3. Watch out for the ol’ PH&W prepay. Advances to star talent are often made prior to production and outside of a payroll service. Consequently, these amounts are sometimes overlooked in preparing the residual cast list and are not credited toward that talent’s Pension Health & Welfare contribution ceilings. This results in overpayment of PH&W on residuals.
   
4. Separate payroll services = doubled PH&W contributions. In cases of shared distribution where the responsible parties are using separate payroll services, residual payments made by one party are not likely to be credited by the other against talent PH&W ceilings. This also results in another PH&W overpayment on residuals.
   
5. Be an approval-seeker when it comes to setups. When two parties are using separate payroll services, it’s important to coordinate the approval of the residual setup. Making residual payments based on different allocation or proration would be a red flag for an audit.

One of the best things you can do to protect yourself and make your film attractive to distributors is to get your final residuals cast list together while you’re still in production. A residuals payment service can help you assemble the list, and should even be able to forecast the cost of residuals for various release-to markets.

Learn more about Media Services Residual Payments, or request more residuals information here.