The Top 12 Changes in the 2019 Commercials Contracts
By Brian Murphy |
“This article, written by Brian Murphy, a partner at FKKS, was originally published on the firm’s blog and is reprinted here with permission from FKKS.”
When negotiations for the 2019 SAG-AFTRA Contract (the “Commercials Contract”) ended in April of 2019, the new agreement was heralded as “a monumental advancement in growing our jurisdiction” (by SAG-AFTRA’s president – and Beverly Hills 20210 alum – Gabrielle Carteris) and a “landmark agreement” by the ANA-4A’s Joint Policy Committee on Broadcast Talent Union Relations (the “JPC”), the bargaining unit that negotiates the contract on behalf of advertisers and agencies that have authorized it to do so. The fact that 96.85% of SAG-AFTRA members voted in favor of the contract demonstrates that union leadership, union members and the JPC (for once) appear to be on the same page about the potential for the new agreement to fairly compensate performers and address the realities of commercial production in the 21st century.
In this article, I explore twelve changes ushered in by the 2019 Commercials Contract beyond the all-new Alternate Compensation Structure (“ACS”) that (in my opinion) will have the biggest impact on advertisers and agencies that produce commercials under this collective bargaining agreement. (If you are interested in a summary of the ACS, check out this blog.)
The excitement surrounding the ACS – it is, indeed, a shiny new object – shouldn’t distract us from the other important changes agreed upon by the union and the JPC, which I explore in this Part II. These changes run the gamut: some address issues of importance to the union and its members; others are upgrades intended to better align the Commercials Contract with the realities of production (especially digital production) in 2019; a few clarify ambiguities that have tortured talent payment teams for some time; and several are aimed squarely at trying to “level the playing field” between signatory and non-signatory brands and agencies.
Cardi B. won’t be the only SAG-AFTRA member getting big (ok, at least bigger) checks in 2019.
In the new contract, wages are increased by 6% across the board. This means that session fees will be $712 for on-camera principal performers, $535.40 for voice-over performers, and $388.40 for general background performers. (See the official rate sheet for details regarding other performers, including on and off-camera group performers, hand models, and stand-ins.)
In addition, contributions to the pension and health plans go up from 18% to 19% of gross wages, with a “discount” of .5% for JPC authorizers. (Every little bit counts.)
The rate increases will be effective retroactively as of April 1, 2019.
It is hard to resist the Temptation is to call this one a big deal.
Under previous versions of the Commercials Contract going back to time immemorial, the maximum period of use (“MPU”) for a commercial automatically renewed unless the performer took the initiative to send a notice of non-renewal to the producer. The 2019 Commercials Contract switches things up by shifting the burden to producers to affirmatively reach out to performers to negotiate contract extensions beyond the MPU. If a producer can’t locate a particular performer, the producer can notify the union, and the union will have 30 days to locate the performer. If, ultimately, the union can’t find the missing performer, the producer is allowed to renew the spot at the same rate paid during the prior MPU.
The impact this change will have on renewal of commercials remains to be seen. For performers represented by agents, it shouldn’t matter much since, under prior contracts, many agents (like clockwork) automatically would send termination notices and demand renegotiation. However, certain types of performers – including non-professionals (who don’t qualify for a waiver), group singers, stunt performers, and performers not represented by agents – often did not send termination notices. For spots with these categories of performers, this definitely will make more work for producers, and it could result in higher wage payments in some cases.
In addition, it is likely that this change will be felt more with spots that are produced under the ACS (with its shorter, 1-year MPU) than spots produced under the main contract (with the traditional 21-month MPU). Commercials with a life span beyond 21-months are less common today than in days of yore. (Surely I am not the only person who can recite, verbatim from top to bottom, classic spots from Life cereal and Calgon detergent.) Perhaps, in light of this change, they will be rarer still.
“It’s the pleasure principle (the principle of pleasure).” (The homograph was the best I could come up with. Apologies to Miss Jackson.)
Two new categories of principal performers are recognized.
“Won’t you lift me up, up, high upon your love.” (Amazing video directed by Michel Gondry.)
The MOA includes three changes that loosen, ever so slightly, the reigns on editing, including the addition of a new “lift.” Even with these changes, the editing provisions in the main contract are not as flexible as those under the new ACS described in Section I above.
“You down with O.T.T. (Yeah you know me).” (I probably can’t apologize enough for that one.)
Use of commercials on over-the-top (“OTT”) platforms such as Hulu is now included in internet use.
In the MOA, there are a bunch of developments with waivers, the savior and hero to many a signatory.
The MOA includes two different provisions that that close the Doors to liability (to a certain extent) when spots remain up on social media and YouTube after usage rights have expired.
However, to qualify for this cap, there are a number of requirements:
Claims arising from the continued use of commercials in some dusty corner of YouTube have been a recurring issue for producers, and the wage amounts can be huge, especially when the cast is large. So, while the addition of the cap is helpful, a reasonable question remains: when the use in question was inadvertent (as it often is), and if the brand can prove that the number of people who viewed the spot was negligible (which is often the case), are even these capped amounts commensurate with the injury to the performers from the unauthorized use?
The Commercials Contract has been amended to clarify that payment obligations to performers are not triggered when a commercial is used in “soft news” and when the spots are shared with all publications (not merely trade pubs) for publicity purposes. The line between “hard news” (e.g., first hour of The Today Show) and “soft news” (e.g., perhaps, the fourth hour of The Today Show, which, when hosted by Kathy Lee and Hoda was affectionately known to some of us as the “Chardonnay Hour”) was never clear. Moreover, the justification for treating hard and soft news, and trade and other general interest publications, differently never struck me as compelling.
A new four-year limitations period was added for claims other than session related claims (which already are governed by a 6-month limitations period). The new period runs from when the performer knew or should have known that a claim existed – a “discovery” standard.
(Funny, I just can’t come up with a song with “Unwired Network” in the lyrics.)
The MOA introduces an alternative way to pay for use of commercials on “Unwired Networks.” An “Unwired Network” is defined as a network that “acquire[s] or repackage[s] local broadcast station inventory from around the country to resell to advertisers as national inventory by guaranteeing the advertiser a minimum national audience per ‘unwired unit’ purchased by the advertiser.” Previously, Unwired Network uses were paid as Class A program uses with a premium added (either +50% or +100%, based on the “Tier” in which the particular network fell). Going forward, producers pay for Unwired Network uses as wild spot uses; however, as an alternative to calculating payment in accordance with the wild spot rates in Section 33 of the main contract, producers can pay the following rates for unlimited use within a 13-week cycle: approximately $855 and $641, respectively, for an on-camera and off-camera principal performer.
As of today, the union-approved Unwired Networks are: ITN, Active International, Continuum Media, RevShare, ICON International’s, and Cadent. Others may be added if they satisfy the union that they meet specified criteria, including that they are purchasing non-prime time commercial inventory in multiple markets, and that the neither the network (nor its parent company) owns any of the stations involved in the media buy.
In addition to the increase in the P&H contribution rate, there are four important changes to the provisions governing how pension and health contributions are calculated and paid.
The Commercials Contract and the Audio Commercials Contract each has provided, since 2012, that producers are not obligated to pay P&H “on behalf of any individual performer on gross compensation in excess of $1,000,000 for covered services in a contract year where all such compensation has been paid on the basis of a single contract with a single producer.” The SAG-AFTRA Co-Ed Contract does not currently have a cap on P&H contributions.
Under previous versions of the Commercials Contract, the union’s position was that the $1,000,000 cap was applied in Step 2 (not Step 1), and that a separate $1,000,000 cap applied to the amount allocated to commercials (under the Commercials Contract) and to the amount allocated to radio commercials (under the Audio Commercials Contracts). Application of the cap in this fashion often resulted in producers paying P&H on more than $1,000,000 for a particular performer. Many in the industry argued that the $1,000,000 cap should have been applied at Step 1 and should have operated as an absolute cap on P&H exposure.
The new Commercials Contract resolves this issue definitively, providing that the “$1,000,000 cap shall be calculated after the application of the initial allocation guideline for covered and non-covered services as specified in Exhibit I and prior to any applicable 80%/20% or 90% /10% split between the SAG-Producers Pension Plan and the AFTRA-Producer’s Retirement Fund.” In other words, you apply the caps under the Commercials Contract and the Audio Commercials Contract in Step 1.
It’s easier to understand this with an mathematical example. Assume a celebrity is paid $3,000,000 in a contract year under a multi-service contract, pursuant to which she will perform in both audio-visual commercials and radio commercials. Assume also that the celebrity will perform robust non-covered services and that, therefore, a 50% allocation (Guideline B under the Allocation Guidelines) applies. This chart shows how the cap would have been applied (according to the union) under the 2016 Commercials Contract and how the cap will work under the 2019 Commercials Contract:
As you can see, even with the P&H rate increase, the producer pays less when the cap is applied at Step 1 instead of Step 2.
The efforts by the union and the JPC to “level the playing field” to make it easier for signatory brands and agencies to compete against non-signatories fall into two categories: (1) benefits that are specifically available only the JPC authorizers and direct signatories, and (2) efforts to cap potentially crippling financial exposure for signatories.
The union has been down this road before. In the fall of 2018, it withdrew the signatory status of EMS. However, the union’s more recent action feels different, not only because the union revoked the signatory status of six companies in one fell swoop, but also because the six include some of the bigger players in talent payment. Whereas the union’s action against EMS may have seemed to some like a warning shot across the bow of a ship from the Iron Fleet, this latest maneuver feels like a full-on march towards Kings Landing, with an army of Dothraki and a dragon in tow.
What happens next? In the alert, the union assures members that its action will not impact payments on active commercials. The union also notes that it is possible that some or all of the six will challenge the revocation, which (the alert indicates) is permitted by the letters of adherence each of them signed. The union concludes by calling out that “members may continue to perform in commercials produced by the aforementioned companies until a Do Not Work Notice is posted.”
The terminated signatories have vowed to challenge the union, and it is reported that arbitration demands have been filed. The adjudicator (presumably – at least initially – an arbitrator) will have to wrestle with what it means to be a “bona fide producer,” a term that is nowhere defined in the Commercials Contract and that may prove elusive. It takes a village to produce a commercial, with each citizen of the village – advertiser, agency, talent negotiators, production companies, editors, talent payment vendors, and others – playing crucial, sometimes overlapping, roles with respect to union talent, roles that are covered by different provisions in the SAG-AFTRA Commercials Contract.
One thing is for certain: if the union’s action stands, and if more revocations follow, this will cause a major disruption in the way some non-signatory brands and agencies produce commercials with union talent.