WGA Wins $42 Million “Self-Dealing” Arbitration Against Netflix

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The WGA said today that it has prevailed in a huge “self-dealing” arbitration against Netflix that it says will result in hundreds of writers on more than 100 Netflix theatrical films receiving an additional $42 million in unpaid residuals. The WGA West and the WGA East say they now are pursuing about $13.5 million in interest that Netflix reportedly owes writers for late payment of these residuals.

In a notification to their members, the guilds said that their victory stems from “an important arbitration over Netflix’s underpayment of the writer’s residuals for the theatrical motion picture Bird Box. Netflix argued the WGA should accept a substandard formula the company negotiated with DGA and SAG-AFTRA. After a hearing, however, an arbitrator determined differently — that the license fee should have been greater than the gross budget of the film. He ordered Netflix to pay the writer a total of $850,000 in residuals along with full interest of $350,000.”

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“As a direct result of this ruling,” the WGA added, “216 writers on 139 other Netflix theatrical films are receiving an additional $42 million in unpaid residuals. The guild is now pursuing approximately $13.5 million in interest Netflix also owes writers for late payment of these residuals.”

In 2016, Netflix began producing and releasing theatrical motion pictures written by guild members. Under the streaming giant’s minimum basic agreement (MBA) with the WGA West and WGA East, initial compensation covers the theatrical exhibition of the movie.

The guilds told their members on Thursday:

“When a theatrical is licensed or released in any other market – like streaming or television or home video – residuals must be paid on revenues earned in those markets. The typical residual for the credited writer is 1.2% of the license fee paid to the producer for the right to exhibit that film.

“If the license is between related parties – for example, when Netflix is both the producer and the distributor of the film — the MBA requires that the company impute a license fee based on arm’s length transactions between unrelated parties of comparable pictures — for example, a Sony film licensed to Netflix. This critical definition, negotiated as part of the resolution of our strike in 2008, protects against the undervaluation of license fees through self-dealing.

“Rather than follow the established MBA definition for related party transactions (which exists in the DGA and SAG-AFTRA agreements with the AMPTP as well), Netflix negotiated new deals with the DGA and SAG-AFTRA that allow Netflix to pay residuals on significantly less than the cost of the film. Netflix then tried to force the WGA to take this ‘pattern’ deal. Since it was clear the new formula negotiated by the other Guilds undervalued these ‘imputed’ license fees, the Guild instead took the dispute to arbitration.

“During the arbitration, the Guild showed that when Netflix licensed comparable theatrical films from third party producers it almost always paid a license fee that exceeded the budget. The industry refers to this model as ‘cost-plus.’ The Guild argued that Netflix must apply this cost-plus model to its own films and impute license fees in excess of the budget for the purpose of paying residuals. The arbitrator agreed and ruled that the license fee should be 111% of the gross budget of the film.”

According to the guild, that arbitration decision has been applied to 139 other Netflix films. “Including the additional residuals awarded as a result, the 216 screenwriters of these films have now received a total of $64 million in residuals, which is $20 million more than they would have received under the deal accepted by the DGA and SAG-AFTRA.”

The WGA noted, however, that Netflix “is thus far refusing to pay interest on the late residuals for films other than Bird Box, so the Guild is pursuing in arbitration the $13.5 million in interest still owed these screenwriters.”

The WGA said that in the Bird Box arbitration, Netflix “attempted to employ the decades-old AMPTP strategy of reaching substandard agreements with other unions, then trying to force the ‘pattern’ onto writers. In this case, Netflix failed because the WGA was willing to fight for what writers were owed under the MBA, instead of accepting the DGA/SAG-AFTRA pattern.

“As the studios increasingly engage in self-dealing on their own streaming platforms, we must ensure that writers are paid properly,” the WGA said. “Netflix, with only a decade of experience employing writers, has quickly become one of the worst violators of the MBA, requiring the Guild to expend significant resources to protect writers who work for the company.”

The guild also noted that “the upcoming 2023 MBA negotiation challenges us to address the industry’s rush to use the growth of the streaming model to depress pay and working conditions for Hollywood talent. It is our hope that writers and all Hollywood labor will receive their fair share of the value we together create.”

The communique to WGA members was signed “In solidarity” by the WGA East and by WGA West President Meredith Stiehm, Vice President Michele Mulroney, Secretary-Treasurer Betsy Thomas and all the members of its board of directors.

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