The problem is the (lack of) points

The Writers Guild of America is on strike because everyone in Hollywood is unhappy. Nobody is making enough money or getting hired for long enough stretches. Complaints appear fairly universal as well, from showrunners and producers all the way down to the newest hire. In fact the only thing that doesn’t appear to be running a shortage is blame.

I know the complexity of trying to collectively bargain such an enormous industry means that any deal struck, even if it starts out relatively efficient, will be a bad deal for someone within 3-5 years. That’s just the nature of things when you’re trying to forecast both technology and the shape of multiple labor markets. It’s an impossible task. That said, I think we can boil down a lot of what has gone to hell to a single problem. Streaming is currently the dominant platform and streaming studios don’t pay points i.e. profit share on the back end.

Of course streaming services aren’t the totality of the television and movie business, but they are sufficiently dominant that the lack of points, and the problems downstream of it, have fundamentally altered both the labor market and the incentives facing the people creating entertainment. Writers, directors, producers, and even some of the bigger actors have routinely accepted a percentage share (i.e. percentage points, get it?) of the profits of an enterprise as a portion of their compensation. Blumhouse films famously got bigger name actors to join their small genre projects for scale (i.e. guild actor minimum wage) by contracting them for a sizable profit share. It’s a great way of mitigating risk for small studios while also attracting actors with the possibility of a big pay day.

Profit sharing is about far more than just mitigating risk, though. They are about aligning incentives. Everyone cares that much more about the quality of the product when their eventual payout is directly connected to success. Aligning incentives is both exceptionally important and difficult in contexts where quality is difficult to assess and forecast at intermediate stages of production. The only thing you need to know about Hollywood is a cliche that I choose to attribute to legendary screenwriter William Goldman who always asserted, with regards to the entertainment business, “Nobody knows anything.”

“Nobody knows anything” means that 1) forecasting success or failure of a project is difficult, but just as importantly, that all of the really important information is tacit. There’s somone who knows what the best bit of dialogue is, the perfect costume, who to cast as the best friend and the villain, how to frame the shot, how to light the third scene, how to make the write kind of fake snow, what kind of bagels to get, etc. Someone knows, but that someone probably couldn’t explain why they know what they know, couldn’t pass that information on, couldn’t identify the underlying factors in audience and historical film data. They just know. And if you want them to take the optimal action, and make the necessary committments and sacrifices to make the film the best it can be, they need to have incentives in place to ensure that they are rewarded for infusing their tacit knowledge within the final product.

Those incentives are currently broken in the film and television business.

As best I can tell, what broke them was that a) streaming is a lot less profitable than Netflix, Disney, et al. hoped, and b) out of a desire to keep internal data private, compensation contracts could no longer include an “outcome” based component i.e. profit sharing.

Streaming services make money from subscriptions. How an individual production contributes to those subscriptions has a relationship to data associated with that production, but streaming companies have thus far been unwilling to release data associated with individual productions. Yes, Netflix started releasing a little bit of data, but nothing compared to previous entertainment paradigms. Ticket sales, nielson ratings, and advertising always allowed for intuitive mechanisms for profit sharing via points and residual checks. In order to keep their data private, firms have opted instead to move to simple compensation structures, including before-after compensation where a writer, producer, or director is paid when a project is started and when it is deemed completed.

Receiving roughly half of your pay when a an amorphous product, like a film script, is “done” is a really terrible idea for the simple reason that the writer has far less incentive to make the script “good” and far more incentive to make it acceptable to person who must stamp it “done” so they can get paid. How do you get that stamp? By doing whatever they tell you to do. The problem is, they don’t know what the script needs to be good, that’s why they aren’t a writer. They don’t have the tacit knowledge. The writer has it, but fighting to infuse that knowledge in the script does nothing to improve their pay, in fact, it only delays it.

These breakdowns in incentives are all over Hollywood and you can feel it in the films and shows coming out. Scripts feel half-assed, as if written by disconnected employees scattered to the winds of Zoom and a California housing crisis. Performers seem unsure of what to do within a menagerie of green screen and tennis balls on sticks. Audio is famously terrible in movies now.

So how do they fix it? Well, I’m not even sure who “they” are one answer might be found in the Blumhouses, A24s, and every troupe of actors and filmmakers who keep working together. Shrink the number of people involved to the point where you solve incentives not with perfect contracts but with longer term relationships. Repeated interactions have always been a great way of aligning incentives. When credit can more naturally flow to smaller number of people, when working together over and over is the best way to create job security, all of the other problems become easier to solve.

What about the revenue problem though? Well, maybe ticket sales never recover, and streaming never prints money the way advertising did, but modern technology also means you can make a show or film with a smaller number of people than ever before, which means every single one of those people could feasibly participate in profits. Maybe the answer is to simply recreate the old model externally to the big studios, at the earliest stages of coordination, recruiting and writing, before distribution or marketing even enter the equation. Smaller teams, direct participation in profits. Smaller movies and shows. Smaller can be better, just ask anyone who’s ever tasted a beer in the last 20 years.

Maybe the WGA (and the directors and actors guilds too, for that matter), should be thinking a little bit less about what they can negotatiate from the studios, and more more about how much it can cut them out of pre-distribution entirely. Vertically integrating the film and television business is not the only possible state of the world. In fact, given the current state of technology and the broader labor market, it’s entirely feasible that one of the main reasons that industry has collapsed into such a small number of firms is that guild contracts grant cost advantages to being enormous, even in the case where much of the companies in question have next to zero knowledge about the creative side of their industry. There may very well come a time where a million micro-studios, teams of writers, actors, directors, and production staff simply work to make their products and then sell ex-post to the highest of the content-starved bidders. There was a time with the Shane Blacks of the world got to enjoy the benefits of bidding wars for their scripts. Maybe the WGA,DGA, and SAG can bring those back. Does anyone have Sotheby’s number?

Or maybe the world collapses into a hellscape of reality-influencer tik tok stars and I wholly divorce myself from entertainment entirely. Bird watchers seem happy. Maybe I could get into bird watching.

3 thoughts on “The problem is the (lack of) points

  1. Scott Buchanan May 22, 2023 / 7:50 pm

    Great point: “…the writer has far less incentive to make the script “good” and far more incentive to make it acceptable to person who must stamp it “done” so they can get paid”


  2. Robert Storper May 23, 2023 / 8:38 pm

    I passed along your post to a friend who is a long time veteran in Hollywood. This was the reply:

    “Disagree with most of it. The only valid point is that streaming is not as profitable as perceived.

    Incentive alignment has been a problem in Hollywood since inception. It has nothing to do with the current collective bargaining agreements. The writer suggests that before streaming that all writers had meaningful profit participations that have now been taken away. This is nonsense.


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