Why Doesn’t Netflix Pay Residuals?
Exploring the controversy behind Netflix’s approach to compensation and residuals for creators.
(By Carmichael Phillip)
(Photo: Cottonbro Studio | Pexels)
The Rise of Streaming Services and the Shift in the Industry
In recent years, streaming platforms have taken over the entertainment industry, changing the way viewers consume content. Netflix, once the pioneer in this space, has led the charge, amassing millions of subscribers worldwide and offering an immense library of shows, movies, and documentaries. However, one major issue that has created significant friction with creators is the fact that Netflix does not pay residuals, a standard practice in traditional TV and film contracts.
Residuals are payments made to actors, writers, directors, and other creators when a film or TV show is rebroadcast or continues to generate revenue after the initial release. In the traditional model, this serves as a form of ongoing compensation for the creators whose work continues to earn money long after the initial airing or release. However, Netflix’s business model, which emphasizes its subscription-based service and a different approach to content licensing, does not fit neatly into the residuals structure.
What Are Residuals and Why Do They Matter?
Residuals are an important part of the compensation structure for those working in television and film. When a show or movie is successful, residuals ensure that those involved in its creation continue to be compensated fairly for its continued success. These payments can add up to a substantial amount of money over time, particularly for actors, writers, and directors who work on long-running series or major hit films.
For example, an actor who stars in a television show that airs for several seasons may continue to receive residuals for years after the show has ended. These payments provide a steady source of income, particularly for those who may not be consistently employed in other projects. In this way, residuals help ensure fair compensation for the long-term value that a project provides.
However, streaming services like Netflix operate under a different model. The company pays for content upfront, purchasing the rights to stream shows and movies for a fixed period. This creates a stark contrast with traditional television networks, which often generate additional revenue through syndication or reruns, giving creators the opportunity to earn residuals from the continued airing of a show.
Netflix’s Business Model: Why Residuals Are Not Part of the Deal
Netflix has made a conscious decision to avoid paying residuals, citing their unique business model as the main reason. The platform operates on a subscription-based model, where users pay a monthly fee for access to a broad library of content. Rather than making money from individual advertisements or additional licensing deals, Netflix generates its revenue through its subscription base. As a result, the company argues that paying residuals for individual pieces of content would not align with their business structure.
In addition, Netflix often acquires the rights to stream content for a set period, typically a few years, rather than entering into long-term syndication deals. Once the licensing period expires, the content is removed from the platform unless renewed. This differs from traditional television networks, which can continue to air the same episodes for years, generating additional revenue streams that would trigger residual payments.
In a statement made to Variety, Netflix’s Chief Content Officer Ted Sarandos said, “Our business model is very different from traditional networks, and we believe in paying upfront for content. Our content creators know exactly what they are getting when they sign a deal with us.” While this upfront payment offers financial stability for creators during the initial contract period, it also means that they forgo potential residuals in the long term.
The Impact on Creators: A Growing Discontent
While Netflix’s model may seem attractive to some creators due to the upfront payment, it has led to increasing discontent among those working in the industry. Writers, actors, and directors who had become accustomed to receiving residuals are finding themselves without a safety net as their content continues to earn money for Netflix. This shift has led to concerns over fair compensation, particularly for those who have contributed to shows that become massive hits.
A report from the Writers Guild of America (WGA) highlighted the fact that many creators of popular Netflix series have not seen any residual payments. Writers, in particular, have been vocal about this issue, with some claiming that Netflix’s lack of residuals is contributing to a widening income gap within the industry. According to WGA member and writer for Orange is the New Black, Liza Minelli, “It feels like we’re being asked to give our work away for free. Netflix is making billions off our labor, but they don’t want to share the wealth.”
The Legal Battle: Attempts to Bridge the Gap
The issue of residuals for streaming content has not gone unnoticed in the legal and political realms. In 2020, the WGA and other unions representing creative professionals in the entertainment industry began pushing for better terms in their contracts with streaming platforms like Netflix. These efforts have included demands for a system that compensates creators for the ongoing success of their projects, much like the traditional model.
In response, Netflix has argued that the streaming model is too new and unique to be governed by old rules. The company claims that its payment structure—offering an upfront fee—is a more straightforward and fair model. However, this position has been met with resistance from union leaders, who argue that creators should be compensated for the continued value their content brings to the platform.
In 2021, the WGA filed a petition calling for streaming companies to adhere to the residuals system, stating that creators should be entitled to fair pay as their content continues to be viewed by millions. “It’s time for streaming platforms to recognize the value of our contributions,” said WGA West president David A. Goodman. “We want residuals because it’s a fair way to compensate writers for the success of their work.”
Alternatives and Proposals for Residuals in Streaming
Several proposals have been made to address the issue of residuals for streaming content. Some have suggested that streaming services like Netflix adopt a hybrid model that combines upfront payments with ongoing residuals based on the success and viewership of a show. Others have proposed implementing a system that would allow creators to receive a percentage of the revenue generated by their content based on the number of times it is viewed or the length of time it remains on the platform.
One such proposal was presented by the International Alliance of Theatrical Stage Employees (IATSE), which suggested a “viewership-based residual” model. According to this plan, creators would receive a set percentage of the revenue generated by their content depending on how frequently it is streamed. This would ensure that creators are compensated for the ongoing success of their work, while also acknowledging the differences in business models between traditional television networks and streaming platforms.
However, such proposals face significant resistance from Netflix and other streaming platforms, which argue that the cost of implementing such a system could be prohibitive. As one anonymous Netflix executive put it, “The business model of streaming is very different. If we were to pay residuals, we’d have to change everything about how we work.”
The Future of Streaming and Residuals: What’s Next?
The issue of residuals in the streaming era is far from resolved, and it remains a point of contention between content creators and streaming platforms. As the industry continues to evolve, it’s likely that this debate will intensify, with creators demanding more compensation for their work and platforms like Netflix holding firm to their business model.
For now, it seems that the status quo will persist, with Netflix continuing to avoid paying residuals. However, with increasing pressure from unions and advocacy groups, there may be changes on the horizon. As the battle for fair compensation in the digital age continues, the future of streaming and residuals will remain an important issue for creators, platforms, and viewers alike.
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