In 2024, the film and television industry faces increasing challenges from the competitive streaming landscape and mounting pressure on media companies to reduce debt and boost profitability. This has led studios and streamers to rethink their strategies and consider a move from substantial upfront buyouts to more flexible compensation models that combine fixed payments with profit sharing in film and television productions.
In GHJ’s discussions with agents, lawyers and other stakeholders who drive deal-making for talent, several trends come to light.
INDEPENDENT TELEVISION PRODUCERS ARE REVISITING DEFICIT FINANCING
As interest rates trend downward, independent television producers are increasingly considering a return to deficit financing. This classic model, characterized by lower upfront payments and downstream payouts, is gaining traction through co-finance deals.
This model is particularly advantageous for independent producers, who can leverage these lower interest rates to attract private equity investment necessary for deficit financing.
However, this approach is only feasible if producers and their partners are committed to exploiting distribution beyond the initial network window, which allows for non-exclusive distribution windows in its distribution lifecycle. This strategy would apply a longstanding Hollywood practice and adapt it to the current media landscape's dynamics.
FIXED COMPENSATION REMAINS DOMINANT, WITH NOTABLE EXCEPTIONS
While fixed compensation continues to be the standard in the film and television industry, particularly among media companies engaged in significant affiliated transactions, there are evolving nuances.
Talent tied to these companies often receive predictable fixed payments with limited bonuses linked to program success.
However, this is not always the case, especially for media companies creating content for other studios and streaming services. These entities may opt for traditional profit participation models, such as MAGR and Gross with Cash Breaks, to stand out in talent deal-making.
For mid-tier and high-tier productions, fixed compensation levels are generally stable. However, an increasing trend in this space is deeming a portion of this compensation as an advance against future participation, bonuses or residuals. Regarding advances against residual obligations, with recent agreements between the WGA, SAG-AFTRA and AMPTP, a larger proportion of advances may be allocated towards growing residual obligations.
Ultimately, those with leverage (such as license holders, investors and top talent) could have an advantage in the negotiations. This leverage can sway the balance towards either immediate cash payouts or contingent compensation, which highlights the diverse and evolving nature of compensation models in the industry.
WINDOWING: A NEW TREND FOR TOP TALENT
The era of simply “throwing cash” at top talent may be on its way out as studios and streaming services increasingly adopt a windowing approach.
In this model, a portion of what was traditionally a fixed compensation is now structured as an advance against various revenue streams — theatrical releases, ancillary markets and future non-exclusive licensing. This strategy provides talent with a stake in the project's success if the film succeeds beyond the projected “ultimates.”
Recent agreements between the WGA, SAG-AFTRA and AMPTP suggest that this model could soon extend to television, which links a show's performance on streaming platforms directly to the compensation of its talent. However, adoption would be a gradual process and reflects the industry's careful consideration of evolving revenue models.
In connection with this anticipated trend, GHJ recently released a study into how new compensation models for television series made for streaming could transform compensation in a streaming world.
TREND TOWARD MORE PRODUCTION OVERSEAS?
With increasing costs in the United States (whether regulatory, guild-related or due to general economic conditions), more productions may be moving overseas.
This could bring some relief to producers who face rising production costs. But talent representatives are considering the impact this may have on talent, as moving production overseas would have both a personal and financial impact. This would need to be taken into consideration as part of deal negotiations, including accommodations, cost reimbursements and other benefits.
AI’s IMPACT ON DEALS IS LOW, BUT IT MAY AFFECT IATSE NEGOTIATIONS
Recent deals the AMPTP reached with the WGA and SAG-AFTRA solidified that AI use would require approval (and likely additional compensation) from talent.
In the same vein, AI is poised to play a crucial role in the forthcoming negotiations between IATSE and the AMPTP. The integration of AI, including technologies like self-driving vehicles, are expected to be a topic of debate.
As the industry navigates these negotiations, there is a general optimism that solutions will be found, which will hopefully mirror the success of guild negotiations in 2023.
This period of adaptation reflects a broader trend within the industry: a gradual yet definitive shift towards aligning talent compensation more closely with program success. This shift is reviving traditional practices like deficit financing and contingent compensation, which are especially crucial in economically constrained times and as investors increasingly focus on profitability.
For more insights from entertainment industry experts, listen to GHJ’s Media Clips Podcast.
Special thanks to those who contributed their expertise and insights to this article. A special mention goes to Loyola Marymount University Associate Professor of Finance Dr. David Offenberg, who recently appeared on the Media Clips Podcast. Additional thanks are also extended to the many friends and colleagues within the film and television industry for their invaluable guidance and support in shaping these perspectives.