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The publishing industry is known to tie overall compensation to royalties. Royalties are essentially back-ended payments, pegging success on the sale of the product. All authors get an advance, of course, but the major money is the cut taken from how well the book does. In the film industry, this translates to back-ended payment. Recently, in the film industry, the conversation around backending is exploding, as star costs have started to rocket and the business model is taking a severe knock as the final revenues have taken a new hue.
This is relevant because the most common refrain everyone is hearing today in the Indian film industry is that there’s no money in the market. An article in The Indian Express shed light on how the Hindi film industry is bleeding out, as star + entourage costs skyrocket. To compensate, the budget cuts have to happen somewhere, and they are happening with the writers, editors, secondary actors, and even the producers themselves. So even though last year was good for the box office, the overall costs continue to haemorrhage the industry, more so as with the advent of OTTs, the revenue model is morphing with revenue visibility becoming fuzzy for producers and the industry.
The problem that the film industry – both streaming and OTT - is struggling with is the idea of the same compensation for disparate success. This was what sparked off the Writer’s Strike, where writers fought for a compensation structure that would include gratuities based on a show's or movie's success. Such a structure would also mean transparency in viewership data. Who is watching what, and what is the completion rate? And if you cast actors basis their box office draw, shouldn’t their compensation be linked to the box office collection? Aamir Khan said it himself on a Koffee with Karan episode some time ago – that stars are paid on the basis of how many seats they can fill. So what happens in a climate where a big name is no guarantee for filling seats?
This seems to be the problem that platforms and studios are attempting to solve. Creative structures and deals funnelling success into compensation are being looked at. According to a Bloomberg Report (Source: IndieWire) Apple has met with many talent representatives to propose deals that would pay creators based on a show/movie’s performance, no longer paying supplements to buy out an individual’s backend earnings. The memo suggests creators and writers would earn supplements based on how many people sign up for Apple to watch the program, the amount of time people spend watching it, and how much your program costs relative to how many people watch it. The creatives behind three best-performing shows can make as much as $10 million for a single season. That’s serious money for the creators + writers which really are the bedrock of the creative output system of the industry.
Clearly, it appears that a big name shouldn’t matter anymore. But that is where a significant fraction of the production costs is also being incurred. So, in the backend, it should be essential to also account for the prominence of the star cast. Let everything be pegged to performance, and let the audience decide. With talent costs sometimes in excess of 70 – 80 per cent of the total cost, creative costs always remain under pressure and skew the algorithm.
OTTs are here to stay, and while theatrical will always have the space because of the nature of the experience, it changes things dramatically for two reasons. The pricing power of the film/show now moves to the exhibitor, especially in the case of OTTs, as there is a lack of transparency around revenue delivery, for obvious reasons. The raison d ‘etre of the platform is subscribers, and not necessarily specific viewing, although one possible future is TVOD. Ergo, the cost perspective of the platforms depends upon their objectives, their creative strategy, and also their size. That is a big reason for the superstar culture going down, and we are seeing a larger number of films and shows which are of relatively low cost, with sharp writing and edgy filmmaking. Interestingly, it is opening up new consumers, and new languages, as viewers are becoming language agnostic.
So, virtually all future decision-making will telescope towards building the best creative output at the lowest cost, which then puts the writers, producers, directors in the limelight to drive the creative and commercial success of the product. This needs compensation and incentive structures to be aligned to the delivery, and the parameters have to be templated for transparency. The industry may have to look at the Sports Industry for inspiration where the base product differentiates between superstars and the hoi polloi, but the success and its spoils are shared equitably with everybody and not just stars.
It is an exciting time for writers, and this transformation may also fix the supply issue of good creators in the industry because opportunity drives entry, competition, performance and delivery.
