By Zain Almaliki
Picture the bright lights of a Hollywood red carpet premiere; camera flashes firing, legions of roaring fans screaming with excitement, and the dazzling smiles and glamorous outfits of the talent who brought the film to life. But behind this iconic Hollywood glitz and glamour lies a world of worry and anticipation because this opening night determines who gets paid.
Before we talk about Hollywood profit sharing as we know it, let us take it back to movie making before the invention of the “Talkies.” Imagine a pre indoor smoking ban studio boardroom in 1920s Hollywood, bigger than life executives and a nervous young actor waiting to hear whether there is a place for him on the silver screen.[1] In those early days of the studio era, the major studios controlled everything: production, distribution, and contracts. For the biggest players like MGM, paying talent at a flat rate was the norm.[2] Only financially weaker studios, such as Warner Bros, RKO, and Universal, relied on profit-sharing to attract talent they could not afford to pay upfront.[3]
By the mid-1950s, the early idea of a profit-sharing system emerged, and it transformed Hollywood into a contractual war of the worlds. This system was a carefully engineered system that deducted everything under the sun before calculating a payout.[4] That included everything from production cost, marketing budgets, overhead fees, distribution expenses, even interest the studio charged itself.[5]The result? Blockbusters that earned hundreds of millions of dollars in the box office officially showed no net profit. This practice later became known as “Hollywood Accounting.”[6]
However, by the 1960s many elite talents had already begun negotiating gross participation instead, which entitled the talent to a percentage of the revenue rather than the studio calculated net.[7] However, this negotiation tactic was reserved for stars with powerful negotiation positions leaving many to be burned by the studios. By the early 1960s, Hollywood had settled into a standardized profit-sharing system, complete with gross points, net definitions, fixed overhead charges, and even artificial break-even milestones written directly into contracts. Residuals and royalties became pillars of this traditional model, which were enforced by powerful unions such as the American Federation of Television and Radio Artists (AFTRA) and the Writers Guild of America (WGA), these payments ensured that whenever a production was rebroadcast, redistributed, or resold, the talent continued to benefit from it financially.
The illusion of Hollywood accounting was fully pulled when humorist and author Art Buchwald took on Paramount Pictures in 1990 in what would become one of the most famous entertainment lawsuits of the century.[8] This came off the back of Buchwald writing the treatment for Coming to America starring Eddie Murphy which grossed nearly $300 million worldwide yet when Buchwald asked for his net of the profits, Paramount informed him that the movie had not made any net profit at all.[9] In court, Paramount was forced to reveal that under its definition of “net profits,” even highly successful films rarely showed a profit on paper.[10]The California superior court found that Coming to America was indeed based on Buchwald’s treatment, and that Paramount breached its contract when it failed to pay him.[11] The court then found that certain provisions of the formula were “unconscionable” and that Buchwald therefore could pursue a separate tort lawsuit against the company.[12] The case showed the public what many inside the industry have suspected; net-profit deals were designed so talent could rarely see their share of the profits.[13]
The evolution of profit sharing reshaped the power dynamics of Hollywood. What began as a lifeline for struggling studios had become a cornerstone of compensation, a path towards generational wealth for some and a legal trap for others. This history lays out a fundamental tension that still defines Hollywood today, a struggle over who gets to share in the wealth of a Box-office hit.
Fast forward to the age of streaming where audiences no longer wait for their cable provider to air their favorite TV shows or blockbuster movies; they stream when they want, what they want, and as many times as they want. This did not simply change consumer habits, but it also disrupted the foundations of Hollywood profit sharing. Once upon a time in Hollywood, actors dreamed of landing a hit network of television or movie roles because residuals meant long term income. Shows like Friends, Two and a Half Men, and Frasier turned their casts into multimillionaires long after filming wrapped, with residual checks rolling in year after year as episodes aired globally.[14] But streaming changed this formula.[15]Unlike Traditional television and film models, where rerun, syndication deals, and box office returns generate ongoing revenue, streaming services such as Netflix, Hulu, HBO Max rely on flat-fee licensing and exclusive content models.[16] Instead of paying talent based on reruns or syndication, many streamers pay large upfront fees to acquire or produce content.[17] There is no rerun of a Netflix show or movie; content exists in one perpetual, on demand loop, which initially allowed streaming platforms to avoid paying continuous residuals.[18]
Streaming complicated profit sharing further because of its opaque data reporting.[19] In the traditional system, box office numbers, Nielsen ratings, and syndication deals were public metrics that made profit-sharing more transparent. But streaming platforms treat viewership with the utmost secrecy. They rarely disclose how many people watched a show, how often, or in what regions, making it nearly impossible for actors, writers, and producers to assess the true value of their work.[20] Until recently, streaming residuals were not even tied to the success of the project.[21] An issue that talent pointed out during the 2023 SAG-AFTRA strike; some performers earned shockingly low payouts.[22] Famously, actor Kimiko Glenn from one of Netflix’s early flagship shows, Orange Is the New Black, revealed residual checks as low as $27 despite regularly appearing on a global hit TV show.[23]
A striking example of how streaming services disrupted traditional compensation came in 2021, when one of Hollywood’s premier talents, Scarlett Johansson, sued Disney over the release of Black Widow, a character she had been playing for over a decade by the time the movie was released.[24] Her contract, like many pre-streaming backend deals, including those of other Marvel stars, tied a significant portion of her earnings to box-office performance and relied on the long-standing expectation of an exclusive theatrical release. [25]Instead, Disney released Black Widow simultaneously on Disney+, its new streaming service at the time. [26]The release of the movie boosted Disney’s subscription revenue while diluting box-office returns; the very metric Johansson’s compensation was built on.[27] The lawsuit exposed a growing tension in Hollywood: studios now have the power to redirect profits into their own streaming ecosystems, an ecosystem with no checks and balances unlike traditional revenue streams that talent relied on for backend participation. Johansson and Disney ultimately settled out of court for an undisclosed amount, but this case became a flashpoint, signaling that traditional contracts and forms of compensation were no longer compatible with the streaming-first era.[28]
The tension that had been simmering in Hollywood for years finally reached a boiling point in the summer of 2023.[29] actors and writers went on strike with a clear message; the old residual model no longer worked in the streaming-dominated industry.[30] The unions demanded a success-based residual system, one that would allow writers and actors to share the value created when a show becomes a hit.[31] However, just six weeks after the Writers Guild of America went on a strike for the first time in 15 years, the hit TV show Suits landed on Netflix. Id. The show had already wrapped filming four years earlier after a 9-season run on the USA Network and had been streaming on Peacock since it went off the air.[32] However, once the show became available on Netflix, it became the most watched show in America, racking up more than 3 billion viewing minutes in a week and dominating the streaming charts for two months.[33]
But while Suits soared to record-shattering numbers, the writers and actors behind the show earned almost nothing from its revival.[34] For Suits, writers received just 1.2% of the licensing fee, and actors received 3.6% split among all principal performers.[35] Even with an estimated $37.5 million licensing deal, that meant a writer earned roughly $3,600 per episode they worked on, paid over the years, and actors only slightly more.[36] The Suits phenomenon exposed the imbalance in the clearest terms possible: a show could be a global sensation, revive careers, generate headlines, and dominate cultural conversation and yet the driving force behind the creation of the show saw almost no financial benefit.[37]
However, A New Hope has arrived for talent. After 118 days on strike, the longest in the history of the actor’s union, SAG-AFTRA reached an agreement with the Alliance of Motion Picture and Television Producers (AMPTP).[38] For the first time, streaming compensation now rewards success, marking a historic shift in how residuals are calculated. Under the updated model, actors on high-budget streaming shows (HBSVOD) will still receive residuals based on a formula that accounts for project length and the platform’s subscriber base, with an additional layer: success-based bonuses.[39]
For contracts entered into on or after the first Sunday one year after the AMPTP receives notice of ratification of the agreement, the salary threshold allowing advance payment of residuals will increase to $9,500 (from $8,000) for prime-time reruns of half-hour shows, $12,500 (from $11,000) for prime-time reruns of one-hour or longer shows, and $11,000 (from $9,500) for all other residuals.[40] Beginning the first Sunday 60 days after notice of ratification, any advance payment of residuals must be specified in a separate rider or written agreement signed by the performer and stating the amount of the advance.[41]At that same time, all advance-paid residuals must be delivered to the union for processing and distribution.[42]If a performer uses direct deposit for initial compensation, the advanced residuals may be included in that deposit, but full reporting of the advance must accompany residual reporting to the rest of the cast.[43] Additionally, for contracts entered one year after notice of ratification, no more than 15% of a performer’s guaranteed compensation may be treated as an advance of residuals for performers earning less than $75,000 per week or per episode.[44]
For High Budget SVOD, the ceilings used to calculate residuals will increase by 2.5% as of the first Sunday after notice of ratification, and grandfathering will be eliminated for new seasons of ongoing series.[45] For programs beginning principal photography after that same date, foreign residuals for affiliated SVOD services will be based on foreign subscribers rather than 35% of the domestic residual, using the same ceilings and exhibition year percentages as domestic residuals, but applying subscriber-based percentage factors of 47%, 60%, 75%, or 90% depending on the foreign subscriber count.[46]New performer contracts after ratification will eliminate the 35% scale crediting for series and term performers at tier-2 budget level or where the SVOD service has fewer than 20 million domestic subscribers.[47] For new shows and new seasons starting principal photography on or after July 1, 2024, the 20% and 40% domestic subscriber factors will be removed, making 65% the lowest factor.[48]For all High Budget SVOD programs under the 2023 agreement, the residual percentages for ongoing exhibition on the original SVOD platform will increase to 10% for years 8 and 9, 5% for years 10 and 11, and 5% for year 12.[49]
Beginning the first calendar quarter after ratification, and subject to confidentiality, producers must provide quarterly data for High Budget SVOD programs, including total hours streamed in the U.S. and Canada, total hours streamed internationally (if available), and the program’s running time.[50] Promotional runs of network or broadcast-originated series on linear TV may now apply to any three episodes, up to 25% of the ordered episodes, rather than only the first three.[51] The sunset provision allowing a gross-receipts-based residual for limited theatrical exhibition under TV will be renewed and expanded to include one-time High Budget SVOD films of at least 66 minutes.[52] The provision allowing promotional theatrical release without payment for an unaired pilot or episode will extend to any television or new media project. Id. Distributor foreign gross thresholds for TV pictures not yet released internationally will increase by 3% as of the first Sunday after ratification.[53] New media inspections will now occur annually rather than semi-annually, with 30 days’ notice instead of 10, and may be conducted remotely via secure digital access.[54] Network prime-time rerun ceilings and other residual formulas not referenced above will remain the same as in the 2020 agreement, with separate High Budget AVOD modifications applying where relevant.[55]
And as for the success-based bonuses, here is how the bonus works: if at least 20% of the platform domestic subscribers watch a streaming project within its first 90 days, actors receive a bonus equal to 100% of their residual for that year.[56] In other words, shows like Suits that become a global phenomenon upon arrival at a streaming service are entitled to a share of the profits. The agreement also created a new $40 million annual fund, a pool of streaming-success money.[57] 75% of that fund goes directly to the actors of qualifying high viewership projects, while the remaining 25% is set aside for the union and studios to distribute. It is the first revenue stream of its kind in the streaming era, the former SAG president Fran Drescher emphasized that for the first time, “there is money for actors that there never was before.”[58]
One of the most notable provisions in the new SAG-AFTRA agreement is the expansion of data transparency. For the first time, streamers must share meaningful performance metrics with the union. Beginning in the first calendar quarter after the AMPTP receives notice of ratification, and subject to a confidentiality agreement, producers will be required to provide detailed viewership information for all covered High-Budget SVOD programs.[59] This includes: (i) the total number of hours streamed on their affiliated platform in the United States and Canada during the previous quarter; (ii) the total number of hours streamed outside the U.S. and Canada, where such data is available; and (iii) the program’s total running time.[60]
What now?
The Hollywood Profit-sharing model has undergone a century of disruption, from the studio monopolies of the 1920’s, to the illusion of “Hollywood Accounting,” to the golden age of syndication wealth, and now the streaming era. The latest SAG-AFTRA agreement has finally gained some ground in the fight for equitable distribution of streaming success, tying compensation to performance, and opening the once sealed vault of streaming data. It signifies a meaningful shift towards a workable profit-sharing model, one where talent sees a share of their work becoming a cultural phenomenon.
But this agreement is not the final destination. Streaming has changed how audiences consume content, yet the industry has not fully written how profits flow back to the people who create it. The challenge ahead is to build a compensation system that mirrors the organic, viral, unpredictable life cycle of streaming hits. A system that blends the generational wealth potential of the traditional residuals with the accessibility and engagement that streaming provides. If Hollywood is going to thrive in the streaming era, profit sharing must evolve beyond flat fees, obscure metrics, and high bonus thresholds. It must adopt a system where success on a streaming platform, whether measured by streaming hours, cultural impact, global reach, or subscriber growth, directly rewards the creative force behind it. Hollywood once reinvented itself for sound, for television, and for the franchise age. Now it must reinvent profit sharing for streaming. The future of entertainment depends on it.
[1] Mark Weinstein, Profit-Sharing Contracts in Hollywood: Evolution and Analysis, http://marshallinside.usc.edu/mweinstein/research/hollywood.pdf.
[2] Id.
[3] Id.
[4] Allison Morrow, Hollywood’s absolutely bizarre accounting tactics are under renewed scrutiny, https://www.cnn.com/2023/07/19/business/nightcap-hollywood-accounting-strike.
[5] Id.
[6] Id.
[7] Mark Weinstein, supra note 1.
[8] Id.
[9] Adam Seth Bialow, Illusory Profits: Net Profit Agreements in Light of Buchwald v. Paramount, https://repository.law.miami.edu/cgi/viewcontent.cgi?article=1058&context=umeslr.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Chris Frawley, Everything Actors Need to Know About Streaming Residuals, https://www.backstage.com/magazine/article/streaming-residuals-explained-77222/.
[15] Id.
[16] Id.
[17] Id.
[18] Id.
[19] Id.
[20] Id.
[21] Id.
[22] Id.
[23] Id.
[24] Kim Masters, Tatiana Siegel, Scarlett Johansson, Disney Settle Explosive ‘Black Widow’ Lawsuit, https://www.hollywoodreporter.com/business/business-news/scarlett-johansson-disney-settle-bla ck-widow-lawsuit-1235022598/.
[25] Id.
[26] Id.
[27] Id.
[28] Id.
[29] Katie Campione, From ‘Suits’ To Nuts, Streaming Residuals Explained, https://deadline.com/2023/09/streaming-residuals-explained-suits-netflix-1235552804/.
[30] Id.
[31] Id.
[32] Id.
[33] Id.
[34] Id.
[35] Id.
[36] Id.
[37] Id.
[38] SAG-AFTRA, TV/Theatrical Contracts 2023, https://www.sagaftra.org/sites/default/files/sa_documents/TV-Theatrical_23_Summary_Agreeme nt_Final.pdf
[39] Id.
[40] Id.
[41] Id.
[42] Id.
[43] Id.
[44] Id.
[45] Id.
[46] Id.
[47] Id.
[48] Id.
[49] Id.
[50] Id.
[51] Id.
[52] Id.
[53] Id.
[54] Id.
[55] Id.
[56] Dominic Patten, Read Full SAG-AFTRA Deal Summary Released Ahead Of Ratification Vote; Analysis of AI & Streaming Fund, https://deadline.com/2023/11/sag-aftra-deal-summary-released-read-it-1235600852/.
[57] Id.
[58] Id.
[59] SAG-AFTRA, supra note 38.
[60] Id.
