Why Do Writers Get Residuals? (Writers’ Guild of America Strike)

This post was inspired by a short, two line snippet in John Lilly’s blog today.  There has been a lot of press about the current writers’ strike, and it’s impact on TV this fall.  I hadn’t originally planned to write anything about it here, but one comment in John’s blog made me think (italics are mine):

But it’s one of those things, i think. for the studios, this feels, to me, like their waterloo, their napster. we’re in a period of incredible creativity in the world, incredible connectedness. Putting down the hammer on the creatives — in other words, not letting them share fairly in the proceeds from the distribution of their work — isn’t likely to help the television and motion picture industry, in my own, admittedly uninformed opinion.

I’m an outsider to the entertainment industry, so my apologies if this question is hopelessly naive.  But there is something about this entire strike that doesn’t make sense to me, sitting up here in Silicon Valley.

So, here is my question.  A lot of this strike seems to revolve around the Writers’ Guild, and their belief that they deserve royalties (aka residuals) on versions of their content that are distributed digitally (DVDs, downloads, etc).  Apparently, this was one of the big mistakes, in their opinion, of the late 1980’s agreement with the union.

(For those of you not familiar with the term, a “residual” is a micro-payment that you are entitled to every time one of your contributing works is resold.  Just think of a book author getting a small payment every time their book sells another copy, or a music band getting a small payment every time they sell another album.  Revenue sharing.)

Now, I’ll be the first to admit – I’m not sure why you’d deserve a residual on a re-run and not on a DVD.  But my question really is more fundamental:

Why do writers get residuals at all?

I guess, to be less confrontational, let me rephrase the question this way:

Why don’t software engineers get residuals?

I don’t want to sound stupid here.  I’ve heard many reasons given for why residuals are given to writers and other creative contributors to media products.  But most of them don’t really hold water with me:

  1. Comedy is a creative enterprise, and people can go for years in between gigs.  Residuals on past success are a way of funding the down times, so great writing can happen in the down time between gigs.
  2. Historically, authors have always been paid per-copy sold, as a form of risk-sharing between the publisher and the author.  It’s a classic alignment of incentives – more books sold mean more profits for the publisher and more income for the author.  This leapt from book authors to musicians to other forms of entertainment as the industry grew.
  3. Writers deserve their “fair share” of the profits made from their work.  Residuals represent that fair  share.

I’m sure there are others, but those are the big three I’ve seen in the press.

The problem is, with the exception of (2), these reasons could just as well apply to software engineers, who in general never get paid through residuals.

Software engineering is a creative process, where people with unique talent and skill create content (code) that is protected by copyright and signed over to their employer (the company).  There are highs and lows in the industry, and rapidly changing tastes/technology that can lead to low times for an engineer as well as good times.

In software, it’s much more common for an engineer to get paid in a mix of salary, bonus, and stock.   No residuals.

  • The salary is the company recognition of the value an engineer needs to get immediately in exchange for their work.
  • The bonus is the company recognition of short term goals being hit, which allow the company to share the benefits of good performance of the individual and/or the company.
  • The stock is a way for the engineer to share in the long term upside of the product of their work.  They become part owner in the company, and so when the company makes money, they reap some of the benefit.

The stock is really the key to alignment between the owners of the company (shareholders), management, and the individual engineer.  It’s the way of saying, “If this works, we’ll all make money together.”

So, in theory, I guess you could replace the stock component with residuals.  You could argue that there are too many factors that play into stock price, and that residuals are a clean way of rewarding people for their contribution to a product with long term success.  (I’m not sure I’d ever trust the accounting behind residuals, but I guess that’s why lawyers and union leaders make a lot of money.)

Maybe the problem is that writers aren’t really treated like co-owners and long term employees at all, and residuals represent that broken trust.  Maybe studios don’t treat writers like co-owners and long term employees because the compensation system is set up to pay them like mercenaries.  Maybe there is no real concept of a studio – just an aggregation of 1000s of entertainment efforts, each with their own finances, and each writer is just a mini-shareholder of that effort.

Maybe the problem is that the entertainment industry is, for the most part, stagnant, and their isn’t sufficient growth to really provide the upside benefits provided to engineers as stock-holders.

Maybe this is the difference between a unionized approach to compensation and a non-unionized approach?

I guess I’m still at a loss to explain the difference however.  Let’s take a large company like Microsoft.  Should they be paying their engineers like writers?  Or should the studios be paying their writers like engineers?