United States: Unpacking The 2019 SAG-AFTRA Commercials Contract (Part 2): A Rundown Of The Major Changes

In my previous post, I shared my initial thoughts on the Alternate Compensation Structure ("ACS"), the big news coming out of the recently concluded negotiations of the 2019 SAG-AFTRA Commercials Contract ("Commercials Contract"). The excitement surrounding the ACS - it is, indeed, a shiny new object - shouldn't distract us from the other important changes agreed upon by the union and the Joint Policy Committee ("JPC").

In this post, I identify the twelve changes that I believe will have the biggest impact on producers. The changes run the gamut: some address issues of importance to the union and its members; others are upgrades intended to better align the Commercials Contract with the realities of production (especially digital production) in 2019; a few clarify ambiguities that have tortured talent payment teams for some time; and several are aimed squarely at trying to "level the playing field" between signatory and non-signatory brands and agencies.

A reminder: SAG-AFTRA's National Board unanimously approved the contract, and now union members get to vote on ratification (with a deadline set for May 9th).

UPDATE (5/9/19): SAG-AFTRA Members have ratified the contract!

A Rundown of the Top 12 Changes

1. Rates - "Nothing in this world that I like more than checks."

Cardi B. won't be the only SAG-AFTRA member getting big (ok, at least bigger) checks in 2019.

In the new contract, wages are increased by 6% across the board. This means that session fees will be approximately $712 for on-camera principal performers, $535 for voice-over performers, and $388 for background performers.

In addition, contributions to the pension and health plans go up from 18% to 19% of gross wages, with a "discount" of .5% for JPC authorizers. (Every little bit counts.)

The rate increases will be effective retroactively as of April 1, 2019.

2. MPU Extensions - "Ain't too proud to beg."

It is hard to resist the Temptation is to call this one a big deal.

Under previous versions of the Commercials Contract going back to time immemorial, the maximum period of use ("MPU") for a commercial automatically renewed unless the performer took the initiative to send a notice of non-renewal to the producer. The 2019 Commercials Contract switches things up by shifting the burden to producers to affirmatively reach out to performers to negotiate contract extensions beyond the MPU. If a producer can't locate a particular performer, the producer can notify the union, and the union will have 30 days to locate the performer. If, ultimately, the union can't find the missing performer, the producer is allowed to renew the spot at the same rate paid during the prior MPU.

The impact this change will have on renewal of commercials remains to be seen. For performers represented by agents, it shouldn't matter much since, under prior contracts, many agents (like clockwork) automatically would send termination notices and demand renegotiation. However, certain types of performers - including non-professionals (who don't qualify for a waiver), group singers, stunt performers, and performers not represented by agents - often did not send termination notices. For spots with these categories of performers, this definitely will make more work for producers, and it could result in higher wage payments in some cases.

In addition, it is likely that this change will be felt more with spots that are produced under the ACS (with its shorter, 1-year MPU) than spots produced under the main contract (with the traditional 21-month MPU). Commercials with a life span beyond 21-months are less common today than in days of yore. (Surely I am not the only person who can recite, verbatim from top to bottom, classic spots from Life cereal and Calgon detergent.) Perhaps, in light of this change, they will be rarer still.

3. New Categories of Principal Performers - "It's the pleasure principle (the principle of pleasure)."

(The homograph was the best I could come up with. Apologies to Miss Jackson.)

Two new categories of principals performers are recognized.

First, stunt coordinators who do not perform in a commercial are entitled to a session fee. The coordinator only gets use payments if she actually perform a stunt in the commercial that meets the requirements of existing Section 6.F.

Second, a performer who is signing dialog using American Sign Language (or other listed sign languages) "under circumstances which would qualify said performer as principal were that performer audibly speaking dialog," but whose face does not appear on camera, is considered an off-camera principal performer.

4. Editing/Additional Lift - "Won't you lift me up, up, high upon your love." (Amazing video directed by Michel Gondry.)

The MOA includes three changes that loosen, ever so slightly, the reigns on editing, including the addition of a new "lift." Even with these changes, the editing provisions in the main contract are not as flexible as those under the new ACS summarized in my prior post.

First, Producers can now get a third shorter/longer version of each commercial by paying one additional session fee. This means that the first version is "free," and each of the second and third versions requires payment of a session fee.

Second, when a producer creates different versions of a commercial to show different product packaging, the producer is now allowed to air the different versions in the same market. Previously, the different versions could only be used in different markets.

Third, the period of time that you can use a version of a spot that includes a special offer or promotion under Section 26.K has been extended from two to six weeks.

5. Over-the-Top - "You down with O.T.T. (Yeah you know me)."

(I probably can't apologize enough for that one.)

Use of commercials on over-the-top ("OTT") platforms such as Hulu is now included in internet use.

6. Waivers - "I've been looking for a savior." (I also "need a hero.")

In the MOA, there are a bunch of developments with waivers, the savior and hero to many a signatory.

First, the Social Media Waiver has been renewed and expanded to cover YouTube. Producers now can pay an additional 15% of a session fee for each 30-day period of use on YouTube. This means that if you use a spot on YouTube and on other social media platforms in the same 30-day period, you pay 30% of a session fee to each principal performer - approximately $214 for an on-camera principal performer. This is great news. Previously, many brands didn't use this waiver because it excluded the often-important YouTube platform. With this expansion, this waiver becomes an attractive option for producing content that has a short shelf-life but that needs to be used across all digital platforms

Second, the waivers for "Live Event," "Person on the Street," and "Hidden Camera" are now officially and permanently part of the main agreement. In addition, it is no longer a condition of these waivers that producers furnish to the union copies of spots using this waiver; instead, producers merely must make the spots available to the union upon request. And, the contract clarifies that any interviewer who is hired for "Person on the Street" and "Hidden Camera" commercials can be downgraded or outgraded, if permitted under Section 27 of the main contract.

Third, a new "hardship" waiver has been added to the menu that allows JPC authorizers (but not direct signatories - see section 12 below) to request waivers "in the event of a hardship (e.g., a potential loss of advertiser business by an authorizer agency)." Clearly, this provision was added as part of the JPC's and the union's efforts to provide relief to signatory agencies who fear losing business to non-signatory agencies. What will the union accept as a "hardship"? What proof will the agency have to furnish? Will the waiver be granted on a production-by-production basis, or will an agency be able to get a blanket waiver that will apply across the board to all productions for a particular "hardship" client? Will the waiver be complete, or will there be some caveats? The contours of this waiver will be revealed with time.

7. Digital Use of Expired Spots - "This is the end."

The MOA includes two different provisions that that close the Doors to liability (to a certain extent) when spots remain up on social media and YouTube after usage rights have expired.

Social Media: The MOA provides that the continued use of a spot on social media (excluding YouTube) after the expiration of the MPU will not trigger a payment obligation, provided that the commercial "is not relevant to any current campaign and remains in the feed tied to its original posting date," and the commercial is removed upon notice from the union. This tracks language that was included in the Low Budget Digital waiver. This is another welcome clarification and is consistent with an emerging standard in the industry. (Indeed, I would argue that post-term use in the "historical feed" of a social media platform is akin to the presence of print ads in old magazines you see at your dentist's office.)

YouTube: The contract has now been revised to provide that the maximum liability for use of a spot beyond the MPU on YouTube is fixed at double scale (applying the 'move over" or "made for" rates, as applicable), based on the duration of the unauthorized use, but not to exceed 2 years. (The performer can negotiate for a higher cap up front should she be so inclined.)

However, to qualify for this cap, there are a number of requirements:

  • The cap only applies to use on the brand's or agency's YouTube channel;
  • The cap does not apply if the spot was used in paid media on YouTube (e.g., pre-roll) or if the spot was "otherwise in use in any other media" (unless the talent was properly paid for the use in the other media);
  • The spot must be removed within 15 business days of notice from the performer;
  • The union must be notified;
  • Every principal performer must be paid; and
  • If the use continues after notice, the performer can demand arbitration or sue in court.

Claims arising from the continued use of commercials in some dusty corner of YouTube have been a recurring issue for producers, and the wage amounts can be huge, especially when the cast is large. So, while the addition of the cap is helpful, a reasonable question remains: where the use in question was inadvertent (as it often is), and if the brand can prove that the number of people who viewed the spot was negligible (which is often the case), are even these capped amounts commensurate with the injury to the performers from the unauthorized use?

8. Agency Publicity -"Tell me baby how you really hate publicity / How can you expect to be taken seriously."

The Commercials Contract has been amended to clarify that payment obligations to performers are not triggered when a commercial is used in "soft news" and when the spots are shared with all publications (not merely trade pubs) for publicity purposes. The line between "hard news" (e.g., first hour of The Today Show) and "soft news" (e.g., perhaps, the fourth hour of The Today Show, which, when hosted by Kathy Lee and Hoda was affectionately known to some of us as the "Chardonnay Hour") was never clear. Moreover, the justification for treating hard and soft news, and trade and other general interest publications, differently never struck me as compelling.

9. Limitations Period for Claims - "Stop! In the name of love!"

A new four-year limitations period was added for claims other than session related claims (which already are governed by a 6-month limitations period). The new period runs from when the performer knew or should have known that a claim existed - a "discovery" standard.

10. Unwired Networks - (Funny, I just can't come up with a song with "Unwired Network" in the lyrics.)

The MOA introduces an alternative way to pay for use of commercials on "United Networks." An "Unwired Network" is defined as a network that "aquire[s] or repackage[s] local broadcast station inventory from around the country to resell to advertisers as national inventory by guaranteeing the advertiser a minimum national audience per 'unwired unit' purchased by the advertiser." Previously, Unwired Network uses were paid as "Class A" program uses with a premium added (either +50% or +100%, based on the "Tier" in which the particular network fell). Going forward, producers pay for Unwired Network uses as wild spot uses; however, as an alternative to calculating payment in accordance with the wild spot rates in Section 33 of the main contract, producers can pay the following rates for unlimited use within a 13-week cycle: approximately $855 and $641, respectively, for an on-camera and off-camera principal performer.

As of today, the union-approved Unwired Networks are: ITN, Active International, Continuum Media, RevShare, ICON International's, and Cadent. Others may be added if they satisfy the union that they meet specified criteria, including that they are purchasing non-prime time commercial inventory in multiple markets, and that the neither the network (nor its parent company) owns any of the stations involved in the media buy.

11. Pension & Health - "Will you still need me, will you still feed me / When I'm sixty four?"

In addition to the increase in the P&H contribution rate, there are four important changes to the provisions governing how pension and health contributions are calculated and paid.

P&H Cap Clarified. The 2019 Commercials Contract clarifies how the $1,000,000 cap on P&H contributions is applied. To understand how this works, I need to provide some background information on how P&H is calculated on over-scale talent agreements. (This is going to take a minute.)

Even though SAG and AFTRA (the two unions) merged in 2012, the SAG Pension Plan and AFTRA Retirement Fund remain separate entities. Each SAG-AFTRA collective bargaining agreement designates the fund to which pension contributions are made. The SAG Commercials Contract designates the SAG Pension Plans, and the SAG-AFTRA Audio Commercials Contract and the SAG-AFTRA Corporate/Educational & Non-Broadcast Contract (the "Co-Ed Contract") each designate the AFTRA Retirement Fund. A graphic summary:

To calculate the P&H contributions owed on behalf of a performer engaged under a multi-service agreement, a producer is required to perform (potentially) two separate allocations of the performer's guaranteed compensation.

First, the producer must allocate between "covered services " - i.e., those that are covered by a SAG-AFTRA collective bargaining (e.g., performing in commercials, audio commercials or Co-Ed productions) - and services that are not covered by the union (e.g., print photography services, personal appearances and creating and publishing social media posts). P&H contributions are due only on the the portion of the compensation that is allocated to covered services. The Allocation Guidelines attached as Exhibit I to the Commercials Contract provide guidance as to the amounts to allocate and, if followed, are rebuttably presumed to be be proper.

Second, if more than one SAG-AFTRA collective bargaining agreement is implicated based on the specific types of covered services to be performed under the contract, the amount allocated to covered services (in the first step) must be further allocated between the SAG Plans and the AFTRA Retirement Fund. Under the Allocation Guidelines, the allocation breakdown to the legacy SAG Plans and the legacy AFTRA Retirement Fund, respectively, is 80%/20% (for contracts with only covered services) or 90%/10% (for multi-service contracts). For my right brain friends:

The Commercials Contract and the Audio Commercials Contract each has provided, since 2012, that producers are not obligated to pay P&H "on behalf of any individual performer on gross compensation in excess of $1,000,000 for covered services in a contract year where all such compensation has been paid on the basis of a single contract with a single producer." The SAG-AFTRA Co-Ed Contract does not currently have a cap on P&H contributions.

Under previous versions of the Commercials Contract, the union's position was that the $1,000,000 cap was applied in Step 2 (not Step 1), and that a separate $1,000,000 cap applied to the amount allocated to commercials (under the Commercials Contract) and to the amount allocated to radio commercials (under the Audio Commercials Contracts). Application of the cap in this fashion often resulted in producers' paying P&H on more than $1,000,000 for a particular performer. Many in the industry argued that the $1,000,000 cap should have been applied at Step 1 and serve as an absolute cap on P&H exposure.

The new Commercials Contract resolves this issue definitively, providing that the "$1,000,000 cap shall be calculated after the application of the initial allocation guideline for covered and non-covered services as specified in Exhibit I and prior to any applicable 80%/20% or 90% /10% split between the SAG-Producers Pension Plan and the AFTRA-Producer's Retirement Fund." In other words, you apply the caps under the Commercials Contract and the Audio Commercials Contract in Step 1.

It's easier to understand this with an example. A celebrity is paid $3,000,000 in a contract year under a muliti-service contract, pursuant to which she will perform in both audio-visual commercials and radio commercials. Assume that the celebrity also will perform robust non-covered services and that, therefore, a 50% allocation (Guideline B under the Allocation Guidelines) applies. This chart shows how the cap would have been applied (according to the union) under the 2016 Commercials Contract and how the cap will work under the 2019 Commercials Contract:

As you can see, even with the P&H rate increase, the producer pays less when the cap is applied at Step 1 instead of Step 2.

B-Roll. The union's position is that behind-the-scenes and b-roll footage are covered by the Co-Ed Agreement, which, as noted above, designates the legacy AFTRA Fund for pension contributions. Under prior Commercial Contracts, this meant that an over-scale deal that included commercials and b-roll content related to the commercials would result (after the allocation in Step 2) in contributions being made to both the legacy SAG Plans and legacy AFTRA Fund. The MOA revises the Allocation Guidelines to provide a "clarification " that if a producer is shooting behind-the-scenes or b-roll content "in connection with a commercial produced under the Commercials Contract, " the contribution related to that content goes to the legacy SAG Plans and not to the legacy AFTRA Fund. So, if a particular celebrity deal includes a tv commercial shoot with B-roll, but no radio commercials and no other Co-Ed productions (other than the B-roll), the entire contribution is made to the SAG Plans.

Which P&H Rate? The 2019 Commercials Contract clarifies which P&H rate applies when you have a contract that straddles different collective bargaining agreement. Codifying what has long been the JPC's position, the MOA provides that the rate "in effect under this contract at the start of a multi-service contract (defined to be either the effective date, the date of first service or the date of performer payment, whichever is first) is the rate that remains in effect unless and until the multi-service contract is amended or an option is exercised. "

Charitable Contributions. Finally, the summary of the MOA provided by the JPC states that the parties have agreed to clarify that charitable contributions made by producers directly to a performer's pet charities - a not uncommon "ask " when negotiating celebrity deals - are not themselves pensionable wages.

12 - "Leveling the Playing Field" - "Level Up"

The efforts by the union and the JPC to "level the playing field " to make it easier for signatory brands and agencies to compete against non-signatory companies fall into two categories: (1) benefits that are specifically available only the JPC authorizers and direct signatories, and (2) efforts to cap potentially crippling financial exposure for signatories.

In the wake of the latest negotiations, by my count, there are now five different provisions that expressly benefit JPC authorizers and that are not available to brands and agencies that use third party signatories to produce union commercials. In addition, three out of five of those benefits are not available to agencies and brands that are direct signatories to the Commercials Contract instead of JPC authorizers.

Here's a summary:

As the chart above notes, the union and JPC appear aligned in their desire not only to "level the playing field" between non-signatories and signatory brands/agencies, but also to encourage brands and agencies to become JPC authorizers.

Finally, when you are measuring the efforts made by the JPC and the union to "level the playing field," we should also include the recently-added provisions that limit the exposure of signatories to certain talent payment costs, including the 4-year limitations period for claims, the cap on damages for unauthorized use on YouTube, and the clarification of how the P&H cap is applied (all discussed above).

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This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.

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