This is Bloomberg Law with June Brusso from Bloomberg Radio.
The film and television industry has ground to a halt as actors join picket lines alongside screenwriters in Hollywood's biggest labor fight in more than six decades. Fran Dresher, the SAG after president, said, workers across the entertainment industry are being exploited.
We're all suffering from the threads of streaming.
I'm digital and AI and we must pull in the reins on this wild pony.
Right here and now joining me is Brianna Hill, a partner prior cashman. People hear, you know, the salaries of movie stars, and then they see that actors are fighting for better wages. Explain how the average actor is different from the movie star.
Well, the most basic is the is the business demand. But the compensation structures are different. And I would say this applies to both the SAG membership and the WGA membership. There are a smaller group of members at the top of the compensation structure, and then there's the much larger
body of the membership is in the middle. So, for example, a movie star is going to negotiate let's say a multimillion dollar deal for a feature, whereas your average working actor is going to be working at the scale rate under the agreement.
And so they want to raise the scale rate.
Yes, and the AMPTP has offered an increase on the scale rate. The increases that sag Aftra is asking for are more than that. And I believe that the increase offered by the AMPTP mirrors that which the DGA agreed to in their recent agreement.
So the actors want eleven percent. That's much more than the director's deal, which includes increases every year of the contract of five percent, four percent and three point five percent. The actors say that streaming has led to significantly lower residuals. Tell us about the fight over residuals.
So for a residuals fight, the issue is it's a much larger structural issue than it is just a simple one of the numbers needing to be increased because prior to streaming, the business model of television was different, and so there was a much bigger opportunity to make more money for actors. And also this carries over to the
writer's strike as well. In residuals and the residual structures in streaming are different and the amounts are different, and ultimately the move to increase the residuals is not apples to apples to necessarily. The compensation structures pre streaming are explain.
A little bit more about how the streaming revolution has affected residuals and why actors want changes.
So the calculations for the residuals structure with streaming are different, and part of the issue is these things like residuals and scale minimums can be taken in a vacuum, but what they represent is overall much greater shift that results in a larger cumulative impact the compensation structures in entertainment more broadly, and you see similar issues in WGA strike as well. And it's a difficult place to be because it is on one hand understandable that the memberships would
want to continue to increase their compensation. On the other hand, it is also difficult because the larger business has shifted and involved as well, and so as the agreements come up for renegotiation every few years. With the guilt, it's both having to address how things are currently and where the collective parties think they're going to go in the future.
Do you know what actors are asking for as far as streaming is concerned.
So the residuals increase is one piece. The much bigger piece from my perspective, and this is what I hear from a lot of talent representatives as well, is the revenue share. They're asking for a two percent of the revenue share for a show to go to the performers.
And this is from a deal making respective. The biggest issue because under the older models for television, when there was a back end participation, people with back end, which could be the showrunner actors would benefit from the success of the show. And it was essentially a long tail participation, so if a show went into syndication, if it had a long life cycle, so things like Cheers, Friends, Bone Seinfeld, these are all long running popular shows that resulted in
significant compensation for you know, some of the participants. The streaming model changed that kind of compensation structure in that in many cases it's what's called a cost plus or a premium, and so the compensation is increased upfront, but don't get the same kind of long tail, more speculative compensation, so everybody is not necessarily treated the same, but the upfront compensation is higher comparatively whether or not the show
is a success. But the flip side of that, so you can have a show that's a failure and someone has been paid out this agreement, or you can have a show that is a huge success but there's nothing additional. And so what Sag proposed is that there's a way to calculate the value of each show and that actors should participate in that calculated value. And I need that the very polarizing topic because the value of a show, it's not just direct viewership, but social media mentioned and
a lot of other data points. I think there's a lot of disagreement in the industry in terms of how that would work in a practical way.
So even just your attempt to describe it shows how complicated and confusing it is. And then you have the group presenting the studios saying that streaming isn't making money yet most streaming networks.
Well and see. And that is a really key point to the timing about this because in many ways, everyone, a lot of people in entertainment have been the beneficiaries of all of these streaming platforms launched. There was a tremendous push for content so there's been a tremendous amount of deal making in the last few years, and then there are you know, there are far more writers working than there used to be, So in some ways it's
been really good. But in the last eighteen months there have been some significant resets because the reality is is that the economics of launching a streaming platform that, for example, a subscriber base, it's very different. And so what we've seen in the last year and a half industry wide, and this is both an entertainment and a tech industry issue, is companies pulling back and there have been layoffs of
both of those industries. And I'd say almost probably every studio and production company out there is looking at their development spends and really looking at cutting costs. And so you have this larger move towards belt tightening at the studio level, and you have a situation where we have the two major guilds that are on strike now asking
for increased compensation across all key areas. And those two things are really in conflict because we are not in a situation as an industry where it's just unbettered financial success.
Let's talk a little bit about the use of the AI, which is apparently an another problem or sticking point in the negotiations where does each side stand on that?
And there are slight differences between and between w J and ZAG, So I think everyone is in agreement that AI has become one of, if not the largest issue currently and it is a particular concern to book writers and actors because it goes to their livelihoods because it
can be used in ways to supplement or substitute. And I do think that the TAG membership is slightly better situated to find a workable model with the AMPTP in the agreement because there are contractual systems in place to already deal with certain approval rights and limitations over use of likeness in content. So there seems to be some disagreement between the two sides about to what extent they
are near agreement on it or not. But ultimately it is such a quickly evolving space, both legally and in practicality and how it can be used that I think that it's also very difficult to identify how something is going to evolve because the agreements are in place until the next round of negotiations. Something that is going to be perspective as well when it is in the world being developed, so quickly.
Basically explain what the concern is for actors in AI, what they're afraid of.
So they're afraid of two things. One is they're being used in ways beyond, for example, one film, so they're concerned about the potential of having their likeness used in things outside of that and having performances attributed to them that they didn't originally connect. The other issue is training. They don't want what has been recorded to these just to train the AI.
The Writer's Guild has been on strike I think since May, and I don't even know if there have been negotiations lately. So what are the prospects of the strike will be settled within a reasonable period of time or could this go on for months and months and months.
So my answer today is going to be different from my answer a week ago. So the WGA has been on strike since midnight on the first. There has, as far as I'm aware, it not been any discussions with the AMPTP. I think that some membership and representatives of WGA have said, you know, they're ready, willing and able to return to the negotiating table, and the ampp P
has not so. Prior to SAG going on strike, it seemed likely that maybe the end of the summer would be the time for the WGA agreement to be resolved. So around Labor Day, everyone that back to school feeling of getting back to work, because the other key timing piece is the entertainment industry essentially shut down for the last two weeks of the year, so usually after Thanksgiving there's a big rush to get steels done, but a lot of the calendaring of production and schedules is structured
around that. Now that SAG has gone on strike, it is from my perspective, extremely unlikely that this will be resolved by the end of the summer because we now have two unions on strike. Everything that I have read and heard for SAG, at least it's not just a few issues. I think the WJA issues are narrowed down more significantly. There are many more issues reportedly with the SAG agreement.
Thanks so much for being on the show. That's Brianna Hill, a partner prior Cashman.
The Federal Trade Commission is going to take a huge step forward in banning non compete agreements that are designed simply to lower people's wages. These agreements block millions of retail workers, construction workers, and other working folks have taking better jobs get better pay and benefits in the same field.
In January, President Joe Biden touted the FTC's proposal to ban noncompete clauses in employment contracts, which about thirty million Americans are subject to. But while the FTC's rulemaking process is slow and not likely to conclude until April of twenty twenty four, New York has already passed one of the country's toughest bands on non compete agreements. However, as the measure sits on Governor Kathy Hochel's desk awaiting her signature,
Wall Street is fighting back. Non Competes are particularly prominent in financial firms and lobbying groups representing hundreds of firms, including banks, private equity firms, law firms, retail giants, and telecom companies have gone to work pushing for exceptions to the bill. Joining me is labor and employment law expert And Lafasso, a professor at the West Virginia University College of Law, and what makes New York's.
Law so tough, Well, it's just that it doesn't have exceptions in it right now, and so that's why it's tough. So it would apply to everyone, and there seems to be a growing consensus that non compete should be banned for low wage journers, but not for certain workers who have trade secrets and no certain information in their company that they can then use against that company in competitive environment. And that's what businesses are really concerned about. They're not
concerned about the low way journeers. On the other hand, there is a problem because these non competes were being used against workers who had no trade secrets. I mean, if businesses concern are the trade secrets, then let's just talk about those.
Yeah, can't they protect themselves with confidentiality or non solicitation agreements and trade secret laws.
They could do that, and that's why in some sense you have to question what their motives are. I would say their motive is probably to be really cautious and they want to protect it in many different ways, and so they're very concerned about that. But you're right, they can probably protect this information in many other ways. Now
here's the problem. Once they start working for another company, if that employ u then gives the trade secrets, it may be harder to prove, So it's just easier to keep them from giving away the secrets by not letting them work at all. And so that's what the issue really is, and I think that's probably what's motivating in the companies right now.
So let's back up a bit.
Can you give me basically the pros and cons of banning non competes.
Well, if you ban noncompete, what you're really doing is you're creating a more competitive environment. So you're saying, if we really are a free market, capitalist country, let's take that seriously, and you're allowing for the free movement of workers. And it goes hand in hand with at will. At will is you can be fired for any reason, good or about it for no reason at all, and you can leave for any reason, good about it for no reason at all. And New York is a strong at
will state. And the point of that, supposedly is the free market. So this allows for this free movement of workers. The con to banning these agreements is really the trade secrets. That the companies are concerned about their trade secrets. But our whole country has been built on allowing innovation to freely move around companies. I mean, if you look back, the cotton gin was stolen from British inventors and brought over here. So really what companies are worried about is
they want to keep that competitive advantage. So if your pure free market, you should be in favor of bands on non competes. If you're trying to protect companies, you should be in favor of certain exceptions. I guess another thing is though, that companies might be shy to develop certain secrets if they know that they can be stolen very easily. So maybe there's a good compromise there where you can protect those secrets for a certain amount of time.
And that's what intellectual property law is made for, is to kind of figure out what that right balance is.
Groups representing hundreds of firms, including banks, private equity law firms, retail giants, and telecom companies, are lobbying the governor to make changes, and Paul Zuber of the Business Council of New York State told Bloomberg, I think the legislature was trying to help that person who's a low wage worker that has a non compete. I don't think it was ever their intent to go as broad as senior management at financial services, banking, tech, entertainment sectors and more. Do
you think that's true? I mean, doesn't the legislature understand what they're outlying here?
I have no idea what the legislature is thinking. I think that's probably his charitable way of saying, Look, if you go too far with this, then we are going to have to litigate this really hard, and this is going to be a problem. Remember, New York is a big important center for these types of companies. And maybe also what he's suggesting is they'll move out of state. Right,
you always have to worry about the free movement of capital. Also, so he does make a persuasive case that might allow for New York to get most of its cake and eat it too. This does allow the parties to open up a conversation about how best to protect those trade secrets and how best to deal with those types of workers. And it does show a concession on his part that, wait,
maybe we have been enforcing this too broadly. I know in West Virginia where I teach, they were trying to enforce non competes against gymnastics coaches, and in a rural area like West Virginia, they'll have like one hundred mile geographic ban or something like that. I mean, it just it doesn't make a lot of sense for a gymnastics coach to have a non compete enforced against him or her. No sense. And they're also doing this coal miners. I mean, why does it matter whether coal miner works for one
coal company or another coal company. So then you really start to see that they're just trying to poach workers, which is a problem on the free market. So I think the trade secrets and the intellectual property is a legitimate business interest. Even in a free market. It is some restraint on trade, but I think we have to recognize it's a legitimate interest and that the governor's office needs to at least engage in those discussions and come to some sort of agreement that everyone can live with.
I understand that, especially financial firms have prohibitions on employees moving to a new job that can run as long as two years, right, doesn't that effectively bind them to their job unless they want to change careers or they have enough money to last two years.
It's a problem. There's usually a geographic restraint on it as well, though, so they can and leave new York. But in the financial industry, where you're going to go it is New York, right, So I suppose they can go to London or Frankfort, But who's going to pick up and move all the way over there. And that's another thing, these geographic restraints. How willing are most Americans to even move out of state? So most courts have found that non compete clauses, even where they're legal, are
void where they're not both time and geographically restricted. And you're right, two years is a long time, but that's what's been allowed as reasonable and then a reasonable geographic restriction. But those are still problematic from the employee's point of view.
I mean, is there a lot of litigation over non compete clauses.
Yes, they're litigated quite frequently. I've seen people have non competes and even if they're a specialized worker, I've said, well, why don't you just ask for your employer to let you out of it. A lot of times employers will just let you out of it when you don't have a trade secret, or even though you're making a lot of money, you're not very high level. But a lot of times employers either just feel the need to impose their power over an employee. I mean, there's litigation over
coal miners. It seems ridiculous the coal miners can't go from one mind to another. And this really does lower wages. So there's been studies about that where when you have these broad non competes, you really are lowing wages. So that again I would say, that's an illegitimate interest of employers because they're saying they don't want to compete freely.
So I think if they can focus with the Governor's office on what they really care about and what's the really legitimate interest, which are these trade secrets, I think likely that the Governor's office will come to some sort of agreement with them. Now whether or not the two chambers of the New York Legislature will then agree to that, because in New York, if there are any amendments, they have to go back to the legislature for approval, and so time will tell.
So and let me ask you this, when a court is looking at a non compete, what are some of the things they're looking at.
The reasonableness of it? And reasonableness will vary from state to state, but the two things they really look at are time in geography, So most courts, we'll say up to two years is reasonable, and most courts will say twenty five miles fifty miles. But what's reasonable also could vary, like what's reasonable in New York City may not be reasonable in rural New York. So this is something courts are very good at. They're very good at balancing things.
So that's what courts will look at, are those two variables within the context of the industry and the geography of that particular jurisdiction.
Thanks so much, Anne Best, Professor Alfasso of the West Virginia University College of Law, and that's it for this edition of The Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Law Podcast. You can find them on Apple Podcasts and at www dot bloomberg dot com, slash podcast Slash Law, and remember to tune into The Bloomberg Law Show every weeknight at ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg