Q&A With Doug Wood re: SAG/AFTRA Contract Extension

The Joint Policy Committee representing the advertising industry reached a historic agreement last week with the Screen Actors Guild (SAG) and the American Federation of Television and Radio Artists (AFTRA).  It extends for two years the existing Commercials Contracts that cover advertisements appearing on TV, radio, the Internet and new media. Importantly, it also provides for a comprehensive joint study – conducted by an independent consultant – that will examine alternative methods to compensate performers across the ever-expanding array of new media platforms.  The agreement must be approved by the unions’ joint national board, by the union membership through a joint referendum and by the board of the ANA.

I asked JPC Chief Negotiator, Doug Wood, to respond to a number of questions of great interest to members of the marketing community:

1. Why does this agreement represent a historic breakthrough in your opinion?

For the first time in fifty years, SAG/AFTRA and the advertising industry have both agreed that it’s time to take a serious and long-overdue look at how we can revamp the way actors are paid in commercials so that in exchange for fair compensation, advertisers receive a measurable return on their investment. Our joint agreement to retain an expert and conduct an in-depth, objective study is unprecedented. To my knowledge, never before have labor and management agreed to collaborate in restructuring the economic model under which labor is paid and management achieves a return. This initiative will help ensure that the commercials business and the unions will remain vibrant for decades to come. While management and labor may often be at odds with one another, we do share a common goal: to preserve production and jobs in the United States. That will not be accomplished unless we embrace the challenge in a collaborative environment free of the divisive rhetoric so common in collective bargaining.

2. What circumstances do you think enabled the industry and unions to collaborate so effectively at this time?

I think it was a combination of many things. Certainly, the unpleasant memories of the strike of 2000 gave everyone a sober moment to consider how another strike could undermine production and the unions. No one wanted to revisit that scenario. A mutual realization that the old contract model simply does not work in today’s technology-driven world was also a contributing factor and a long-overdue realization. The very clear message from the advertising community that measurable returns on its investments at every level, including commercial production and talent payments, must be part of the economic equation sent a clear signal that serious change is coming. The unions’ embrace of that message and their decision to work with us rather than against us during this period of change was a watershed moment that opened the doors to a truly collaborative effort.

3. You were quoted as calling it a “balanced compromise.” What exactly do you mean by that?

In our negotiations with the unions, they made gains by having the wage increase apply across-the-board in all wage categories, including Class A. That hasn’t happened in more than twenty years. That was important to them for many reasons. And the flat six percent increase for the two-year extension is certainly fair given the official U.S. Labor Department statistics on cost-of-living increases we’re experiencing. In exchange, the industry achieved unprecedented editing freedom, the ability to openly bargain with regard to new media without promulgated rates from the unions, and economical rates for short-term usage.  So in the end, the mutual compromises and give-and-take brought about a balanced compromise and an atmosphere of collaboration that is going to be critical in ensuring success as we move forward with the study on alternative compensation models.

4. Why was a contract extension agreed to, rather than proceeding with a full negotiation when the current contract expired at the end of October of this year?

It was really a matter of having enough time to properly evaluate the fundamental issues that will be addressed in the study. We chose to “stop the clock,” to take the time to let new media develop a bit more and to allow sufficient time to field and evaluate the study. It made no sense to negotiate for something new when neither side had the necessary knowledge or expertise to fully evaluate and consider the alternatives.

5. What happens to existing advertisements during the extension period? Are they subject to the current provisions of the Contracts, or are they governed by the extension period agreement?

Existing commercials as well as commercials produced before October 30, 2006 are governed by the current contracts, although the rates and conditions for moving such commercials over to the Internet or new media will apply after October 30. If an advertiser wants to take advantage of some of the new opportunities negotiated in the extension before October 30, it can submit a request for a waiver to the unions. Such a request can either be direct to the unions or through the Joint Policy Committee. A crossover from the old contract to the new contract will also occur if an advertiser seeks to renew a commercial produced before October 30 that has reached its 21-month maximum period of use after October 30. Upon renewal, the new terms of the extension will apply.

6. Why and how does this agreement address editing?

Under the current contracts, there are eleven sub-paragraphs dealing with permitted editing, creating a complicated matrix that can be a minefield for advertisers. If advertisers fail to follow the rules, they can find themselves exposed to a multiplicity of additional fees – even for the most innocent of changes. The extension allows advertisers to make a choice when moving all or part of a commercial from conventional broadcast to the Internet or new media. They can now choose to either operate under the constraints of the current contracts (upon payment of a set fee when moving a commercial over to the Internet or new media) or, in the alternative, to freely bargain with actors to remove those constraints with regard to the Internet and new media. While the old rules continue to apply with regard to editing of conventional commercials, this step in the right direction with the Internet and new media is a major improvement. And when it comes to commercials made specifically for the Internet or new media, advertisers may freely bargain with actors on all aspects, without any minimum fees or other editing restrictions mandated or promulgated by the unions. While this will create a challenging bargaining process for everyone, it allows for market-driven, rather than artificially enacted, compensation.

7. How will this agreement deal with new media platforms that emerge over the next two years?

All new media platforms are covered with a single methodology and fee structure, regardless of the number of platforms. So the extension allows for broad experimentation without resulting in multiple fees that have no relationship to the services rendered by the actors. As such, the extension will easily accommodate whatever lies ahead.

8. What is the function of the New Media Committee? How will it be comprised? How will it operate?

The Committee is specifically empowered to revise the terms of the extension upon submission of requests from advertisers and advertising agencies, including the determination of fees that will be required for applying new technology to existing media, e.g., digital customization of a cable-fed commercial that includes unique content at the ZIP code level. Furthermore, the Committee is charged with coming to a decision within a week. The Committee itself will be comprised of representatives from the two unions and from the JPC. The unions (together) will have the same number of representatives as the JPC, so the union/industry balance will be 50/50. The mechanics of the Committee and who will be its members is still under development.

9. What is the scope and purpose of the joint compensation study the industry and unions are going to undertake?

All parties have agreed that we need to re-evaluate the manner in which actors are paid under the commercials contracts. The old system, which created a new silo for every media platform, no longer works. It creates excessive costs with no relationship to the value received by the advertiser and creates disincentives for the use of talent in new media. The study, to be conducted by an independent consultant, will provide the unions and the industry with alternative models to consider in 2008. This agreement is the first step towards completely revamping the manner in which actors are paid, with the overall goal being the creation of a system that compensates actors fairly in relation to the return on the investment made by advertisers. The study will need to consider many disciplines: economics, labor, new technology, media, advertising and more. It is a truly monumental undertaking that will break new ground and anticipate the future of marketing and its relationship to actors. It’s something that has never been done before.

10. What will the study likely cost. How will it be funded?

The study will be expensive, although the final costs are subject to negotiations with the selected consultant. However, it’s really premature to publish any quotes. The actual funding will come from the special funds maintained by the industry and the unions – the SAG Industry Advancement Cooperative Fund and the AFTRA Industry Cooperative Fund. These funds have been financed over the years through a percentage of fees paid by advertisers to the Pension & Health Funds of the unions, with their purpose being to underwrite projects intended to improve the overall methodology for monitoring and valuing payments to talent union members.

11. What criteria will be used in selecting the consultant? When will the consultant be selected?

We issued an RFQ and an RFP.  Together, they set out the qualification criteria and goals for the consultant. Within a very short period, the JPC and the unions will begin interviewing a number of those who responded to the RFP, and we’ll hopefully choose who will conduct the study within a couple of months.

12. How will the ideas and approaches identified by the study be considered in negotiating a new compensation model in 2008?

Each side will evaluate the alternative compensation models proposed by the consultant and use them as the basis for our negotiations. While it is impossible to predict whether the two sides will necessarily agree on any one approach or a hybrid/combination of approaches, it is clear that each side will view the results as being recommended by an independent party that has been specifically instructed not to take a partisan view. So while either side may find it does not particularly like an approach, neither side will have reason to question the independence or integrity of the suggestions.

13. What are the next steps towards finalizing this extension agreement?

The unions will submit a draft of the agreement, and the JPC will review and edit as needed. The agreed-upon draft will than be submitted to the unions’ joint national board and to the board of the ANA. With approval by these bodies, the unions will then call for a vote of their membership on the agreement. Assuming a favorable vote, the extension agreement will then be final. While it’s impossible to predict how long this process will take, I should think it will be completed no later than mid to late September.