Disney has revealed that at the height of the dispute between actors, writers and Hollywood studios last year, it filed official documents which wrongly claimed it was considering offering employees shares in the production companies behind its movies.
Hollywood was gripped by strikes for more than six months after the Writers Guild of America (WGA) downed their tools in May. Just over two months later they were followed by the Screen Actors Guild and the American Federation of Television and Radio Artists (SAG-AFTRA). It marked the first time that both parties had been on strike since 1960 and money was the driving force behind it.
One of their common concerns was residuals – royalties paid to actors and writers for reruns of the films and television shows they work on as well as other airings after the initial release. The basic remuneration structure was developed in the aftermath of the 1960 strike and it has since been applied to successive forms of media.
Actors and writers are typically paid each time a show runs on network or cable television and they also receive residuals when someone buys a Blu-ray disc or DVD just as they did when VHS tapes were sold. However, the advent of streaming cast a dark spell on this structure as subscribers usually pay a monthly or annual fee and get access to a studio’s entire library rather than paying to watch each production. This led to a crash in the residuals which set the stage for the strikes.
Production pipelines soon dried up leading to losses across the entire film industry from studios down to special effects firms as we recently revealed.
Disney’s chief executive Bob Iger had a starring role in the squabble when he made some incendiary remarks at a billionaire’s retreat on July 13, the day that SAG-AFTRA president Fran Drescher announced the strike. Talking about the strikers on CNBC from Sun Valley’s Allen & Company mogul conference, Iger said “there’s a level of expectation that they have that is just not realistic, and they are adding to a set of challenges that this business is already facing, that is quite frankly, very disruptive.”
Actually Iger’s comments were very disruptive as they raised the tensions and reminded the strikers of the gulf in pay between them and their bosses. “He stuck his foot in it so bad that you notice none of the other CEOs are opening their mouths,” said Drescher. “There he is, sitting in his designer clothes and just got on his private jet at the billionaire’s camp, telling us we’re unrealistic when he’s making $78,000 a day. How do you deal with someone like that who’s so tone-deaf? Are you an ignoramus? I don’t understand.”
The following month Iger took a more conciliatory tone during Disney’s quarterly earnings call when he said “nothing is more important to this company than its relationships with the creative community. That includes actors, writers, animators, directors and producers.”
Doubling down, he added “I have deep respect and appreciation for all those who are vital to the extraordinary creative engine that drives this company and our industry. And it is my fervent hope that we quickly find solutions to the issues that have kept us apart these past few months. And I am personally committed to working to achieve this result.”
SAG-AFTRA members strike outside Disney’s studios in Burbank last year (Photo by Kevin Winter/Getty … [+]
It initially seemed that the makings of a settlement were buried in filings for the production company behind Disney’s upcoming live action remake of Snow White. Studios in the United States rarely release financial documents for specific productions but it is a different story in the United Kingdom.
Studios film there to benefit from the UK government’s Audio-Visual Expenditure Credit (AVEC) which gives them a cash reimbursement of up to 25.5% of the money they spend in the country.
To qualify for the reimbursement, at least 10% of core production costs need to relate to activities in the UK. In order to demonstrate this to the government, studios tend to set up a separate production company in the UK for each movie they make there. They have to file financial statements which shine a spotlight on everything from how much it costs to make the picture right down to the number of staff it employs and the salaries it pays.
The companies usually have code names so that they don’t raise attention with fans when filing for permits to film on location. The Disney subsidiary behind Snow White is called Hidden Heart Productions in a nod to a key plot line in the 1937 animated original.
It refers to a small red box with a heart-shaped latch which the Evil Queen gave to the Huntsman to put Snow White’s heart in after he kills her. Instead of doing this, the Huntsman urges the princess to escape the Queen’s wrath by fleeing into the forest where she meets the seven dwarfs.
As we revealed in the Daily Mail, the latest financial statements for Hidden Heart Productions show that over the three years to July 31, 2022, Disney spent $200.4 million (£150.5 million) on making the movie.
The filings add that “there is no employee share scheme at present, but the directors are considering the introduction of such a scheme as a means of further encouraging the involvement of the employees in the company’s performance.”
The incorrect revelation was made in the accounts of the production company which is making Disney’s … [+]
The filings were lodged precisely two weeks after the SAG-AFTRA strikes began so it seemed logical that this revelation could be part of the foundation for a resolution. There is precedent for it as in 2020, staff at Disneyland Paris became the first workers of any Disney theme park to receive a share of its profits. They were handed the benefit to calm them after years of bitter strikes but the actors and writers weren’t so lucky.
A Disney spokesperson said that regarding “the line in the Snow White (Hidden Heart Production) accounts, we have had it confirmed that this wording should not have been included within the financial statements at all. We do not offer any share schemes for any of our productions.”
It is far from the first misstatement that Disney has made in official filings. As we recently revealed, the most egregious errors in its financial reporting have been made over the past few years by its Experiences segment which repeatedly waved its magic wand to retrospectively reduce the emissions of Disney Cruise Line by as much as 35 times.
Experiences, which also include Disney’s theme parks, have been a cash cow in recent years. When the pandemic receded, Disney pumped up the prices of its parks safe in the knowledge that there was tremendous pent-up demand to travel and potential guests were flush with furlough cash so could afford to pay a premium.
At the same time, Disney dropped many of the frills in the parks which cut costs and boosted profits. So much so that some Disney executives boasted that Experiences has delivered record profit and revenue for multiple quarters. However, as we recently reported, those days are over.
On last month’s earnings call for the three months to June 29, 2024, Disney’s chief financial officer Hugh Johnston said that its domestic theme parks “saw attendance flat in the quarter” with a “flattish revenue number” forecast for the fourth quarter and a slowdown expected for “a few quarters.” Its earnings release added that “we expect Q4 Experiences segment operating income to decline by mid single digits versus the prior year.”
In short, the furlough money has long since been spent and the travelers who wanted to visit Disney’s parks have now done so. It reflects Johnston’s comment in May that “relative to the post‐COVID highs, things are tending to normalize.” Compensating for this decline in operating income might not be child’s play.
Historically, Disney’s Entertainment segment has been its other engine of growth, but as we have reported, it has been reeling for the past few years due to mounting losses from its Disney+ streaming service. Subscriber numbers began to decline when lockdowns ended and theater numbers have not returned to their pre-pandemic highs. That’s not all folks.
In November last year the curtain finally came down on the strikes and it didn’t come cheap. SAG-AFTRA approved a deal which includes more than $1 billion in new compensation and benefit plan funding, along with outsized gains to the traditional residuals formulas. In simple terms, the strikers got pay increases, protections around the use of artificial intelligence and streaming-based bonuses.
It puts even more pressure on the margins of Disney’s Entertainment division so a happy ending could be far, far away.
This post was originally published on here
