Industry Explores New Compensation Model for Talent

Unions, Marketers and Agencies Participate in Test That Would Pay Ad Actors Based on Commercial Ratings

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BATAVIA, Ohio ( -- Major advertisers have launched a test aimed at changing how the industry parcels out $1 billion annually in commercial talent fees. The move could make cable buys more economical and give actors a direct stake in how well the shows their ads appear in perform.

DOUG WOOD: 'There can be anomalies ... where the media costs less than the talent.'
DOUG WOOD: 'There can be anomalies ... where the media costs less than the talent.'
Procter & Gamble Co. and Ford Motor Co. are among a number of large advertisers participating in the pilot, which is run by the industry bargaining council of top marketers and agencies in cooperation with the Screen Actors Guild and the American Federation of Television and Radio Artists. The test bases the pay of commercial actors on the gross ratings points for ads -- the number of eyeballs the ads reach. The system used now bases residuals mainly on how many times an ad airs, regardless of audience size, with some dollar-based caps for some types of cable buys.

The current system is based on a model first developed in the 1950s and tends to favor network advertisers over cable advertisers and produces sometimes bizarre results in which talent costs don't move in the same direction as media costs, said Douglas Wood, lead negotiator and counsel for the Joint Policy Committee on Broadcast Talent Relations, the industry group that represents advertisers and agencies in bargaining with the talent unions.

"There can be anomalies in cable buys where the media costs less than the talent," Mr. Wood said. "That's how ridiculous it's become. ... We hope to switch to the same GRPs and ROI measurement we use for other media and 99% of the dollars spent, so the tail will no longer be wagging the dog."

The pilot started April 1 and runs through March 31. If accepted by advertisers and the unions for the next contract up for renewal in 2012, it would replace the current system built over decades. After that, Mr. Wood said members of the Association of National Advertisers and American Association of Advertising Agencies would be covered by the deal regardless of how it affects them, provided they use union talent.

"By definition, there are going to be advertisers who are going to be paying more than they're paying now and advertisers who are paying less," he said. "While there's no assurance to this, if you're a very heavy network buyer, you're likely to pay less. If you're a very heavy cable buyer, you're likely to pay more. It will kind of level the playing field."

Largest talent contract
The JPC and unions agreed in their last contract, effective last year, to study changing the system. The unions will also have access to aggregated data to help evaluate the results. PriceWaterhouseCoopers will handle the data to avoid breaching confidentiality of clients participating in the pilot.

The JPC is made up of 30 members, half appointed by the ANA, half by the 4A's, which collectively includes advertisers and agencies responsible for about 90% of commercial production. The 36,000 commercials produced under the contract make it the largest U.S. talent contract, bigger than those for TV or motion-picture production, Mr. Wood said.

The system would use Nielsen's C3 ratings , which count live viewing plus DVR playback within three days, to align talent payment with media currency, which would also have the effect of giving actors a stake in how the shows their commercials appear in perform.

"The unions are most concerned about fair compensation for the exposure given," he said, "so logically the C3 concept works."

After evaluating results of the pilot, the JPC and unions will start a six-week bargaining session just on the new residual formula in October 2011 in advance of talks on the overall contract, expected to begin in February 2012, Mr. Wood said.

A spokeswoman for SAG didn't return calls for comment.

Online up next
"The media landscape continues to change, and at Procter & Gamble, we are changing with it," the company said in a statement about its participation in the pilot, saying it supports a "residual compensation model that aligns with the realities of current and emerging media."

But the new residual system mainly aims to address changes in the media landscape that started with the emergence of cable in the 1970s and doesn't affect payment for talent in online ads. Mr. Wood expects payment for online advertising to be a major point of contention in the next round of talks, too.

"Obviously there's a lot of money involved, and we care a lot about [TV residuals]," he said. "The unions obviously are going to care about the migration of content to noncovered work, where advertisers are using actors in creative that doesn't fall under the union agreements right now and they can pay whatever they want. ... It will be a very interesting negotiation."

The current contract sets flat fees for work in online ads. But it excludes coverage of increasingly common "webisodes or mobisodes or B-roll that doesn't look and feel and taste like a commercial," Mr. Wood said. "The industry's opinion is that [those things are] not covered. The unions' position is not necessarily in full agreement."

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