Forget ScarJo vs. Disney. Hollywood’s streaming fight is just beginning

Natasha Romanoff — a.k.a. Black Widow, the Marvel superspy portrayed by Scarlett Johansson — may have met her end in 2019’s “Avengers: Endgame.”

But Johansson’s lawsuit against Walt Disney Co. could have an immortal legacy in Hollywood for the way it highlights a growing fight between studios and talent.

Johansson’s battle with the Burbank entertainment giant — in which she argues she was cheated out of pay by Disney’s decision to sell the movie on Disney+ while it was in theaters — is the latest and most high-profile example of a debate that’s been boiling under the surface in the entertainment industry. Disney says her case has no merit.

The bigger question facing studios, streaming services and talent agencies: How should stars and filmmakers be paid for movies and TV shows now that the business model is shifting quickly from one based on box office and television ratings to one reliant on online subscriptions? Such issues could fuel contentious contract negotiations in 2023 with Hollywood’s major unions.

“The battles being waged by stars and participants over ‘Black Widow’ and HBO Max are in many respects just the tip of the iceberg,” Russell Hollander, Directors Guild of America national executive director and chief negotiator, said in a statement.

For decades, top stars and filmmakers have made their fortunes by, yes, raking in significant salaries, but also by negotiating lucrative deals that could result in windfalls if their movies or shows were successful.

These payouts are known as “backend.” With movies, that means getting a cut of the profits or box office bonuses when the film hits certain performance benchmarks. In TV, the backend payouts from a syndication deal, once the show hits 100 episodes, would easily eclipse creators’ fees earned while producing.

But the streaming revolution — accelerated by the COVID-19 pandemic — has upended those norms. Most famously, Netflix pays creators for the cost of production, plus a negotiated premium, effectively buying out the rights to any backend revenue upfront.

WarnerMedia paid out more than $200 million combined to certain high-profile filmmakers and A-listers to compensate for lost profit participation when the company decided to put all its 2021 films on streaming service HBO Max for no extra charge to consumers.

In the early years of Netflix, the buyout deals were seen by some filmmakers as a kind of insurance in an uncertain environment. They got paid substantially whether the movies were hits or flops, though it limited their upside. Now, however, stars have less box office clout than they did. And as companies’ stock prices rise with the addition of streaming subscribers, there’s a growing consensus among agents and lawyers that talent isn’t getting what it should when their content brings in viewers.

Jamice Oxley, an entertainment industry attorney at Pryor Cashman, said there is a new sense of anxiety around deal-making.

“It’s an ongoing conversation on how to be fair on both sides during the pandemic and during a very, very tumultuous time in the entertainment business where companies are merging and consumers are dictating the future,” Oxley said.

Talent disputes in the entertainment industry extend back as far as Hollywood’s Golden Age, when studios controlled both production and distribution and actors were held under long-term contracts. In the 1940s, “Gone with the Wind” star Olivia de Havilland, dissatisfied with roles she was getting at Warner Bros., successfully sued the studio when it tried to keep her under contract in a case that produced an opinion known as the de Havilland Law.

In the 1950s, Jimmy Stewart’s agent Lew Wasserman spearheaded the idea of getting stars a cut of a movie’s profits rather than earning a flat fee.

“During the studio period, all the stars big and small got weekly checks; they were employees,” said USC film professor Jason E. Squire, editor of “The Movie Business Book.” “This morphed into a variety of crazy, nuanced differences and formulas depending on negotiating power.”

Filmmakers have often fought against “Hollywood accounting,” in which studios and networks can make highly successful shows and movies appear unprofitable on paper, depriving creators of backend compensation.

The vertical integration of TV networks and production companies led to a wave of lawsuits from producers arguing that studios cut “sweetheart” deals with affiliated networks, giving them less money than they could have if the show had been sold on the open market. AMC Networks last month disclosed a $200 million settlement to end a long-running litigation battle with showrunner Frank Darabont over profit participation in “The Walking Dead.”

Last month, actor Gerard Butler sued the producers of the film “Olympus Has Fallen,” including L.A.-based Millennium Films Inc., alleging he was owed at least $10 million in backend compensation.

Some insiders see echoes of the past in today’s streaming battles. Companies including Netflix and WarnerMedia have made nine-figure multiyear overall deals with showrunners to keep their projects in house for their streaming services.

Jeffrey Finkelstein, a partner Los Angeles law firm Del, Shaw, Moonves, Tanaka, Finkelstein & Lezcano, which represents talent, sees striking similarities to Hollywood in its early days.

“I believe that we are going to come full circle to where the industry started out 100 years ago, and we are going to see the rise again of studio contract players,” Finkelstein said.

It’s not just famous actors and directors who have skin in the fight over streaming cash.

As streaming takes over the traditional broadcast network TV model, studios are commissioning shorter seasons and writers, actors and directors say they are also are losing out on revenue from what would have been syndication or reselling of their shows.

Such concerns nearly fueled a walkout by writers in 2017 — a decade after the previous writers strike.

Hollywood union leaders are closely watching developments, which could play into 2023 contract negotiations.

“Creatively, it’s sort of like the Wild West — you can do anything you want and find a home for it, but financially it’s like an emergency what’s going on,” said Meredith Stiehm, incoming president of the Writers Guild of America, West and creator of the CBS series “Cold Case.”

Dealmakers for top talent are increasingly pushing for contracts that address how creatives will be better compensated when a movie or show becomes a hit on streaming.

One idea is to pay artists a percentage of subscription revenue based on viewership, similar to how Spotify and other music services pay record labels. Another option is to provide bonuses based on viewership benchmarks or the number of subscribers who sign up for the particular movie or show. Actors working with producers who sell their movies to streamers could get a percentage of the fee earned from the sale of the distribution rights. But those options could still result in a smaller payday than the box office.

“Agreements need to catch up with the new realities of our world and have already started to,” said entertainment attorney Jake Levy, founder of Levy Law, who represents producers and production companies. “Certainly this lawsuit [between Johansson and Disney] will encourage those contracts to catch up with that reality.”

A major problem, though, is that producers often don’t know how well their shows are doing. Metrics are notoriously opaque in the streaming business, especially compared with the much more objective measurement of box office grosses. Netflix only recently began publicly disclosing viewership for certain shows. Others continue to hide data for individual programs.

One way to get information is through litigation, Oxley said. “We’re going to have to see streamers releasing some of their numbers in order to really create an economic model around subscriptions and how they correlate to the release of a particular property,” she said.

Dan Rabinow, cohead of CAA’s motion picture literary department, noted that major technology disruptions have happened in the past and artists have always ended up being paid. Rabinow represents “Godzilla vs. Kong” director Adam Wingard, Jordan Peele and Sacha Baron Cohen. His agency also represents Johansson.

“There has to be an honest and fair conversation about value across the board. The artists are creating great value for these companies and need to be compensated,” Rabinow said.

The pandemic has heightened these tensions.

Disney made the decision to release “Black Widow” on Disney+ when the global box office faced major uncertainty because of COVID-19. The spread of the Delta variant has elevated concerns. WarnerMedia has said its decision to move films to HBO Max was a one-year reaction to the public health crisis, though Warner Bros. plans to make direct-to-streaming movies next year and beyond.

“How do you create a system for compensation when the underlying economic ecosystem of an industry is changing every year?” said Lindsay Conner, an attorney at Manatt, Phelps & Phillips. “The only answer is you have to think with a bit more of a short-term approach.”

Even compared to the pantheon of ugly entertainment litigation, the Johansson-Disney dispute has been unusually nasty.

In her complaint, Johansson alleged Disney caused a breach in her contract, saying it promised an exclusive theatrical release for “Black Widow.” The complaint included email excerpts from Marvel’s lawyer in 2019 saying “her whole deal is based on the premise that the film would be widely theatrically released like our other pictures.”

Disney denied it interfered with Johansson’s contract and responded with a blistering statement that called the lawsuit “especially sad and distressing in its callous disregard for the horrific and prolonged global effects of the COVID-19 pandemic” and disclosed that Johansson already made $20 million from the film.

Critics of Disney, including Time’s Up, Women In Film, and ReFrame, described its response to Johansson as “gendered” and personal, a characterization that people close to the company have forcefully denied.

Johansson’s attorney John Berlinski blasted Disney’s response in a statement to The Times.

“Having shown its true colors by lashing out with a bullying and misogynistic personal attack against Scarlett Johansson, Disney has turned to its legal team in a desperate attempt to rehabilitate its image,” Berlinski said.

Daniel Petrocelli, who is representing Walt Disney, said the company will ask the court to dismiss the suit in favor of arbitration. Petrocelli called Johansson’s lawsuit “an attempt to avoid the contract’s arbitration requirement.” He also said that Johansson’s contract does not guarantee an exclusive theatrical release, but rather it only requires the movie to be released widely in theaters.

“There is no requirement in the contract for an exclusive theatrical release, but if the movie is released theatrically, it must be exhibited in no fewer than 1500 screens. Disney has vastly exceeded this requirement in releasing Black Widow in over 30,000 screens worldwide,” Petrocelli said.

He added: “You will continue to see studios maintain distribution control, especially given the need for flexibility to adapt their distribution models to evolving market conditions.”

Times staff writer Meg James contributed to this report.