A new WGA report, titled “Agencies For Sale,” claims that $3 billion in private equity investments in WME and CAA “is upending Hollywood talent representation” and “threatens to overwhelm the major agencies’ core purpose as agents – to represent their clients.” The guild released the report just hours before it’s set to resume negotiations with the Association of Talent Agents for a new franchise agreement.
“This report examines the investments made into the largest Hollywood talent agencies, the practices that attracted the investments, and the extent to which private equity funding has inhibited agencies from fulfilling the legal and ethical obligations of talent representation,” the guild said. “The report lays bare the growing disparity between soaring agency valuations, executive payouts, and declining writer pay during an era of industry growth and success.”
See the full report here.
According to the WGA, WME and CAA’s private equity owners “have already seen their investments double and triple in value. The guild estimates that TPG’s $340 million investment into CAA had more than tripled in value between 2010 and mid-2017. Silver Lake Partners’ $750 million investment in WME had doubled in value to almost to $1.5 billion by mid-2016. Meanwhile, the writer clients have not shared in these gains, instead seeing their earnings slip, with a 23% decline in TV writer-producers’ median weekly income between 2014 and 2016.”
“As this report makes clear, big investments by private equity firms have pushed the talent agencies into even more conflicted business practices,” said WGA West president David A. Goodman. “It’s no longer just the problems caused by packaging fees. They are also aggressively moving into producing content – making them both the representatives and the employers of their writer clients. The conflicts of interest will only continue to grow if we don’t do something now to realign agents’ economic interests with their clients’ interests. The solution will come from either a negotiated agreement with the Association of Talent Agents or through a code of conduct.”
The WGA says that CAA and WME “have recently transformed themselves from partner-controlled businesses to conglomerates that are majority-owned by private equity funds, sovereign wealth funds, and other institutional investors. The third-largest talent agency, United Talent Agency, followed suit in August 2018, selling a minority stake to private equity firm Investcorp and pension investment manager PSP Investments. As a result, the top three agencies now operate under the pressure of private-equity-level profit expectations.
“This has caused a seismic shift away from an agency’s core mission of serving clients over all else, fulfilling its fiduciary obligation to always act solely in the best interests of clients and to avoid conflicts of interest…These investments have been attracted by the agencies’ exclusive access to television and film talent. In addition, investors are drawn to a business model in which the agencies’ own income is divorced from what clients earn.
“The major Hollywood agencies now make much of their money by demanding direct payments from the studios that employ their clients, known as ‘packaging’ fees, which are unrelated to their clients’ compensation and come directly from TV series and film production budgets and profits. Packaging fees are a conflict of interest because they introduce direct negotiations between the agency and its client’s employer over how much the agency will be paid. Agency success is severed from client income. The recent infusion of outside investment in the major agencies exacerbates this conflict.
“Outside investment not only brings with it intractable profit expectations, it has fueled the agencies’ expansion into new ventures, including into TV and film production, in effect making the agencies employers of their own clients. This investment-fueled expansion is incompatible with, and threatens to overwhelm, the major agencies’ core purpose as agents—to represent their clients. At the same time, the top agency executives and the private equity owners have benefitted handsomely from these developments, receiving hundreds of millions of dollars in payouts and seeing their remaining ownership stakes balloon in value by hundreds of millions more.”
In a message to its members, the guild’s negotiating committee said today that
“During this decade, more than $3 billion has been invested into the three largest agencies. Over $440 million has been invested into CAA. At WME, a total of $2.5 billion. In August 2018, UTA received a $200 million investment.
According to WGA estimates, TPG’s investment in CAA had more than tripled in value by mid-2017. Meanwhile, Silver Lake Partners’ $750 million investment in WME had doubled in value to almost $1.5 billion by mid-2016.
“The influx of capital has also provided agency executives with hundreds of millions in payouts, and they still have ownership stakes,” the guild said. “At CAA, the top four agents received at least $250 million in payouts from the sale to private equity. WME management, including Ari Emanuel and Patrick Whitesell, retains a significant stake in the company, a stake which is now worth well over $1 billion.
“That is what the agencies have made. At the same time, studio profits have doubled to over $50 billion a year. And writer salaries dropped 23% in a two-year period.
“The agencies, whose principle job is to protect writers’ above-scale income, have failed utterly in that – failed to take on the abuse of options and exclusivity clauses – failed to combat the corrosive impact of span on television writers’ pay – failed to protect screenwriters from late pay and free work. They have left all of that to the Guild.
“The agencies have, instead, engaged in a kickback scheme, illegal under federal law. That’s what packaging fees are. And let’s be clear, everybody in the entertainment business knows it: the smaller agencies that fight to survive in a business dominated by a four-firm oligopoly, the studios who pay the ransom, the managers and lawyers. Virtually everyone has had to accommodate what the major agencies do. Some have even learned how to get their share of the loot.
“And now those agencies that have failed to protect writers – even in deals made with outside studios, who are our negotiating adversaries – ask us to believe that they will protect us when they negotiate for us against their affiliated studios.
“That is the next twist in this story. In order to generate even more outside investment and reap even greater profits for those investors and for themselves, major agencies are now moving into content ownership and production.
“WME and CAA claim they are doing this to provide more opportunity for their writer clients and to make better deals for writers than other studios can offer. And they may, for a time, offer marquee deals. The loss leader is as old as sales itself. But in the long run, “affiliated studios” are an even greater conflict than packaging fees.
“When our agents are studios – when they employ us – their interests are in direct opposition to ours. These agency/studios generate wealth for their investors (and themselves) by maximizing profits and minimizing costs. Our salaries are one of those costs. When costs and net profits trade off, net profits wins. When the interests of multibillion-dollar investors and individual writers are at odds, multibillion-dollar investors win.
“The agency half of the agency/studio partnership is important to CAA and WME because it provides the only competitive advantage they have over other studios, which is access to talent. But, if successful, it is the studio side of the partnership that will drive a massive return on investment. The studios – Endeavor Content and Wiip – will have the negotiating leverage over what should then rightly be called their ‘affiliated agencies.’
“And our agents now ask us to believe, having rolled over on us even in what appeared as fair, arms-length negotiations with outside studios, that they will now protect us against their partners? Who wants to take that bet today – or in ten years’ time?
“The influx of outside capital into the agency business has completed the transformation of our agencies from businesses dedicated to maximizing our revenue to businesses dedicated to maximizing their own. It is a breach of their fiduciary duty to us and a violation of law. It has forced the Writers Guild of America to propose new terms for agency representation in order to realign agencies’ interests with those of their clients and ensure that client interests come first – as is required by law.
“It’s time for change, and change can be hard, but practices that diminish our worth and our livelihoods cannot be allowed to stand. Agents unwilling to represent writers will have to find another line of work but the fact is, despite continuing to call themselves ‘agents,’ that’s exactly what they’ve already done.”
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