The WGA said Friday that it will release a new report Tuesday “detailing the Big Four talent agencies’ conflicted business practices that harm Hollywood’s writers.”
The guild’s announcement comes as the WGA and the Association of Talent Agents have been talking about returning to the bargaining table next week to resume negotiations on a new franchise agreement. It’s unclear how the report and accompanying press call will impact those discussions.
If and when they do get back together, it will be the first time they’ve met face-to-face since February 19. Their current agreement expires April 6.
The WGA report, titled “No Conflict, No Interest,” comes as the entertainment business “finds itself in its most profitable period in its history,” the guild said. “As industry profits have soared, billions in outside investment has flowed into the biggest talent agencies that have become singularly focused on expanding their bottom line, often at the expense of the clients.”
By once again singling out the Big Four agencies – WME, CAA, UTA and ICM Partners – who do most of the packaging, the guild appears to be attempting to drive a wedge between them and the smaller agencies represented by the ATA that don’t do packaging deals.
“The conflicted and illegal practices of the major agencies,” the guild said today, “include demanding direct payment from the studios employing their clients, known as ‘packaging fees’ and leveraging their exclusive access to talent to become producers, making them their client’s representatives and their employers.”
“These conflicts of interest,” the guild said, “are at the center” of its stalled negotiations with the ATA. The two main sticking points to an agreement are the WGA’s demand that agencies give up packaging fees and sever all ties with their affiliates that invest in companies that produce content, such as WME with Endeavor Content, CAA with WIIP, and UTA with Civic Center Media.
The guild will be holding a vote of its members March 25 to adopt a new Code of Conduct that would ban packaging fees and agency production deals with affiliated entities, which it calls “conflicts of interest” to the fiduciary duties the agencies owe their clients, If the code is approved, the WGA could order its members to fire their agents en masse April 6 if they refuse to sign it.
Former WGA West president Christopher Keyser, who serves as co-chair of the guild’s negotiating committee, addressed both issues during a February 26 podcast hosted by writers John August and Craig Mazin.
With regard to packaging fees, he said that “One of the arguments that the agencies are making back to us, and are almost certainly making to their clients individually, is this: ‘You want to eliminate packaging, which means you want to eliminate our ability to make your shows more valuable in the pre-sale moment by attaching talent to it.’ What they’re essentially saying is ‘If you don’t pay us the outsized fees, we’re not going to do our job.’ It is essentially the same thing they’re saying to the studios.”
“Why do the studios pay these packaging fees?” he asked rhetorically. “They don’t need to pay these exorbitant packaging fees. They pay those packaging fees because in a sense, the agencies have said, ‘We have all of our talent corralled behind a fence. If you want access to them, in order to get access, you need to pay a kind of ransom. You need to pay a packaging fee to us, which is over and above what we would make on the show.’ Now they’re saying to us that ‘If you don’t allow us to charge the studios that exorbitant, over-scale compensation, we won’t actually do the work of attaching your scripts to a writer or director.’ Well, if they don’t do that, what else are they doing?”
The guild, he said, doesn’t have a problem with packaging itself – that agents are welcome to the 10% commissions they take on the salaries of the writers, directors and actors that they bring to a packaged deal. The problem, he said, is with the packaging fee – known as “3-3-10,” in which agents receive “3% of the license fee of a TV show when an episode is produced; 3% of the show’s budget if and when the how reaches so-called “net profits”; and 10% of the back-end when its sold, for instance, into syndication – a market that has all but collapsed.
Agents, however, don’t take their 10% commissions on shows they package, and often lose money on shows that only last a season or two and never make it to net profits. They see their packaging fees on hit shows as compensation for the risks they take by giving up their commissions on the shows that flop. When an agency packages a TV show, an agency source said, “it’s making a long-term bet on the show – that 1 in 100 will be successful and will have enough episodes to monetize the back end.”
The ATA also says that eliminating packaging fees would devastate the indie film business. “To help clients’ shows and films get made,” ATA executive director Karen Stuart has said, “agencies have helped secure financing or distribution for more than 1,000 independent films over the past five years, creating great opportunity for writers and all artists represented at all size agencies.”
Without the packaging fees, taking 10% commissions on the talent that agents bring to such films would not compensate agents for their work to secure that financing and distribution.
On the podcast, Keyser also addressed the issue of the agencies’ ties with their affiliates that invest in companies that produce content, saying that it raises the same anti-trust issues that forced mega-agency MCA to spin off its stake in Universal Pictures more than 50 years ago.
“We’re fully in favor of the idea of more buyers – more people making content,” he said. “They just don’t need to be our agents. And those studios they’re forming, they can exist if they want, as long as they’re separate from – really separate from – our agencies, in the same way that MCA in 1962 – the largest talent agency in the country – was forced by the Justice Department to choose between its talent practice and becoming Universal Studios, and they chose to become Universal.”
Claiming that the relationship between the big packaging agencies and their content-providing affiliates operate along the same lines today, WGA West president David A. Goodman told his members on February 13 that “If your agent is your employer, you don’t have an agent.”
An agency source, however, said that unlike MCA and Universal, the agencies today have an “arm’s length” relationship with their affiliates, and that their dealings have been carefully structured to avoid conflicts of interest and anti-trust issues.
“No ATA member agency employs writers. None,” the ATA’s Stuart has said. “Rather, some agencies have affiliates – legally separate businesses with separate management and separate operations, housed in separate offices and with separate employees – who perform content-related services. These entities are legally and operationally separate businesses from agencies. Agencies disclose these relationships, and they negotiate with affiliates at arm’s length to ensure offers and deals are as good, if not meaningfully better, than others in the marketplace. That said, ATA has repeatedly told WGA that agencies are willing to listen to concerns and discuss formalizing some rules of the road to assure clients that their interests will never be compromised.”
Whether there’s any room for compromise if and when the WGA and the ATA return to the bargaining table remains to be seen. Goodman has said that “There are negotiations where there is no middle ground, where there are basic principles that are not subject to compromise.”