WGA Declares War On Big Talent Agencies; No Room For Negotiated Compromise On Key Issues, Exec Says

WGA ATA
WGA/ATA

The WGA has declared war on Hollywood’s Big Four talent agencies – WME, CAA, ICM Partners and UTA – vowing to “divide and conquer” the agency business to kill off packaging deals and force them out of the production business, which the guild considers monopolistic and conflicts of interest. And if they don’t like its terms, the guild says, “they can get out of the agency business.”

The WGA, for the first time, also is vowing to sue the Big Four if it doesn’t get what it wants at the bargaining table. The second round of talks began Tuesday. after a two-week layoff.

To press its case in its ongoing negotiations with the Association of Talent Agents for a new franchise agreement, the WGA West will hold a vote of its members on March 25 to decide whether to promulgate its own Code of Conduct to ban packaging and production deals by agencies. And that could lead to a confrontation with its own members, who would have to choose between sticking with their agents or remaining members of the WGA.

The current agreement, which expires on April 6, hasn’t been renegotiated in more than 40 years.

Goodman WGA

Negotiations for a new deal, which began on Febraury 5, already might be dead on arrival, however, as the guild has made clear that there is no room for compromise on its key demands. “There are negotiations where there is no middle ground, where there are basic principles that are not subject to compromise,” WGA West president David A. Goodman said at a Febraury 13 membership meeting, a video recording of which was sent to guild members late Wednesday night.

Some guild members, however, have wondered why — if there is no room for compromise on such vital issues — it has taken the WGA so long to try to renegotiate the rules, which long have allowed packaging, in which agents bring together the creative and financial elements of a show.

After the first day of negotiations, the ATA expressed “serious doubts about the sincerity of WGA leadership’s desire for a negotiated solution” but has stressed that it still holds out hope that an agreement can be reached. “For more than 60 years, agents have remained constant and unrelenting advocates for all writers,” the ATA said, “Agents will continue to fight for all artists – from the writers breaking into the business to the showrunners who command some of the highest compensation in the industry. We want you to know that we will continue to engage in honest conversations, and we hope our aligned interests can result in a new agreement between WGA and ATA.”

The WGA’s hardline tactic might be nothing more than a bargaining chip in its talks with the ATA – like the common move of taking sure-to-win strike-authorization votes during contract talks to weaken the resolve of employers. That, however, does not appear to be the case here, and if the WGA sticks to its guns, it will make a negotiated settlement with the ATA all but impossible because the Big Four agencies are not about to voluntarily agree to return to a business model that hasn’t existed in decades.

“The big agencies have given us every indication they will not accept our proposals in those areas, although of course we will try to reach an agreement before our current agreement expires on April 6,” Goodman said in his 31-minute remarks. Watch it here:

“We are making a power grab,” he admitted, calling it “a necessary, proper and fair power grab. As the agencies have taken our collective power and used it to maximize their power and income, we have to take our power back and make sure it is used to maximize our incomes.

“If we implement a Code of Conduct,” Goodman added, “it will be because the membership voted to do so. And you should vote knowing that although you will not have to walk off your job, you may well have to walk away from your agency, and maybe even from your individual agent.

“A membership vote to implement a Code is a vote for all of us to walk away –together – from any agency that will not sign it. That is most likely to be the Big Four – ICM, WME, CAA, and UTA – but it will include any agency, including any of the other 196 smaller agencies, which will not sign our Code and abide by it.”

Goodman, however, did not inform his members that they have another choice: They can stick with their agents no matter what the guild says by opting for Financial Core status, which strips them of their guild membership and the right to vote or hold union office, while paying only that portion of union dues that goes directly toward covering the costs of collective bargaining, contract enforcement and contract administration.

WGA members who are clients of agencies that don’t sign the Code would have to choose between their guild and their agent because WGA rules state that “no writer shall enter into a representation agreement whether oral or written, with any agent who has not entered into an agreement with the guild covering minimum terms and conditions between agents and their writer clients.”

Currently, the WGA West has only 40 financial core members – who the guild calls “agency fee payers” – out of a total membership of 10,215 current members who are allowed to vote. If the threatened war comes, however, that number could mushroom if guild members decide that they’re better off with their agents than with their guild. The WGA East has only 11 “agency fee payers” out of a voting membership of 4,765, according to its latest financial report filed with the Department of Labor.

The Screen Actors Guild tried to renegotiate its own franchise agreement with the Association of Talent Agents back in 2002, but when a deal couldn’t be reached, the union elected not to ask its members to make that hard choice – and SAG-AFTRA doesn’t have an agreement with the ATA to this day.

Goodman made it abundantly clear in his remarks that the WGA intends to revolutionize the agency business. The big agencies, he said, are reaping huge profits, while over-scale payments to writers are barely keeping up with inflation.

Even so, earnings by members of the WGA West topped $1.4 billion in 2017 – an all-time record and up nearly 3% from 2016, according to the guild’s latest earnings report. Earnings from feature films broke though the $400 million barrier for the first time since 2010 – up more than 6% and topping out at nearly $421 million. TV earnings are fast approaching $1 billion a year, coming in at $976 million. (Read the guild’s annual report here.)

Goodman, however, said that while fairness is an issue in the negotiations, in the end, he said, it’s all about money. Here is an extended quote:

“The fundamental reason that the leadership is recommending these changes is money. If writer pay were steadily rising as agencies continue to package, we wouldn’t be sitting here. If writer pay were rising as agencies move into production and become our employers as well as our representatives, we wouldn’t be here. But as writers we share a common knowledge that writers overall are not doing better. We’re doing worse.

“The simplest way I can begin is by saying something fundamental is wrong in the agency business: writers are being hurt, and it is the right and the responsibility of the WGA to fix what has gone wrong. I repeat, it is the guild’s responsibility to writers to ensure that every one of us will be properly represented by the agencies.

“I don’t take lightly the recommendations I make to you today. They amount to the guild fully asserting its legal authority as a union to oversee how agencies represent writers. The biggest agencies, the so-called Big Four, ICM, UTA, WME and CAA, will not be happy about that. And there may well be a struggle required and hardship for some of us. But I believe that we must accept those risks in order to fix the problems.

“But it will be up to you, the members, to decide if you agree, as we plan to hold a membership vote on March 25 on what I propose today.”

Agency income, he said, “should be directly tied to writer income – the agent should make more only when his client the writer makes more – but that’s not what’s happening anymore. Instead, agencies make their real money from packaging, and now producing, which are conflicts of interest that hurt writers. So our simple goal has two parts – to bring the agencies’ interests back in line with those of writers, and to require that agencies behave as our partners in getting writers paid on time and preventing unpaid work. Currently they’re not.”

And while the guild is outraged by the agencies’ conflicts of interest, the guild’s highest-paid members have their own conflicts of interest: They’re the creators, showrunners and executive producers of TV shows who hire and employ many of the guild’s other members, and negotiate their salaries – usually as cheaply as possible in order to increase their own paychecks.

Here’s another extended quote from Goodman:

“Let’s take a look at how the business is doing economically, how the agencies are doing, and how writers are doing, I’ll give you a hint: two of the three are doing great, and the third one is us. Even with changes in the industry, the entertainment business is experiencing its most profitable period in its history. Every aspect of the business is highly profitable. This success is mostly a function of two great growth factors. One is the monetization of the Internet. The second is huge growth in the international market. We expect the major studios along with Netflix, which is on its way to becoming a major, to have made around $54 billion in operating profits in 2018, and that’s not counting Amazon or the big players coming into the industry like Apple and Facebook.

“How are the big agencies doing? Well, their books are closed to us and the rest of the world. But it is not hard to make a reasonable assessment. CAA and WME are so cash-rich and profitable that they have gotten $3 billion in investment from venture capital to expand their businesses. They are now majority owned by private equity companies that demand profit maximization, not higher salaries for writers. UTA also now has a large venture capital investor.

“The companies and the agencies are crushing it; how about writers? We’ve just completed a member survey on over-scale income—the money we earn that’s above MBA minimums. Over-scale is the one thing we delegate to the agencies to get for writers.

“This 2018 member survey shows modest increases in over-scale TV compensation compared with 2016. However, these increases barely match inflation, and they leave writers still well below the levels of income reported in 2013. And experienced TV writers know that the erosion of over-scale pay did not begin in 2013, but well before that.

“And screenwriters? Screenwriters reported that about 20% are being paid guild scale; remember, scale is what the guild gets you in the MBA (the guild’s basic contact). Only 38% reported improving their quote. 44% reported being paid less than their quote or their quote staying the same. And screenwriters face an epidemic of demands for free work. Free work is a problem that the guild can best tackle in partnership with the agencies, but they refuse to help us.

“There are more writers at WGA scale, more writers whose quotes have atrophied or dropped, more writers trying to make their year on a short order episodic series, and more screenwriters required to do outrageous amounts of free work than ever before. The agencies are not succeeding in defending writer over-scale pay. And this won’t come as a surprise too many of you, when asked in the survey who helped you get your most recent job, 75% of writers said it wasn’t their agent. If this is how writers overall are doing during an unprecedented expansion of the entertainment business, how will we be doing when the next recession comes around the corner or Peak TV finally reverses a bit? We need to fix the situation now.”

He then went on to explain how and why the two major agency “conflicts of interest” – agents’ packaging and producing deals – are hurting writers.

Another quote, with others below:

“In television, packaging is when an agency demands to be paid directly by the studio rather than commissioning talent at 10%. The Big Four  agencies — WME, CAA, UTA and ICM — now use their monopoly control of top writing talent to insist on packaging virtually every scripted show on television and streaming.

“That’s because packaging is immensely profitable…FOR THEM. For representing the show creator, and sometimes other elements, the agency is paid through a formula referred to as ‘3%-3%-10%.’ The first 3% is from the network license fee and is paid out of the series budget. This 3% is $30,000 to $100,000 per episode and is often more than the agency would get from 10% of the earnings of its clients. This money is taken directly out of the budget of the show, money that could be used to hire more writers and pay writers more money. Agencies argue that they should get packaging fees because they are taking a risk on the show. But this 3% out of the budget upfront means they are not taking a risk. With more than 300 scripted series packaged each season, this first 3% is more than $150 million that flows to the agencies every year.

“The second 3% is also from the license fee and is deferred until net profits, if any. But here’s the kicker. The agency then gets 10% of the show’s gross profits for the life of the show, even though its work is normally finished before the pilot is shot. This agency backend amounts to hundreds of millions of dollars per year for the Big Four agencies, far more than they would earn from 10% commission, and often far more than the show’s creator earns. A successful show, not just on a network, may bring tens of millions of dollars over its life to the agency in profit participation.

“But packaging is not a contentious negotiation where the agency’s piece depends on how well they do for the show’s creator: it is a price fixed by the big 4 agencies at 3-3-10. And agents and agencies have been known to block deals from going through until their package fee is in place. These ransom fees remove the single greatest incentive for agents to fight on behalf of all writers: mutual and immediate shared economic self-interest.

“The big agencies’ interest is not with writers, it is with studio profits. This plays out in different ways for showrunners and their staffs, but both are bad. For showrunners, they are the only ones the big 4 care about representing and therefore showrunners have some leverage to defend their deals, but their agency is in competition with them for I.P. and profit participation. For every other TV writer, packaging means there is zero connection between what your agency negotiates for you and what the agency makes. The agency has no financial incentive to get TV writers more money. None.”

Packaging, he said, affects feature films too. “About half of WGA films are independent features with difficult budgets and a hard road to distribution,” Goodman told members. “The agencies have expanded their packaging model to these independent films. Agencies take a 5% packaging fee out of the budget. They may also demand to handle domestic or foreign sales and take a fee for that. Independent producers report some agencies even charge them a monthly retainer for access to their clients.”

The WGA, he said, recently had conversations with nine independent—mostly film—producers to ask if agency packaging hurts or helps the business, and whether the guild would damage their business if this were to be banned. “The producers’ overwhelming answer was that agency packaging and producing hurt their business and they’d love to see us stop it,” he said.

“I don’t want to overstate the financial impact of screen packaging. It is so hidden, even from our own members, there is no easy way for the guild to assess it. Sometimes writers themselves don’t know if their film has been packaged. But here’s something fun: unlike in TV, in features, agencies take packaging and other fees and still charge their screenwriter clients a 10% commission.

“What are the big agencies doing with the money they get from the packaging windfall? That brings us to the second big conflict of interest: producing. They are moving to become our employers by becoming producers and owning content. CAA’s production arm WIIP, WME’s Endeavor Content, and the new UTA production arm are the next big threat to writers from agency conflict of interest. If you want to add a ‘why now’ to this discussion, consider this:

“The big agencies are using their packaging and venture capital money to become competitors of the studios by owning content. As producers, they will be both our employer and our representative as writers, the clearest conflict imaginable. This is a complete bastardization of what it means to be an agency and represent writers.
A few writers will get a great deal from Endeavor Content or CAA’s WIIP. But most writers will get screwed, and our powerful agency will now be our powerful boss. Would you want Peter Roth to negotiate your deal at Warner Bros.? Let’s be clear. If your agent is your employer, you don’t have an agent.

“The last time a powerful talent agency decided it wanted to become a producer was MCA in the 1960s. The Justice Department stepped in and forced Universal to spin off its agency business, because it was an anti-trust violation. But now, unfortunately, we can’t wait for the current Justice Department to step in.”

In the ongoing negotiations, Goodman said, “The agencies have floated a compromise wherein their packaging deals will be transparent and that they will never make more than the showrunner on the back end participation.” The problem with that, he said, is that that as “as long as it’s out in the open, it’s okay that an agency that negotiates the pilot deal for its client makes the same backend as a guild member who wrote the pilot and produced 60 or 100 episodes. That’s absurd.

“And what will transparency do for TV writers who are not showrunners? The agencies’ money will still come from the studio profits, not from getting writers more money. We would be leaving in place a system that has completely severed the connection between the interests of the agencies and any TV writer who is not called showrunner. And transparency does nothing for feature writers other than confirm their agency is double dipping and probably making more than they are from the film.”

Another argument the agencies have used, he said, “is that writers should love packaging in TV because they don’t have to pay their 10% commission. That is a fair point. But there are huge long term consequences from packaging that are hidden and that dwarf the 10%. Writers’ quotes in TV and features have been under pressure for years. Our own 2016 survey showed experienced TV writers had a 23% drop in income in the past few years alone. So if our agents aren’t taking commission, but they’re also not fighting for our raises, or even defending our quotes, are we really coming out ahead? We are not.

“Here’s another big hidden cost: at this point 52 percent of feature writers and 33 percent of TV writers are paying what I’ll call the 25% tax. They have an agency, a manager and a 5% lawyer. If we look closely, it is clear that younger, lower paid writers are most likely to pay the 25% tax. When asked in our surveys why they also pay a manager and/or an attorney, writers overwhelmingly explained that it is because agencies no longer do the full job of representing them and because they need someone to keep their agency honest. These writers are paying an extra 15 percent because agencies aren’t doing their jobs.

Goodman said that Ari Emanuel, co-CEO of WME, “thinks this is how things should be. Last October he was asked at MIPCOM about conflicted agency practices and said, ‘The world has changed,’ and noted that there are plenty of lawyers and managers who serve as a check on any potential agency conflicts. So he’s comfortable with it.”

In the area of contract enforcement, Goodman said, “If the agencies will simply give us the information we are demanding, including all writer contracts and invoices for payment, the guild may not solve the problems of writers being paid late and continually being asked to work for free, but we will do our damnedest. We will contact every writer on every feature deal and offer to help them get paid on time and avoid free work. We are not big brother and we won’t pressure you, but we will have an impact that will help writers.”

Summing up, Goodman said, “The Big Four agencies have developed a monopoly that takes the collective power of writers and uses it to enrich the agencies themselves. This has resulted in long term stagnation of writer income and real downward pressure on writers’ quotes. We cannot allow these conflicted and illegal practices to continue. Agencies have to be fully on the side of writers, and our proposals ensure that they will be.”

If an agreement can’t be reached with the ATA, he said, “There is another course of action open to the guild. In our dealings with the agencies, the guild has the legal right to act unilaterally to establish a set of rules — we call it a Code of Conduct – that the agencies have to follow if they want to represent our members. The idea of a code of conduct is not revolutionary. Indeed, it is the dominant method of agency regulation in all of professional sports.

“All of the major sports unions have similar Codes of Conduct — basketball, baseball, hockey and football. At CAA, which has the biggest sports agency business, all the sports agents must be signed to the Codes of Conduct. We’re not reinventing the wheel here. How would our Code of Conduct work? If the WGA membership agrees, then agencies that want to represent WGA members must agree to the new Code, effective April of this year. In fact, that’s what we will be asking writers to vote on, namely: should the WGA implement a Code of Conduct that bans agency conflict of interest?

Under that Code, he said, all agencies and agents would be “required to behave as proper fiduciaries at all times” and “to avoid conflicts of interest. Since both packaging and producing are conflicts of interest for agencies, these and any other conflicted practices would be banned as of April 2019. The agencies would return to a 10% model.

“The guild is responsible for defending both the MBA and the individual deal specifics of all writers. In order to facilitate this, the Code requires that the agencies provide the guild with all deal memos, all invoices for payment, and open access to the agencies’ books. Writers and the guild will have the right to regularly audit all of this information to ensure proper oversight.

“If the guild continues to allow agencies to make their living in ways that can harm writers, writers will be harmed,” he said. “That’s why conflicts of interest are illegal; it’s why your lawyer can be disbarred over such conflicts; it’s why if guild officials did as the agencies do and took anything of value from the studios, the officials would be liable under the RICO racketeering statute. Yet the agencies demand hundreds of millions from the companies annually for representing us, and so far they have gotten away with it.

“We have of course already been called unreasonable by the agencies, and this will continue. Be prepared. As writers we are often filled with self-doubt and a desire to be seen as fair, reasonable and willing to compromise. But it is crucial for us to understand: there is no meaningful compromise where conflict of interest is concerned. It’s a binary choice. Either agencies put our interests first and make their money from our success or, like now, they will continue in the business of maximizing their own success while writers suffer. We hold the cards here—let’s not allow our own sense of fairness to be wielded against us in this agency campaign.”

Some writers, he said, “have asked why the guild doesn’t simply litigate the agency practices that are illegal, and file lawsuits to seek to vindicate our rights. The answer is that we will, so don’t be surprised if the agencies complain. But we cannot rely solely on litigation to solve our problems as if it is a magic bullet. It almost never is. We could be stuck waiting for years or get a bad decision. We have something much more powerful than litigation to change agency behavior: our power as a unified guild.”

“This is a different kind of campaign than our usual MBA negotiations and it will play on our own emotions in a very different way,” he concluded. “There is no question that many agents are honest, hard-working, and try to be good trustees of their clients’ best interests. I would actually go further, it’s my sincere belief that the majority of the agents at the Big Four think they are doing a good job for their clients. This is the only system that they’ve known, and if their client is working, and their agency is doing well, they’d have no reason to question it.

“Many of us have not only professional, but personal relationships with our representatives. And even if you don’t have a good relationship with your agent, they represent potential access to employment, even if it is only imagined. But this campaign is not about the competence or moral character of any individual agent. The problems are systemic; they need a systemic solution or the harm to writers will grow worse.

“We think there are many agencies and good, honest agents who will ultimately welcome what the guild and writers are doing. We’ve talked to people at smaller agencies who do. So we expect to sign up many of the smaller agencies. Regarding the Big Four, we will seek your help to organize key agents to make the move to independence so they can keep working with you if their agency won’t sign our Code of Conduct. So I am saying that our collective power here is the power of divide and conquer. The agencies and agents all compete for talent, and when we make clear that we are leaving those who will not change, the change will come.

“It’s simple yet difficult: if we stick together we will make this happen. Writers have the power here. But we’re so accustomed to dealing with the agencies and their power by ourselves, as individuals, that we lose sight of that. Here, though, we’ll be acting together as a union, not alone. We’ve proven we can take on the companies, we surely can take on the agencies. We have to summon the courage and leadership that are so difficult but that we’ve often shown.

“We also have to be prepared to help each other in every way possible to deal with the dislocation of looking for work during a period where some of us will need new sources of information in order to connect with other writers and jobs. Showrunners in particular, but also prominent screenwriters and captains will be asked to lead, to help other writers.

“More is asked from those who have more power, much to gain, and a great ability to help us all succeed. High-profile writers will be asked at a certain point to publicly state support for this campaign and their willingness to walk away from their agency as necessary.

“Finally, as I hope I’ve made clear, this is not just about one genre of writers, or only the top earners, or only the middle class—it’s about the whole guild. We as writers must make a decision about whether we prefer the current flawed system or one that has the proper incentives. There are no guarantees in union struggles. But think ahead—what will happen if we do nothing?”

In one last pitch for solidarity, Goodman told his members: “We’ve all taken risks to get into this business and to stay in it. That doesn’t make taking another one easy, but, that’s what I am asking to you do. As writers we are at the very heart of what the agencies do and we have the collective strength and numbers to do something we all need. We can’t let our desire to look reasonable, even when the other side isn’t, even when we’re being taken advantage of, keep us from seeing that if this becomes a fight, we have all the power. We can demand the deal we deserve and the agents will still make plenty of money. I know we can win this. But, as everything we do in this union, it’s up to the union, it’s up to you.”

A message sent to the guild’s members notes that Goodman’s views are shared by the entire WGA negotiating committee, which includes co-chairs Chris Keyser, David Shore and Meredith Stiehm; WGA West vice president Marjorie David and secretary-treasurer Aaron Mendelsohn; WGA East president Beau Willimon, and all the top leaders of the two guilds.

This article was printed from https://deadline.com/2019/02/wga-declares-war-on-big-talent-agencies-no-room-for-negotiated-compromise-on-key-issues-1202562232/