2ND UPDATE, 4:22 PM: In a message to its members regarding today’s lawsuit against the Association of Talent Agencies, the WGA West’s board of directors said: “The WGA will continue to use all appropriate methods, including negotiation and litigation, to align agency interests with the interests of writers.”
UPDATED with more info and full lawsuit: The WGA has filed a civil lawsuit in Los Angeles Superior Court against the four major packaging agencies, accusing them of violating state and federal laws with respect to the fiduciary duties to their writer-clients.
Tony Segall, the general counsel for the Writers Guild of America, West, said during a press conference at WGAW headquarters in Los Angeles on Wednesday said the suit against CAA, WME, ICM Partners and UTA makes two claims: that packaging fees violate state fiduciary duty laws, and that those fees violate federal unfair competition laws.
Specifically, the suit cites the anti-kickback provisions of the Taft-Hartley Act. Under that law, representatives of an employee can’t receive money from an employer, Segall said.
“Packaging fees have caused tremendous financial harm to the guilds and their members including the individual plaintiffs,” read the 25-page suit (read it here).
The plaintiffs listed are the WGA West and WGA East, and WGA members Patricia Carr, Ashley Gable, Barbara Hall, Deric A. Hughes, George Johannessen, Deirdre Mangan, David Simon and Meredith Stiehm.
Simon is creator of HBO’s The Wire and The Deuce. Stiehm is creator of the CBS series Cold Case.
“When the show was sold, CAA negotiated a packaging fee for itself, without my knowledge,” Stein said in remarks at the press conference. “It wasn’t until six years and 134 episodes later that I learned about it. It turned out that on the show I created, I worked on exclusively for years, CAA ended up making 94 cents for every dollar I earned. That is indefensible. An agency should make 10% of what a client makes — not 20, not 50, not like in my case, 94%. 10% is enough.”
Packaging has been allowed under the WGA’s franchise agreement with the agencies since 1976. But Segall said Wednesday that “the guild has been uncomfortable with packaging forever.” He added that in the mid-1970s the guild filed lawsuits against then-William Morris Agency, in which a settlement was reached that allowed the guild to attempt to regulate packaging. That, however, was “completely unsuccessful,” he said, and in recent years the TV packaging agencies “have abandoned the 10% commission model” and now rely almost entirely on packaging fees.
“It’s now time to ban it altogether,” Segall said.
The guild and the talent agencies repped by the Association of Talent Agents have not set any dates to resume discussions in their impasse over a new franchise agreement. Formal negotiations broke off Friday, after which the guild ordered its members to fire their agents who refuse to sign its Code of Conduct.
Segall added that “to date, thousands of writers have signed letters” terminating their agents who refused to sign the code, which was approved by an overwhelming vote of the union’s members. It bans packaging fees and prohibits agencies from being affiliated to production entities through corporate parents.
Before talks broke off Friday, the WGA and the ATA each made minor concessions but remain far apart on those two key issues, leading to today’s lawsuit.
“The agencies’ packaging fees violate the fiduciary duty that agents owe to their writer clients and deprive them of the conflict-free representation to which they are entitled,” the suit reads. “For these reasons, and because the payments made from the production companies to agencies as part of any package, constitute unlawful kickbacks from an employer to a ‘representative of any of his employees’ … packaging is an unlawful or unfair business practice for the purposes of the California Unfair Competition Law.”
The suit says packaging fees should be “declared unlawful” and “unjoined” and the plaintiffs should be awarded disgorgement of unlawful profits, and individual plaintiffs should be awarded restitution and damages. “Plaintiffs bring this lawsuit to end the agencies’ harmful and unlawful practice of packaging fees,” it said.
Here are more details from the WGA’s lawsuit:
The suit makes the case that changing business models in industry have made packaging fees more onerous for writers. “Over time, conditions in the television and film industry changed dramatically in a manner that has had significant negative consequences for writers, while drastically increasing the profits of the agencies and their agents.”
“First, there has been overwhelming consolidation within the market for talent agents. Because of this consolidation, the four defendant agencies now represent the overwhelming majority of writers, actors, directors and other creative workers involved in the American television and film industries. By virtue of this consolidation, the agencies exert oligopoly control over access to almost all key talent in the television and film industry.
“Second, the agencies have moved away from the commission-based model of compensation…Instead, the agencies have shifted to a ‘package fee’ model whereby the agencies negotiate and collect payments directly from the production companies that employ their writer-clients and that are tied to the revenues and profits of the ‘packaged’ program, rather than receiving a percentage of their clients’ compensation. Approximately 90% of all television series are now subject to such packaging fee arrangements.”
Packaging fees are generally based on a 3%-3%-10% formula. According to the suit, it generally breaks down like this:
“In television, the packaging fee for a particular project normally consists of three components: an upfront fee of $30,000 to $75,000 per TV episode, an additional $30,000 to $75,000 per episode that is deferred until the show achieves net profits, and a defined percent of the TV series’ modified adjusted gross profits for the life of the show.”
According to the suit, “Packaging fees generate hundreds of millions of dollars per year in revenue for the agencies – far more than they would earn from a traditional 10% commission from their clients. The agencies have used the income generated through packaging to raise private capital, and their business has become so lucrative that some agencies are now planning to become publicly held corporations.”
The suit says that “The packaging fee model of agency compensation harms writers in multiple respects. Because the component of any packaging fee is part of a TV episode’s budget, payment of that amount diverts financial resources away from the agencies’ clients and the projects on which they are working and to the agencies themselves. Even where the agencies are paid a lower end upfront packaging fee of, for example, $25,000 per episode, that represents the cost of hiring approximately one additional high-level writer or two additional lower-level writers for the program.
“Where a studio or network insists that the budget for a program be limited or reduced, showrunners cannot reduce the amount paid to the agencies as a packaging fee, and must instead cut resources from other portions of the program’s budget.
“Likewise, because the third component of the packaging fee is based on defined gross profits, the payment of the packaging fee to an agency has the effect of reducing the profit participation of the agency’s own clients, including writers, as the writers’ share of the profit points is correspondingly reduced.
“Worse, the agencies in many instances negotiate more favorable profit definitions for themselves than for their own writer clients.”
The suit says that David Simon, one of the named plaintiffs, “has never received any profit distributions for Homicide: Life on the Streets because his agency, CAA, negotiated a profit definition for Simon that was based on the net rather than gross profits” The suit says that to this day, CAA “continues to receive profits from that show because it secretly negotiated a far more favorable profit definition for itself, without Simon’s knowledge of consent.”
It adds: “The agencies themselves recognize that their interests are no longer aligned with those of the writers they represent,” the suit alleges. “The head of WME has stated publicly, for example, that his most important client is now a head executive at Warner Brothers.”
According to the lawsuit, “Packaging fees also distort agents’ incentives when seeking employment opportunities for their clients. In order to avoid splitting a packing fee with other agencies, the agencies pressure their clients to work exclusively on projects where the other key talent is also represented by the client’s agency. The agencies exert this pressure even when the client and the agent know that the project will be best served by involving someone from another agency.”
Many of the individual plaintiffs in the case “have found that their agency presents them with opportunities to work only on projects involving other talent from the same agency,” the suit says. “Their ability to obtain work and compensation commensurate with their experience has been severely hampered by the agencies’ failure to present them with other work opportunities.”
“The agencies also choose not to sell packaged programs to the production companies willing to pay the most for the programs,” the suit charges, “or that will be the best creative partner for the programs. Instead, the agencies choose to sell packaged programs to the companies willing to pay the largest packaging fee.”
Packaging isn’t limited only to television shows, however. “While the practice of packaging has its historical roots in television, the agencies now also extract packaging fees on feature film projects, particularly on independent productions not financed or produced by a major studio,” the suit states.
“On packaged feature projects, the agencies are paid a fee from a film’s budget or financing, in addition to taking a 10% commission from their clients. Agencies also use their leverage to steer film projects to their own clients or affiliated companies to function as financiers or distributors of the finished film.
“While the economics of the film packaging differs in some respects from packaging agreements in television, the conflict of interest is the same. The agencies leverage their access to high profile clients for their own benefit, and negotiate compensation for themselves, undisclosed to their clients and unrelated to what their clients earn.”
“Feature film packaging has a direct detrimental effect on writers,” the suit says. “Because packaging fees are based in part on gross profit, the payment of the film’s packaging fee may, depending on the profit definition, have the effect of reducing the profit participation of the agency’s own clients, including writers. And because a portion of the packaging fee comes out of a film’s budget, payment of the fee diverts financial resources away from the agencies’ clients and the projects on which they are working and to the agencies themselves.”