An overwhelming majority of WGA members voted to authorize the WGA Board to implement an Agency Code of Conduct when their contract with talent agencies expires on April 6th. At the final tally, 7,882 writers voted yes, with 392 voting no.
Over the last month, the WGA has been unbending in its demand that the so-called “Big Four” agencies (CAA, WME, ICM and UTA) eliminate the conflict of interest in packaging and producing scripts written by the writers. In essence, it means writers have given their guild the backing to continue to draw a hard line, and by extension puts powerhouse agencies in an impossible position.
One year ago, the WGA notified the ATA (Association of Talent Agents) that it wanted to renegotiate the Artists’ Managers Basic Agreement, which hadn’t been altered since 1976. That notification put a one-year expiration clock on the current AMBA, which is the document by which the guild gives agents legal permission to represent its members in labor negotiations. If a new agreement is not successfully negotiated this week, it would be replaced by the Code of Conduct that was just voted upon. Agencies and agents that did not sign the code of conduct would not be permitted to represent writers in negotiations.
Ahead of the five-day vote, which began Wednesday, over 800 prominent writers – a virtual who’s who of content creators in Hollywood, ranging from Tina Fey to Alfonso Cuaron – announced their intentions to vote “yes.” Likely what was most troubling for the agencies was that a majority of marquee showrunners and TV creators – names like Shonda Rhimes, Mike Schur, Greg Berlanti, Jenji Kohan, Joss Whedon, David Simon, Kenya Barris, Amy Sherman-Palladino Matthew Weiner, and Noah Hawley – whose shows are what agencies are making a fortune packaging, would be so visible in their support.
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“We agree a new agency agreement should confront practices that constitute a conflict of interest: agency packaging fees and agencies functioning as producers,” wrote JJ Abrams in support of the vote. “And if you agree with me that it’s finally time to end agencies’ conflicted practices, I urge you to join me and VOTE YES. Approve the Code of Conduct. Let’s give our guild the power to make a difference for writers at every level and for generations to come.”
In essence, writers would be firing their agents if a new AMBA isn’t reached and they do not agree to the code of conduct that would replace it. In the short term, the WGA has granted lawyers and managers permission to negotiate in place of agents. In a world with over 500 scripted programs, this promises to create a chaotic TV staffing season.
The business of packaging – agencies bundling a project/script with talent from its ranks to sell to a studio – has been around for decades. CAA grew to its place as a dominant Hollywood power player in the 1990s when, led by Michael Ovitz, it’s packaging prowess dictated many of the shows and movies that were made. It’s largely accepted that packaging has always, to some degree, contained a conflict of interest, but the case that the WGA makes is the conflict of interest has grown to such an extent agents are no longer financially motivated to negotiate in their writers’ best interest.
At the heart of this argument is the over $3 billion in private equity that WME, CAA, and UTA have taken in the last 10 years. Instead of being partner-owned, the WGA argues “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.”
The report makes the case that the explosion of “peak TV” production has led to tremendous profits for the WME and CAA through packaging, but that WGA members’ wages have stagnated as a direct result of the agencies taking a bigger piece of the pie.
According to the WGA, the standard packaging fee consists of three parts: an upfront fee of approximately $30,000 to $75,000 per episode that is paid out of the production budget; an additional $30,000 to $75,000 per episode that is deferred until the series achieves “net” profits, and a percentage (usually 10 percent) of the “modified gross” a show can make down the road. All told, a successful TV show can result into tens of millions in pure profit for a big agency.
While CAA and WME May disagree with the WGA’s math, their credibility with their clients has been hurt by a lack of transparency. As illustrated in “The Wire” creator David Simon’s scathing post two weeks ago detailing his own experience with CAA packaging, creators like Simon are often unaware that their shows were being packaged.
Most believe that private equity investment is the first step toward becoming a publicly owned company. News leaked Friday in the Wall Street Journal that WME’s IPO was on track to happen before the end of the year.
Possibly what’s most damning is the profits themselves. The WGA estimates that Silver Lake Partners’ $513 million investment in WME has grown to $3.2 billion in just four years. Meanwhile, the WGA estimates four of CAA’s top executives —Richard Lovett, Bryan Lourd, Kevin Huvane, and David O’Connor – made more than $250 million from the 2010 and 2014 TPG investments combined.
Those profits and growth aren’t a product of earning 10 percent of clients’ contracts. Here’s the what the credit rating agency S&P wrote about CAA three months ago: “The explosion of content from over-the-top (OTT) players such as Netflix, Amazon, and Hulu has favorably affected the company’s television revenue, particularly its TV packaging revenue…The packaging of talent, along with the massive increase in TV content production, has driven most of the growth in the company’s TV segment.”
What is hard to figure out is how WME and CAA, in particular, can plot a middle ground between a new code of conduct and the mandate to grow its business beyond talent representation in this last week of negotiations. The WGA estimates that close to 90 percent of scripted series in the 2016–2017 television season were packaged, with WME or CAA involved in 80 percent of those packaged series. At the same time, the two agencies are taking aggressive steps toward moving into producing content, for which the conflict of interest is only more glaring.
As the WGA places agents between the proverbial rock-and-a-hard place, there are grumblings from some talent-friendly agents inside both companies that they’re tired of feeding the private-equity beast. If top talent is ready to jump ship, they may be taking their agents with them.