As the battle rages on between the Writers Guild of America and Hollywood’s biggest agencies, a new lawsuit could give writers another legal leg to stand on. Today, the WGA filed a lawsuit in Los Angeles Superior Court seeking to establish that talent agency packaging fees are illegal under both California and federal law.
The plaintiffs are the Writers Guild of America West and East, along with writers and WGA members Patti Carr (“Reign”), Ashley Gable (“The Mentalist”), Barbara Hall (“Madam Secretary”), Deric Hughes (“Arrow”), Chip Johannessen (“Homeland”), Deirdre Mangan (“The Crossing”), David Simon (“The Wire”), and Meredith Stiehm (“Cold Case”). The defendants are the “big four” Hollywood talent agencies, including William Morris Endeavor (WME), Creative Artists Agency (CAA), United Talent Agency (UTA), and ICM Partners (ICM).
The lawsuit comes as thousands of Hollywood writers and members of the WGA are firing talent agencies and agents that refuse to sign on to the union’s Code of Conduct. On April 12, the WGA declared that if talent agents want to represent WGA members, they must agree to align their interests with writers’ financial interests.
The current legal argument stems from the fact that the WGA believes that agencies did not live up to their fiduciary responsibility based on conflict of interest involving so-called packaging deals. While some in Hollywood see problems with agencies packaging their clients, it is the rise of “packaging fees” that has spurred the current backlash. These are fees being charged to producers, networks, and studios in addition to earning the clients’ 10 percent.
In particular, packaging fees during the rise of the “peak TV” has led to the loudest cries of conflict of interest. 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 them.
According to the WGA, the standard packaging fee for TV consists of an upfront fee of approximately $30,000 to $75,000 per episode 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 in tens of millions in profit for an agency. The WGA argues the big four put their own financial interests ahead of fighting for writers’ receiving higher salaries. This dispute comes at a time with TV staff writer salaries have stagnated.
“All of the writer plaintiffs have been hurt financially by packaging deals. They are creators and writers of television shows that have shaped a generation, yet their agents have profited at the expense of their own clients,” said Tony Segall, general counsel for the Writers Guild of America West, in an official statement.
He added, “The plaintiffs will seek a judicial declaration that packaging fees are unlawful and an injunction prohibiting talent agencies from entering into future packaging deals. The suit will also seek damages and repayment of illegal profits on behalf of writers who have been harmed by these unlawful practices in the past.”
The complaint is comprised of two claims:
- Packaging fees violate California fiduciary duty law. Under state law, talent agents are fiduciaries, who are required by law to represent writers with undivided loyalty and without conflicts of interest. Because packaging fees sever the relationship between a writer’s compensation and what the agency receives in fees, and frequently pit the interests of the agency against those of its writer client, packaging fees violate these fundamental fiduciary obligations.
- Packaging fees also violate California’s Unfair Competition Law. Packaging is an unfair practice because it violates a federal statute, section 302 of the federal Labor-Management Relations Act, the so-called “anti-kickback” provision of the Taft-Hartley Act. That statute prohibits “any representative” of an employee from receiving any “money or other things of value” from the employee’s employer. Because agents are employee representatives under the statute, their receipt of packaging fees – which are direct payments from employers – are prohibited under both state and federal law.
The one thing packaging agencies have apologized for, and promised to change, is the lack of transparency when it comes to packaging fees. As illustrated in “The Wire” creator David Simon’s scathing post detailing his own experience with CAA packaging, creators were often unaware that their shows were being packaged and their agency profiting off what is essentially their IP.
In an official statement, plaintiff Stiehm, the creator of the hit television series “Cold Case,” said that she only learned that the show that she created, wrote, and executive produced was packaged by her agency, CAA, long after the agency made its packaging deal.
“When the show was sold, CAA negotiated a packaging fee for itself, without my knowledge. It wasn’t until six years and 134 episodes later, that I learned about it,” said Stiehm. “It turned out that on the show I created, and worked on exclusively for years, CAA ended up making 94 cents for every dollar that I earned. That is indefensible. An agency should make 10% of what their client makes — not 20, not 50, not like in my case, 94%.10% is enough.”
“Packaging fees are not a new practice in Hollywood, but they have always been controversial. It is time to put an end to the egregious conflict of interest that they pose,” Segall added.