By Jonathan Handel
6:47 AM PDT 4/24/2018
As Endeavor and CAA encroach on studio turf, the union is seeking to halt production activity and renegotiate the “outdated” franchise agreement, citing potential conflicts of interest for agents.
A state of wary confusion has drifted over Hollywood’s major talent agencies since the Writers Guild of America notified them on April 6 that it was terminating — and demanding changes to — the “franchise agreement” that governs relations between agencies, the guild and the town’s writers.
The key issues for the guild: packaging, a half-century old system in which agencies assemble the creative elements of a television series in exchange for receiving fees from the studio rather than commissions from the client; and production, a newer practice in which agencies or their affiliates actually finance or produce a series. The WGA calls both a conflict of interest. But Association of Talent Agents president Karen Stuart tells The Hollywood Reporter, “Many of the practices that the WGA presents as problematic create exactly the opportunities its members have been demanding from their agents.”
That termination doesn’t take effect for 12 months, a period required by the agreement and intended for negotiation of what would be the first-ever changes to the 42-year old document. But agencies feel the guild is starting off on the wrong foot. In a previously unreported April 11 email to UTA’s over 300 agents, CEO Jeremy Zimmer said, “The WGA, which shares our mission to protect the financial and creative rights of writers, should be working with us to address the impact of new technology [but] instead … is focusing on the agencies themselves [and] set[ting] their members against their representatives.”
The guild’s demands — contained in a letter to the ATA — fall under eight categories, including diversity, cooperation, transparency and the like. It’s a laundry list of 30 separate changes to what the guild calls an “outdated” agreement.
From Agent to Producer?
The planned renegotiation is happening as the major studios are weathering the onslaught of Netflix and other streamers, and the two largest agencies, Endeavor — parent of WME and Endeavor Content — and CAA, are seizing the opportunity to step into the void. But the guild says that when an agency has a financial interest in a production entity, or vice versa, there’s an inherent conflict of interest: The agency is, in effect, the writer’s employer and advocate concurrently. One agency source concedes potential difficulties, but that source and others echo one executive’s question: “Why would the guild want to reduce the number of buyers?” — particularly in “a consolidating market” notes another source, who referenced Disney’s pending $52.4 billion acquisition of Fox assets.
Also distressing for agencies: The guild in their view hasn’t raised any public objection to production activity engaged in by many top management firms, which unlike agencies are regulated neither by the government nor the union. Reports last week that Lionsgate is looking at buying 3 Arts Entertainment, a management firm with a significant comedy production slate, haven’t elicited public comment by the guild, to the frustration of agency executives who have long watched managers expand into production.
Although many of the guild’s demands are likely to be uncontroversial or readily negotiable, the showstoppers are indeed that the union wants to prohibit packaging fees — a 50-year old practice — and production or distribution activities. The guild says that receiving those fees makes an agent likely to ignore maximizing a client’s income, since the agent’s compensation isn’t tied to the client’s. Agencies disagree. “If we treated clients like that,” says one agency executive, “they would walk out the door.”
In response, the union said only that its proposals were “entirely reasonable [and] read like a voluntary code of conduct … always putting the client first and being an honorable representative.”
Scale Without a “Plus 10”
A third item that may rankle the agencies is a guild demand that agent commissions not reduce writer compensation below scale. Unlike actors, who at the bottom end are protected by a custom and practice of studios offering “scale plus 10” — in effect paying the agent’s commission — staff writers (as well as directors) are often paid weekly scale in television without an additional 10 percent. If the agency gets a packaging fee, the issue is moot, but in non-packaged shows, the agent’s commission currently can reduce the writer’s salary below scale.
If that were prohibited, the agency might not be able to commission the job at all and, says the source, that could put numerous smaller agencies right out of business. And even the large agencies that engage in packaging don’t package every show. They might be forced by the guild’s position to forgo any commission on some of the jobs they obtain for clients.
If the guild wants to open this up, says the source, the agencies may want to raise issues of their own. For instance, there are several streams of writer revenue that are currently not subject to commission, even though they flow from jobs obtained by the writers’ agents. These include union residuals (which are sometimes commissionable when received by actor clients, but not generally when received by writers), merchandising revenue received by writers who create a new and distinctive character, and so-called “separated rights residuals” received by show creators. Agencies may look for a piece of these. After all, negotiation is a two-way street.
Why Now and What Next?
“Why is this happening now?” wondered several agency executives. That isn’t so hard to answer. In October, Endeavor fused its disparate production- and financing-related divisions into the new, more ambitious Endeavor Content. That seems to have startled the WGA: The very next month, the union convened the first of several meetings with showrunners, as well as board deliberations.
With that internal work done, the guild could seemingly have moved next to informal discussions with the ATA. But if the WGA had delayed sending the 12-month termination notice beyond April, negotiations that might go down to the wire a year later could have bumped into the union’s summer 2019 presidential elections or even its preparations for 2020 talks with the studios. That could have created a degree of chaos and disempowered the guild in its dealings with the agents and the studios.
In short, the calendar may have forced the WGA’s hand somewhat — although that still may not be enough to assuage agency and ATA executives, who remain upset that the guild didn’t start with informal talks first. And observers are mindful that in its negotiations with studios, the guild prefers brinksmanship and last-minute talks to informal pre-negotiations well in advance of contract expiration, the model that the Directors Guild of America uses.
What next? In an FAQ, the guild said it “anticipated” that it would form a negotiating committee and follow the same general process as used for talks with the studios. That means large bargaining sessions replete with Kabuki theater, plus smaller “sidebars” where the actual deal gets struck. But nothing has happened yet. The FAQ says “it is too early to predict when negotiations will take place,” and agency executives didn’t know either. Any deal would be subject to a ratification vote by the membership, according to the FAQ.
A Risky Outcome?
Also baffling for executives: What’s the guild’s endgame? If push comes to shove, agencies are convinced that showrunners and other writers will side with their reps, not their union. That could leave the WGA without a franchise agreement at all. A renegotiated SAG franchise agreement was voted down in 2002 and remains unreplaced, yet the earth still spins in its orbit. That’s because SAG quickly blinked and to this day permits its members to be represented by ATA agents even in the absence of a franchise agreement with them.
The prospect of that outcome — coupled with the fact that writers get their jobs from agents, not the guild — could add up to a lack of leverage for the WGA. Some agency sources speculate that the guild will try to fracture the ATA’s positioning by dropping the packaging fee issue — which significantly affects the top five agencies — in return for concessions on production, which currently affects only two.
“They’re using inaccurate information and innuendo to make their case,” said Zimmer in his email, which adds that agents might have to discuss the issues with their clients. Meanwhile, the guild’s FAQ cautions that “a united front is crucial” and advises writers that they needn’t engage with their agents about the agreement.
It could all get ugly but, said Zimmer, “Our hope is the guild will see us as our clients do: as allies, not adversaries.
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The Ol’ SAG Watchdog
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