“Agents unwilling
to represent writers
will have to
find another
line of work” – WGA
A scathing new report issued Monday morning from The Writers Guild of America has targeted two of Hollywood’s largest talent agencies – William Morris Endeavor (WME) and Creative Artists Agency (CAA) for their continued behavior in engaging in a series of conflicted practices that have solely benefited the agencies and progressively abandoned their clients.
In other words, the agencies are making money hand over fist through kickbacks called “packaging fees” and once again writers are being left out in the cold. Writer salaries have dropped 23% in the last two years.
The 16-page report titled, “Agencies for Sale” was released while the Guild is participating in intense negotiations with the Association of Talent Agents (ATA) over proposed new rules about how writers are represented.
Key proposals require that agencies exit both producing and packaging. The two entities face an April 6 contract expiration deadline to hammer out a new franchise agreement governing the rules for agents representing WGA members.
According to the guild, talent agencies, especially WME and CAA, have turned into profit-making machines that are owned by private equity funds and other outside investors. This transformation has drawn these agencies so far away from the fundamentals of the agency business that, “they no longer act as proper fiduciaries for their clients.”
In an email sent to WGA members, the Guild claims investors who have placed billions of dollars (up to 3 billion) into these agencies now have only one interest – to see their investments pay off in profits of similar proportion. And the agencies themselves, once sworn to serve their writer clients, now serve the interest of those investors first.
Both the email and report allege have used the lucrative cash flow that packaging fees generate – and their exclusive access to talent – to change the game.
Specifics can be read below from the Guild email:
“During this decade more than $3 billion has been invested into the three largest agencies. Over $440 million has been invested into CAA. At WME, a total of $2.5 billion. In August 2018, UTA received a $200 million investment.
According to WGA estimates, TPG’s investment in CAA had more than tripled in value by mid-2017. Meanwhile, Silver Lake Partners’ $750 million investment in WME had doubled in value to almost $1.5 billion by mid-2016.
The influx of capital has also provided agency executives with hundreds of millions in payouts, and they still have ownership stakes. At CAA, the top four agents received at least $250 million in payouts from the sale to private equity. WME management, including Ari Emanuel and Patrick Whitesell, retains a significant stake in the company, a stake which is now worth well over $1 billion.
That is what the agencies have made. At the same time, studio profits have doubled to over $50 billion a year. And writer salaries dropped 23% in a two-year period.
The agencies, whose principle job is to protect writers’ above-scale income, have failed utterly in that – failed to take on the abuse of options and exclusivity clauses – failed to combat the corrosive impact of span on television writers’ pay – failed to protect screenwriters from late pay and free work. They have left all of that to the Guild.
The agencies have, instead, engaged in a kickback scheme, illegal under federal law. That’s what packaging fees are. And let’s be clear, everybody in the entertainment business knows it: the smaller agencies that fight to survive in a business dominated by a four-firm oligopoly, the studios who pay the ransom, the managers and lawyers. Virtually everyone has had to accommodate what the major agencies do. Some have even learned how to get their share of the loot.
And now those agencies that have failed to protect writers – even in deals made with outside studios, who are our negotiating adversaries – ask us to believe that they will protect us when they negotiate for us against their affiliated studios.
That is the next twist in this story. In order to generate even more outside investment and reap even greater profits for those investors and for themselves, major agencies are now moving into content ownership and production.
WME and CAA claim they are doing this to provide more opportunity for their writer clients and to make better deals for writers than other studios can offer. And they may, for a time, offer marquee deals. The loss leader is as old as sales itself. But in the long run, “affiliated studios” are an even greater conflict than packaging fees.
When our agents are studios – when they employ us – their interests are in direct opposition to ours. These agency/studios generate wealth for their investors (and themselves) by maximizing profits and minimizing costs. Our salaries are one of those costs. When costs and net profits trade off, net profits wins. When the interests of multibillion-dollar investors and individual writers are at odds, multibillion-dollar investors win.
The agency half of the agency/studio partnership is important to CAA and WME because it provides the only competitive advantage they have over other studios, which is access to talent. But, if successful, it is the studio side of the partnership that will drive a massive return on investment. The studios – Endeavor Content and Wiip – will have the negotiating leverage over what should then rightly be called their “affiliated agencies.”
And our agents now ask us to believe, having rolled over on us even in what appeared as fair, arms-length negotiations with outside studios, that they will now protect us against their partners? Who wants to take that bet today – or in ten years’ time?
The influx of outside capital into the agency business has completed the transformation of our agencies from businesses dedicated to maximizing our revenue to businesses dedicated to maximizing their own. It is a breach of their fiduciary duty to us and a violation of law. It has forced the Writers Guild of America to propose new terms for agency representation in order to realign agencies’ interests with those of their clients and ensure that client interests come first – as is required by law.”
The Guild goes onto say, “It’s time for change, and change can be hard, but practices that diminish our worth and our livelihoods cannot be allowed to stand. Agents unwilling to represent writers will have to find another line of work but the fact is, despite continuing to call themselves ‘agents,’ that’s exactly what they’ve already done.”
The WGA has scheduled a March 25 vote to implement its own code of conduct spelling out new rules, which will require members to fire their agents if they haven’t signed the agreement. To see the full report, click here.
