by Dominic Patten
and David Robb
March 19, 2019 9:56am

EXCLUSIVE: With the clock ticking on the April 6 end of the WGA and the Association of Talent Agents’ franchise agreement and a March 27 starting vote by guild members on a new Code of Conduct that could see packaging kicked to the curb, WME’s President last night offered the agency’s clients a very blunt assessment of where talks stand.

Related
‘The Wire’ Creator David Simon Rips ‘Greedhead’ Agencies Over Packaging, Urges Lawsuit Against ATA

“It was clear from today’s session that the WGA is not interested in a real negotiation,’ said Ari Greenburg in an email sent out after the latest round of talks ended yesterday. “They dismissed our suggestion to get into working groups, and it felt like once again we were there for theatrics, not progress.”

In his second such correspondence in as many weeks, Greenburg’s dire assessment of the situation is contained in a list of questions he posed and answered about the ongoing negotiations, which haven’t made any progress towards solving the two key issues: the WGA’s demand that the agencies stop collecting packaging fees and sever their ties with production affiliates.

Promising more open houses with writer clients in the coming days and “more communication and transparency,” Greenburg attached an equally blunt FAQ to his note (read it here). Hollywood is headed towards “massive and endless litigation or chaos” if a compromise can’t be reached between the WGA and the ATA, the FAQ states.

And if that isn’t blunt enough for you, check this out.

On the question of why this dispute is so heated down to the wire, the WME exec said: “The WGA typically does not engage in meaningful dialogue with its opponents until the final days of a contract. This has resulted in 4 threatened strikes in the past 12 years, and one actual walkout. They are using their labor negotiation tactics on this contract dispute.”

The FAQ was developed and printed in response to requests from WME scribe clients trying to get their heads around what’s going on, we hear.

Related
UTA CEO Jeremy Zimmer Tells Writer Clients “We Aren’t Saints” In Search Of Peace Before Tuesday’s WGA Sit-Down

Either way, expect a lot more of this kind of stuff from both sides in the countdown to the WGA vote next week. In the meantime:

READ THE FULL EMAIL FROM ARI GREENBURG HERE:

From: Ari Greenburg
Date: March 19, 2019 at 6:16:13 AM PDT
To: Undisclosed recipients: ;
Subject: WGA Update and FAQ

Today, the ATA negotiating committee and the WGA met again. We provided answers to their questions about film financing. We let them know we are drafting our counterproposals in “contract language,” per their request. And, we once again urged the guild to meet in smaller groups on the key issues at hand. We attempted to have a real dialogue.

The only back-and-forth was about whether the agencies could ask questions; after a heated debate, we asked 23 questions which came from our writer clients. Specifically, we asked them to spell out how they intend to enforce Working Rule #23 if clients are asked to walk away en masse from their agents on April 7. We are hopeful the guild will respond to us, or to our writers directly.

It was clear from today’s session that the WGA is not interested in a real negotiation. They dismissed our suggestion to get into working groups, and it felt like once again we were there for theatrics, not progress.

We heard from our conversations with you that you want more communication and transparency from us. To that end, and with a vote coming up, we will be sending you data and information this week. To date, the WGA has made proposals without asking for any data about our businesses. They have made misinformed assumptions about why we do things, how we handle issues, and where we make our money. They have based this theory on a WGA survey, and a handful of mostly blind anecdotes and horror stories that we have heard repeated online, in podcasts, and from writers who have attended WGA gatherings.

Starting today, we will be sharing our side of this issue with facts and data. We need you to have more information. The idea of our clients going to vote on this matter without all of the facts is unacceptable to us.

1. You likely read today’s report that eliminating packaging fees would annually cost writers $49M. The entire artist community would pay $111M in commissions.

2. Please find attached an FAQ about where things stand with the guild.

3. We will be sharing more information this week, and in our open houses. The LA open house will be at our office on Wednesday 3/20 from 7:00-9:00PM, and in New York on Monday 3/25 from 7:00-9:00PM. RSVP here if you would like to attend.

Thank you for your patience throughout this process. We realize all of this is incredibly stressful, but as we said before, we will get through this by coming together, listening to each other, providing transparency, and working together towards solutions.

We continue to be ready, willing, and able to lock ourselves in a room with the guild to talk through the issues.

AG

Ari Greenburg | WME

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Ticking clock or not don’t go Coo-Coo Guys!!

Arl

The Ol’ SAG Watchdog

*Headline photo selected by Watchdog

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6:36 PM PDT 3/18/2019 by Jonathan Handel

Earlier in the day came a WGA report attacking packaging fees, and an agency analysis saying that those fees save writers money compared to foregone commissions.

The Writers Guild of America and the Association of Talent Agents met Monday afternoon for a scant half-hour just hours after each side released reports intended to buttress their respective positions as they remain locked in a fundamental dispute about talent agency roles and powers. According to an agency source who provided a readout of the meeting on background, the agencies made various substantive presentations, but the WGA simply listened, asked no questions and did not engage.

As a result, it’s not clear that that any progress was made. It seems likely that the WGA will not respond substantively until after members vote on whether to authorize the guild to impose new rules on the talent firms once the existing agreement expires. And if that vote yields strong support for the guild, leadership is likely to double down on their goal of prohibiting packaging fees and affiliate production, which are key agency practices, especially among the larger agencies.

That vote, previously scheduled for March 25, is now set for March 27-31, according to a new posting on the WGA website.

No follow-up meetings have been scheduled. However, a WGA spokesman told The Hollywood Reporter, “The Agencies provided us with some information today. The Guild will consider it carefully and provide a response to the ATA when the parties meet later this week.”

The Monday meeting began with ATA executive director Karen Stuart reading an opening statement (read it below) that referenced points of agreement, but also the great disagreement between the guild and agencies.

“If we don’t start breaking this down and finding ways to bridge the divide, we will be putting our writers in an incredibly difficult position on April 6,” she said. “We have three short weeks before a dark cloud of uncertainly will hang over Hollywood, and we can’t allow that to happen.”

Stuart then explained that the agencies had been receiving questions from clients and proposed to read them. WGA West executive director David Young at first refused to allow that, then relented. (Read the questions below.)

The agencies then described their role in independent film packaging, responding to a query from the WGA at the previous meeting between the two sides. The WGA listened but again did not ask questions or engage, according to the agency source.

The agencies proposed forming small working groups to further the negotiations, but the WGA said it was not prepared to agree to doing so. Nor was the guild prepared to commit to another meeting; the agencies have said they’re willing to meet every day if necessary.

The meeting then ended.

Earlier in the day saw the release of dueling documents. The WGA’s report, “Agencies for Sale,” argues that the massive amounts of private equity and other investment that has flowed since 2010 into Endeavor/WME, CAA and UTA has distorted the firms’ focus, to the detriment of writers.

“The top three agencies now operate under the pressure of private-equity-level profit expectations,” says the report. “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 two largest agencies are now majority-owned by investors, the report points out, while UTA has sold a minority stake in itself. The fourth of the large agencies, ICM, bought out its private investors. Another difference: The first three firms are engaged in production-type activities through affiliated companies — a practice the WGA deplores as a conflict of interest — while ICM is not.

Although the report details the waves of investment and growth of the agencies, it does not focus tightly on causality: that is, whether there is a linkage between outside investment and alleged harm to writers (although the creation of affiliate production entities is presumably a result of the equity infusion). Nor does it address whether agencies’ increased heft might be a boon for writers — or some of them — in an era of larger studio conglomerates and streamers.

Indeed, although the report heavily criticizes packaging fees — fees paid by studios to agencies, in return for which agencies waive client commissions — it omits to note that packaging fees predate outside investment by decades. However, the report does assert that equity investment exacerbates what it terms a conflict of interest represented by packaging fees.

But those fees save writers money, according to the other report released Monday, a memo prepared by L.E.K. Consulting for the ATA and titled “Analysis of Economic Impact of Eliminating Front-End Packaging Fees.” According to the report, writers would have to pay more in commissions than they would gain from the elimination of packaging fees.

“In the 2017-2018 TV season that was analyzed, WGA writers would have had to pay at least $49 million if their television earnings were commissioned,” said an agency source. “Even in the unlikely scenario that all packaging fees were passed on to writers and artists, they would still make less money than they would in the current system.” Actors and directors would be less well off, too, according to the report. And if studios simply retained unpaid packaging fees as a windfall, the cost to writers and other talent would be even greater.

To put the figures in context, the agency source points out that $49 million per year, or about $147 million over three years, is more than the $130 million gain that the WGA touted in its most recent, 2017, studio negotiations for a three-year contract renewal. And the likelihood that the studios would voluntarily remit a significant portion of packaging fees to writers (or any talent) is open to debate, given that the same studios are reluctant to even pay profit participations that they do owe (see the recent Bones decision lambasting Fox for “fraud”).

The report covers six or seven agencies representing “the vast majority of packaged scripted projects,” but it only looks at a single year. The total income for writers on such shows is stated as $493 million, a figure that is drastically lower than WGA West’s reported total TV earnings for 2017, $976.3 million. That figure excludes WGA East, so total WGA earnings would be higher. Then one would have to delete non-scripted and non-packaged shows, but that still leaves a dramatic and unexplained difference in the figures. However, if the L.E.K. figures are dramatically understated, then writers would be even more underwater if commissions replaced package fees. So even though this is a surprising divergence in figures, correcting the numbers would actually bolster the agency case.

However, what the agency report doesn’t analyze is how much agencies make in back-end packaging fees. Those fees, which are generally 10 percent of “modified adjusted gross receipts” (a complexly defined term), are often zero, but when a show is successful, they can be enormous. That generally depends on syndication and foreign sales, however, and such aftermarkets are diminishing as more product is produced for streamers such as Netflix that often acquire worldwide rights in perpetuity or for long initial terms.

In any case, the agencies argue that the few hits have to make up for the many shows that don’t generate MAGR: It’s a “portfolio business,” one agency source said. But the WGA seems unconvinced. Said WGA West president David A. Goodman in response to the ATA report, “It’s good to see the agencies’ own study confirms that packaging is no risk to them. Now they should publicly disclose the amount they make each year from packaging profits.”

For more on this subject, visit THR‘s labor page.

Read More
Writers, Agencies No Closer to Reaching Deal As Both Sides Dig In

https://www.hollywoodreporter.com/news/wga-agencies-meet-again-obvious-progress-1195559

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Seriously, lets hope the Talks don’t Blow Up. Write!

Arl

The Ol’ SAG Watchdog

Headline photo selected by the Watchdog

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by David Robb
March 18, 2019 10:10am

A new WGA report, titled “Agencies For Sale,” claims that $3 billion in private equity investments in WME and CAA “is upending Hollywood talent representation” and “threatens to overwhelm the major agencies’ core purpose as agents – to represent their clients.” The guild released the report just hours before it’s set to resume negotiations with the Association of Talent Agents for a new franchise agreement.

Related
One ATA Agency Breaks Ranks & Signs WGA’s Proposed Code Of Conduct – Update

“This report examines the investments made into the largest Hollywood talent agencies, the practices that attracted the investments, and the extent to which private equity funding has inhibited agencies from fulfilling the legal and ethical obligations of talent representation,” the guild said. “The report lays bare the growing disparity between soaring agency valuations, executive payouts, and declining writer pay during an era of industry growth and success.”

See the full report here.

According to the WGA, WME and CAA’s private equity owners “have already seen their investments double and triple in value. The guild estimates that TPG’s $340 million investment into CAA had more than tripled in value between 2010 and mid-2017. Silver Lake Partners’ $750 million investment in WME had doubled in value to almost to $1.5 billion by mid-2016. Meanwhile, the writer clients have not shared in these gains, instead seeing their earnings slip, with a 23% decline in TV writer-producers’ median weekly income between 2014 and 2016.”

“As this report makes clear, big investments by private equity firms have pushed the talent agencies into even more conflicted business practices,” said WGA West president David A. Goodman. “It’s no longer just the problems caused by packaging fees. They are also aggressively moving into producing content – making them both the representatives and the employers of their writer clients. The conflicts of interest will only continue to grow if we don’t do something now to realign agents’ economic interests with their clients’ interests. The solution will come from either a negotiated agreement with the Association of Talent Agents or through a code of conduct.”

The WGA says that CAA and WME “have recently transformed themselves from partner-controlled businesses to conglomerates that are majority-owned by private equity funds, sovereign wealth funds, and other institutional investors. The third-largest talent agency, United Talent Agency, followed suit in August 2018, selling a minority stake to private equity firm Investcorp and pension investment manager PSP Investments. As a result, 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…These investments have been attracted by the agencies’ exclusive access to television and film talent. In addition, investors are drawn to a business model in which the agencies’ own income is divorced from what clients earn.

“The major Hollywood agencies now make much of their money by demanding direct payments from the studios that employ their clients, known as ‘packaging’ fees, which are unrelated to their clients’ compensation and come directly from TV series and film production budgets and profits. Packaging fees are a conflict of interest because they introduce direct negotiations between the agency and its client’s employer over how much the agency will be paid. Agency success is severed from client income. The recent infusion of outside investment in the major agencies exacerbates this conflict.

“Outside investment not only brings with it intractable profit expectations, it has fueled the agencies’ expansion into new ventures, including into TV and film production, in effect making the agencies employers of their own clients. This investment-fueled expansion is incompatible with, and threatens to overwhelm, the major agencies’ core purpose as agents—to represent their clients. At the same time, the top agency executives and the private equity owners have benefitted handsomely from these developments, receiving hundreds of millions of dollars in payouts and seeing their remaining ownership stakes balloon in value by hundreds of millions more.”

In a message to its members, the guild’s negotiating committee said today that
“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,” the guild said. “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.

“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.”

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Stay Tuned!

Arl

The Ol’ SAG Watchdog

*Headline photo selected by the Watchdog

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