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The entertainment industry as we know it might look a little different come Sunday morning, A nearly four-decade-old agreement — known as the Artists’ Manager Basic Agreement of 1976 (AMBA) — between the Writers Guild of America and the Association of Talent Agents is set to expire on April 6.
If the two parties cannot work out an agreement, more than 800 writers, including many A-list showrunners including Shonda Rhimes, Kenya Barris, Greg Berlanti, and Tina Fey, have committed to fire their agents.
If that happens, the way that agencies invest, operate, and negotiate in the entertainment industry will be shaken.
Agents are responsible for many of the unseen underlying mechanics of production, but without a writer there’s nothing to build said production off of. The WGA and the ATA have to find a way to compromise in order to keep the entertainment industry functioning properly.
Wait, What’s Going On?
The WGA and the ATA disagree on two principal points: talent agencies being financially affiliated with production and the practice of packaging fees.
On March 27, an overwhelming 95.3% of WGA’s membership voted to approve the WGA’s new Code of Conduct, which would put a stop to both practices.
A packaging fee is a fee talent agencies collect when they package the creative talent of a show, such as making a package deal for a specific writer, showrunner, and actor. When an agent packages talent like this, they collect a fee from the studio rather than the standard 10% commission they have historically drawn from their client’s compensation.
According to the Guild, 87% of scripted series in the 2016-17 season were packaged.
In many cases, an agent can end up making more on the backend of a show than the actual show creator because they are paid out of both the project’s budget and its profits, rather than their client’s individual compensation for which they negotiated. Because of this, the WGA argues that agents don’t have an incentive to fight for higher pay for writers since their own compensation is not correlated.
The Guild also vehemently views agencies having financial skin in the production game as a conflict of interest, a trend that has only grown as agencies have taken on private equity dollars and become vertically integrated into entertainment powerhouses.
The Big Four
The main culprits here are the so-called Big Four agencies: William Morris Endeavor (WME), Creative Artists Agency (CAA), United Talent Agency (UTA), and International Creative Management Partners (ICM).
The Big Four absolutely dominate the industry in terms of representation. In fact, according to a report from the Guild, more than 75% of members’ earnings in 2018 came from one of the top four agencies. Over the past few years, their power has only intensified as they have extended past pure talent representation to sell stakes to prominent private equity firms, create affiliate production divisions, and buy other agencies, media companies, and distribution rights.
The first to do this was CAA, which sold a 35% stake to TPG Capital for $165 million in 2010. TPG later upped that stake to 53% in 2014. CAA has also sold minority stakes to a consortium of China’s CMC Capital, Fubon Financial Holding Co., and Taiwan Mobile, as well as to Temasek Holdings, Singapore’s sovereign wealth fund.
Through its CAA Ventures division, the company has invested in a number of media companies including Giphy, Dapper, Patreon, and Medium. CAA also has its own production studio, wiip, which is currently working on a handful of shows for Apple, Facebook, and Jeffrey Katzenberg’s yet-to-be-released Quibi, as well as an investment and advisory firm called Evolution Media which it launched alongside TPG.
WME, by far the largest of the agencies, is arguably even more financially woven into production than CAA. Its parent company, Endeavor, has ballooned so much that it’s actually rumored to be seeking an IPO later this year. How did we end up here?
In 2012, WME sold a 31% minority stake to private equity firm Silver Lake Partners for $200 million. Then, when WME purchased sports management giant IMG for $2.2 billion in 2014, Silver Lake added a second round of $500 million. Like CAA, WME has sold minority stakes too, including to Singapore’s sovereign wealth fund GIC Private Limited, Canada Pension Plan Investment Board, SoftBank Group, Fidelity Management & Research Company, and a consortium composed of Sequoia Capital, Tencent, and FountainVest Partners. At one point, Endeavor even got the attention of Saudi Arabia’s Public Investment Fund, but the company later returned its $400 million investment following the controversy surrounding the murder of Washington Post journalist Jamal Khashoggi.
Endeavor, the holding company formed after WME acquired IMG, has been active on the buy side as well. Endeavor shelled out $4 billion in 2016 for Ultimate Fighting Championship (UFC). Its network also includes other prominent media brands like the Miss Universe Organization, Professional Bull Riders (PBR), and comedy talent agency Dixon Talent.
In 2017, it established the production company Endeavor Content, which has “financed, packaged or sold more than 100 premium shows and films” including La La Land and Killing Eve. It also owns a majority stake in film studio Bloom and has a partnership with Chernin Entertainment to finance, develop and produce scripted series.
UTA is the newcomer to private equity. In August 2018, the agency sold a minority stake to Investcorp and PSP Investments, a deal a Variety source estimated to be a 40% stake for $200 million. The agency had previously received a minority investment from private investor Jeffrey Ubben in 2015.
Over the past two years, UTA has acquired a number of smaller niche agencies to diversify its talent pool, including Greater Talent Network, Everyday Influencers, Press X Agency, and most recently the influencer focused Digital Brand Architects. Like CAA, UTA also has an active venture arm. UTA Ventures has invested in companies like AwesomenessTV, Pluto TV, Hello Giggles, and UPROXX. And yes, you guessed it. It also has a production company. In October 2018, UTA formed a joint television production venture with Valence Media and MRC known as Civic Center Media.
It’s easy to see that the Big Four have their hands in a lot of cookie jars; whether or not that’s for better or worse depends on whose wallet you’re looking in. As you can see, an end to not only the standard agent-writer relationship, but also to packaging fees and agency-funded production, would completely rock the entertainment industry given just how ingrained WME, CAA, UTA and IMG are in it. The four have become integral to the inner workings of Hollywood, and moving forward without them may prove to be a bit more difficult than the WGA has promised.
Given the unequivocal change that has taken place in the media industry over the last decade, at the end of the day, a compromise has to be decided upon.
There is a possibility for a compromise. We’ve already seen a possibility of that from mid-tier Abrams Artists Agency, which said in a staff memo that while it would not sign the WGA’s Code of Conduct, it would share a portion of packaging fees with clients going forward, which is not the current standard practice.
Packaging fees and affiliate productions provide a sturdy asset for agencies, which, thanks to investors expecting solid returns, an ever-evolving industry, and fierce competition among the agencies for top talent, is not only welcomed but needed. Agencies owning stakes in production is also not at its core necessarily bad. While, yes, you could argue that it’s a conflict of interest, it also opens more doors for content creation that may not have existed in the first place, which means more talent have opportunities for jobs.
However, for anything to work given the bad blood that has been spilled throughout these negotiations, agencies have to take better care of their writers. Without writers, nothing would exist in entertainment. Writers are the backbone of your favorite TV show or film, and they deserve to be compensated appropriately in a manner that benefits both the writer and the agent.
There is a way for the WGA and ATA to work together in a way that works for both parties. It just may be a much longer, more complicated road than anticipated.