The Myth of Affiliated Studios

Agency Agreement 2019

The Myth of Affiliated Studios

Under the regime of packaging fees, your employer and your representative make a side-deal that enormously benefits the party that ought to be your fiduciary. That’s bad for writers and good for agencies in so many ways. But it still requires the agencies to strike a deal with a bona fide third party.

So now, led by WME – with CAA and UTA following close behind – your agents have found a way to simplify that process for themselves. They have sought to eliminate the third party altogether and become both agent and studio – our representatives and our bosses.

All of them try to hide that fact, of course. WME and Endeavor Content, CAA and Wiip and UTA and Civic Center Media all swear that there is acceptable separation between the individual agency and its “affiliated studio.” That is false on its face.

These production companies are owned or jointly owned by the agencies and their parent corporations. Does anyone pretend that ABC Network and Touchstone Television are unrelated entities that bargain hard with each other to maximize their individual interests rather than the interests of Disney as a whole?

With their so-called “affiliated studios” the agencies are merely replicating the incestuous practice of vertical integration that this Guild has fought so hard against.

These new studios gain their competitive advantage by touting to the rest of the world their access to us – as if they were the old Warner Brothers or MGM of the 30s and 40s, with their stable of writers under contract. To us – the writers – they promise a better deal than we can get elsewhere.

But we, as writers, know all too well the truth of what vertical integration brings. It means only being able to sell to an affiliated entity – and then facing a unified buyer and seller that can keep profits hidden.

Throughout the history of this business, vertical integration has enriched everyone but the writer. Do we really believe that this time it’s being done for our benefit?

As harmful as packaging is, for agencies to be producers and employers is a conflict of grossly larger proportion.

When your agency’s affiliate is your employer, you have no agency. And your agency’s solution is for you to hire a lawyer to help mitigate their conflict.

And they still want their 10% of your earnings or a package fee on their own production.

There’s no math or theory necessary to explain the problem. Every dollar you get paid is a dollar less the agency or their related parties get to keep. It’s not unlike the relationship you have with a studio. Except the studio is not your agency.

The agencies may claim that they will offer creators a better deal on the back end, and that may be true for a select few at the outset. But offering a better deal to some creators is a common approach for new entrants who must offer something in the form of increased compensation or creative control to entice talent to work for them.

In time, these new studios will have to compete with every other content producer in the marketplace.  What is more, they will have to produce returns for the venture capitalists that have invested billions in them. That means reducing costs and maximizing profits.

And that is an unresolvable conflict.  Our agencies and their “affiliated studios” cannot become ruthless, profit-making entities, if the profits they are driven to produce are theirs and not ours.

The history of all of this – the dotted line between packaging fees and “affiliated studios” – makes it very clear which side of the conflict our agencies will come down on.

Many decades ago, all our agents earned 10% of what we earned. That made them wealthy, but not wealthy enough.  More recently, the most powerful of agencies have taken a different tack. They have made themselves side deals to earn (in addition to some upfront fees) 10% of what our shows earned.  In a sense, they have invited themselves to become our uninvited producing partners. That was much more lucrative – and enough to attract a large influx of venture capitol into their firms.

Now though, the world is changing again. The business is doing better than ever, with $50+ billion in profits every year. But the backends of our shows, in this new streaming universe, have ceased to throw off the windfalls they once did.  And yet, our agencies, with their billions in venture capitol invested, have hungry mouths to feed.

So now, they seek, truly, to play both sides of the coin. They will be both our 10% representatives and our studios bosses. They won’t wait for 10% of the backend anymore – they’ll have the lion’s share of it.

And which side of that equation – agent or boss – do you think feeds the beast better? There is no contest.

The business these agencies want to be in – if they can manage it – is the producing business.  And if these studios take off and become vastly profitable, the most important reason their affiliated agencies will continue in the writer-representation business is that it offers Endeavor Content and Wiip and Civic Center Media the competitive advantage of a captive talent pool.

Once again, the agency/studios will leverage us to enrich themselves. And if, in the world of packaging fees, our interests and our agents’ interest were not properly aligned – now they will be in literal opposition.

Here is what is likely to happen if agencies are allowed to continue producing:

• An agency-producer has the incentive to keep talent costs low in order to increase profits, in direct violation of an agent’s fiduciary obligation to negotiate the best compensation possible for the client.
• An agency may not present outside employment offers to its client because it wants the client to work on an agency production, or to just not compete with theirs.
• If an agency-producer has a dispute with a client – over pay, hiring, or creative differences – the client has one less advocate with whom to pursue recourse or protection.
• An agency-producer may compete against its own clients for access to intellectual property, key talent, or funding from a television network or online platform.

Bobby Kennedy’s Justice Department forced MCA to choose between being a producer or an agency in 1962. MCA chose to produce and became Universal Studios.  Writers found plenty of other good agencies to represent them.  WME, CAA and UTA face the same choice.