Important information about the issues concerning agents representing Guild members

Presentation by WGAW President David A. Goodman

 

February, 2019

Thank you for being here.

What I am going to talk about today are writer concerns about how agents represent us and what we think should be done about it. Many of you have voiced frustrations about what agencies are, or really aren’t doing to address declining compensation and conditions for writers during an era of unprecedented prosperity for our employers.

Since 2015 we have convened member meetings specifically to talk about agency representation and the Guild’s agency agreement, the AMBA. More than 1500 members attended those meetings. Our discussions focused on revising this outdated, 1976 agency agreement. There was deep member support for establishing NEW rules which would prohibit conflicts of interest and make agencies our true partners in enforcing the MBA and our individual deals.

Therefore, in April of last year the Writers Guilds West and East sent the required twelve month notice of contract termination to the Association of Talent Agents, which means the current agreement will expire in about 60 days, on April 6th.

This past year Guild leadership and staff have worked hard on refining our plan, and it is crucial that you understand what we propose to do during the next few months and how it will impact all of us.

The simplest way I can begin is by saying something fundamental is wrong in the agency business: writers are being hurt, and it is the right and the responsibility of the WGA to fix what has gone wrong. I repeat, it is the Guild’s responsibility to writers to ensure that every one of us will be properly represented by the agencies.

I don’t take lightly the recommendations I make to you today. They amount to the Guild fully asserting its legal authority as a union to oversee how agencies represent writers. The biggest agencies, the so-called big 4, ICM, UTA, WME and CAA, will not be happy about that. And there may well be a struggle required and hardship for some of us. But I believe that we must accept those risks in order to fix the problems.

But it will be up to you, the members, to decide if you agree, as we plan to hold a membership vote on March 25 on what I propose today.

WHAT’S THE PROBLEM?

What has gone wrong is that agency income should be directly tied to writer income—the agent should make more only when his client the writer makes more—but that’s not what’s happening anymore. Instead, agencies make their real money from packaging, and now producing, which are conflicts of interest that hurt writers. So our simple goal has two parts—to bring the agencies’ interests back in line with those of writers, and to require that agencies behave as our partners in getting writers paid on time and preventing unpaid work. Currently they’re not.

Let’s take a look at how the business is doing economically, how the agencies are doing, and how writers are doing. I’ll give you a hint: two of the three are doing great, and the third one is us.

Even with changes in the industry, the entertainment business is experiencing its most profitable period in its history. Every aspect of the business is highly profitable.

This success is mostly a function of two great growth factors. One is the monetization of the Internet. The second is huge growth in the international market. We expect the major studios along with Netflix, which is on its way to becoming a major, to have made around $54 billion in operating profits in 2018, and that’s not counting Amazon or the big players coming into the industry like Apple and Facebook.

How are the big agencies doing? Well, their books are closed to us and the rest of the world. But it is not hard to make a reasonable assessment. CAA and WME are so cash-rich and profitable that they have gotten $3 billion in investment from venture capital to expand their businesses. They are now majority owned by private equity companies that demand profit maximization, not higher salaries for writers. UTA also now has a large venture capital investor.

The companies and the agencies are crushing it; how about writers? We’ve just completed a member survey on overscale income—the money we earn that’s above MBA minimums. Overscale is the one thing we delegate to the agencies to get for writers.

This 2018 member survey shows modest increases in overscale TV compensation compared with 2016. However, these increases barely match inflation, and they leave writers still well below the levels of income reported in 2013. And experienced TV writers know that the erosion of overscale pay did not begin in 2013, but well before that.

And screenwriters? Screenwriters reported that about 20% are being paid Guild scale; remember, scale is what the Guild gets you in the MBA. Only 38% reported improving their quote. 44% reported being paid less than their quote or their quote staying the same. And screenwriters face an epidemic of demands for free work. Free work is a problem that the Guild can best tackle in partnership with the agencies, but they refuse to help us.

There are more writers at WGA scale, more writers whose quotes have atrophied or dropped, more writers trying to make their year on a short order episodic series, and more screenwriters required to do outrageous amounts of free work than ever before. The agencies are not succeeding in defending writer overscale pay. And (this won’t come as a surprise to many of you) when asked in the survey who helped you get your most recent job, 75% of writers said it wasn’t their agent.

If this is how writers overall are doing during an unprecedented expansion of the entertainment business, how will we be doing when the next recession comes around the corner or Peak TV finally reverses a bit? We need to fix the situation now.

Now I’ll explain the two major agency conflicts of interest and why they hurt writers.

The first is packaging. In television, packaging is when an agency demands to be paid directly by the studio rather than commissioning talent at 10%. The big 4 agencies—WME, CAA, UTA and ICM—now use their monopoly control of top writing talent to insist on packaging virtually every scripted show on television and streaming.

That’s because packaging is immensely profitable… FOR THEM. For representing the show creator (and sometimes other elements) the agency is paid through a formula referred to as “3%-3%-10%.” The first 3% is from the network license fee and is paid out of the series budget. This 3% is $30,000 to $100,000 per episode and is often more than the agency would get from 10% of the earnings of its clients. This money is taken directly out of the budget of the show, money that could be used to hire more writers and pay writers more money. Agencies argue that they should get packaging fees because they are taking a risk on the show. But this 3% out of the budget upfront means they are not taking a risk. With more than 300 scripted series packaged each season, this first 3% is more than $150 million that flows to the agencies every year.

The second 3% is also from the license fee and is deferred until net profits, if any.

But here’s the kicker. The agency then gets 10% of the show’s gross profits for the life of the show, even though its work is normally finished before the pilot is shot. This agency backend amounts to hundreds of millions of dollars per year for the big four agencies, far more than they would earn from 10% commission, and often far more than the show’s creator earns. A successful show, not just on a network, may bring tens of millions of dollars over its life to the agency in profit participation.

But packaging is not a contentious negotiation where the agency’s piece depends on how well they do for the show’s creator: it is a price fixed by the big 4 agencies at 3-3-10. And agents and agencies have been known to block deals from going through until their package fee is in place. These ransom fees remove the single greatest incentive for agents to fight on behalf of all writers: mutual and immediate shared economic self-interest.

The big agencies’ interest is not with writers, it is with studio profits. This plays out in different ways for showrunners and their staffs, but both are bad. For showrunners, they are the only ones the big 4 care about representing and therefore showrunners have some leverage to defend their deals, but their agency is in competition with them for I.P. and profit participation. For every other TV writer, packaging means there is zero connection between what your agency negotiates for you and what the agency makes. The agency has no financial incentive to get TV writers more money. None.

You may not know this, but packaging affects features too. About half of WGA films are independent features with difficult budgets and a hard road to distribution. The agencies have expanded their packaging model to these independent films. Agencies take a 5% packaging fee out of the budget. They may also demand to handle domestic or foreign sales and take a fee for that. Independent producers report some agencies even charge them a monthly retainer for access to their clients.

The WGA recently had conversations with 9 independent—mostly film—producers to ask if agency packaging hurts or helps the business, and whether the Writers Guild would damage their business if we banned this conflicted practice. The producers’ overwhelming answer was that agency packaging and producing hurt their business and they’d love to see us stop it.

I don’t want to overstate the financial impact of screen packaging. It is so hidden, even from our own members, there is no easy way for the Guild to assess it. Sometimes writers themselves don’t know if their film has been packaged. But here’s something fun: unlike in TV, in features agencies take packaging and other fees AND still charge their screenwriter clients a 10% commission.

What are the big agencies doing with the money they get from the packaging windfall? That brings us to the second big conflict of interest: producing. They are moving to become our employers by becoming producers and owning content. CAA’s production arm WIIP, WME’s Endeavor Content, and the new UTA production arm are the next big threat to writers from agency conflict of interest. If you want to add a “why now” to this discussion, consider this:

The big agencies are using their packaging and venture capital money to become competitors of the studios by owning content. As producers, they will be both our employer and our representative as writers, the clearest conflict imaginable. This is a complete bastardization of what it means to be an agency and represent writers.

A few writers will get a great deal from Endeavor Content or CAA’s WIIP. But most writers will get screwed, and our powerful agency will now be our powerful boss. Would you want Peter Roth to negotiate your deal at Warner Bros.? Let’s be clear. If your agent is your employer, you don’t have an agent.

The last time a powerful talent agency decided it wanted to become a producer was MCA in the 1960s. The Justice Department stepped in and forced Universal to spin off its agency business, because it was an anti-trust violation. But now, unfortunately we can’t wait for the current Justice Department to step in.

Let me address just a few of the arguments that agencies have made to us about their conflicts. The agencies have floated a compromise wherein their packaging deals will be transparent and that they will never make more than the showrunner on the back end participation. Here’s the problem with stopping at transparency. First, it takes the position that as long as it’s out in the open, it’s okay that an agency that negotiates the pilot deal for its client makes the same backend as a Guild member who wrote the pilot and produced 60 or 100 episodes. That’s absurd.

And what will transparency do for TV writers who are not showrunners? The agencies’ money will still come from the studio profits, not from getting writers more money. We would be leaving in place a system that has completely severed the connection between the interests of the agencies and any TV writer who is not called showrunner.

And transparency does nothing for feature writers other than confirm their agency is double dipping and probably making more than they are from the film.

Another argument the agencies have used is that writers should love packaging in TV because they don’t have to pay their 10% commission. That is a fair point. But there are huge long term consequences from packaging that are hidden and that dwarf the 10%. Writers’ quotes in TV and features have been under pressure for years. Our own 2016 survey showed experienced TV writers had a 23% drop in income in the past few years alone. So if our agents aren’t taking commission, but they’re also not fighting for our raises, or even defending our quotes, are we really coming out ahead? We are not.

Here’s another big hidden cost: at this point 52 percent of feature writers and 33 percent of TV writers are paying what I’ll call the 25% tax. They have an agency, a manager and a 5% lawyer. If we look closely, it is clear that younger, lower paid writers are most likely to pay the 25% tax. When asked in our surveys why they also pay a manager and/or an attorney, writers overwhelmingly explained that it is because agencies no longer do the full job of representing them and because they need someone to keep their agency honest. These writers are paying an extra 15 percent because agencies aren’t doing their jobs.

Ari Emanuel thinks this is how things should be. Last October he was asked at MIPCOM about conflicted agency practices and said, “The world has changed,” and noted that there are plenty of lawyers and managers who serve as a check on any potential agency conflicts. So he’s comfortable with it.

And on the subject of MBA enforcement, if the agencies will simply give us the information we are demanding, including all writer contracts and invoices for payment, the Guild may not solve the problems of writers being paid late and continually being asked to work for free, but we will do our damnedest. We will contact every writer on every feature deal and offer to help them get paid on time and avoid free work. We are not big brother and we won’t pressure you, but we will have an impact that will help writers.

So to sum up why we must change how we allow the agencies to represent us: the big four agencies have developed a monopoly that takes the collective power of writers and uses it to enrich the agencies themselves. This has resulted in long term stagnation of writer income and real downward pressure on writers’ quotes.

We cannot allow these conflicted and illegal practices to continue. Agencies have to be fully on the side of writers, and our proposals ensure that they will be.

WHAT’S THE PLAN?

Now let’s talk about the plan of action that the Guild recommends. We will meet with the ATA, the association of the big agencies, between now and expiration on April 6th. The first meeting was February 5th. We will explain our proposals and try to make a deal, and we will consider their responses.

If we are unable to reach agreement on the terms of a new franchise agreement, there is another course of action open to the Guild. In our dealings with the agencies, the Guild has the legal right to act unilaterally—to establish a set of rules—we call it a Code of Conduct—that the agencies have to follow if they want to represent our members. The idea of a code of conduct is not revolutionary. Indeed, it is the dominant method of agency regulation in all of professional sports.

All of the major sports unions have similar Codes of Conduct—basketball, baseball, hockey and football. At CAA, which has the biggest sports agency business, all the sports agents must be signed to the Codes of Conduct. We’re not reinventing the wheel here. How would our Code of Conduct work? If the WGA membership agrees, then agencies that want to represent WGA members must agree to the new Code, effective April of this year. In fact, that’s what we will be asking writers to vote on, namely: should the WGA implement a Code of Conduct that bans agency conflict of interest?

What is in the Code we may be asking you to vote to approve? There are details, but it can be summed up in two basic points:

1. One. All agencies and agents are required to behave as proper fiduciaries at all times. A fiduciary is a person, quote, “to whom power is entrusted to act in the benefit of the client, whose interests are always to be put first.” The most fundamental obligation of a fiduciary is to avoid conflicts of interest. Since both packaging and producing are conflicts of interest for agencies, these and any other conflicted practices would be banned as of April 2019. The agencies would return to a 10% model.
2. Two. The Guild is responsible for defending both the MBA and the individual deal specifics of all writers. In order to facilitate this, the Code requires that the agencies provide the Guild with all deal memos, all invoices for payment, and open access to the agencies’ books. Writers and the Guild will have the right to regularly audit all of this information to ensure proper oversight.

Why am I suggesting that we will probably need to vote on implementing a Code of Conduct rather than being able to get a negotiated settlement? Fundamentally, it’s about the nature of the changes we seek. The only way for the Guild to ensure that agents properly represent our members is to eliminate conflicts of interest. The big agencies have given us every indication they will not accept our proposals in those areas, although of course we will try to reach an agreement before our current agreement expires on April 6.

But there are negotiations where there is no middle ground, where there are basic principles that are not subject to compromise. Your representative—lawyer, union or agency—is either conflicted or they are not. If the Guild continues to allow agencies to make their living in ways that can harm writers, writers will be harmed. That’s why conflicts of interest are illegal; it’s why your lawyer can be disbarred over such conflicts; it’s why if Guild officials did as the agencies do and took anything of value from the studios, the officials would be liable under the RICO racketeering statute! Yet the agencies demand hundreds of millions from the companies annually for representing us, and so far they have gotten away with it.

We have of course already been called unreasonable by the agencies, and this will continue. Be prepared. As writers we are often filled with self-doubt and a desire to be seen as fair, reasonable and willing to compromise. But it is crucial for us to understand: there is no meaningful compromise where conflict of interest is concerned. It’s a binary choice. Either agencies put our interests first and make their money from our success or, like now, they will continue in the business of maximizing their own success while writers suffer. We hold the cards here—let’s not allow our own sense of fairness to be wielded against us in this agency campaign.

Let me address one more issue. Some writers have asked why the Guild doesn’t simply litigate the agency practices that are illegal, and file lawsuits to seek to vindicate our rights. The answer is that WE WILL, so don’t be surprised if the agencies complain. But we cannot rely solely on litigation to solve our problems as if it is a magic bullet. It almost never is. We could be stuck waiting for years or get a bad decision. We have something much more powerful than litigation to change agency behavior: our power as a unified guild.

IN CONCLUSION

I want to conclude by talking about how we are going to make this happen. I’ve asked myself, is the Guild making a power grab? And I think that the answer is yes, we are making a power grab. A necessary, proper and fair power grab. As the agencies have taken our collective power and used it to maximize their power and income, we have to take our power back and make sure it is used to maximize our incomes.

Make no mistake: fairness is an issue here, but the fundamental reason that the leadership is recommending these changes is MONEY. If writer pay were steadily rising as agencies continue to package, we wouldn’t be sitting here. If writer pay were rising as agencies move into production and become our employers as well as our representatives, we wouldn’t be here. But as writers we share a common knowledge that writers overall are not doing better. We’re doing worse.

I therefore need to tell you what we’ll have to do if we implement the Code—and what the difficulties and risks and doubts and fears are that we’ll have to confront.

If we implement a Code of Conduct, it will be because the membership voted to do so. And you should vote knowing that although you will not have to walk off your job, you may well have to walk away from your agency, and maybe even from your individual agent.

A membership vote to implement a Code is a vote for all of us to walk away—together—from any agency that will not sign it. That is most likely to be the big 4—ICM, WME, CAA, and UTA—but it will include any agency, including any of the other 196 smaller agencies which will not sign our Code and abide by it.

This is a different kind of campaign than our usual MBA negotiations and it will play on our own emotions in a very different way. There is no question that many agents are honest, hard-working, and try to be good trustees of their clients’ best interests. I would actually go further, it’s my sincere belief that the majority of the agents at the big four think they are doing a good job for their clients. This is the only system that they’ve known, and if their client is working, and their agency is doing well, they’d have no reason to question it.

Many of us have not only professional, but personal relationships with our representatives. And even if you don’t have a good relationship with your agent, they represent potential access to employment, even if it is only imagined. But this campaign is not about the competence or moral character of any individual agent. The problems are systemic; they need a systemic solution or the harm to writers will grow worse.

We think there are many agencies and good, honest agents who will ultimately welcome what the Guild and writers are doing. We’ve talked to people at smaller agencies who do. So we expect to sign up many of the smaller agencies. Regarding the big 4, we will seek your help to organize key agents to make the move to independence so they can keep working with you if their agency won’t sign our Code of Conduct. So I am saying that our collective power here is the power of divide and conquer. The agencies and agents all compete for talent, and when we make clear that we are leaving those who will not change, the change will come.

It’s simple yet difficult: if we stick together we will make this happen. Writers have the power here. But we’re so accustomed to dealing with the agencies and their power by ourselves, as individuals, that we lose sight of that. Here, though, we’ll be acting together as a union, not alone. We’ve proven we can take on the companies, we surely can take on the agencies. We have to summon the courage and leadership that are so difficult but that we’ve often shown.

We also have to be prepared to help each other in every way possible to deal with the dislocation of looking for work during a period where some of us will need new sources of information in order to connect with other writers and jobs. Showrunners in particular, but also prominent screenwriters and captains will be asked to lead, to help other writers.

More is asked from those who have more power, much to gain, and a great ability to help us all succeed. High-profile writers will be asked at a certain point to publicly state support for this campaign and their willingness to walk away from their agency as necessary.

Finally, as I hope I’ve made clear, this is not just about one genre of writers, or only the top earners, or only the middle class—it’s about the whole Guild.

We as writers must make a decision about whether we prefer the current flawed system or one that has the proper incentives. There are no guarantees in union struggles. But think ahead—what will happen if we do nothing? We need the agencies to DO THEIR JOB. If they prefer to be studios, they can get out of the agency business.

We’ve all taken risks to get into this business and to stay in it. That doesn’t make taking another one easy, but, that’s what I am asking to you do. As writers we are at the very heart of what the agencies do and we have the collective strength and numbers to do something we all need. We can’t let our desire to look reasonable, even when the other side isn’t, even when we’re being taken advantage of, keep us from seeing that if this becomes a fight, we have all the power. We can demand the deal we deserve and the agents will still make plenty of money. I know we can win this. But, as everything we do in this union, it’s up to the union, it’s up to you.

Thank you very much.