By Tifanie Jodeh Acosta
Jerusha D'Souza
In April of 2020, a suit was filed by the Writer’s Guild of America (WGA), against the "big four" talent agencies i.e., William Morris Endeavor (WME), Creative Artists Agency (CAA), United Talent Agency (UTA) and ICM Partners, where WGA stated that certain packaging fees charged by these agencies are an “egregious conflict of interest” that “constitute unlawful kickbacks” from the studios to the talent agencies.
Earlier this year the stand-off between the WGA and the Talent Agencies came to an end when a US district court Judge granted a request by the WGA and WME to dismiss their antitrust suits. This came shortly after WME signed the WGA’s “Franchise agreement”, which is set to end ‘packaging’ (discussed below) by next year and reduce talent agency ownership of affiliated production entities to just 20% going back to a commission-based model. A “side letter agreement” was also agreed to, where WME would divest its interest in Endeavor Content similar to the agreement WGA entered into with CAA and other such agencies.
The business of “packaging” has been around for decades, where talent agencies bundled a project with talent to sell a movie or TV show. For this packaging fee, talent agencies would also provide staffing of writers, mid-level contributors, etc. Generally, a ‘package fee’ for scripted television is the 3/3/10, i.e., a 3 % upfront of the basic license fee per episode, 3% of a deferred fee paid out of the 50% of net profits and backend participation which is up to 10% of profit participation. To avoid ‘double dipping’ the talent agencies that collect a packaging fee from the studio’s do not take their typical 10% commission from the clients that they represent.
The conflict between the two sides arose when the WGA gave the Association of Talent Agents (ATA), a collective of more than 100 talent agencies, twelve months’ notice to terminate the ‘Artists’ Manager Basic Agreement’ of 1976, the contract that dictates the terms of the relationship between ATA and WGA.
The WGA in its original suit argued that since talent agencies are financially motivated to negotiate their own lucrative packaging fees, they do not fight for their clients to receive higher wages. In addition, talent agencies focused on exclusivity trying to prevent other talent agency clients from being attached to a project, that way the “packaging agency” would not need to be shared. The WGA believed that this business practice goes against the fiduciary obligation of a talent representative to serve her or his writer clients by connecting such clients with the best talent for the project, regardless of whether such talent is represented by the same talent agency. The WGA further argued that these packaging fees violate California’s unfair competition law, which prohibits any representative of an employee from receiving money or other things of value from the employee’s employer and as such talent agents are “employee representatives” and the money accrued via packaging fees are illegal.
The ATA on the other hand argued that such packaging fee structures rarely meet a profit level required to lead to additional payments. Furthermore, ATA claimed that a packaging fee model is better because it saves writers having to pay the 10% commission, they would otherwise owe to their talent agents.
The WGA “Franchise agreement” now signed by WME, which is in line with similar agreements signed with CAA, UTA and ICM, aims to end the conflicts of interest in writer representation. In summary, talent agencies are precluded from holding 20% or more of a production company and it establishes strict rules preventing talent agencies from getting into the production business, by capping their ownership of production or distribution entities and also a sunset period was added which ends the practice of packaging by June 30, 2022.
In conclusion, the Entertainment industry is starting to see a resolve to this, whereby talent agencies are now changing the way business is conducted.
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Tifanie Jodeh Acosta is Partner at Entertainment Law Partners dedicated to corporate, business and entertainment affairs. You may contact her at asst@entlawpartners.com.
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