Entertainment Attorney Jody Simon Offers Primer On WGA/ATA Dispute

The consequences of the WGA and the ATA failing to reach an agreement on a new franchise agreement “are literally unknowable but could upend the way the television business has operated for decades,” according to a blog posted by Jody Simon, an entertainment attorney at the Fox Rothschild law firm.

Noting that his firm represents many writers and works closely with agents, he said that in writing the blog it was not his intention to take sides. This is his take on the issues, and how it could shake out as the April 6 deadline for an agreement is fast approaching.

“Talent agencies licensed by the State of California have a statutory monopoly over the procurement of employment in the entertainment industry. New York has a similar statute. The guilds representing writers, directors and performers have piggybacked on this statutory regime to assert the right to impose their own franchise agreements on the agencies, which they negotiate through the agents’ representative body the Association of Talent Agencies. These agreements vary among the three unions, but include provisions for example limiting the agents’ rights to collect commissions on residuals and permitting clients to terminate agency agreements when their agents aren’t getting them work. These franchise agreements have remained substantially unchanged for years and have accrued substantial precedential value. For example, the performers’ union SAG (now SAG-AFTRA) attempted unsuccessfully to overhaul their franchise agreement in 2002 and the agreement expired yet both union and agencies have continued to operate more or less as if it had remained in force.

“Now the WGA franchise agreement is about to expire, and despite this history the guild is demanding huge changes in the way the agencies do business. Renounce packaging and producing, it says, or we will seek a vote authorizing us to require our members to fire their agents who do not cooperate. Although the ATA and WGA have had several negotiating sessions since the WGA announced its position, very little progress has been made. What is at stake that prompts the parties to put so much at risk?

“In its ideal state, packaging is a practice by which an agency will assemble a number of key creative elements on a show from among its clients, e.g, the creator, showrunner, directors and star, and sell it to a studio or network. Then, rather than collect a 10% commission off the fees paid to each individual client, it receives a commission (typically 3%) out of the network license fee or show budget paid directly by the studio or network for the life of the series, another 3% of the license fee or budget deferred and paid out of first net profits, and 10% of backend revenues. As the agents see it, both they and their clients benefit from this practice. The clients save the 10% they would otherwise be paying out of their fees, while agents stand to make considerably more than they would in a straight commission situation. It also benefits the agency’s lower-level clients by giving them preferred access to jobs on that show.

“The writers have a different view. They say that when an agency’s compensation is severed from its clients’, there is an inherent conflict of interest. The WGA has released numerous public statements in which writers recounted instances in which they claim their agents used a package position to benefit themselves at the expense of their writer clients. Many show creators expressed incredulity that their agents got package commission on shows they’d played no part in selling. Some went further to complain that when the agents were active in pitching their shows, they sold them to a less attractive buyer that offered a package rather than a make a better deal with a buyer that did not. Some even claimed that their agency had killed a deal entirely because a buyer refused to give it a package. Mid- and lower-level writers expressed concern that their agents were accepting inferior deals for them rather than disturb their cozy relationship with the buyers, especially since the package commission would be the same regardless.

“The agencies have also been sticking their toes in the water as producers, albeit indirectly. On its face, this is a more direct conflict of interest than packaging, because the agencies are directly employing their clients, and indeed the franchise agreements of all three guilds prohibit this practice. Recently, however, as some of the biggest agencies have grown in size and scope, they’ve formed affiliated production companies which they say will operate at arms’ length from their agency affiliates. A further complication is that some of these production companies are WGA signatories, which means the union consented to permit them to hire WGA writers, a position it now disavows.

“Agents have been packaging programs for decades. Writers have grumbled about it in the past, but have never before joined forces to take what is after all a considerable risk to them in order to try to force a change. A number of other factors are at play that have brought these issues to a head. First, the agency business itself has been changing. While writers have tolerated the perceived unfairness of television packaging, many regard the agencies’ forays into producing as a step too far. The big agencies have also accepted outside investment in order to diversify into sports, fashion, consulting and other areas far outside their traditional businesses of talent representation. “This has tended to increase the sense of some clients that their agents’ interests are not necessarily aligned with their own. All this is happening while outside economic pressures on writers are increasing. Although the explosion in programming from streaming services has created more job openings, it hasn’t always put more money in the pockets of working writers. Where a season of a successful series on a broadcast network will comprise 22 episodes plus generous residuals, cable and streaming series orders will be 8, 10 or 13 episodes, with much smaller residuals, if any. Moreover, despite the shorter orders, the producers of these series still require the same level of exclusivity as for broadcast, so that writers must hold themselves off the market for much lower guaranteed fees.

“This dispute will be coming to a head very soon. The current WGA franchise agreement expires on April 6. The WGA is insisting as a condition of renewing that agreement that the ATA agree to a Code of Conduct in which they will give up packaging and sever ties with their production company affiliates. WGA members will be voting this week whether to approve a resolution requiring writers to fire their agents if the agents do not sign the Code of Conduct. Meanwhile, very little progress has been made in negotiations between the WGA and ATA to reach a less drastic solution.

“If those negotiations fail and the writers approve the resolution, the outcome will be unpredictable. Some writers could break ranks and choose not to fire their agents. For example, writers who work primarily in features do not have a stake in the packaging debate. There could also be a split in the agency ranks, as smaller agencies, which depend less on packaging and not at all on producing, seize the opportunity to pick off clients from the big four (WME, CAA, UTA and ICM). Or the parties could stand firm and a new ecosystem could develop for marketing and staffing projects. The WGA has openly solicited managers and lawyers to fill this role, notwithstanding that they would be vulnerable to penalties as unlicensed talent agents. The guild has also announced a system under which writers will submit themselves directly to showrunners for hiring.

“It is still possible that the parties will make a deal in the eleventh hour. In the meantime, it’s fair to say that Hollywood is nervously awaiting what will come next.”