wga ata explainer

A battleground has formed in Hollywood, but it’s not the stuff of movies. The fights are taking place in boardrooms, and soon courtrooms, as writers and their agents wage a war that is as tricky as it is potentially transformative of the entire movie and TV landscape.

You may have heard the acronyms “WGA” and “ATA” thrown around, or seen the hashtag #WGAStaffingBoost on Twitter, and thought that this was a labor dispute that has little to do with you, the media-consuming public. But as negotiations between the Writers Guild of America and the Association of Talent Agents break down, it’s important to know exactly what is at stake. Is this a strike? What are writers and agents arguing over? How is this standoff threatening to change Hollywood? And can I still watch my favorite TV shows? We break down the intricacies of this standoff in our WGA ATA explainer.

Who Does This Involve?

This involves the Writers Guild of America, the WGA, and the Association of Talent Agents, the ATA. The WGA is a labor union representing writers across America, but are best known for representing Hollywood writers who staff TV shows and script movies. The ATA is a collective of more than 100 talent agencies, but the most prominent are known as the Big Four: Creative Artists Agency, William Morris Endeavor, United Talent Agency, and ICM Partners. These agencies wield the most power in the industry, with CAA, WME, and UTA accounting for “almost 70 percent of WGA members’ earnings,” according to the WGA.

What Are They Fighting Over?

You may remember the WGA from the headlines in 2007 when it was the center of the writers strike against the Alliance of Motion Picture and Television Producers that shortened fall TV seasons (and lead to the cancellation of Pushing Daisies), but this WGA vs. ATA conflict is no strike. What is happening is a breakdown of negotiations over the WGA and ATA’s relationship that until now was delineated in the Artists’ Manager Basic Agreement. This agreement, which has not been renegotiated since 1976 (compare this to the WGA’s re-negotiation of their agreement with the Alliance of Motion Picture and Television Producers every 3 years) was set to expire on April 6, but discussions went scorched earth when the two sides couldn’t come to an agreement on a key industry practice called “packaging.”

Let’s get the basics down first: Typically, an agent finds jobs for writers and negotiates their pay by setting meetings with film studios or networks, finding openings on writing staffs, and scoping out projects in development. Writers will then pitch themselves at these meetings, and agents will negotiate the best pay possible and take a commission of up to 10%.

But with the movie and TV landscape rapidly changing, commissions don’t cut it anymore. Talent agencies make most of their money through packaging, which is a practice that is becoming increasingly influenced by private equity firms — aka, investment management companies that have little to do with the movie and TV industry — that have injected billions of dollars into the three largest talent agencies.

What is Packaging and Why Are There Fees?

Strictly speaking, packaging is the process through which agencies will bundle together talent to sell as a single project. For example, when a director is attached to a buzzy script and a studio acquires them together, that’s a package. For writers, if they come up with an idea for a TV show, that writer’s agent will bring in a high-profile director or actor to board the show (often from the same agency) and put them together as a package. Agencies charge studios a three-part fee for assembling the package in a structure known as “3-3-10,” referring to how the percentages are distributed between the base license fee per episode, base license fees taken out of “net profits,” and adjusted revenue. On the client side, if writers are sold as part of a package, they don’t have to pay their agents the 10% commission fee. The Hollywood Reporter has a good breakdown of how these fees are calculated:

3: First, 3 percent of the “base license fee” per episode; the base license fee is a negotiated figure much lower than the actual license fee the network pays the studio. These front-end fees paid to the agency range from $15,000 to $75,000 per episode, or about $300,000 to $750,000 per season.

3: Another 3 percent of the base license fee per episode, but deferred and payable out of 50 percent of “net profits.” This is almost always zero, because only major hits achieve net profits.

10: Up to 10 percent (typically 6.5 percent or 7.5 percent) of Modified Adjusted Gross Receipts (MAGR), a form of revenue minus certain costs. MAGR is zero unless the show runs multiple seasons and is sold into aftermarkets like syndication (rare for shows made for streaming platforms). In the past, a hit could generate $50 million to $150 million for the agency; today, perhaps only $20 million — and even less for shows made for streamers, which is why front-end fees are higher.

But the problem boils down to where that 3-3-10 fee comes from. The money is taken out of the production’s budget for a project and is not part of a writer’s pay. It goes straight to the agency. Top agencies (and their investors) love packaging fees, because it guarantees a profit even if a show is not successful. However, even ATA executive director Karen Stuart has admitted that conditions for a full 3-3-10 fee are rarely met because so few shows hit that necessary profit level. And with the advent of streaming, where deals with Netflix don’t include back-end profits, writers are arguing that they’re not getting paid nearly as much as they should be.

The ATA is arguing that packaging is better because it allows writers to avoid paying the 10% commission fee. Writers want their agents to be motivated to negotiate for better pay, which they argue that they won’t be with the 3-3-10 structure in place. However, the ATA has two studies on its side, with an ATA report and a UTA study asserting that packaging saved writers $49 million in commission fees, and that writers actually made more money from packaged shows. “Agency income should be directly tied to writer income,” WGA president David A Goodman said, stating in a February address to Guild members that the UTA study was based on a “false premise.”

Packaging is not a new process. It’s been around for nearly 50 years in Hollywood, and has traditionally become the way that the industry works. Packaging has become so dominant that the WGA estimates 87 percent of all shows that aired during the 2016–17 season were packaged, with WME and CAA responsible for 79% of that. WME earned $138 million from packaging fees in 2013 alone.

Actually, It’s About Ethics in Affiliated Companies

Here is where things get dicey.

The advent of streaming means that even packaging isn’t as lucrative as it used to be, and agencies are turning to revenue from affiliated production companies that compete directly with studios. What does this mean? The Big Four have started to purchase content, with WME acquiring UFC, the Miss Universe pageant, the Professional Bull Riders association; IMG producing and distributing sports entertainment; WME building its own film and TV production arm; and CAA moving into producing programming for Apple and Facebook. These steps into content production and distribution are “raising conflict of interest red flags in the view of many industry insiders,”  Variety reported in March.

All of this is being encouraged by the agencies’ private equity owners. Remember them? I mentioned them at the beginning of this article as the corporate entities that have slowly gained majority stakes over the top agencies — TPG Capital now has a 53% stake in CAA, Silver Lake Partner has invested $750 million in WME, Investcorp and a Canadian pension fund PSP Investments own a 40% stake in UTA. According to a report from the WGA published last month, “the top three agencies now operate under the pressure of private-equity-level profit expectations.” This part of the report sums it up:

“Outside investment not only brings with it intractable profit expectations, it has fueled the agencies’ expansion into new ventures, including into TV and film production, in effect making the agencies employers of their own clients. This investment-fueled expansion is incompatible with, and threatens to overwhelm, the major agencies’ core purpose as agents—to represent their clients. At the same time, the top agency executives and the private equity owners have benefitted handsomely from these developments, receiving hundreds of millions of dollars in payouts and seeing their remaining ownership stakes balloon in value by hundreds of millions more.”

Is This All Legal?

That’s the big question. The WGA released a code of conduct that essentially restricts agencies to representing their clients. Some minor agencies have signed this code, but the Big Four have remained inflexible, which is where those initial negotiations broke down. Writers are considering having their managers and lawyers negotiate contracts for them, which has caused large agencies to threaten to sue, on account of said managers and lawyers acting without an agent license.

Meanwhile, the WGA filed a lawsuit last week seeking to make talent agency packaging fees illegal under California and federal law. The WGA announced that its West and East branches, as well as eight indivudual writers, are suing the Big Four for “breach of fiduciary duty” and unfair competition. “All of the writer plaintiffs have been hurt financially by packaging deals. They are creators and writers of television shows that have shaped a generation, yet their agents have profited at the expense of their own clients,” said Tony Segall, general counsel for the Writers Guild of America West, in a press release.

All of this may go to an even higher court. The WGA is looking to shake up Hollywood as we know it, you see, and this could affect federal labor law. The Supreme Court in 1981 upheld the Actors’ Equity regulation as “clearly designed to promote the union’s legitimate self-interest.” But THR notes that “judges are often loath to upend an entire industry,” which is what the WGA’s code of conduct could do.

Why is This Happening Now?

One word: Streaming. Several words, below.

With Amazon, Netflix, and Apple disrupting the industry and bringing demand for original content higher than ever, production and profits are at record highs. But many writers say they feel overworked and underpaid, with the the median weekly earnings of TV writer-producers dropping by 23 percent between 2014 and 2016, according to the WGA. Netflix in particular loves to be the disruptor, reneging on ancillary revenue streams in its deals, which can include everything from licensing to merchandising.

In the face of shorter TV seasons and changes to residuals, writer wages have reportedly stagnated, though Goodman says that wage growth was an issue before this. The combination of the practice of packaging and the influence of private equity firms have prompted agencies to de-prioritize relationships between agents and the writers they represent, the WGA alleges.

What Happens Next? Will This Change How I Watch TV?

With negotiations between the WGA and the ATA coming to a standstill, WGA members have taken drastic measures to show their support for the code of conduct. Writers are firing their agents en masse, with prolific writers like Stephen King, Adam McKay, David Simon, and Patton Oswalt taking to Twitter to announce . The WGA hasn’t revealed how many writers have cut ties with their agents, but this follows over 770 writers signing a WGA “Statement of Support” pledge in March. WGA lawyer Tony Segall says a “vast majority” of the roughly 8,500 agent-represented Guild writers have signed letters.

More than 40 smaller firms have pledged to sign WGA’s code of conduct, but only one — Pantheon Talent Agency — is an ATA member. The ATA has released a set of “agency standards” to adopt in place of the WGA’s code, but which only focuses on greater transparency in packaging and affiliate productions.

Writers in the meantime have taken to representing themselves to studios and production companies, and turning to fellow writers for job opportunities. And as the impasse between the WGA and ATA stretches into weeks, and possibly months, industry insiders wonder if this could become the modus operandi.

“The idea that the agency is the only person who can bring a writer to a showrunner is erroneous,” said Javier “Javi” Grillo-Marxuach, a producer-writer who has worked on Lost and Law and Order: SVU. “Showrunners normally do get pitched clients by agents, but they are also being pitched writers whom networks, studios and production companies have already read and liked.”

Goodman said in his February address that 75% of respondents to a recent WGA survey said they got themselves their most recent jobs, not their agents. And while TV executives have told Vulture that the staffing pipeline might suffer from some bumps, they aren’t worried about writers rooms getting filled. “Will it hold up production realistically? Probably not,” one TV executive said.

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