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How serious is your agent’s conflict of interest?
June 6, 2019 Featured Article

The television industry has undergone seismic changes in recent decades, first with cable TV joining broadcast TV, followed by the rise of digital streaming companies such as Netflix, Amazon Prime, and Hulu. In today’s “peak TV” era, companies are producing hundreds of shows to fill viewers’ binge-watching appetites.

In some ways, it’s a golden age for TV writers, as more opportunities to create and work on scripted series are available than ever before. But because of changes the writers’ talent agencies have made to their business model, writers’ wages are stagnating at a time when they should be on an upward trajectory, according to the Writers Guild of America (WGA), the union that represents TV writers. In April, following unproductive negotiations with the Association of Talent Agents (ATA), the agencies’ trade group, the WGA told its members to fire their agents, at least until writer-friendly improvements are made to the system. The WGA also filed a lawsuit against the four leading talent agencies—William Morris Endeavor (WME), Creative Artists Agency (CAA), United Talent Agency (UTA), and ICM Partners—alleging unlawful conflicts of interest.

At one point or another, most of us have hired an agent to negotiate on our behalf. When we feel out of our depth or stuck behind closed doors, an agent—whether a real-estate agent, lawyer, literary agent, or financial adviser—can provide the knowledge, experience, connections, and negotiating skills needed to get us a great deal.

Our agents can become such trusted partners that we tend to forget their financial interests are almost never perfectly aligned with our own. A busy real-estate agent may advise you to offer more for a house than is necessary in the hopes of wrapping up a quick sale and earning his commission. A lawyer who bills by the hour may have incentives to research a cut-and-dried case more thoroughly than is necessary.

In the worst cases, our agent may have a full-blown conflict of interest that could lead her to sacrifice our goals for her own. By the time we realize we’ve been harmed by this goal mismatch, we may have suffered unrecoverable losses. The ongoing dispute between TV writers and their agents shows what can happen when we fail to examine our agents’ financial motives closely, while also illustrating best—and worst—conflict-resolution practices.

A new model

Traditionally, Hollywood agents representing writers have taken a minimum 10% cut of the deals they negotiate. That business model began to shift in the early 2000s when the major talent agencies concluded that to grow their business, they would need to move from relying on agency commissions toward ownership of the content they help produce, Chris Bevilacqua, who led CAA’s sports media ventures in 2007 and 2009, told the New York Times.

To do so, the top agencies began accepting cash infusions from private-equity firms in exchange for partial ownership. After investing $500 million in CAA, private-equity firm TPG Capital now holds a majority stake in the agency. Private-equity firm Silver Lake has a $200 million stake in WME, which in May revealed plans to go public.

As Hollywood agencies have begun to mutate into “full-fledged media conglomerates,” Vanity Fair reports, they are increasingly being pushed by their new partners “to diversify in search of new revenue sources.” Most notably, the large agencies have switched in recent years from the labor-intensive practice of negotiating deals for individual clients to bundling clients into package deals.

In a typical package deal, an agency offers a studio the key elements of a TV series from its stable of talent, including a showrunner, a pilot script, and perhaps a star or director, according to the Hollywood Reporter. Rather than paying agencies indirectly through client commissions, studios pay packaging fees to agencies up front, as well as up to 10% of a show’s future profits. Because agencies can earn many millions of dollars on a successful show, packaging can be far more profitable to them overall than the commission model. Agencies have packaged deals for decades, but only recently did it become the dominant negotiating model. According to the Writers Guild, 87% of scripted TV series in 2016 and 2017 were packaged.

Ulterior motives

The rise of packaging may be a boon to agencies, but it has created an untenable conflict of interest in their relationship with clients, according to the WGA. Because agencies are being compensated based on the predicted value and success of a show rather than on how much their client will earn from the show, they may be motivated to keep labor costs low to boost a show’s long-term profits. The agencies counter that their writers are earning more from packaging because their agents waive their commissions. But the WGA claims that weekly earnings for TV writers fell by 23% between 2014 and 2016, along with pay per episode. Using different calculations, the agencies dispute these claims, saying that writer pay is actually rising.

The WGA also objects to the fact that the three largest agencies (WME, CAA, and UTA) are using private-equity money to create their own content-production divisions. The agencies argue that their representation and production divisions are run separately and that agents have a strong motivation to retain their clients by getting them great deals. The WGA maintains that agencies’ activities all flow into the same pot and that writers get subpar deals when they are essentially hired by their agents.

The more beholden the agencies become to outside interests, the more pressure they will face to cut costs, writes Gavin Polone in the Hollywood Reporter. “Reducing compensation for employees is the surest way to boost the bottom line of any business,” he says. As writers’ representatives, agents are perfectly positioned to suppress writers’ wages, whether they would choose to do so consciously or not.

A brief negotiation

Throughout the seismic changes to the television industry, the relationship between TV writers and their agents has been governed by an agreement negotiated in 1976. In surveys and at outreach meetings, writers complained to the WGA that the agreement was well overdue for an overhaul.

The WGA put the ATA on notice that their franchise agreement would be expiring on April 6. In February and March, the two sides held a series of meetings that both sides characterized as unproductive. The ATA accused the WGA of engaging in bad-faith bargaining after WGA executive director David Young openly promised the guild’s negotiating strategy would include threats and attacks. In a video address, David Goodman, head of the WGA West, told members that the guild would accept nothing less than total capitulation from the agencies on packaging: “There is no meaningful compromise where conflict of interest is concerned.”

The WGA drafted a Code of Conduct that would require any agencies representing its writers to discontinue packaging and in-house production, a plan supported by 95.3% of members, according to the Reporter. When the 10 largest talent agencies refused to sign the code, the WGA ordered its members to formally drop their agents until they do.

Then, on April 17, the guild sued the four major Hollywood talent agencies. According to the suit, packaging fees violate California law, which requires agents to act in the best financial interest of their clients and inform them of possible conflicts of interest, the Times writes.

Three days later, the WGA delivered termination letters to agents from more than 7,000 writers, including Patton Oswalt, Shonda Rhimes, and Stephen King. Goodman told the Times that the union had the “overwhelming support” of its members—about 80% of those with agents sent termination letters—and that the writers were prepared for a long fight.

What happens next? Having taken on their agents, TV writers are likely to seek greater revenue sharing from studios, writes Jonathan Handel in the Reporter. With the WGA’s contract with the studios set to expire in mid-2020, the guild may press studios to shift the packaging fees they’re not currently paying agents directly to the writers, regardless of how the WGA’s lawsuit against the agencies unfolds. The fight could get ugly: The WGA has held numerous strikes in the past, including a 100-day strike in 2007 that debilitated the industry.

Lessons from a disruptive dispute

TV writers’ dissatisfaction with their agents’ negotiating practices grew gradually over time, but the parties appear to have devoted little effort to collaborating on solutions. The following guidelines can help you manage potential and existing agent conflicts of interest more constructively:

Research your agents’ incentives. When interviewing potential agents, don’t accept their financial conditions at face value. Take time on your own to think about the conflicts of interest an agent may face when representing you. Compare the agent’s proposed compensation terms to industry standards.

Negotiate to reduce conflicts of interest. If you’ve identified a potential conflict of interest, openly discuss any concerns you may have with prospective agents and explore alternative compensation models. Remember that agents, like the rest of us, are often unaware of their biases. Emphasize the need to agree to terms that will reduce or eliminate potential trouble spots and promote a productive long-term relationship.

Question new business models. The WGA tolerated talent agencies’ packaging practices for decades before arguing that they were unlawful. Scrutinize counterparts’ new ways of doing business from the start, and renegotiate your contract at regular intervals.

Open with collaboration. It’s tempting to launch negotiations and dispute resolution with threats and tough demands, especially if you believe you’re the weaker party. But a combative tone will invite reciprocation and short-circuit good-faith bargaining. When you stake out all-or-nothing positions up front, you cut yourself off from opportunities to create value through tradeoffs. Meet privately, and ensure you’ve explored all avenues for collaboration before resorting to expensive legal action and other disruptive moves.

Bring in unbiased experts when disputes arise. In the TV writers’ dispute, members from each side presented conflicting data to support their claims. Parties to a dispute will get nowhere fast when they argue about who’s right. Instead, mutually agree to hire a neutral third party to examine the data and reach an independent analysis—and promise in advance that you will abide by the expert’s conclusions.

Going it alone, together

How are TV writers faring without their agents? Those working on existing shows remain unaffected, at least until it’s time to renew their contracts or find a new job. As for new deals, a WGA survey reportedly found that 75% of writers had found their most recent job without the help of their agent, often by relying on their managers or lawyers, or their own network. Some writers are now wondering whether they even need an agent, according to the Hollywood Reporter. Entry-level writers, however, report feeling more adrift without an agent lobbying on their behalf. To help them out, the WGA created a script submission system, and more established writers have set up an online spreadsheet where showrunners and studios can shop for staff writers and scripts. “An unintended consequence of this fight has materialized: a possible future—a near future—where most working writers don’t have agents at all,” writes film and TV producer (and former agent) Gavin Polone in the Reporter. Depending on how and when the dispute ends, it could lead some writers to eschew their agents permanently, in the same way that people are increasingly negotiating online for cars, homes, and vacations without agents, he notes.

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