The Writers Guild of America (WGA) and the Association of Talent Agents (ATA) are currently engaged in a dispute over conflicts of interest that has the potential to completely change how the entertainment industry operates.
The WGA is a union representing 13,000 writers across the country, with a focus on representing writers in film and television. The WGA bargains on behalf of writers across the television and film industry, working on a multi-employer, sectoral basis. They bargain with television and film producers to establish writers’ salaries, benefits, pensions, working conditions, residual payments, and creative rights, as well as the terms under which agents may represent their members.
The ATA is a trade organization comprised of over 100 talent agencies in the entertainment industry. Agents essentially create the market that brings together clients and projects, and they are traditionally paid a 10% commission on the deals they broker. Due to consolidation, there are currently four major agencies that represented an estimated 75% of working writers.
Under the WGA’s Code of Working Rules §23, members may not enter into a representation agreement with an agent “who has not entered into an agreement with the Guild covering minimum terms and conditions between agents and their writer clients.” Since 1976, this agreement came in the form of the Artists’ Manager Basic Agreement, which, despite efforts to negotiate between the WGA and ATA, officially expired on Saturday, April 6.
Conflict of Interest Issues
Despite the fact that a record number of television programs are being produced, wages for writers have been stagnating and, in some cases, decreasing. The conflict between the WGA and ATA primarily comes down to two issues that the WGA contends create inherent conflicts of interest in agents’ negotiations with studios and producers, resulting in worse deals for writers.
The first issue is the agencies’ practice of collecting packaging fees that come directly from studios, instead of being paid a percentage of their clients’ earnings. At the most basic level, packaging is a practice in which an agency gathers a number of their clients to fill the creative roles in a project and sells this “package” to a studio to produce the project. The issue arises where, instead of the agencies getting paid the standard 10% commission from each client, the studios pay the agencies directly. For television programs that are sold in packages, studios will pay agencies 3% of the network license fee, 3% deferred net profits, and 10% of gross profits, creating a situation where agents could potentially make more money from packaged shows than their clients do. Agents maintain that this system benefits their clients by saving them the 10% commission and giving them preferred access to jobs. The WGA argues that where the agent’s finances are not tied to their client’s financial gains, they do not have the incentive to aggressively advocate for their clients. When agents focus on their profit-sharing deals with studios, they are forgoing their fiduciary duties to their clients, becoming more interested in the success of the show than how much their clients are being paid.
Second, the WGA is seeking to ban agencies from working with affiliate production companies. As the four biggest agencies have grown in size, they have taken investments from private equity firms, and have developed affiliate entities that produce content. The WGA contends that this creates an inherent conflict of interest, and the agencies that are supposed to be focused on getting the best deal for their clients are negotiating against an entity that is owned by the same parent company. As the President of the WGA West explained, “If your agent is your employer, you don’t have an agent.”
While the ATA has argued that these practices do not present inherent conflicts of interest, the WGA has documented numerous stories of agents prioritizing their own financial gains over the best interests of their clients.
After the expiration of the WGA-ATA agreement, the WGA instituted a Code of Conduct for agents, which was approved by an overwhelming majority of its members. The Code of Conduct requires that agents give up the use of packaging fees and sever ties with their affiliate production companies. WGA members were instructed to fire any agents who chose not to sign on. While a number of smaller agencies have signed on to the Code of Conduct, the WGA estimates that 92% of their members have fired their agents.
In response to the failure to negotiate an agreement, the WGA has brought a lawsuit on behalf of the Guild and eight individual writers against the four biggest talent agencies.
The lawsuit’s first cause of action claims that agencies violated their fiduciary duties by placing their interests above the interests of their clients and increasing their profits at the expense of their clients’ profits, breaching the duty of loyalty. Additionally, the lawsuit claims that packaging fees constitute a violation of the California Unfair Competition Law in three respects. First, they are an unlawful and unfair practice because they are a breach of the agencies’ fiduciary duties to their clients. Second, packaging fees are an unfair practice because they deprive writers of loyal and conflict free representation by their agency, they divert compensation away from writers, and they undermine the market for writers’ work. Finally, they claim that packaging fees are unlawful because they violate Section 302 of the federal Labor-Management Relations Act (LMRA), which makes it unlawful for any employer to “pay, lend, or deliver…any money or other thing of value … to any representative of any of his employees who are employed in an industry affecting commerce.” The WGA argues that packaging fee agreements paid by production companies to agents would be prohibited by LMRA Section 302, and they therefore constitute an unlawful business practice under California’s Unfair Competition Law.
The suit requests that the court declare that packaging fees constitute a breach of agencies’ fiduciary duties and constitute an unfair or unlawful practice under the California Unfair Competition Law, as well as enjoining agencies from entering into packaging fee arrangements that involve WGA members they represent, and providing disgorgements and restitute for packaging fees that agencies previously received.
The agencies have not yet filed their response, but they will likely raise a number of defenses and counterclaims, including that the Unfair Competition Law claims related to the LMRA should be brought in Federal Court.
While there is still potential that the two sides will come to an agreement, any resolution ultimately seems far off. The last time they met to negotiate, the ATA offered the WGA one percent of the packaging fees they collected, which the WGA stated was “not a serious proposal.” WGA members have become highly mobilized, and there are threats of another writers strike going into their negotiations with studios and producers next year. Additionally, the Directors Guild of America and the Screen Actors Guild have expressed their support for the WGA, suggesting that they might follow the WGA’s example in their conflict with agencies. No matter how this conflict is resolved, it will likely have significant repercussions throughout the film and television industry.