When agents act like producers, they want to get compensated as such, either by capturing producer-like fees, called packaging fees, or by owning content through a sister company, referred to as affiliate production.
The Writers Guild of America objects to both of these practices as conflicts of interest and for other reasons. But what are packages, package fees and affiliate production? Let’s take it step by step.
What is a television package?
The key elements of a TV series — a showrunner, a pilot script and perhaps a star or director — are "packaged" by an agency (or two or more, called a "shared package") and offered to a TV studio. The Writers Guild says 87 percent of scripted series in 2016-17 were packaged: 79 percent of those involved WME or CAA; and UTA and ICM were also significant players.
What are package fees?
Agencies are paid three-part fees (called "3/3/10") by the studio instead of commissioning their clients. The package fee model dates back more than 50 years, although the percentages have changed.
How are they 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.
Why do the top agencies love packaging fees?
Because successful shows can be highly profitable, even if few and far between. Plus, package fees are a durable asset that pays in perpetuity even if the client leaves the show or the agency. That pleases agency owners and investors (who also especially love affiliate production, see below). And agents say that many clients are happier because they like not having to pay commissions.
Then why do the Writers Guild and many writers object to package fees?
If agents aren't commissioned, the WGA says they have no incentive to negotiate for higher writer salaries. The guild also argues that agents being paid by their clients' employers is a conflict of interest — and that agents sometimes make more than their clients. Agencies counter that they never make more than their most highly compensated client on a show and that clients should have an informed choice as to whether to pay commissions or have their project packaged.
What would happen if package fees disappear?
Existing packaged shows would continue to generate package fees, but clients on new shows would instead pay 10 percent commissions.
Isn't that a 10 percent talent pay cut?
It depends on what happens to the money that the studios would longer be paying out in packaging fees. They could keep some as additional profits, put some on the screen, use some to hire in-house development or producing staff to do what packaging agents used to do, pay some to showrunners and/or pay some to staff writers. The WGA says that agents would be incentivized and able to extract enough for talent to more than make up for the 10 percent “pay cut,” while agencies disagree. That 10 percent pay cut could hit low- and mid-income writers harder than the top earners, since it would eat into money that low- and mid-income writers depend on for necessities, not luxuries.
It’s also possible that showrunners would capture a sufficient share of the windfall (the money that studios would not be paying in package fees) and be better off, but staff writers, lacking leverage, would not. That would be a double whammy for staff writers.
On the other hand, though, in collective bargaining negotiations next year, the WGA might try to extract some of the money from the studios, in the form of an extra increase for low and mid-level TV writers. If they were successful at this, staff writers might indeed benefit from the elimination of packaging fees, but whether they would be successful is unknown.
The bottom line: Nobody really knows who would gain and who would lose from the elimination of packaging fees, as neither side has presented hard evidence and it’s not even clear how one could. A UTA study of over 33,000 recent television episodes found that writers earned about 16 percent more per episode on packaged show than on shows on which UTA did not have a package, but that study did not consider the possibility that a portion of the back end might be extracted for writers on successful shows, or industry-wide in the form of additional basic wage increases.
What about feature film packaging?
Agents are involved in putting together independent films — over 1,000 such films in the last five years, according to the Association of Talent Agents. The WGA initially proposed to prohibit this activity too, but has proposed a compromise that would allow agents to engage in financing and sales of some independent films. Film packaging is tightly bound up with film financing — a financeable package typically includes a script, director and star — but is not addressed in the guild’s proposal.
What is affiliate production?
Urged on by private equity investors, Endeavor/WME, CAA and UTA have set up affiliated entities (Endeavor Content, wiip and Civic Center Media, respectively) in the last few years that act much like production companies. The agencies laud these as additional buyers in a consolidating marketplace and note that they offer showrunners better deals than traditional studios. The WGA objects that those deals are loss leaders that won’t last — and that having your agent’s affiliate as your boss is an untenable conflict of interest.
A version of this story first appeared in the April 3 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.