"Agencies should not be a boss to clients,” says one writer as WME and CAA lead a rush into producing and owning stakes in film and TV shows, a practice they say helps create opportunities but the Writers Guild believes raises potential conflict issues.
When Beau Willimon was looking for one last investor to come on board his new Sean Penn Hulu space drama The First, he wanted a company willing to provide cash and help handle sales without stepping on his creative control. It might sound as idealistic as actually inhabiting Mars. And yet, when such a deal materialized, there was something unusual and, to some, even a bit controversial about the investor: Endeavor Content, a sister company of talent agency WME.
As the industry moves from star-driven vehicles toward an IP-dominated marketplace, it's likely that the winners and losers of the Peak TV era will largely be determined by who owns what. It's thus little wonder that broadcast networks are increasingly linking up with their sister studios to own everything that airs in their time slots and that global streamers are inking nine-figure mega-deals to essentially own the productive imaginations of some of Hollywood's top creators, including Shonda Rhimes, Ryan Murphy and Kenya Barris. Now into this mix come the agencies, eager not to get left out as a New Hollywood is divvied up. No longer satisfied to stay solely in the representation business (though they might dispute this), they are becoming media companies themselves, sparking a debate over who gains from their entree into production: Are these firms self-dealing monsters who will screw over their own clients? Or are they Robin Hood, fighting to keep IP ownership in the hands of the artists they rep? That, of course, depends on whom you ask.
The Writers Guild has maintained it's the former, this spring convening a series of informational sessions to drum up support among its members and seeking to dissolve the 42-year-old franchise agreement, which governs the relationship between writers and agents. Now the agencies have responded, claiming their new strategy is actually about seeking both creative and financial power for their clients and that the benefit to themselves and their affiliates will happen alongside, not in front of, the talent. As Exhibit A, Endeavor Content touts The First. For one, it points out, there's no conflict of interest because Willimon is repped by rival agency CAA. And as co-financiers with Hulu and the U.K.'s Channel 4, Endeavor has only a minority interest in The First, with the series mostly owned by Willimon. (That a creator retains primary ownership of content, rather than selling for backend participation, is rare nowadays.)
As studios consolidate or get acquired by telecom conglomerates and as deep-pocketed Silicon Valley streamers flex their muscles, the agencies say they have to grow just to stand their ground, let alone make headway for their clients.
"We saw years back that the existing finance and sales tools available in the marketplace weren't giving the best share, the best control and the best financial model to creators and producers," says Endeavor Content co-president Chris Rice. "And that trend seemed even more challenged in a world of mega-consolidation and global SVOD expansion."
Endeavor Content, which was formed in October from the combination of WME and sister company IMG's finance and sales groups, still counts raising financing and handling sales as its bread and butter, but it takes an ownership stake in about a quarter of its projects. (In the majority of those cases, that stake is 20 percent or less.) In addition, Endeavor Content has made an investment in the company of producer Bruna Papandrea and launched a joint venture with Peter Chernin, both WME clients. Meanwhile, IMG continues to invest in nonscripted projects like Steve Harvey's syndicated talk show Steve.
The only other agency to have embarked on a significant transformation into a diversified media company is CAA, which in December 2016 tapped former ABC president Paul Lee to set up a TV studio called wiip (it stands for "word, idea, imagination, production"; the agency would not disclose the size of its stake). UTA also has signaled its intent to become a content owner and will use part of its recent $200 million private equity infusion to fund the expansion of its nascent content business, which at present is a stake in American Idol producer Industrial Media (formerly Core Media Group).
But many in Hollywood are suspicious of or outright opposed to agencies getting into the ownership game — none more so than the very faction they are charged to represent. THR reached out to more than two dozen showrunners and experienced writers, and many expressed apprehension about agents producing. "The headline is that it's bad for creators," declares The Good Fight co-creator Robert King, who, notably, is a client of Paradigm, one of the agencies not moving into ownership (yet). "This is a black-and- white situation where agencies should not be a boss to clients." Even some agents are puzzled: "Who are you representing? Do you have [the writer's] back or your back?" says Verve co-founder and partner Bryan Besser. "How do you have both backs?"
In this spring's guild-convened meetings with writers about the issue, members seemed alarmed. "When they laid out the facts, it did look like a serious issue," says one showrunner who was there but asked to remain anonymous. "It became a very big topic of conversation among the upper-tier writer set."
In April, the guild sent a letter to the Association of Talent Agents detailing its demanded changes to the franchise agreement and triggering a 12-month countdown to termination of the contract should they not be met. The ATA has asked to meet with the guild, to no avail. "We look forward to hearing back from the WGA and rolling up our sleeves to ensure writers can continue to thrive in the midst of this upheaval," says ATA president Karen Stuart. The WGA would not comment, nor would Willimon, who is the WGA East president.
Many writers were reluctant to speak on the record. "The writer-agent relationship is a strange one — they work for us, but it feels like the opposite, because you don't get work until they call. CAA isn't going to quake in its boots because one client spoke out," says a veteran television writer who requested anonymity. "We're concerned about being known as troublemakers [to our agencies]."
Some of the complaints related to conflicts of interest can be traced to lingering resentment over packaging fees, a decades-old practice that has grown into a huge business at all the large agencies but one that the WGA is seeking to drag back to the negotiating table.
"WME is so big now, with its tentacles in everything, and behind a lot of the problems that the guild has with packaging," says the showrunner. "That's led to a lot of issues. It's a serious problem when you can only work with the people who happen to be signed at your own agency. You can't trust that your agent is protecting you versus protecting the package. Add to that literally producing a project, and who knows?"
The agencies insist that their affiliated content companies operate independently from the talent arms and with separate business affairs departments. Additionally, "we will not conclude a deal with somebody at WME without outside counsel being involved," says Endeavor Content co-president Graham Taylor. Adds a partner at another agency, "There's independent management that runs those businesses." But at the end of the day, all their paychecks come from one parent company, and that fact is enough for detractors to be opposed.
Some writers don't trust their reps to even make them aware of potential conflicts of interest. One writer with whom THR spoke expressed uncertainty as to whether he'd ever worked on a project that an agency had a stake in. The reps swear to the transparency of the process. "We take it upon ourselves [to disclose financial interest in a production entity]," says the agency partner, "whether there's a technical obligation or not."
Suspicion also remains that agencies give preferential consideration to their affiliated entities. In 2015, Michael Moore's Where to Invade Next became the first film financed by Endeavor, then known as WME-IMG. The distinction was noted on the documentary's title card when it premiered at the Toronto International Film Festival. At the time, the agency downplayed its role, perhaps anticipating a host of questions about a potential conflict of interest, since it also was selling the film rights. The dealmaking was slow and disappointing, according to sources. And last summer, Endeavor bought foreign sales company Bloom and now, rivals complain, funnels features to that company more than other outfits.
"It's a dangerous game if you're not taking it out to the market and laying out the other options," says one top agent at a competitor. "At the end of the day, you're supposed to deliver the best possible deal to your client. If [Endeavor Content] is the best possible deal, then it shouldn't be a problem. Where you're hearing a lot of complaints is they are taking movies off the market without exploring other options."
But self-dealing isn't happening, say the reps. For example, WME client Papandrea's Made Up Stories is partnering with CAA's wiip for the dark comedy Queen America, which Facebook has ordered to series.
"It's more players in the market and more people we can get money from for our clients," says Gersh partner Jay Cohen, who runs film finance and global packaging for the agency. "Would it [be] nice if we had an ownership stake? I guess so, but then this agency has to be able to take the risk to do that." Gersh and other smaller firms like APA lack the scope to become buyers themselves and are OK with focusing on the core representation business, as is the larger ICM Partners, whose content ownership begins and ends with the Just for Laughs comedy festival, which it acquired this year.
Talent representation remains priority No. 1 at CAA and WME as well, reps at those agencies insist. "It would be stupid for us to cross the line with the number of writer clients we have, because the risk to our underlying business is substantial," says the agency partner. "There is zero chance we don't take that seriously."
Agencies say they remain mystified as to why the WGA is beating up on them when talent management firms — an adjacent business — have been free to produce and own content for decades. After all, the guild isn't making an example of Anonymous Content and 3 Arts Entertainment, both of which actively manage talent and produce their clients' shows, and didn't object when Lionsgate bought the latter in May.
"The WGA is trying to put us on the other side when in fact we have always been on their side," says UTA CEO Jeremy Zimmer. "They are so busy trying to take us out of the picture that they are losing their most powerful advocates."
When agencies bring money to the table, they have the opportunity to own a portion (or all) of the show — and, claim reps, they are more creator-friendly than the studios. "[Agency productions offer] more transparency and fewer bullshit costs — you're not gonna be paying Les Moonves' $80 million a year," says a senior agency source.
The studios dispute that characterization. "Yes, it's true [agency entities] can be smaller and more nimble and that Amazon, Apple and Netflix, in particular, would rather pitches come through the door without a big studio attached," admits one top studio exec. "But we bring a huge infrastructure and a depth of experience. Wouldn't you rather be at a place where people know what they're doing? I'd challenge any of these companies to demonstrate that they've actually produced a hit. Ownership is not valuable if your show isn't profitable."
Of course, agencies aren't investing in their clients' content out of charity. Packaging fees have declined as studios lowball "imputed license fees" from their sister networks and streamers lock up global rights for long terms. And diversification is necessary for agencies backed by private equity pushing them to go public (Silver Lake Partners and TPG Capital are majority owners of Endeavor and CAA, respectively).
In preparing for an IPO, copyrights or ownership stakes are seen as stronger assets than income streams from clients who could walk out the door at any time. Notes analyst Hal Vogel, "It's not like you're sitting on a gold mine or a diamond mine and it's yours forever and ever. No, [talent] moves around." Hence, the rush to engage in a less transient business.
"I understand why agencies are doing it," says one rep. "An agency is limited. There's no guarantee how many movies Tom Cruise is going to make. He could leave or get hit by a bus, and then you lose that income. The only guarantee of making money is to become a content company and start owning the content your clients are in."
King says that in guild meetings, writers have been passionate in their opposition to the trend, and he believes there is enough leverage on their side to stem the tide. "The client has the power," the showrunner says. "If they feel that their agency has a split agenda and walk out the door, suddenly the agency has to get out of the producing business."
That's exactly the argument that the agencies are making, pointing out that there has yet to be any mass exodus over the issue. "If there's a true conflict of interest and the client is getting a lesser deal, the client is going to leave and end up at a different agency," says Gersh's Cohen.
Some observers question the guild's endgame: Will writers really leave their agents, who procure work, simply at the WGA's command? If not, what is the guild's leverage? Some might point to federal antitrust law, which forced Lew Wasserman's MCA/Universal to divest its talent agency business in the early 1960s, but the law is more permissive today (see the AT&T-TimeWarner deal), and agency content companies aren't as dominant as Wasserman's giant was.
The guild could also seek to restrict the agencies via California's Talent Agencies Act, which prohibits them from referring clients to services from any "corporation in which the talent agency has a direct or indirect financial interest." Should the guild take this approach, however, the agencies will certainly lobby their cause — Endeavor has formed a PAC, and all the major firms regularly interface with politicians.
Ultimately, says an entertainment attorney, "As an industry matter, we should be promoting new entrants, because that generates jobs. I don't understand why the WGA would be so violently against another production company. Are the deals better? If not, they're wasting everyone's time."
The agencies note that no one has yet to come forward with an example of creators being disadvantaged by their in-house production entities — though the practice is still so relatively new that there aren't case studies accounting for years of financial returns to compare.
And the stakes have yet to be determined. Analyst Vogel doubts that even the biggest agencies have enough capital to significantly compete with the legacy studios and streamers: "If Amazon is spending $4 billion, Netflix $8 billion and Apple $3 billion, then a cheap seat is a billion dollars. You have a billion dollars to spare as a talent agency?"
Even so, the agencies believe they offer an important alternative. "The structure of the deals at Netflix had the potential of getting cemented, with less negotiation around backend participations," says the agency partner. "The more competitors in the marketplace, the less likely a particular buyer, no matter its size, can [exert] control."
Several agents suggest that their companies are simply being scapegoated by a beaten-down guild, whose average member is earning less as a result of shrinking episode orders and limited residuals. Having been put on the defensive by previous industry shifts that left writers at a disadvantage — think streaming royalties — the guild may be eager to avoid a similar mistake here. However, given the gargantuan industry forces at play, resisting agency-owned content might prove to be raging against the new norm.
Additional reporting by Lacey Rose and Tatiana Siegel.
This story first appeared in the Sept. 12 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.