Why Agencies Fight for Package Fees Even as Streaming Diminishes Their Value

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“Agencies are not going to not [package projects] just because the profit margin is less,” entertainment lawyer David Chidekel says

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As the Writers Guild of America and Hollywood’s biggest talent agencies approach the one-year mark of their protracted battle over the practice of packaging fees, several entertainment lawyers spoke with TheWrap about why the fight continues despite the proliferation of streaming and the disruption it’s had on Hollywood. Packaging fees — those collected in return for an agency bundling on-screen talent, writers and a director into a project on behalf of a studio or network — were once a highly profitable business model for agencies when they landed a successful show. Success typically meant syndication. That’s no longer the case. The likes of Netflix, Amazon and Hulu have gained influence, giving way to the recent entrance of Disney+ and Apple TV+; and Peacock, HBO Max and Quibi are soon to follow. Streaming has changed the relevance and value of packaging fees in Hollywood, disrupting the traditional business model and expanding the lifespan of film and TV shows. “The things we’re talking about are very esoteric: What’s the future of repping talent? How do you do that while also making the most money?” David Chidekel, an entertainment lawyer and partner at Early Sullivan Wright Gizer & McRae, said. “Without an agent packaging a lot of these projects, they wouldn’t exist.” The WGA, however, has argued that packaging fees are a conflict of interest, as agencies work on projects on behalf of both a studio or network and writers. That, union leaders say, has held back writer pay for decades. The guild is looking for a federal ruling declaring packaging fees are a violation of labor law by serving as an illegal kickback payment from an employer to a representative of an employee. The novel coronavirus pandemic has brought Hollywood to a near standstill. The direct impact on the WGA’s dispute with agencies is unclear — other than an anticipated federal trial. The WGA also is gearing up for negotiations with the Alliance of Motion Picture and Television Producers. Union leaders are requiring that studios only negotiate with agencies that have reached an agreement with the guild. Those negotiations though have been put on hold amid the outbreak. Paradigm earlier this week became the first major talent agency to break ranks and sign a new franchise agreement with the WGA. CAA, WME, UTA and ICM have held firm. Chidekel says the role of an agent remains an integral part of the process. “If you rep a creative person, and they can’t get their product to market, what’s the point?” he said. “Whoever brings the product to market should absolutely be compensated. That’s what’s most important.” The advent of streaming has led companies like Netflix to pay a lot of costs up front, taking away from the killing that used to be made on a show in syndication, which was once one of the milestones that often made packaging fees valuable. Prior to packaging fees, agencies billed a standard 10% fee from clients. When agencies package projects they generally receive a 3% base license fee on a per-episode basis, then another 3% fee typically comes out of net profits, though it’s rare for a show to hit profitability. On top of that, agencies charge up to a 10% fee based on an adjusted form of revenue that usually ends up being zero, unless a show runs multiple seasons or gets sold into syndication. Syndication, when it was a valuable marker, typically came after four years on the air or 100 episodes. Shows rarely have 20+ episode seasons anymore, especially on streaming, and Netflix has been a strong case study in how shows can struggle to make it to four seasons if they fail to capture a large enough audience in a time where there’s so much content vying for eyeballs. Networks now have a place they own where they can house the content they produce, and on streaming platforms, having a substantial and quality library is crucial. The industry has even matured greatly from a few years ago when companies were making money hand over fist licensing content to the likes of Netflix. That’s not a sustainable model anymore. The ways in which the industry has evolved over the last five to 10 years have substantially changed the business. “Nobody is really benefiting anymore, except for the streamer,” said Elsa Ramo, managing partner of Ramo Law PC. “The upside [to packaging fees] is extremely diminished, and we’re living in an era where it’s more about new content over content that endures…The economics and structure of how these shows are sold might change again in the next two to three years. We don’t know.” The WGA has said that 87% of the scripted series in 2016-2017 was packaged, with 79% of those coming from WME or CAA. UTA and ICM were also active participants, according to the guild. The WGA stalemate with the Association of Talent Agents, which represents the major agencies, caused a wave of uncertainty to run amuck in the industry as everyone questioned what a Hollywood without agents repping writers would look like. While there was certainly reason to panic, the industry has managed to keep chugging along, with support communities popping on social media to help get writers staffed, and as the WGA has been able to sign deals with some smaller agencies that would see them ultimately abandon packaging fees. Though the economics has clearly been an issue in the industry for years, Ramo said that packaging in and of itself has actually proven to be beneficial for the industry at large. If agents are putting together packages, they should be entitled to a fee, Chidekel added. The question is what that would look like because, “it doesn’t really work for anybody,” he said. As the industry has shifted, agencies have looked for more ways to diversify and add additional revenue streams to their businesses. One of Hollywood’s premiere examples has been Endeavor, the parent company of WME that abandoned its planned initial public offering last year. The entertainment company scooped up glitzy assets, such as UFC and IMG, as it diversified away from simply being a talent agency. “At the end of the day, they’re fighting over the money. It’s kind of a broken system,” Chidekel said. “The agencies are not going to not [package projects] just because the profit margin is less.”