Most Important Story of the Week and Other Good Reads – 5 April 2019: #WGAxit

I’ve been distracted from one part of the entertainment world (the filmed part) because of my deep dive into another (the sports part). But we had BIG news this week. Big enougth to deserve my use of the caps lock key. That’s right, the writers (specifically, the WGA, the Writer’s Guild of America) voted to end package fees. (Technically, to leave agents who accept package fees.)

This is so complicated that one column can’t cover it all, but let’s do what we can while the clock ticks. (The agreement expires on Sunday.)

Most Important Story – The WGA Votes to End Package Fees

Here’s a question that I’ll hopefully explain in detail next week:

How do agents fit in the “filmed entertainment value chain”?

I ask because it is tough. Talent makes shows, that are paid for by studios, who sell them to networks or streamers, who get customers to pay them. So maybe agents are talent? Or related to that? But they don’t actually provide any talent to the actual product, do they? More like they sit between talent and studios. And collect 10% of paychecks for that privilege.

So what is it that agent’s do?

Let’s try to explain it in two ways, charitably and uncharitably. When we’re done with that, we’ll probably have our answer. And I’m not going to focus on just package fees here, but the very idea of having an agent in the first place. (The best package fees explainer is this WGA–so admittedly self-interested–video.)

Charitable Explanation

An agent adds value by finding more work that pays more for the talent. First, they find additional projects for the writer to work on. This increases the number of projects the writer gets paid for. Once they are working, an agent negotiates the payment of the writer, and since they take 10% of the writer’s paycheck, they are incentivized to maximize the writer’s salary. Second, the agent maximizes the pay of a writer by negotiating for the highest possible amount on the projects they do get.

The problem with that explanation is a couple fold. First, do agents find more work for their clients? One of the big complaints with the bulk of the writer members of the WGA is that they tend to use personal networking to get future jobs. Moreover, writers really only work on one TV show at a time. So it is unclear if agents actually do increase the number of jobs. There are also plenty of horror stories from writers where  agents slow played projects that were less financially valuable for the agency as a whole. And do they really negotiate higher payments? Especially for junior writer getting paid guild minimum? The word “minimum” implies…no?

This leads us to the uncharitable explanation.

Uncharitable Explanation

In Hollywood, every writer has an agent. In fact, studios tend to only hire writers with agents. The agents have positioned themselves as gatekeepers to getting access to this extremely walled garden of movie and TV studios. By creating a role for themselves as gatekeepers, they can extract extremely high rents–so they are rentseekers–on people trying to work in Hollywood. (Their currency is top talent. If studios try to go around the agents, the agents will threaten to withhold top talent.)

Consolidation has only increased the size of the walls and the fees to get past the gatekeepers. The agencies have merged into a few super agencies, which work to block out other agencies trying to get into the space. Or they acquire those they can’t block. The biggest agencies have almost all the major talent, so the studios have to work with them.

Which is Right? Neither and Both.

Likely, neither the uncharitable or charitable view is completely true. Or they are both true simultaneously. Agents can help increase the value of certain writers–especially say the top 10% of writers, the showrunners–but are probably extracting value from the middle and lower level writers. Package fees make this whole situation worse, as agents become de facto producers.

(By the way, I’ve punted on the agency’s “costs” issue for today. I’d love to know how a job that can essentially be done from home demands high costs. But I’ll stipulate that for today.)

Unfortunately, US antitrust law is so weak from decades of being hollowed out that it can’t do anything about the fact that agencies are consolidating and/or gatekeeprs. Sure, agents may be rentseekers, but how does that hurt “consumers” in the “consumer welfare standard”? Since prices likely stay the same–writers are just poorer for it–the US Department of Justice spends its time fighting…AMPAS?

(Wait, that has to be a typo. Nope, it’s real. How could the DoJ go after an awards show? Sadly, this is our state of antitrust law.)

Does this situation make for good movies?

Let’s tie this back to my literal first article on this website: “Why does Hollywood Make Bad Movies?” (And maybe my theme of the week since I talked about “misaligned incentives” and the Pac 12 yesterday.)

If you talk to a fantastic chef, they’ll always tell you great food starts with great ingredients. So if development execs or producers are the chefs, well talent is their ingredients. But development executives don’t really pick ingredients anymore. Here’s the best quote from The Ankler two weeks ago:

In private, [writers have] put it to me that not only is this the way the system has evolved and become a fact on the ground but that it reflects what the agencies actually do at this point. As they put it, the studios have basically withdrawn from the work of developing a show, leaving it to the agencies to turn a concept into a more or less ready to go package, if you want to sell it and get it on the air, that is.

Sadly, this matches my experience. A lot of development teams have outsourced talent acquisition–in the writer, actor, director sense–to the agencies. Many development execs wouldn’t know what to do if agents didn’t send them lists of people to hire. The problem is the incentives of the studio–make great films–isn’t actually aligned with the agencies–maximize salaries for current talent. The agencies have some incentive to make great films–it leads to better paychecks–but only obliquely. Mostly they just want people to get hired and they’ll blame failure on the writers if they rep the actors, actors if they rep the writers, the director if they rep actors or writers or if all else fails, the marketing. If most studios wanted to improve the quality of their movies and TV shows, relying less on agents and finding innovative ways to do identify great talent–which will cost time and money, admittedly–would be my first recommendation.

Listen, I don’t mean to come down on the entire agent/manager system. (Managers are a part of this even if this issue doesn’t address them immediately.) And agents were an improvement over the old studio system, which treated talent incredibly poorly. But just because the current system is better than the old one doesn’t mean we can’t make it better.

Good Reads on WGAxit

Want more WGAxit explanations and thoughts? I have you covered.

The Ankler – Richard Rushfield from two weeks ago covers tons of ground. I’d point out two great ideas in particular. First, California and federal laws prohibit a lot of the current behavior by agents. But since agents donate tons of money to politicians, the regulators don’t do anything. Second, he paints a nightmare where only four entertainment buyers exist in the future. This is the worst case. If you want everyone to get paid better and prices to go down, encourage competition. If you back big business and consolidation, well expect worse shows for more costs as everyone gets paid less.

Variety – And once we’re through with this current fight, we’ll move to a renegotiation of the WGA with the major studios, which probably will include even more digital players. Good read by Cynthia Littleton on what that could look like.

Deadline – Has the best summary of the plans of the WGA going back to last year.

ICYMI – The Entertainment Strategy Guy is Everywhere!

Even as social traffic is increasingly important for traffic to websites, old fashioned “guest posts” have really helped my site this week. So I have been incredibly grateful to Decider and Athletic Director U for letting my write for their two websites under my pseudonym.

First, I had two articles up at Decider since I last shouted myself out.

Why Did Hulu Lower Their Price to $5.99?

Six Crazy Theories about Apple

Which features my favorite art of all time:

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Second, I dug into the Pac 12 for Athletics Director U. I think the Pac 12 is a delightful case study in how to optimize an asset, in this case media rights. The Pac 12 bet on themselves to launch their own network with no strategic partners. Well I dug into that decision, with numbers, and the time value of money, net present value, back of the envelope, top down, a director’s commentary and finally my opinion on it, which is the Chancellors and ADs need a second opinion.

Other Contenders for Most Important Story – The Record Industry is Back

Well back to 2007 levels. I saw this new in the Bloomberg Hollywood Torrent news letter that IFPI–a recorded music trade group–survey of the global music industry said revenues have finally* passed the 2007 revenue total.

Screen Shot 2019-04-05 at 4.17.01 PM

That reminded me of this image from Professor Derek Lompare from a few months back showing the rise in music revenue for the US using data from the RIAA:

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The more fun statistic, though, wouldn’t be total revenue but the total going to artists. That’s really the fuel that allows creative production. (More money means more artists.) Has it rebounded at the same rate, or due to low pay outs, have the revenue been captured by music streamers like Pandora or Spotify or Apple/Amazon/Google? I honestly don’t know, but that would be fascinating to find out.

(Also, is video headed this way? Netflix has crushed the price of streaming way below market rates. If it stays that low, you have to wonder.)

* I say finally, because if you factor in either inflation or the cost of capital, well then we’re way far back in the past. Because the time value of money. (Here’s my first explainer on time value of money and Star Wars.)

Lots of News with No News – CinemaCon Edition

Was the biggest news out of CinemaCon that there is now bacon-flavored popcorn or Cheeto-flavored popcorn?

You’re right, I can’t decide. (HT to The Ankler and Variety for assist on previous joke.) Still, reading the news coverage, I didn’t see any real “news” that was broken. People are worried about the future of theaters–as they have the last few years–and debating which Disney film will win the box office–as they have the last few years. But CinemaCon does usually provide a good opportunity for self-reflection. Exhibit A: This Variety article on the struggles of indie theaters.

EntStrategyGuy Update – Double Bloomberg Updates

Youtube’s Overwhelming Quest for Engagement

We’re running long again so I’ll go quick. Bloomberg went in-depth on the pressures Youtube felt to keep its videos “engaging” customers, even as that often meant more extreme and radicalizing content. (Toxic, in Bloomberg’s words.)

Netflix for Games: Thus enter microsoft

As everyone makes a “Netflix for Games”, as I wrote about two weeks back, Bloomberg’s Gerrit De Vynck makes the case that Microsoft, since it is both cloud computing technology company and a video game company already, has the best positioning in this new field. We shall see, but a good read.

Long Read of the Week – Should Target Acquire Philo by All Your Screens

To finish, I enjoyed this read from All Your Screens Rick with his “Saturday Speculation”. Could Target–in its bid to compete with Amazon and Walmart–enter the original content business? He offers up Philo–a free, ad-supported, streamer–as an option. Seeing consolidation across industries, I wouldn’t bet against him in the longer term strategy of Target starting video. Though, as I wrote before, I don’t think retailers will make as much money in entertainment as their models suggest. (Hat tip to TV AnswerMan for bringing it to my attention.)

  1. […] and last week, I mentioned value chains with agents! So if I see value chains all over the place, and they need explaining, well, I’ll help […]

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  2. […] to 92% of writers have fired their agents. My initial take is that this is remarkable solidarity. (And I wrote about the agents vs WGA here.) It also subverts the idea that writers need agents to find work. I keep reading/hearing stories […]

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