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Morris holding line at 5

Mar 11, 2002  •  Post A Comment

Striking at one of the most sensitive issues of the talent business as the pilot season goes into production, The Walt Disney’s Co.’s ABC/Touchstone Television production unit has been pushing to reduce William Morris’ standard 5 percent commission structure for “packaging” television series.
It comes at a time when the 104-year-old William Morris Agency has been ardently adhering to its more than 40-year-old “gold standard” 5 percent series packaging fee, while other agencies, including International Creative Management, Creative Artists Agency, United Talent Agency and Endeavor Talent Agency-seeking to gain a foothold in the business-have been taking 3 percent series packaging commissions over the past 25-plus years.
“Since the dinosaurs roamed the Earth,” is the way a leading business affairs executive at one of the major Hollywood studios described William Morris’ long-standing 5 percent commission status. The agency “is under a lot of pressure, like any other company in the entertainment business, to be flexible and rethink how they do business,”
added this executive. “However, William Morris is the only agency with a 5 percent commission, but they’re no different in terms of what the other four major agencies bring to the table on series.”
The agency, which brought over the British series “Who Wants to Be a Millionaire” to ABC, still has a handful of pilots currently parked on Disney’s lot. While various Hollywood sources said William Morris has not backed down on its
5 percent packaging definition, indications are that the storied agency may extend various percentage deferrals. The practice of taking deferred commissions, widespread in the agency business, would allow William Morris to maintain its 5 percent fee, but also provide flexibility by delaying some commission payments two or more years into a show’s network run.
“To be fair, I think the agencies have always been willing to address the concerns of the studio,” said a non-Disney rival studio executive, who requested anonymity. “In these more difficult times, they will be more accommodating. William Morris would rather bend their rules than break the rules entirely to keep their long-standing precedent in place.”
Off the record
The subject of lowering William Morris’ packaging commissions, first reported by Daily Variety, has most Hollywood studio and agency executives typically talking off the record. Given that WMA and the other agencies bring many “elements” to a series project-such as writer/producers, directors, stars and foreign and domestic co-production and distribution partners-they often enter complicated “split packages” that allow them to divide the packaging commission in a variety of percentage allocations.
“It really depends on the client and the market, but if [William Morris] has that 800-pound client/producer gorilla, they’re going to get their 5 percent commission,” said a rival agency packager. “If they have mid-level talent, they’re possibly going to accept less on a deferred basis, and they’ll put it in splits under the other agency’s definitions, but they still say they’re not taking less than their 5 percent definition. I’m hoping they don’t give up ground, because it only gives the studios precedent to try to shrink our commissions.”
The percentages agencies take on a front-end deal may not sound huge, but studio executives suggest that William Morris’ 5 percent packaging commission-based on the per-episode license fee the broadcast network agrees to pay for a series-can translate to millions of dollars, especially if the show is renegotiated for a much higher fee beyond its initial four-year run.
For instance, one studio executive pointed out that William Morris’ 5 percent packaging definition translated to up to $30 million in commission revenue during the course of hit “The Cosby Show’s” eight-year run (1984-92) on NBC.
A more recent example has William Morris and Creative Artists Agency each getting a 2.5 percent packaging commission for the HBO Independent Productions/Worldwide Pants CBS hit, “Everybody Loves Raymond.” The split packaging deal, based on William Morris’
5 percent definition, is estimated by studio sources to translate to $125,000 per episode in commissions (or $2.75 million annually) for each agency derived from the roughly $5 million-plus per-episode license fee CBS is currently estimated to be paying.
Nevertheless, outside of the front-end packaging commissions, there is a much larger potential revenue bounty for a series that secures a run of four or more years on the broadcast networks and enters the highly lucrative off-network syndication or cable network markets.
In the often Byzantine and secretive world of Hollywood studio accounting, the talent agencies’ front-end packaging commissions are augmented by two other revenue streams from initial four-year and renegotiated long-term licensing deals on series. After the 3 percent
to 5 percent packaging fee-derived from a show’s license fee to the networks-the talent agencies also participate in getting 3 percent to 5 percent of the difficult-to-define “deferred net profits” and another 5 percent to 10 percent of back-end (off-network) syndication revenue.
Among the Hollywood studio business affairs types, William Morris’ package is defined by a long-standing “5-5-5” multiple-revenue stream breakdown. The other agencies in Tinseltown, they said, are typically defined under “3-3-10” packages. However, when a package is split between two or more talent agencies, the percentages can take a wide variety of permutations-sometimes offering slightly fatter percentage splits for the “lead agency,” which may have brought in the show runner/producers or star talent as major elements of the package.
(How hard is all this to define in real-world terms? Well, listen to this practically undecipherable, unedited explanation by one studio business affair’s executive: “When an agency says it has a 3-3-10 package, it is
3 percent of the license fee, 3 percent deferred and payable out of the first 50 percent of the 100 percent of the net profits, the latter of which is [the] hardest achievable level to reach because studios notoriously charge participants on net distribution fees in a net definition. Then comes the 10 percent on the back-end that could be based on net profits the studios can use to subtract distribution fees or the modified adjusted gross, which most of the agencies and their clients will take because it comes after the distribution fees are factored out.”)
But what irks the business affairs executive the most, in what is frequently described as the studios’ “love-hate” relationship with the agencies, is the amount of money the talent reps can take from three levels of participation-particularly on front-end packaging fees. Also, the growth in the number of split packages, said studio sources, means that while agencies are often bringing fewer elements to the package, they still are entitled to substantial commissions in the very lucrative back-end portion of series deals.
The agencies’ cut
The agencies take standard 10 percent commissions from their acting and producing clients in various stand-alone TV and film deals, but in packaging deals the agencies don’t charge the clients in lieu of getting the packaging commissions from the studios.
Furthermore, another senior studio executive suggested that most writer/producers may get 5 percent to 7.5 percent of net profit or modified adjusted gross profit definitions, while actors can get 2.5 percent profit participation. However, most of the agencies are still getting
10 percent back-end participation, although William Morris has stayed with its smaller 5 percent back-end definition.
“What makes this thing so reprehensible is when an agency gets
a 3-3-10 package, they’re getting
3 percent of the license fee of money that doesn’t go onto the screen-it goes into the agency’s pockets, so it doesn’t work to benefit their clients,” charged the studio executive. “Let’s say, if the client is an actor who is making $50,000 an episode [in an initial four-year
deal], they can be receiving much less if they were taking on a commission compared to cash upfront-but the agency could still be making more from its packaging fees and back-end fees.”
And yet talent agency executives frequently complain about the amount of profits the studios look to camouflage from their clients and the agencies in the form of creative bookkeeping charges.
The agencies, of course, claim that the producing and acting talent typically make more in upfront salaries and various front-end and back-end participations than what the agencies ultimately collect from their commissions. In particular, sources who
have historically done business with William Morris insist the agency will make reverse adjustments to their own commissions if their clients end up making less on a percentage basis-to make them whole.
“The average network license fee for a new sitcom is about $500,000, so at 5 percent we’re talking $25,000 per episode, and on 3 points it is about $15,000, so we’re talking about something that is chicken feed in what we have done to set up the package,” added one of WMA’s rival agency packagers. “All of these agencies have huge overhead, where we’re bringing over multiple tiers of clients and other elements. It’s ludicrous that the studios criticize our commissions when we do all of the legwork and put the whole series package together in the first place.”
Trimming the fat
The penchant for driving down production budgets, especially in a lengthy depressed advertising market for the vertically integrated media conglomerates, has sister studios looking to cut costs on a line-item basis-with the talent agencies viewed as big targets from which to “trim the fat,” said a senior executive at one of the studios. Typical per-episode sitcom license fees are in the $500,000 range, while hour-long dramas can command up to $900,000, but that often leaves the studio looking to cover $300,000 or more in front-end production deficits.
“I think it is going be on the radar of every studio, where they are looking at each line item of their budgets and how they can reduce costs,” said the studio source. “So we’re not paying as much for directors, actors and producers and hiring fewer writers. You go down each line item, and then you get down to the package commission line-and that line is where we’re looking to reduce costs. It’s money that is paid to an agency-it’s not money going on the screen to make the show. When you look at where we can cut money and still produce the same show, your eyes go back directly to the package commission. If you didn’t pay the package commission to the agency, it doesn’t change your production values one iota.”
For a series’ initial four-year run, the studios can look to cover those deficits through international program sales and, more recently, through the potential repurposing of series for secondary runs on cable networks. Moreover, once a series can get four years (or more than 80 episodes) in the can, the off-network broadcast or cable network sale often brings in hundreds of million of dollars in additional profits for an A-level hit or a mid-level network series.
Despite the professed desire by some studio executives to cut commissions, they acknowledge that agencies bring the major elements to a package-such as top-level producing talent, underlying series copyrights and merchandising rights to a property and even advertiser-oriented product placement and upfront production financing-to justify their various commissions.
For example, William Morris has helped to bring the studios the underlying rights to several key properties in recent years. One of the more high-profile pilots under consideration this season is The WB’s “Lost in Oz,” a much-anticipated series adaptation of L. Frank Baum’s legendary book series that spawned the classic movie “The Wizard of Oz.” As a facilitator to the deal, William Morris brought together Maggie Field’s Field-Cech Agency, which holds representation of the underlying rights to the “Wizard of Oz” property, and series producer Warner Bros. Television. In a split package with Field-Cech, William Morris contributes writer/producer clients David Hayter (producer of “The X-Men” movie), Kevin Brown and Lawrence Bender and co-star Lynn Whitfield (“The Josephine Baker Story,” “The Cosby Mysteries”).
Also, through its representation of overseas production companies, William Morris has brought in the United Kingdom’s Granada Entertainment for the adaptation of its series “The Grimleys” into a new Fox sitcom, “The Grubbs.”
The talent agencies are also aggressively working to expand their leverage with the networks by packaging advertisers into product placement tie-ins and as partial series underwriters. Specifically, William Morris worked with Lions Gate Entertainment to bring the Ford Motor Co. to The WB’s currently airing “No Boundaries” reality series, which takes its title from a popular sports truck ad campaign from the automaker.
Similarly, Creative Artists Agency last week announced a deal to represent Microsoft’s Xbox and PC game properties for potential exploitation as future TV series or motion picture properties. In the growing corporate consulting business for the agencies, United Talent Agency also advises wireless giant Cingular and the Loews hotel chain.
In fact, as the talent agencies are looking to navigate in what has been a challenging landscape economically, the Screen Actors Guild reached a preliminary agreement last month with Association Talent Agencies that relaxes the nearly 62-year-old rule limiting advertising agencies to taking a 10 percent ownership stake in talent agencies. If ratified in a rank-and-file vote by SAG members this month, it could allow ad agencies to increase their ownership in any of Hollywood’s talent shops to 20 percent, substantially short of the 49 percent stake some ad agencies had sought previously.
Unregulated environment
What may drive talent agencies to the advertiser altar is the largely unregulated environment talent management companies are now enjoying in the representation business. In particular, some talent agencies are miffed that management companies such as Industry Entertainment (co-producer of CBS’s “Becker”), which is owned by agency giant McCann Erickson Worldwide, can freely enter TV production-a long-standing prohibition placed on talent agencies.
Even though talent management-based companies such as Brad Grey Television (producer of NBC’s “Just Shoot Me” and HBO’s “The Sopranos”), Hofflund-Polone Co. partner Gavin Polone (The WB’s “Gilmore Girls”) and 3 Arts Entertainment (Fox’s “King of the Hill”) have had successful forays into TV production, they still do not represent a significant threat in the packaging of series talent. In many cases, the Big Five agencies (WMA, CAA, ICM, UTA and Endeavor) do business with the talent managers-turned-producers in bringing other creative talent into series packages.
With more than 140 or so scripted pilots picked up and close to being commissioned for production this spring by the broadcast networks, the Big Five agencies are said to control roughly 75 percent to 80 percent of the packaging business (or just more than 100 series). That number, which excludes nonscripted reality series going through various stages of development, is also said to include some scripted series packages originating from talent management companies.
Nevertheless, one agency series packager noted that while talent managers may not procure employment for their clients, according to current Screen Actors Guild regulations, they are still finding ways to make up any lost commissions by attaching so-called “producer fees” to the production of a series-fees that also can include various front-end and back-end profit participations. Several agency and studio sources suggested that is actually the kind of “fat” that studios should be looking to cut from series budgets.
“What gets a little dicey is that their producer fees on the front-end are considered a bit questionable by the studios,” said the network packager, who works at one o
f the Big Five agencies. “It is kind of hard to justify them taking $35,000 an episode when it is their first time producing or they show up for one day of shooting to simply get their producer fee. Unless, it’s a Brad Grey, Gavin Polone or Keith Addis [of Industry Entertainment], there are not a lot of other legitimate manager/producers out there.”