How Private Equity Ate Hollywood

Apropos of the current WGA-ATA conflict (What? You thought we’d forgotten about it? No such luck), an analysis of what happened, how, and why, from a source that doesn’t even have a horse in this race. (Who’d a’thunk?)

Note: This pic wasn’t published with the original article. We chose the sensationalist approach because, hey, that’s us, you know?

by David Dayen

Hollywood is smoldering this week, after the 13,000 members of the Writers Guild of America (WGA) prepared to fire their agents, the upshot of the termination of a 43-year-old agreement between the union and the Association of Talent Agents trade group. On Saturday, the WGA ordered members to part ways with agents who didn’t subscribe to a revised code of conduct, which rank-and-file writers approved with 95.3 percent support. The form lettersinforming agents of their firing, which well-known writers have been posting on Twitter, will be delivered later this week.

This isn’t a strike or lockout; as much as you might like your favorite television shows to pause to catch up on your DVR, they will in all likelihood continue with minimal disruption. But the battle between writers and agents represents another example of the monopolization and financialization of our economy, and how organized, unified workers can fight back. While the lead antagonists on the stage are talent agents, the villains behind the scenes are private equity firms.

The WGA laid this out in a remarkable report last month, showing how institutional investors—mainly private equity—have bought into the three largest talent agencies, to the tune of billions of dollars. These three agencies—Creative Artists Agency (CAA), William Morris Endeavor (WME), and United Talent Agency (UTA)—are responsible for 70 percent of WGA members’ earnings.

Private equity firm TPG Capital now has a 53 percent stake in CAA, investing $340 million in the agency. Another $100 million in investment comes from a consortium of Chinese and Singaporean sovereign wealth funds and the telecommunications firm Taiwan Mobile. Silver Lake Partners, another private equity firm, has invested $750 million in WME, with another $1.8 billion in WME equity stakes passed around to the sovereign wealth funds of Saudi Arabia and Singapore, a Canadian pension fund, Chinese investor Tencent, Japanese fund SoftBank, and more. UTA gave a 40 percent stake to the private equity firm Investcorp and Canadian pension fund PSP Investments for $200 million last August.

Previously, these organizations were partnerships under the control of the agents themselves; today, “the top three agencies now operate under the pressure of private-equity-level profit expectations,” the report explains.

That translates into an affinity for something known as “packaging” fees, direct payments from studios to talent agencies as a kind of commission for employing their clients. “Packaging” is a bit of a misnomer, as even one client of an agency can trigger this studio fee. The WGA estimates that about 90 percent of the 2016-2017 television season’s scripted programs were packaged. WME earned $138 million from packaging fees in 2013 alone, according to financial statements.

Clients do not share in these packaging fees, though the fees substitute for the agent’s usual 10 percent commission. However, packaging fees are considered part of the budget of a television or film production, and can stretch into the millions of dollars. That means that the agent is bartering with the studio over a fee that comes out of the same pot of money as the writer’s pay….

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