This week’s entertainment pages in America’s newspapers heralded how the small, independently financed Madea’s Family Reunion made a shocking thirty million dollars in its box-office debut.
Yet many of Hollywood’s elite may have missed it; they were too busy reading the page one news about the wiretapping investigation of private investigator Anthony Pellicano. This is not just a voyeur’s interest in a real-life potboiler, but because one of the town’s A-List lawyers has been charged with a felony. More beguiling: this may be the first of many lawyers to be indicted in this scandal.
Since one can make tens, even hundreds of millions of dollars in show business, it is not surprising to see greed and avarice rear its head. Being surprised that show business folk play hard and fast with rules is about as shocking as Captain Renault’s learning that there was gambling in Rick’s café. What may surprise some, however, is how those at the top of the entertainment industry food chain are willing to take such potentially compromising risks. Seems that in Hollywood, when you play with the big boys, the big boys play dirty. Perhaps show business is, as they say, the last bastion of the Wild, Wild West.
A few years back, one of my personal management clients had a contract to write a script for one of the major Hollywood studios; a deal it turns out, the film company did not want to honor. My client enlisted a lawyer to negotiate for his interests. And not just any attorney, either, but Harold Brown, a partner at perhaps the most venerable entertainment law firm in Los Angeles, a firm that counts Steven Spielberg, Ben Stiller and Green Day among its clients.
It seemed inconceivable a studio would refuse to pay monies that were clearly owed, so past the obvious frustration, the real question was how a studio could, would rationalize such actions. After discussing it with the studio’s business affairs department (their in-house legal team), Brown explained the studio’s position was that our client hadn’t fulfilled his obligations and as such, he did not earn the money.
Brown didn’t say anything in response. Instead, he laughed; in fact he laughed really hard.
“Stop,” I said. “Fraud isn’t funny, please stop laughing at me.”
Apologizing, Brown said, “I wasn’t laughing at you. I was laughing because I’ve been in Hollywood so long, I forgot it was fraud.”
As odd as that may appear, it is probably also the truth. Hollywood’s more moneyed players have long lost their ability to understand the line between legal and illegal.
In the 1950’s, MCA was perhaps the most influential studio in town. It also had a talent agency division. At least until federal prosecutors filed complaints against the studio/agency, alleging that both employing actors and serving as the actors’ employment counselors created conflict of interest and antitrust concerns. It was only resolved when MCA’s president Lew Wasserman divested the company’s agency division (now known as ICM).
Amazingly however, this illegal practice lives on.
Brillstein-Grey is perhaps the town’s biggest personal management firms, representing some of the top theatrical and comedic talent around. Among its clients is The Sopranos creator David Chase. Brillstein-Grey also has a production arm, Brad Grey Television, which as the production entity for The Sopranos employs Chase. Likewise, as the production entity for the ABC television series According to Jim, the entity both represents and employs Jim Belushi. The inherent conflict of interest – every time Belushi or Chase gets a raise, it cuts into the profits of their employment counselors. Consequently, the firm these artists hired to maximize their income have an investment in limiting it. These actions go unabated; not that they should. This business practice was worthy of the Feds’ attention forty years ago and should remain prohibited today.
The blurring of legal lines for added profits is not just done by production companies with personal management arms, but also by Hollywood’s biggest talent agencies. The agencies adhere to the above restrictions; their discretions have to do with “packaging fees.” Packaging is when an agency is paid from the licensing fees and profit percentage monies of the buyer – the film or television studio or network – for bringing talent elements together for the good of a production. Agencies demand and receive packaging fees for in essence delivering their star clients to the studios.
This practice is opposite to California law, which requires talent agencies to work exclusively on a commission basis. There are specific statutes forbidding agents from collecting fees directly from employers. You might ask why agencies, filled with otherwise law-abiding citizens, choose to ignore this law. And you can also guess the answer: it’s all about the money.
Take as an example the writing client with the screenwriting deal I referenced above. He also once had a pilot deal for a one-hour television series. Had the series been picked up, the client would have been paid about $40,000 an episode to serve as the executive producer of the show: writing some of the scripts and supervising the direction of the entire series. Obviously good money; but arguably fair for a job with such extensive responsibilities, taking up perhaps eighty to a hundred hours a week for nine or ten months a year in an incredibly stressful environment.
Compare that to the agency’s potential take: they would have received five percent of the licensing fees, which on an hour series would have been between 60 and 75 thousand dollars an episode year one and more as the licensing fee went up in subsequent years. And with success, the agency would have received five percent of the project’s back end profits. Not that this money was for doing any work on the on-going series, they would be completely passive: rather the packaging fee is simply a toll that studios must pay to the artist’s representative for delivering the talent. Hollywood agents rationalize the packaging fee as a way to save the client from paying commissions; they only collect from either their client or the studio. Others may see it differently: in another time, in another industry, this kind of behavior might have been labeled a protection racket.
During our negotiations, I questioned whether the client had to abide by the agency’s packaging practices. Apparently so; the agency threatened to drop the client; later, after the pilot didn’t go, they refused to share clients with me.
Looking back, it is not surprising the agency took such offense at my action: the big agencies -- CAA, Endeavor, ICM, William Morris and United Talent among others – make significantly more in packaging fees than they reap from client commissions. They do not want anyone messing with their golden calf.
It is illegal, however, and with good reason: in part because the studios get so little benefit for the cost of doing such business; in part for the inherent conflict of interest these actions create between the employment counselor and those who come to them for employment counseling.
I am a major proponent of free commerce; believe in it completely. However, another of my beliefs is that laws created to govern commercial activities should be followed; and when they are not followed, those empowered to enforce the laws must do just that. Hopefully the Pellicano case is just a start; as right now there is not only a failure of some to follow the law, but also by those who are entrusted to make sure that laws are followed.
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