Happy New Year to all. To kick off 2021, I’ve provided quick takes below on some of the bigger stories we’ll be watching

WME v. WGA

Just before Christmas, CAA closed a deal with the Writers Guild regarding phasing out of package commissions and partial divestiture of its ownership of production entities. That left WME as the last agency without a deal. The parties were reportedly negotiating but without resolution.

Meanwhile, WME’s attempt to gain an advantage on the litigation front suffered a setback in District Court. The WGA’s long campaign against the agencies succeeded because its members refused to be represented by agents who did not accede to a code of conduct renouncing packing and producing. WME asserted that this constituted an illegal boycott outside the protection of labor law and sought an injunction. Judge André Birotte, Jr. denied WME’s motion on January 4, holding that the WGA boycott falls squarely within the area protected by the Norris-La Guardia Act.

The judge also took the opportunity to urge the parties to get back to the bargaining table.

WARNER BROS. v. HOLLYWOOD

Hollywood is still buzzing over Warner Bros’ surprise announcement in early December that all of its theatrical releases in 2021 would be released concurrently on its HBO Max subscription service. The reasons for the move are not totally clear. If this were simply a hedge during the COVID pandemic, there would be no reason to commit to SVOD release for the entirety of 2021. Another proposed motivation is that the studio’s parent AT&T has decided to sacrifice 2021 theatrical revenues to jump start HBO Max, which had a disappointing launch.

Whatever the reason, the action has angered more than just theater owners. Warner Bros. co-financiers stand to see reduced returns. Performers, directors and writers, not to mention their representatives, receive substantial compensation based on theatrical box office revenues, revenues that are now being cannibalized by HBO Max. It is widely expected that Warner Bros. will be making substantial payments to compensate for these lost revenues.

Stepping back, this move by Warner Bros. may have been handled awkwardly, but is only part of a larger trend. We are seeing a shift away from theatrical exhibition toward streaming as the favored means of delivery of premium content. The market pressure was building even before last year, but the pandemic let it loose. Just at the start of the lockdown, in April 2020, Universal pulled its scheduled theatrical release of Trolls World Tour to play on pay-per-view only to great success. Disney repeated the same gambit for its live action Mulan. Universal raised a stir later in the summer by making a deal with AMC Theaters to reduce the exclusive theatrical window for its features from 90 days to three weekends in exchange for a share of pay-per-view revenues.

HAWLEY v. SECTION 230

Section 230 of the Communications Decency Act was enacted in 1996. It shields “interactive computer services” from liability for content posted on their sites by third parties. In the early days of the internet, this allowed for the expansion of social media networks and other fledgling websites by relieving moderators of the daunting burden of reviewing every individual piece of user-generated content at the risk of liability for libel or copyright infringement.

This does not mean that privately-owned platforms have no discretion over what will be permitted on their sites. Every social media platform has terms of use governing hate speech, falsehood and other antisocial messaging. After first slapping warning labels on President Trump’s false posts regarding voter fraud, Twitter and Facebook have finally suspended his accounts completely following the January 6 invasion of the Capitol.

Sen. Josh Hawley (R-Mo.) is convinced that Facebook, Twitter and YouTube are tweaking their algorithms or manually moderating content to disfavor the circulation of conservative opinion. He introduced legislation in 2019 under which tech companies would lose Section 230 protection unless they can prove to the FTC that their algorithms and content-removal policies are politically neutral, and has since made this a signature issue. Mark Zuckerberg and other Silicon Valley executives were called before Congress to be raked over the coals. The idea of censorship by social media companies has become sufficiently widespread on the right as to prompt President Trump’s recent unsuccessful veto of the Defense Authorization Bill over its failure to repeal Section 230.

Section 230 has been in for its share of attacks from Democrats as well for its failure to regulate false and incendiary posts from the President on down. Even before the dramatic events of last week, Facebook and Twitter were self-regulating in an attempt to head off more aggressive federal action, culminating in the permanent suspensions of Trump’s account on both of those platforms.

US v. FACEBOOK & GOOGLE

The Justice Department brought an antitrust lawsuit against Google in October, 2020, followed by two antitrust actions in December by coalitions of states. Separately, the Federal Trade Commission, joined by a number of states have brought an antitrust action against Facebook. These have the potential to shake up the media landscape and also reflect a rethinking of antitrust law.

Since at least the Regan administration, antitrust enforcers have looked solely to consumer harm as measured by market efficency. If an alleged monopolist was not increasing prices or reducing quantity, then the law was not violated. The current suits instead allege that by using their market power to stifle competition, the two tech giants are preventing the emergence of new, potentially higher-quality services.

The FTC action points to Facebook’s acquisition of Instagram and What’s App. These companies both developed novel social platforms. Rather than develop its own feature set in response, it bought them out. The Google lawsuits accuse it of entering into exclusionary relationships (including with Facebook and Apple) to monopolize online search. They also claim that it rigs its search advertising business to block competitors from gaining a foothold.

FCC v. PROMETHEUS RADIO PROJECT

The FCC has been pursuing a deregulatory path for some time. Some of its actions, like the repeal of net neutrality, have received a great deal of attention. Others may not have received the attention they deserve. Local broadcast station ownership rules are not terribly sexy, but they address a conflict of basic policy issues that will soon be decided by the Supreme Court.

In 2017, the Federal Communications Commission, supported by the broadcast industry, agreed to relax certain ownership rules on local television stations, including those covering common ownership of newspapers and stations and radio and television stations in the same markets. These changes were challenged by Prometheus Radio Project and other plaintiffs, who have so far prevailed in the Third Circuit.

The FCC’s reasoning has been that local stations need to consolidate in order to have the economic strength to complete with unregulated online platforms. Without deregulation, they say, local television news could go the way of so many local newspapers. Prometheus’s argument to retain the cross-ownership rules is that this will limit opportunities for women and minority ownership of broadcast outlets.

The 2009 Universal ensemble comedy Couples Retreat sparked controversy when its Black performers were erased from the film’s international marketing. That controversy has come back to life as the film’s co-star Faizon Love has filed suit against Universal alleging that promises that were made to him were not kept.

Couples Retreat Movie Poster
Court filing

In posters for the US release, Love was billed fourth after Vince Vaughn, Jason Bateman and Jon Favreau, and pictured with Kali Fox, his onscreen partner, who also received prominent billing. Overseas, however, the names and likenesses of both performers were removed. This was first brought to public attention by UK newspapers when the picture was first released. Universal’s response was that the change was made to “simplify” the poster. It expressed regret and promised to pull the whitewashed poster from circulation

According to Love’s lawsuit, Love agreed not to sue Universal at the time based on specific representations that were made to him. Universal promised that it would cease any further use of the offending poster and offer recompense to Love in the form of future high-profile roles. Both of these promises were false, giving rise to his present claims for breach of contract and fraudulent inducement.

Love alleges that he has recently discovered that the poster can still be seen on movie websites around the world. As for the promises of future career benefits, Love stresses that he intentionally “opted for engagement and equanimity” with Universal and “endeavored to engage constructively.” To that end, he cites a personal apology he received at the time from Scott Stuber, one of the film’s producers who was then under a production deal with Universal. Stuber backed that apology with a promise to cast Love in a future movie that he produced for Universal. Adam Fogelson, who had just been promoted from head of marketing to studio chief, also called Love to apologize. Fogelson was joined on one of these calls by Vince Vaughn in which Fogelson and Vaughn committed to do a TV show with Love and suggested that making a “big deal” about the poster would not be good for his career.

The promised roles did not come through. Stuber is now head of original films at Netflix. Fogelson is now the chair of STX. Vaughn is still Vince Vaughn.

The complaint also asserts claims under California’s Fair Housing and Employment Act and the Unruh Civil Rights Act. It backs these claims by showing the paucity of Black faces in the top ranks of Universal’s executive suite and on screen, and also points to Gabrielle Union’s well-publicized complaints of discrimination around her firing from America’s Got Talent, which airs on Universal’s corporate sibling NBC. Love asserts that these continued disparities despite the proven success of Black Panther and other projects with Black leads are strong evidence of continued racial discrimination.

Universal has not commented on the lawsuit.

In my last blog, I expressed cautious optimism that the WGA was making progress in settling its long-running dispute with CAA and WME, the two largest talent agencies and the last two holdouts in signing a franchise agreement that would permit them to represent writers. In April 2019, the WGA directed its members to fire their agents who did not agree to abandon package commissions ownership of production companies. Since then, the WGA agreed that agencies could own stakes of up to 20% in production entities.

CAA announced in early October that it accepted the WGA’s requirements in principle, though both sides acknowledged there was still much to work through. This certainly proved true. The parties have reverted to type and both CAA and WME have sued for preliminary injunctions in their federal lawsuit with the Guild.

CAA’s position is that it has acceded to the WGA’s demands. The packaging issue is largely settled. As for wiip, the producing entity of which it is part owner, CAA put its interest into a blind trust. The trustee’s instructions are to sell off CAA’s stake to no more than the WGA’s approved 20% threshold. According to CAA, by seeking to impose additional conditions on a settlement the WGA is “refusing to take ‘yes’ for an answer.” One reason it cites for the Guild’s intransigence is personal animus against CAA on the part of David Young, the executive director of the WGA.

CAA alleges that this is causing it irreparable harm, a necessary showing for a preliminary injunction. In support of this claim, CAA notes that UTA, one of its leading competitors, has already settled with the WGA. It alleges that UTA has been using CAA’s uncertain status to poach its writer clients aggressively, saying that the WGA will “never” agree to franchise CAA. As a result, 18 of CAA’s former writer clients have jumped ship to UTA and 16 have gone to other agencies.

WME’s motion followed a similar script. The agency said that it had agreed to reduce its ownership in Endeavor Content to 20% only to be faced with an unreasonable set of new demands. As a result of its continued inability to represent writers, it claimed to have lost its relationships with “thousands of writers and hundreds of showrunners who may never return.” The continued boycott stymies its ability to sign new literary clients. It is also losing agents, including former partners. To top it off, WME accused the WGA of playing a role in the postponement of its parent company Endeavor’s planned IPO by smearing it publicly as a “risky investment.”

WME also alleged that the bare knuckles tactics of David Young crossed the line into personal animosity. It submitted a declaration from Rick Rosen, a WME partner, stating that Young threatened repeatedly to “kill” Rosen during an August phone call. Rosen goes on to say that when he reported this call to WGA President David Goodman, he inferred from Goodman’s response that such behavior “is both expected and condoned.” Young and Goodman have denied these claims.

Both CAA and WME argue that the WGA’s tactics bring it outside the exemption from antitrust law that applies to collective actions of unions. Both agencies argue that the Guild is pursuing illegitimate goals of “conquest” that go beyond protecting its members from conflicts of interest. The union boycott is also illegal because it involves nonmembers such as talent managers and writers who are also producers.

The WGA has not yet filed a response to these motions. In its public statements, it accused the agencies of walking away from the negotiating table and heading back to court as a bullying tactic. Its legitimate goal is to get to the bottom of the tangled ownership structures of the two agencies to be clear that any deal it makes truly resolves their conflicts of interest.

In April, 2019 the WGA directed its members to fire their agents unless the agents agreed to adhere to a Code of Conduct that would end the collection of package commissions and strictly limit their ownership stake in production entities. Buoyed by solidarity among its members, the union was successful in obtaining widespread agreement from the agencies, beginning with Verve in May 2019 to industry leaders UTA and ICM Partners over the summer. This leaves the two largest agencies, CAA and WME, still to negotiate deals. The WGA has now reported that it is in advanced talks with both agencies to reach a final agreement.

The sticking point in negotiations is the ownership interest of the agencies in affiliated production companies. The WGA will accept agency ownership stakes of up to 20% in production entities. Its concern is to unravel the ownership structures of both agencies, their private equity owners, and their affiliated production companies — Endeavor Content for WME and wiip for CAA — in order to satisfy itself that this is the case. The WGA says that it has brought in outside corporate and M&A counsel and sent a request to both agencies for them to disclose in detail their relationships to the production affiliates, the agencies and their owners.

In response to CAA’s recent statement that it had largely accepted the Guild’s terms, the WGA responded “CAA has proposed changes to the [franchise] agreement that the WGA has not — and cannot — agree to,” but added “our conversations continue.” Coming from a union that is not above calling its negotiating partners “despicable,” I would take this relatively measured tone as a sign of progress.

The battle between the Writers Guild of America and the major agencies has been waged on two fronts for over a year, with mixed results.

Attention recently has focused primarily on the WGA’s pressure campaign to require agencies to sign a Code of Conduct renouncing package commissions and ownership of production companies as a condition of representing its members. This campaign has proved largely successful. Most of the boutique and mid-sized agencies and two of the big four, UTA and ICM Partners, have signed agreements to this effect, leaving only CAA and WME insisting on their rights to package and produce. The Guild made some compromises, but it’s fair to say that it has largely attained this goal.

The second front in the battle has been federal court litigation. The outcomes here have been more mixed.

The litigation originally pitted the WGA West and East and some individual Guild members against WME, CAA and UTA. Since making its deal with the WGA, UTA has withdrawn from the lawsuit.

The agencies sued the WGA in June, 2019 when the Guild first instructed its members to fire their agents unless they signed the Code of Conduct. The complaint alleged that the Guild was in violation of the Sherman Antitrust Act. The Guild asserted counterclaims under federal antitrust and racketeering statutes, price-fixing under California’s Cartwright Act and state claims for unfair competition, constructive fraud and breach of fiduciary duty.

In response to the agencies’ motion to dismiss, the District Judge, Andre̒ Birotte, Jr., dismissed the federal claims outright for lack of standing. Among other rulings, he also dismissed for lack of associational standing the Guild’s claims brought on behalf of its members for breach of fiduciary duty and constructive fraud, and dismissed the claim brought by the Guild under California Unfair Competition Law. The judge held that the WGA did, however, have standing to sue the agencies for price-fixing under California’s Cartwright Act.

The WGA then filed an amended complaint and did rather better the second time around. It held off the agencies’ challenge to the court’s prior ruling that it had standing to pursue its Cartwright Act claims. It was also successful in reinstating causes of action that had been dismissed. It convinced the court of its associational standing to bring breach of fiduciary duty and constructive fraud claims on behalf of its members. More to the point, the court recognized the Guild’s standing to obtain injunctive relief. This was fundamental to its goal in the lawsuit, namely to prohibit the agencies from receiving packaging fees.

This is an incremental victory for the Guild, but it keeps it alive on the litigation front. In light of the movement to settlement by the other agencies, one would think that WME and CAA will themselves come to the table at some point if the WGA is also willing to deal.

In a bid to lure virus-wary audiences back into its theaters, AMC Theaters will be offering tickets priced at just 15 cents.

The promotion will be available at 100 of the chain’s theaters for one day only on August 20. This is the official reopening date of AMC’s theaters after a five month shutdown due to the COVID-19 pandemic. The price point reflects the price of tickets when AMC opened its first theater in Kansas City 100 years ago in 1920. In keeping with the throwback theme of the promotion, the movies on tap will be classics including Grease and Back to the Future.

This is all a bit of test of the country’s risk tolerance. Despite Disney’s decision to release its live action Mulan into pay-per-view, the studios are generally as eager as the exhibitors to get audiences back into theaters, even subject to social distancing and mask requirements. Among other titles, The New Mutants is scheduled for an August 28 release, and Christopher Nolan’s Tenet for Labor Day weekend on September 3. Too soon?

Many of us will remember 2020 as the year that the theatrical exhibition business irrevocably changed. Our last blog covered the landmark agreement between Universal Pictures and AMC, the world’s largest theater chain, to reduce the theatrical exhibition window from three months to just over three weeks. Now a New York federal judge has granted a motion by the Department of Justice to terminate the Paramount Consent Decrees—antitrust rules that have governed the relationship of studios and theater owners since 1949.

Background

Following an adverse Supreme Court decision in 1948, the studios consented to divest their theaters, which they then owned. The Consent Decrees also prohibited the studios from certain business practices. These included block booking, under which theaters were required to license a package including less desirable movies in order to get the ones they wanted, and circuit dealing, in which studios demanded a single license to cover all of the theaters in a chain. The ban on both of these will expire after a sunset period.

Rationale

The District Judge, Analisa Torres, agreed with the Justice Department’s arguments that the original rationale for the Decrees had no place in a time of technological change. She noted that “seventy years of technological innovation, new competitors and business models, and shifting consumer demand have fundamentally changed the industry.” Many of the studios that were subject to the original Decrees no longer exist as independent entities, while new entities such as Netflix and Amazon are potential major competitors not subject to the Decrees.

As for continued antitrust concerns, the judge was confident that existing antitrust law would be sufficient to address them. “Antitrust laws, and their faithful enforcement, weigh in favor of the Court’s finding that there is a low likelihood of a potential future violation absent the Decrees.”

Objections

Theater owners were not as sanguine as the court. The National Association of Theater Owners and a spokesperson for independent theaters both issued statements warning of the threat to competition from vertical integration of distribution and exhibition of theatrical features. The Directors Guild of America also weighed in on the subject on behalf of the creative community. The DGA expressed concern that the opportunities for independent cinema in the marketplace, already under threat, would become more imperiled still.

What’s Next?

There may be at least one bright spot for consumers in this ruling. More than one theater chain is presently in or near bankruptcy. A studio buyout could keep local movie houses open, though possibly limited to showing only product in which its owner has an interest.

It’s likely that the changes in the theatrical exhibition model as a result of the termination of the Decrees will take some time to play out, but changes there will certainly be. We can look to the television business for a historical precedent. The Financial Interest and Syndication Rules promulgated by the FCC in 1970 prohibited networks from owning a stake in their programming or in syndication revenues. When those rules were eliminated in 1993, the networks and major studios quickly merged into vertically integrated entities. The result was a radical shift in the television business. Something similar is happening here.

We are not going to see a quite a return to pre-Decrees practices in these days of multiplexes and online streamers, but the elimination of the Decrees combined with the inevitable end of the 90-day theatrical window will shift bargaining power decisively in favor of the major studios. It remains to be seen what they will do with that leverage.

Movie theaterThese have been hard times for the movie theater business. Attendance peaked in 2002 at approximately 1.6 billion tickets sold. In 2019, that number had dropped by 25%, to around 1.2 billion. The proliferation of subscription streaming services is not the only force driving this trend, but it is certainly a substantial one. Against this challenging backdrop, the COVID pandemic has caused the studios to cut off theatrical release of new movies since March, so that theaters not affected by local shut down orders don’t have product to show even if they could induce audiences to come out to watch them.

Exhibitors have historically been able to maintain a 90-day exclusive theatrical exhibition window before a title is available to be viewed at home. This once meant home video; now the window includes release on streaming platforms. The studios have been pushing to shorten this window for years. They reason that as theatrical releases have become dominated by blockbusters that make most of their money in the first few weeks, there is less value to be gained from an extended theatrical run. They hope to reduce marketing costs by piggybacking marketing for the digital release on the initial theatrical marketing push and grab audiences while their attention is still keen. The exhibitors’ objection to this is simple–the sooner that consumers can expect a movie will be available for home viewing, the less likely they will be to watch it at a movie theater.

In some cases, the pandemic provided the studios with an opportunity and an excuse to make the moves they had long been angling for. Although they are willing to postpone release of potential blockbusters until theaters reopen, more modestly budgeted, genre and family fare are heading directly to streaming platforms on a pay-per-view model. For example, Universal achieved notable success with the animated feature Trolls World Tour, which earned nearly $100 million in rentals without a theatrical release.

But by pushing the envelope with Trolls, Universal also, to mix metaphors, stirred the pot. When Jeff Shell, the CEO of NBCUniversal, told the Wall Street Journal in late April that when theaters reopened Universal would be releasing films in both theatrical and pay VOD formats, AMC, the largest chain both in the US and worldwide, riposted that Universal pictures would henceforth be banned from its theaters.

It’s been a long summer, however. The pandemic shows no signs of abating and things have changed since April. In early July, AMC announced a major debt restructuring in order to avoid bankruptcy. And this week, the chain made peace with NBCU in a deal that could foreshadow a wholesale reshaping of the theatrical business model. The agreement, currently for the US only, collapses the 90-day exclusive theatrical window for Universal features to 17 days, including 3 weekends. After that window, Universal would have the option to release its pictures to premium VOD and pay AMC a share of its rental revenues, reportedly 10%.

It’s too soon tell what the immediate impact of this development will be. Reactions so far have been limited, although Cineworld, the parent of the number three US chain Regal Cinemas, has come out flatly in opposition to any shortening of the theatrical window. In the longer term, pandemics tend to accelerate trends already underway. The Black Death hastened the Renaissance and in a smaller way COVID-19 is likely to hasten the changes in theatrical exhibition that market forces have been driving for a decade or more.

UTA has just announced that it reached agreement with the Writers Guild to sign a franchise agreement that will permit it to resume representation of writers.

This will bring a partial end to a dispute that has lasted for over a year. The WGA had directed its members to fire their agents over their practice of receiving packaging fees directly from networks and studios, which the Guild regarded as a conflict of interest. The WGA also objected to the agencies’ moves into producing through their own affiliated production entities.

More than 80 other agencies, including many prominent ones, have signed a Code of Conduct promulgated by the WGA, but UTA is the first of the four largest agencies to reach agreement over these issues. The others are WME, CAA and ICM Partners.

According to a note from UTA co-president Jay Sures, the agency is not signing the Code of Conduct, but has reached a negotiated settlement. UTA agreed to eliminate package commissions in two years provided one of the other big four agencies also agrees to do so. It may continue to produce through affiliates, but only with a minority stake and subject to other limitations. It required the WGA to back off on its demand for the agency to send it copies of every writer’s contracts. The Guild and UTA also agreed to dismiss their pending lawsuits against each other.

First a collective bargaining agreement, and now this. It may have taken a pandemic, but progress is possible.

In a down to the wire bargaining session, the Writers Guild of America negotiating committee reached agreement with the studios on a new three-year deal. This was unanimously approved by the governing boards of the WGA West and East and will go to the membership for likely ratification later this month. The pact averts what was widely seen pre-COVID as the very real possibility of a writers strike.

The terms track gains previously won by the Directors Guild and the Screen Actors Guild, including substantial increases in residuals for high-budget streaming programs on subscription services like Netflix. The union negotiators were also able to obtain concessions that are of special concern to writers facing a world in which a typical series season is more likely to be eight or ten episodes than 22. The new contract will set limits on the length of time that a writer can be held under off the market under an exclusive option after completing work on a short season. It also sets a threshold minimum that writers must earn over the course of a season when they are paid on an episodic basis.

Hollywood is breathing a sigh of relief that these rocky negotiations are concluded. The town faces many challenges ahead as productions struggle to restart in the face of the pandemic.  Labor unrest is one less obstacle on that path.