Gary Gradinger, an adjunct Professor of Law at Southwestern who teaches Television Production Law as part of the curriculum of the Biederman Entertainment and Media Law Institute, is Senior Vice President, Business Affairs, at Fox 21. He earned his bachelor’s degree at the University of California, Berkeley, and received his law degree from the University of Southern California. He worked with Biederman Blog editors Sarah Meister and Tiffany Samuel, at their invitation, for this Q-and-A on the ‘agency package.’ This copyrighted material is provided for educational purposes only and should not be relied on without the assistance of a licensed attorney.

What is an “agency package”?

A “package” is an alternative method of compensating the agency in lieu of commissioning the client.  It is paid by the talent buyer (e.g., a television studio). The word is a term of art; it does not imply or require putting together multiple elements, though at times the package or a portion of the package are dependent on the agency delivering multiple elements, depending on the deal reached between the agency and buyer.

 How is a package defined?

The most common definition of a full package is 3/3/10, which is comprised of the following elements:

(a)           3% of the license fee paid upfront for each new episode.  Studios and agencies disagree as to whether this amount is paid on the “gross” license fee (as agencies prefer) or the “base” license fee (as studios prefer; the “base” is an arbitrary amount which is lower than the gross–generally 50% to 70% of the gross). Sometimes studios and agencies also disagree as to whether this amount is paid on production of the program (as agencies prefer) or on its broadcast (as studios prefer).  For some unscripted programming, the 3% is paid based on the budget, not the license fee.  For scripted network prime-time dramas, the amount payable to the agency typically translates to about 25k to 30k per episode for a first-year series, and for comedies, typically translates to about 13.5k to 15k per episode for a first year series.

(b)           In addition to (a), another 3% of the license fee deferred, and payable out of 50% of the net profits.  A series rarely reaches net profits, but if it does, then for every dollar of net profits, the packager would be entitled to fifty cents until it receives an amount equal to the amount it received under (a) above. For some unscripted programming, this portion is not part of the package agreement (i.e., the deal is 3/0/10).

(c)            10% of the Modified Adjusted Gross Receipts, most typically tied to the agency’s client’s definition (e.g., same distribution fees, same overhead charge) but most typically without deduction for any third-party participations even if permitted under the agency’s client’s definition.

 Who pays the package?

The package front end (i.e., the first 3%) is paid by the production-financing entity, usually the studio.  The package back end (i.e., the deferred 3% and the 10%) is paid by the owner of the programming, again, usually the studio.  For unscripted programming, the package must generally be approved by the network, which most often pays all of the budgeted costs of the project.

Is a package paid on a pilot?

A package is generally not paid on a pilot, unless (a) the pilot is broadcast as a special, in which case sometimes the package is paid or (b) the pilot is broadcast as an episode of the series, in which case sometimes, at some studios, the package is paid, but based on the amount otherwise due for the series episodes (not based on the higher pilot license fee).

How does a package affect client commission?

 (a)            Agencies generally commission clients for all development deals and pilot fees, whether the series may in the future be a packaged series or not.  People differ as to whether this is permissible pursuant to the applicable guild franchise agreements. If the pilot is never ordered to series, the agency retains the commissions.

(b)           If the pilot is ordered to series, the agency continues to commission the clients on a first-year series until it has definitively established that it has a package by receiving the first package payment, which is typically a few weeks after the first episode airs.  After that time, (i) the agency no longer commissions for the first year or any subsequent year (assuming it retains its package and, unless a guild agreement provides otherwise, assuming it actually receives a package payment for the applicable episode) and (ii) the agency rebates the commissions it previously collected for episodes for which it received a package payment.  Many studios do not pay package payments for the pilot, even if the pilot airs, so the agency does not rebate the pilot commissions in that circumstance.

(c)            For a client under an overall agreement who is rendering services on a packaged series, the agency rebates a percentage based on the client’s fees charged to that series during the term of the overall for every episode for which it receives a package payment (e.g., if the charge-off is $40,000 per episode, the agency rebates $4,000 per episode from the ten percent commission it has collected and is collecting on the overall).

(d)           Below-the-line clients on packaged series are commissioned; they never receive rebates.

How does an agency secure a package position in the first place?

 This is a process of negotiation, either with the studio buyer, or another agency that already has the full package (there is not more than one full package paid per series, so agencies must share), or a client which is the owner/production entity (in some unscripted programming).

There is no absolute rule about what constitutes a package, and every situation is slightly different, but here are some general guidelines:

(a)      a writer-showrunner writing a pilot script based on his original idea, full package;

(b)     an established writer, in television or features, writing a pilot script based on his original idea, a full package or a half package, depending on the level of talent and competitiveness for the project;

(c)      for showrunner who develops, supervises, or comes on board at the pilot stage, generally a half package;

(d)     for writers under (a) or (b), same answer for an overall agreement;

(e)      for directors, generally no package unless they develop the project, direct the pilot, and then stay in a producing capacity on the series for some reasonable period (a season), and then generally a half package;

(f)      for actors who are under a development deal or who lift a cast-contingency, generally a half package.

Once an agency has a package, can it lose it?

Generally, no, but uncommon facts can yield exceptions.  A package is most vulnerable to loss at the initial stages of the pilot and series.  For example, if an agency obtains a full package when closing an agreement for a writer-showrunner, and the writer-showrunner asks to leave the project after the pilot and ultimately does not showrun any of the series, an agency might have difficulty retaining the full package.  Studios take a more aggressive position about what can divest an agency, but all parties agree that once the package is vested, the agency retains it for the life of the series.

Is it always better to get the package than to commission?

Each project should be assessed based on the benefits and risks of obtaining the package:

Benefits for the agency:

(a)            Retained for the life of series, even after all clients leave the series or discharge the agency

(b)           Could be more money upfront (but may be less upfront than commission)

(c)            If the series is profitable, there will be substantially more profits payable to the agency than if it had commissioned the clients

(d)           Clients are saving money, strengthening their allegiance to the agency

Risks for the agency:

Could be less money upfront payable to the agency than if it had commissioned the clients.  This is the only real downside and is not uncommon.  How much this imbalance is or could become needs to be weighed against the benefits, both actual and potential, of obtaining a package position.

From the studio perspective:

There is no financial benefit to granting a package. It is granted as a matter of leverage, competitiveness in the industry, and agency relationships.

© 2012 Gary Gradinger