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By FRANK SWERTLOW

Staff Reporter

As network production fees soar and profits fall, one of Hollywood's most controversial financial arrangements the talent agency packaging commission has come under attack.

Simply put, the networks are looking desperately for ways to slash costs. And an easy way to do it is to reduce extraneous expenses paid to the middleman: the talent agent.

"Whenever the business gets tighter, everybody is looking for ways to squeeze the bottom line," said Jamie Kellner, CEO of the WB network. "Network television is in a budget squeeze and that is forcing people to be as careful as they can with a dollar."

While packaging commissions have been around since the early days of television, the reluctance to pay them comes at a time when the talent agency business is under siege, as entertainment lawyers and personal managers siphon off lucrative clients.

These commissions are a key revenue source at Hollywood's biggest agencies. They result when a TV project is assembled from scratch by an agency, which puts together a "package" sometimes involving a star or stars, a writer, a producer and perhaps a director. Books and scripts also can be packaged. The project is then sold to a network and the agency gets a commission.

One classic example of a package was the 1970s TV show, "All in the Family." Agents at International Creative Management came up with the idea to base an American series on a popular British show with similar characters. ICM enlisted its clients, Bud Yorkin and Norman Lear, to produce the show and then assembled a package actors Carroll O'Connor, Sally Struthers and Rob Reiner, all ICM clients. Then they sold the package to CBS.

While "All in the Family" was considered a "full package," such deals can involve smaller elements. Agencies have been known to demand packaging fees simply for pairing a single, highly sought-after star or director to a project, with the rest of the talent yet to be assembled.

Among the many series on the air today that carry packaging commissions are NBC's "Veronica's Closet" and "ER," ABC's "Home Improvement," WB's "Buffy the Vampire Slayer," and Fox's "Mad TV." TV movies often carry packaging commissions as well.

The formula for paying a packaging commission is complex. Instead of getting the time-honored 10 percent commission for each client in the package, the agent receives from 6 percent to 10 percent of the licensing fee for the project meaning the total fee the network pays to the production company for each episode to offset production expenses.

The licensing fee for a one-hour series might be $1 million per episode. A 10 percent packaging commission would be $100,000 per episode, half of which is paid up front and the rest deferred. The agent also gets profits, as much as 10 percent, when the show goes into syndication. These fees can be worth tens of millions of dollars. The William Morris Agency, for example, reportedly earned $100 million from "The Cosby Show" during a five-year period 1984 through 1989.

Critics of packaging commissions insist these fees damage a producer's ability to maintain the quality of a series or TV movie in today's Hollywood economy. The heavy costs could eventually doom a production.

"The crunching cost of this fee forces a studio or network to eliminate key elements to a show, like the number of writers, the ability to have more sets, other members of an ensemble cast and even guest stars," a senior network programmer said.

The result is a backlash against paying the fee. Eight months ago, the 200-member Caucus of Writers, Producers and Directors petitioned the state Labor Commissioner's Office to hold hearings on packaging commissions, which, the group believed, are not in the public interest.

A hearing was held in August, but the proceedings were then canceled. Though the Labor Commission licenses talent agencies, the agency ruled that it did not have jurisdiction. The caucus plans to appeal to Gov. Gray Davis' new administration.

The networks themselves have been taking steps to limit their exposure by creating in-house production divisions to assemble their own packages. "When we are trying to find ways to cut down our expenses, (the packaging commission) added to the price is a frustration," said ABC Entertainment President Jamie Tarses. "You are always looking for ways to lessen the amount of money that you are paying for any given project."

As a result, many talent agencies have begun to streamline costs by laying off staff members and agents. Actual numbers are impossible to come by, but William Morris Agency and ICM, two of Hollywood's biggest agencies, are known to have made cuts. Deborah Blackwell, the head of William Morris' made-for-TV movie and miniseries division, resigned last month, reportedly because of the dearth of packaging fees.

Even so, agents remain confident that the packaging commission, despite the belt-tightening and criticism, will never disappear. "There's a lot of talk that people won't pay it anymore," said an agent at a major talent agency. "They will. Everybody wants a leg up in this town. There are a lot more networks now and a scarcity of talent that can make (success) happen. It's all about leverage in a business starved for talent."

Although producers and networks executives often refer to packaging fees as "extortion," agents don't see it that way. They consider the fee as a bargaining tool. The right star, producer or writer can insure the success of a project, which ultimately can be worth hundreds of millions of dollars to a network, studio or producer.

"It's the law of supply and demand," said Richard Weston, founding partner in Major Clients Agency. "It's a matter of need."

"You are not forcing them to buy anything," said one agent. "There's no gun at their head. They pay because they think Ft. Knox is at the end of the tunnel. It's not extortion, it's commerce."

Producers and network officials acknowledge that paying for a "full package" can be justified. What irks them, however, is the so-called "one-element package," in which only one star or writer-producer comprises the entire package.

"If they get it for one element because of increased competition, that is when I resent it," said Susanne Daniels, the WB's president of entertainment.

Despite the resistance, there are still plenty of packaging commissions being paid because networks often feel they have no choice. In the competitive world of Hollywood, networks, studios and producers need stars.

"Universal Television refused to pay packaging commissions on one-hour series," an agent recalled. "Well, you know where Universal is today? It's out of the TV business."

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