While the actors’ strike against the advertising industry is making headlines with rallies at the La Brea Tar Pits and marches down Wilshire Boulevard, another battle is quietly simmering that could revolutionize the talent agency business.

The Association of Talent Agents, which represents more than 100 talent agencies in Hollywood, late last month sent a series of proposals to the Screen Actors Guild that would modify the franchise agreement between agents and actors.

If the ATA and SAG don’t reach an agreement within six months, it could mark the end of most major talent agencies as they are presently known. The agents are threatening to de-franchise and become personal management firms which are unregulated and thus are free to produce movies and TV shows in which their clients appear.

For SAG, such a move would end the control that the union has long wielded over talent agents. Currently, only agencies franchised by SAG are allowed to represent SAG members so if the union feels that an agency has treated its members unfairly, it can withdraw its seal of approval. Personal managers are not franchised by SAG.

They also aren’t regulated by the state labor board, which licenses agents. Under terms of their licenses, agents are forbidden from both representing talent and producing content in which that talent appears, but managers have no such restrictions.

The battle between the agents and SAG is the latest in a series of economic upheavals hitting Hollywood as new technologies like cable and the Internet become mature businesses, and vertically integrated media giants grab control of studios and TV networks.

Before these shifts, highly paid talent agents dominated Hollywood by controlling the top stars and earning millions of dollars on movie commissions and packaging fees from TV shows sometimes taking in more than the producers of the shows themselves. Michael Ovitz, one of the co-founders of Creative Artists Agency, became as powerful as the movie moguls with whom he negotiated contracts, and in some cases, more powerful.

Indeed, Ovitz himself is among the leaders of the new trend that is seeing talent agencies displaced by personal management firms. His management company Artists Management Group has corralled some of the biggest stars in Hollywood, not to mention some top former agents.

Agents hope to halt defections

ATA says its proposals to SAG to change the rules of representation are aimed at stemming the flow of agents to personal management firms, which can generate production fees for the films and TV shows in which their clients appear. Many of the young agents who have migrated to management firms are considered among the best and brightest in their industry.

The key reason is money. Instead of charging 10 percent for representing a client, managers usually charge 15 percent, and that doesn’t count the fees they take in as producers.

“The association is interested in addressing issues that make the talent agency business stronger, not weaker,” said Karen Stuart, executive director of the ATA. “Some of the regulations have caused agents to leave the business, and our goal is to negotiate a new agreement not only to stop the proliferation of agents leaving the business, but also to serve as a vehicle for new opportunities to open businesses.”

Although ATA officials have declined to list the specifics of their proposals, one of the key subjects of negotiation involves the relationships between talent agencies and other entities. Under SAG’s franchising rules, agents are not allowed to own stakes in production companies, ad agencies or movie studios in short, the operations that employ actors.

The ATA wants that rule eliminated. Conversely, the proposal would also allow these production entities to buy talent agencies, or an interest in an agency.

The agents have long felt that their industry is hampered by archaic rules dating back decades that prohibit them from capitalizing on the dramatic changes in the entertainment industry.

Not a level playing field

They are also irked by allegations that SAG is not enforcing its own rules when it comes to management firms. Both SAG rules and state law specify that agents are supposed to be the only representatives allowed to seek out work and negotiate contracts for a client. Managers, historically, are only supposed to guide a client’s career.

But the lines have blurred, with managers working out the fine points of deals. And neither SAG nor the state has stepped in to stop them, agents charge.

“SAG let the personal managers go too far without being regulated,” an agent said. “The genie is now out of the bottle and they haven’t got a choice.”

Agents close to the negotiations believe that if managers continue to have the power to sign deals on behalf of talent, it threatens the very existence of talent agencies.

“Let’s put all this production business aside,” said a senior official at a major agency. “Everybody should be subject to the work rules. Nobody but agents should have the right to negotiate a contract for employment. We want SAG to enforce the work rules, and they haven’t been doing it. Managers should be regulated, too. We want the playing field to be level.”

He added that it would be foolhardy for agents to rush out and try producing projects because they have no experience in that area. They also could find themselves having to deal with financing of films, which is always a risky proposition.

“We don’t know if they can produce,” he said.

A deal unravels

SAG and the agents appeared to have reached a deal last February when the union’s leadership agreed to allow more flexibility in the talent agency agreement.

“We had a handshake,” said an agent familiar with the talks.

But at the 11th hour, SAG President William Daniels opened the vote to the union’s membership a move opposed by the agents. In March, the agents withdrew their earlier proposal, but on April 20 sent SAG a list of proposals to change the current 76-page set of regulations that cover the relationship between SAG and the agents.

At a La Brea Tar Pits rally last week in support of the SAG/advertiser strike, Daniels said the union leadership moved too quickly in endorsing a deal with the agents.

“The union needed to slow down,” Daniels said, adding that SAG would carefully study the proposals during the next six months. SAG is expected to create a negotiating committee to handle the talks between the agents and the union.

Daniels said the biggest concern of the membership was the potential conflict of interest that could arise if an agent were given the ability to produce content. A producer’s main concern is lowering costs, while an agent’s main concern is getting as much money as possible for the talent involved; that conflict, Daniels believes, could ultimately prove damaging to actors.

Another conflict could occur if a talent agency is bought by a studio or production company, or if an agency buys a studio or production company. These entities would be likely to demand that a performer receive lower wages to maintain the profitability of the enterprise.

“The core of the issue is, SAG is unable to enforce on its members the requirement that a member have a licensed agent negotiate a deal,” said Jerry Isenberg, chairman of the Caucus of TV Writers, Producers and Directors. “Certain high-profile talent is avoiding agencies and now has managers. This is untenable in the long run for the agents, or at least they think so.”