Disquiet on the Set as Shops Try to Ignore Elephant in the Room: SAG Contracts

Demand for Digital Video Conflicts With Industry's SAG-AFTRA Contract

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Credit: Illustration by Matt Collins for Ad Age

When Olive Garden sent out a request for proposals in its ad agency search last month, it tucked an unusual item in among the boilerplate criteria: "Experience working outside of SAG agreements." It was couched gently as "Nice to Have," but it's no casual request, and it's becoming more common as pressure builds on the industry's latest major fault line—talent costs in a business that now endlessly demands new content.

The rapidly changing marketing environment is creating a skyrocketing need for digital video as budgets stagnate or decline, and that is crashing up against the ad industry's contract with the Screen Actors Guild-American Federation of Television and Radio Artists. Often referred to as SAG-AFTRA or just SAG, the group sets a floor under the rates for talent. "The more online becomes the main viewing habit and the more prevalent viewable video becomes, something has to change," said a C-suite agency executive, one of more than a dozen senior executives who spoke to Ad Age on condition of anonymity because of the sensitivity around the subject. "We're using so much more of the talent that you can't pay the same rates as when you created just a few TV spots a year."

Worse, the playing field is uneven and only tilting further, say agencies who have contracts with SAG-AFTRA. Decades-old agency networks are all locked into SAG contracts that commit them to using SAG-AFTRA actors at SAG-AFTRA wages. But many independent agencies, large digital agencies and even creative shops that came of age in the last 10 years have declined to sign, reserving much more flexibility in casting and pay. Nonsignatory agencies include 360i, R/GA, Digitas, Droga5, 72andSunny and Anomaly.

"The signatory agencies are at a competitive disadvantage with low-cost, high-volume work," said a lawyer that represents multiple agencies. "With those projects, the way talent is compensated is such that the talent costs are cost-prohibitive to deliver within budget."

Even marketers that have themselves signed with SAG-AFTRA, meanwhile, are putting the pressure on. "Clients that are signatories are telling agencies to find a way around the SAG contract," said one industry executive. So are non-SAG marketers. And both groups are pulling productions from signatory agencies that can't work around the contract when required, the executive said, declining to provide examples. (Olive Garden did not return a call for comment on its RFP.)

Now the industry is preparing to fight for the fix—whatever that may be; nobody seems to know yet—as the industry SAG-AFTRA contract comes up for renegotiation in February. Marketers and agencies have quietly started discussing potential resolutions to bring to the table when talks begin. Depending on the outcome, the new contract could have a major effect on the ad industry, marketer budgets and even the kinds of creative executions agencies produce.

For its own part, SAG-AFTRA wants to bring more agencies into the fold, which would level the playing field but intensify the challenge for marketers. "One issue we're looking at is where advertisers are going to nonunion agencies, like many digital agencies are, to produce work," said Lori Hunt, national director of commercials and corporate/educational and nonbroadcast contracts at SAG-AFTRA. "It's commercial work they are producing, and that is work we need to capture for our members."

Many agency people, especially creatives and producers, say they support SAG and its mission to ensure livable wages for actors. But talent is often one of the biggest expenses clients incur. That's true especially in digital productions, where talent costs often make up much larger percentages of much smaller budgets. That makes it difficult for SAG-AFTRA agencies to keep high-volume digital content reasonably priced. And some of today's complexities weren't even dreamed of when the last deal was struck in 2013.

"People should educate themselves about what's going on in media these days on both sides," said Nancy Hill, president-CEO of the 4A's, which will be negotiating the new contract in tandem with the Association of National Advertisers. "Everyone should make sure they understand all the nuances of speed, budget, quality and usage -- like something that's up for 24 hours and something that will run for 21 months -- and what's the difference between the two."

The interim solution for many shops are workarounds. Some executives said they often try to make digital video that falls outside SAG-AFTRA definition of commercials, which looks for elements such as "program openings and closings which mention the advertiser's name, product or service." Figuring out how to avoid the definition while still meeting clients' goals is a time-suck, to say the least.

"I have anywhere from three to eight meetings a week just to talk about how to cope with this," said one top production executive at an agency.

"I don't want to have to think about these things, and I find that I am," said one chief creative officer. When creatives calculate wrong, there are conversations before committees set up to adjudicate disputes, followed by private settlements that are typically passed back to the marketer.

SAG-AFTRA signatory agency execs generally think that Vine videos of agency employees or other non-SAG-AFTRA actors would not raise eyebrows, though that is a risk, and SAG has looked at those media. "It doesn't matter how long it is, how short it is or what platform it's on," said Ms. Hunt. "I understand advertisers are trying out new media, but they are still trying to promote the brand. ... They may be calling it branded entertainment, promotion or PR, but when the consumer looks at it and we look at it, it's often still a commercial."

But many shops wish there were more solid guidelines. "It's really murky and subject to interpretation," said another senior-level creative. "One of the questions is, how risk averse are the lawyers involved from agency to agency?"

Nonsignatory agencies, meanwhile, can produce content they want quickly, cheaply and without restriction. Those agencies also have the ability to bring in third-party intermediaries such as Talent Partners, which was acquired by Extreme Reach in June, when their clients do want something like a high-budget TV ad with the best-quality SAG-AFTRA talent.

In short, they get it both ways. "Clearly the unsigned agencies see the value in using SAG members when they want to," said Ms. Hunt of SAG-AFTRA.

SAG agencies often talk of shooting in Vancouver, Brazil or even Budapest to lower talent costs without the union, but travel can be expensive. They can choose to shoot lower-cost ads without humans, but not every situation calls for that creatively. Signatory agencies also hesitate to upset SAG because they need access to good journeyman actors, and they especially don't want to lose access to A-list celebrities when a client wants a big splashy Hollywood campaign.

There's chatter among agencies about moving work to sibling shops in the same holding company that aren't signatories, but executives would not or could not name culprits, either because they did not know for sure, or because they did not want to implicate another agency. Some agencies fear any missteps could result in SAG-AFTRA looking further into an agency's output. "You do not want SAG auditing you," said one senior agency executive.

And anyway, side-stepping the union, some agency people worry, means going against the purpose for which it was intended, which is to protect actors and make sure they are paid.

"No one's trying to rip anyone off," said a chief creative officer of a signatory agency. "It's just how do you afford to do what clients are asking for now? There's a constant flow of material, and we can't afford it."

One potential workaround for SAG-AFTRA agencies, however, could be to fill the web with a lot more "man on the street" ads and contests asking consumers to make videos for brands. Given notions that the millennials consuming so much digital content want more "authentic" advertising and more chances to express themselves, the creative case is already there. So are the SAG-AFTRA loopholes.

When the contract was last negotiated in 2013, the union agreed to exempt certain types of content when it runs online, including user-generated or crowdsourced commercial content, à la Doritos' annual Super Bowl contest soliciting ads from consumers. Under this provision, Doritos had to pay SAG-AFTRA rates for ads that ultimately ran in the Super Bowl, but didn't have to pay for countless contest submissions that were posted online and viewed by millions.

Other online content that was exempted from the contract in 2013 included live-event content, man-on-the-street commercials and hidden-camera commercials. Crowdsourcing contests are permanently exempt while the other waivers are currently set to expire in March 2016.

"You could argue that narrative commercialmaking certainly will always be there, but it's conceivable it could become a minority," said a senior production executive. "It's not there yet, but you could say half of client needs now are nonnarrative-based content creation."

Despite the challenges, most agency people support SAG-AFTRA, saying that without it, struggling actors would get taken advantage of and advertising would often look less professional. "It's a good organization that's putting controls around talent payments," said another chief creative officer. "I don't think a world without them is a good world. I can imagine what it would be like if SAG wasn't around -- it would be a bit like the Wild West."

"There's no bad guy in this story," said one senior agency executive who is also an actor with a SAG card. "SAG is only trying to protect their members. But what are the market forces doing here and how can SAG figure out a way to make sure that professional actors are getting paid fairly in an environment that may not want to pay a premium for professional actors? The agencies aren't trying to bust the union. I think brands just want to get their content done within their budget."

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