A Starring Role for Hollywood Agents?

You know the joke. . . . The Devil approaches a Hollywood agent and offers him a deal: He can represent any 10 stars he desires in exchange for his immortal soul.

The agent ponders for a moment and then says, “OK--but what’s the catch?”

Lately the punch line may be the same, but the temptation facing today’s super-agencies is even more lucrative. The rise of new-media technologies and digital networks is creating opportunities agencies haven’t enjoyed in more than 30 years. The choices that a Creative Artists Agency, William Morris or International Creative Management are making now will help determine who gets to set tomorrow’s new-media markets agenda: the studios, the cable companies, the Baby Bells, the software entrepreneurs or the Hollywood agencies themselves.

Conceivably, agencies could become even richer and more influential in tomorrow’s pop culture business. Or they could just as easily blow themselves up by cutting the wrong deals or entangling themselves in a web of conflicting interests that compromise their credibility as honest brokers.

The point is, the agencies that succeed will no longer be just agencies.

As rich and powerful as Hollywood’s super-agencies may be, they’re forbidden--thanks to the antitrust legacy of Jules Stein’s MCA--to produce movies or network television programs. Consequently, their core business is being talent brokers and packagers. That’s a terrific business for today’s media, but what about tomorrow?

On the other hand, there’s absolutely nothing preventing agencies from taking an equity position and producing a video game or a CD-ROM disc or an infomercial or an on-line network service or a multimedia operating system standard. By virtue of their relationships with the creative and technical worlds, the agencies have the chance not just to represent the future but to own a piece of it. In other words, the new media are forcing agents to choose whether to be merely agents or to also become principals.

“There’s a definite schism about this in the agency business,” says William Morris President Jerry Katzman.

Hollywood historians may comment that new media pose precisely the same strategic dilemma that faced Jules Stein and the Hollywood agencies during the rise of network television. Agents in those days could also be producers--and some were, until the government barred the practice.

Today’s situation is analogous. Take 3DO, for example, a once-hot but now troubled video game console company that aspired to set a new industry standard in home entertainment. Suppose an ICM or CAA had taken a 10% stake in 3DO in exchange for helping assure the active software development support of Hollywood’s creative community, as well as the marketing rollout of the machine.

At one point after the company went public, that stake would have been worth more than $45 million. If 3DO had succeeded, the agency would have had the inside track--for itself and its clients--on the future of interactive multimedia.

So what happens to Hollywood deal making when the sweet smell of success comes as much from equity investments as client relationships? In fact, couldn’t some of those equity investments actually come from those longstanding client relationships?

“This is obviously a hot subject for us,” Katzman says. “My own view is that we will always be in the agency business. That’s not to say that we aren’t in these various other businesses. We may have to reinvent ourselves and the way we do business.”

William Morris does, in fact, have equity investments in a handful of new-media companies, ranging from digital production to infomercials, says Katzman. But he points out that “most of these companies are start-up companies; they want our ability to represent them, but they’re not able to pay commissions at this time, so we’ve taken equity positions instead.”

William Morris, he says, believes it can best represent its clients by not becoming principals in businesses that might compete against the studio or create conflicts of interest that could undermine its advisory relationships with clients. Should that mean slower growth, so be it.

“In our core business,” says ICM’s Jeffrey Berg, who has been outspoken in his description of the potential of new-media technologies to transform Hollywood, “we’ve made a decision in our agency to remain representatives and not principals. . . . We just did the licensing deal with Broderbund/Random House”--the deal that will make Dr. Seuss interactive--”and we probably could have put ourselves in the deal, but we didn’t feel that was appropriate.”

However, Berg quickly adds: “In new forms of electronic publishing like CD-ROM, it’s likely we’ll have a different role. . . . We’re not really looking to become investment bankers, but we are rethinking the mission of the firm. Our agency has begun to commit substantial time and resources to begin serving these markets, but I don’t think I can go further with you on that. We are rethinking ourselves now more in terms of being a communications agency, not just a talent and literary agency.”

“This is not about stock options,” insists CAA’s Michael Ovitz. “This is not analogous to the 1960s, when talent agencies wanted to go into an existing business with established rules. The reality is that this window of opportunity is totally unique. The chance to be the connective tissue for these creative communities is the opportunity.”

While CAA does have a few equity investments in new-media companies, Ovitz dismisses them as mainly trade for service, rather than being part of any strategic redefinition of his firm.

However, it’s clear that CAA is hoping to rewrite the traditional rules surrounding agents, clients and investments.

But fundamental issues remain: Agencies that choose solely to represent their clients may lose their best chance ever to influence the future of their industry. The agencies that choose to invest in the future run the risk of no longer being agencies--of valuing equity deals over client relationships. They run the risk of losing their franchise in a bid to help define and own the future.

But more than who gets to own--or run--which studio, cable company or Baby Bell, how these issues get resolved will determine who reaps the rewards from tomorrow’s new-media opportunities.