SAG Board to Vote on Agency Agreement

Like the buildup to a big movie, a tentative deal allowing talent agencies to sell part of their business to advertising agencies or to link up with production companies is getting billed as a marquee Hollywood event.

But, as with a lot of things in the entertainment industry, it may not match the hype. Although agents acknowledge that the proposed rule changes hammered out last month with the Screen Actors Guild are a symbolic first step, they add that the deal hardly will cause seismic shifts in the business overnight.

At issue is a 63-year-old “master franchise agreement” that restricts agents’ business activities to protect actors from being exploited. Talent agencies say that the rules are outdated at a time when the media are dominated by corporate giants while agencies are hamstrung by limits on diversifying and attracting outside capital.

Last month the agents persuaded SAG negotiators, after years of trying, to relax financial rules banning outside investors with ties to the production of commercials, TV shows or movies.

Today, SAG’s board is expected to vote on the issue. If the changes are adopted, SAG’s rank and file will vote over the next few weeks. Friday’s election confirming Melissa Gilbert as SAG’s president bodes well for ratification, since she is a strong proponent of the deal. But there remains vocal opposition throughout the 98,000-member union, of which only 30% have agents.

The new agreement would allow advertising agencies, major advertisers and even independent production companies to buy as much as 20% of a talent agency. Agencies also could invest in production companies. Studios and their parent companies would be barred from buying into an agency.

For years, advertising agencies have been circling the talent business, looking for ways to spot the next pop culture trend, hot movie or TV series for marketing and also gain direct access to top celebrities to promote their products.

So for months, Hollywood has been abuzz that big advertising conglomerates such as Omnicom Group Inc., Interpublic Group of Cos. and WPP Group are ready to pounce once an agreement is approved, turning the talent industry on its head. But agents and advertising firms said they still have reservations about formal cross-investments. Agencies said they value their independence, and the advertising companies are concerned about the meshing of different corporate cultures.

“I don’t believe there’s going to be a sea change overnight,” said Jim Berkus, chairman of United Talent Agency. “Over time, there will be some transactions that will allow business to be done in a different way.”

Ari Emanuel, a founding partner of talent agency Endeavor, said, “Every investment banker and all of these advertising agencies have come sniffing around, but right now there’s nothing even close to being settled.... Nobody’s rushing to do anything.”

The most rampant rumor for months was that Hollywood’s leading talent agency, Creative Artists Agency Inc., already had agreed to sell a piece of the company to Omnicom. But CAA Managing Director Bryan Lourd said, “We don’t have a deal with anyone.”

There also is the looming presence of billionaire Haim Saban, who is considering trying to assemble a collection of talent agencies under one roof. Saban, who recently sold his interest in the Fox Family network to Walt Disney Co., has talked to all the big talent agencies, but he is far from forging a deal, according to various sources.

The most aggressive agency seeking outside investors appears to be International Creative Management Inc., which hired Rothschild Group to raise outside capital. ICM Chairman Jeff Berg declined to comment.

Other agents say they still wonder what they have to gain by selling stakes in their businesses. Today, a top-tier agency might fetch only $25 million for a 10% stake, which would then have to be split among scores of partners and employees.

Agencies probably would balk, however, unless they received a major premium over the presumed market value. And any deal probably would pay agents predominantly in stock, not cash.

In addition, heads of some top talent agencies still aren’t convinced they would benefit from having advertising firms as part-owners.

Major agencies, including CAA, William Morris Agency Inc., ICM, Endeavor and United Talent Agency Inc., already have forged alliances with major advertisers--among them Nokia Corp., Coca-Cola Co., General Motors Corp., Boeing Co. and Microsoft Corp.--collecting consulting fees without having to surrender partial ownership. Still, there are some circumstances in cross-ownership deals that can give agents and advertising firms the incentive to work closely together.

“We’d be invested in each other’s success,” Berkus said.

Mark Dowley, chief executive of Interpublic’s sports and entertainment group, agreed: “Nothing works as well as having [money] in the game.”

In a business where a Michelle Pfeiffer or an Arnold Schwarzenegger can fire an agent on a moment’s notice, talent agencies are eager to convert their intangible assets, representing stars, into something with a monetary value.

Agents also may want to use the extra capital to acquire modeling and sports agencies, public relations and business management firms, foreign distribution firms and post-production facilities.

Under the relaxed financial interest rules, agents for the first time would be allowed to own as much as 20% of production companies that make movies and TV shows.

But first, actors must sign off on the agreement. Some high-profile actors are lobbying hard to kill the deal because they believe it benefits only agents. They said it will blur the lines between agents who represent them and producers who employ them, creating conflicts of interest.

“This will compromise actors completely,” said Oscar-winning actor and SAG board member Richard Dreyfuss. “If you’re an actor going out on a Pepsi commercial and your agency is owned by Coca-Cola, you have a problem.”

Dreyfuss faults his own agency, ICM, and the Assn. of Talent Agencies trade group, for failing to explain the issues fully.

“I believe actors are being muscled into something they don’t understand.... This is a way of asking us to give up our protections and in some way to underwrite their wealth.”

Opponents also fear that they may be pushed into projects owned by their agencies, harkening back to the days when giant talent agency MCA and its chief, Lew Wasserman, had the clout to put their big stars in their own TV shows, while rivals were forbidden from such a practice.

Under federal pressure, MCA dissolved its agency business in 1962 and retained its studio operations.

But supporters of the deal, including some actors who helped negotiate it, said there are ample safeguards, such as requiring agents to fully disclose any business deals affected by the new rules so actors can leave their agents if they are uncomfortable.

The agreement also would provide SAG with extra money for the union’s ailing pension and health funds and a commitment by agents to assist actors in stemming runaway production and creation of a $1-million fund to pay actors when their agents fail or misappropriate money.