After trying for three years to reinvent the management business, Michael Ovitz’s AMG melted down last week — a development with implications for several young management companies fueled by equally big ambitions.
These companies use a model of a mini-conglom, designed to link management clients into a dizzying array of opportunities (films, TV, new media, merchandising, etc.) while the company stakes a claim in those businesses.
These companies are far from the cigar-chomping managers who used to enter nightclubs through kitchens to find new talent.
The new approach is being revved up by several factors that are forcing managers to try something different.
Managers are feeling threatened by the fact that all rules are off for talent agents since the Screen Actors Guild has thrown out its long-standing agreement with them.
But arguably the biggest factor leading to management reinvention comes from the TV biz.
For decades, management companies (as well as agencies) packaged series, and the steady income from hit shows served as a buffer to the occasional leaner days.
Now networks are exerting more control and ownership of TV series, meaning management companies are facing the loss of these cash cows in the next few years.
In addition, there are fewer pilots and fewer producer deals, and management companies are loath to make deficit financing deals, which are an inevitability in the TV biz.
Making their jobs more difficult, managers are simultaneously forced to keep pace with tectonic shifts in the film and music businesses.
Today’s management landscape covers the gamut, from one-person shops handling a handful of clients to behemoths like 3 Arts and Industry, which manage actors, writers and directors and occasionally produce their films or shows.
But many of these new-style companies embrace more wide-ranging plans that encompass areas not usually linked to management.
Even if Ovitz’s approach didn’t work out — he invested an estimated $100 million of his money in the various ventures — he fueled a race to redefine the management biz.
Most of the new breed see AMG’s collapse as a warning, but refuse to see it as a deterrent. The question is: Can these young Turks succeed where Ovitz, the original paradigm-eating young Turk, stumbled?
There are several candidates for his crown:
- The Firm, the 4½-year-old company that acquired many of AMG’s clients and managers (and much of the debt of the failed venture). Owner Jeff Kwatinetz has pioneered the move into many areas previously untouched by traditional management.
- Mosaic, launched in July 1999, which merged two well-established entertainment ventures to create a company with ties to films, television, music production and artist management. Mosaic unites prominent film-music company Atlas Entertainment and Atlas/Third Rail Management with talent managers Gold/Miller Co. Backed by cash from a big Canadian pension fund, it since has bought Dick Clark Prods. and a music publishing concern and partnered with international producer-distribbery Signpost Films.
- Ten-year-old Immortal Entertainment, which operates a record label and runs businesses that create soundtracks and promote tours while managing the careers of an eclectic roster of musicians, actors, athletes, directors and screenwriters.
Original, a partnership between Sony-based feature producer Neal Moritz and former Endeavor partner Marty Adelstein, boasts a power list that includes David E. Kelley. But its partners reject the conglom-building aspirations of their competition, forsaking breadth for focus.
“With the current global consolidation of advertising and media companies into vertically integrated entities, artists are at an economic and creative disadvantage,” says the Firm’s Kwatinetz.
His solution? While talent management has been the Firm’s foundation, it has quickly absorbed assets far beyond Hollywood norms. In addition to a production division, sports clients and music publishing, the Firm owns the Pony sneaker brand and has a joint venture with Build-A-Bear Workshops. The company is working to rebuild Pony, and Bear is a solid revenue generator; both are seen as franchise entertainment possibilities.
Aside from opening opportunities to clients, the approach gives the management firm a stake in these companies, and helps minimize the chronic headache of traditional managers: the ebb and flow of clients’ successes.
Mosaic has its own strategy. That aggressive approach has been funded in part by the $100 billion Canadian pension fund, CDP Capital.
Offshoot CDP Capital Entertainment is both an investor in Mosaic and partner with it in several other deals, including those for the Hamstein (now Mosaic) music catalog, Dick Clark Prods. and Signpost.
CDP is also one of MGM’s biggest shareholders after Kirk Kerkorian, while CDP managing partner Henry Winterstern sits on the boards of Mosaic, MGM and Signpost.
“We saw a management company as the right play for us because we were not precluded from making other investments,” says Winterstern.
He credits the Mosaic relationship with accelerating CDP’s involvement in Hollywood, providing key advice as it invests heavily in entertainment. Since its initial Mosaic investment, CDP has committed as much as $400 million to various Hollywood deals.
Some of the deals have been about gaining access to distribution networks, film libraries and music publishing assets that have hard-dollar values, rather than the soft numbers attached to management deals.
“They aren’t businesses that one day you’ll wake up and say, ‘Oops! Mosaic lost all it’s money in music publishing!’ ” says Mosaic CFO Allen Shapiro.
Since first buying in, Winterstern has been working with Mosaic to knit together relationships with its various investments, including Signpost and Mosaic projects at MGM.
Pundits give Shapiro and Winterstern high marks for brains, and the fat bank account that Winterstern controls gives Mosaic financial backing few management firms can match.
Going big has advantages, says Immortal’s Happy Walters. The company has a unit that handles traditional management chores for movies, sports and music, but also boasts an events unit and a record label as well as TV and feature production units.
Walters himself continues to work as a music supervisor on films such as “Blade II” while leaving substantial day-to-day control to the autonomous heads of each unit.
“I think there’s strength in numbers,” says Walters, a reason why he predicts smaller boutique managers will probably consolidate with larger operators in coming months.
Merging with a bigger shop can protect a small-time manager from the devastating impact of even a single client’s departure and provide the capital, packaging and production opportunities that keep clients from leaving in the first place.
On the other hand, rapid growth for its own sake has its downside.
“I didn’t know AMG, but I’m guessing it didn’t integrate very well,” Walters says. “They probably tried to do too much too fast. We’ve been building for 10 years.”
Despite its range of businesses, Immortal remains at about 50 employees. The Firm, by comparison, is at 200 employees, having swallowed the bulk of AMG’s assets.
More management congloms are likely in the near term, as rapidly growing but smaller boutique shops like Kaplan/Perrone, Benderspink, Bondesen/Graup and Foursight look for safe harbors in a market in flux.
The growth and diversification plan provides the very model of a modern management company — but not everyone is sure that’s a business model they want to follow.
Billionaire Haim Saban, flush with cash from the sale of his stake in the Fox Kids Network to Fox, wants to get into the management business — just not the way Kwatinetz envisions it.
In several conversations about investing in the Firm, Saban says Kwatinetz has made it clear that he wants to become the next AOL TW, and Saban blanches at the thought of investing in a management compa
ny that wants to be so many things.
“For that,” Saban said in a recent interview with the Los Angeles Times, “you’d need a couple billion dollars.”
Original’s Moritz and Adelstein are equally skeptical of the mini-conglom approach.
Moritz says Kwatinetz approached him about a merger last year but that Original eventually balked.
“I kept asking myself, ‘How does this help me build my business?’ ” says Moritz, “and I couldn’t figure out how.”
Adds Adelstein: “For a service business to put together these disparate assets requires you to take your eye off the business, which is always bad. I think you’re going to see a lot of these congloms divesting and stripping down to their core businesses.”
The lessons of AMG have not gone unabsorbed.
The new mantra seems to be slow growth.
“It’s very difficult to be a personal manager and be in other businesses,” concedes Mosaic’s Shapiro. “Every time that phone rings, and it’s a client, you take that call. And rightfully so. But then, your eye is not on the other businesses — which is why they have me.”