WME reflects changing mantra

Can Hollywood dance to agents' new step?

While the leaders of WMA and Endeavor spent last weekend finalizing their merger, CAA was busy making its own news.

The venue was Radio City Music Hall, where CAA Sports watched nine of its new football player clients selected for the first 19 spots in the National Football League draft, a record for a single agency.

The notion that CAA would count sports as one of its most important revenue generators would have been far-fetched 10 years ago, and as Endeavor chief Ari Emanuel and WMA topper Jim Wiatt meld their businesses, they will scrap for supremacy against CAA and other percenteries on battlegrounds that WMA pioneers like Abe Lastfogel or William Morris himself never dreamed of.

In the 111 years of the William Morris Agency, never has the ground shifted the way it is doing now, as agencies witness diminishing returns from cash-cow sectors like TV packaging and first-dollar-gross film stars.

Much the way that CAA veered into sports and other industries to become a high-volume business, WME and its new assets are challenged to turn talent into brands, coin startup media companies, and even bypass networks and studios by unleashing talent into their own Web programming.

There are opportunities and conflict-of-interest quandaries ahead that haven’t existed since MCA was forced to choose between producing programming, or representing the talent that populated it.

A look at the combined assets of WME is impressive. While WMA was already a power in concerts, publishing and merchandising, it had lacked something that means a great deal in Hollywood: Image.

Endeavor had an image as the hottest spot in town, started by a team of young (now nearer middle-aged) agents and fostered by Emanuel’s unorthodox methods, made all the more buzz-worthy because he was the inspiration for “Entourage’s” Ari Gold. The combination gave Emanuel and Endeavor a profile that no other agency had, and he brings that mojo to WME, along with a penchant for envelope-pushing deal-making that makes clients into brands and sells them well beyond their core businesses.

Before Emanuel and Wiatt can face the new future, they will have to get past an immediate forecast of inevitable chaos.

WME is in for a year of adjustment, beginning with layoffs that could put a number of agents on the street, along with those agents’ assistants and support staff. If that happens, rival agencies would be ready to welcome some tenpercenters who shake loose, and will look to poach clients.

On the other hand, in this economy, everyone has found ways to economize and WME may try to keep as many agents as possible, but with a revamped finance structure.

The goal is a streamlined business with assets and reliable cash flow that neither could have amassed had they stayed separate.

One rival who’s familiar with both agencies estimated that WME could use this opportunity and trim $25 million to $30 million from the new company’s annual budget. However, any initial savings will be mitigated by restructuring costs and paying off contracts (which the rival projected at $15 million), not to mention the costs of moving into pricey new digs that the agency will lease.

“If nothing else, the merger gave them the justification they needed to do certain things. Every company has dead weight, but if Endeavor simply let some agents go, the word on the street would be that they are having money problems. Merge, and it becomes smart business strategy.”

The point is, again, that image in Hollywood is all-important. CAA created a buzz merely by discontinuing validated parking. In tough economic times, Hollywood pundits seem to forgive a studio from axing 300 people, but if an agency laid off even a fraction of that number, the perception would be of an agency in crisis.

Those issues began hitting home even before WME received government approvals. Right after he closed a lucrative five-year re-up at Paramount for longtime client J.J. Abrams, WMA agent David Lonner was told by Wiatt and Emanuel that there was no place for him at WME. Lonner might rep Abrams and his other clients as a manager. Lonner has been on the outs with Emanuel since he and Steve Rabineau left their partnership posts at Endeavor years ago to join Wiatt at WMA. Rabineau is also expected to depart and land at UTA.

Endeavor book chief Richard Abate left after it was clear he wouldn’t mesh with Jennifer Rudolph Walsh, who’ll run the merged publishing operations. Wiatt and Emanuel are dealing with the thorniest of issues regarding Mark Itkin and John Ferriter, whose reality TV division is one of WMA’s most profitable. Snubbed from inclusion on the WME board, Itkin might move with Ferriter and their whole department to CAA.

Once the layoffs and culture clashing end, Emanuel and Wiatt will get on with answering the questions of how this marriage might help as the agency business continues to change. The writers strike, the de facto actors strike and the prospect that labor trouble will rear its ugly head again showed that a reliance on showrunners and movie stars is perilous.

The rising stars in the agency pantheon come in departments like music and reality TV, and in an agency’s ability to turn clients into brands that can generate fortunes in multiple platforms.

These stars can be baseball players like CAA client Derek Jeter, chefs like WMA clients Rachael Ray and Emeril Lagasse, playwrights-turned movie-TV magnates like WMA’s Tyler Perry, models-turned-gabshow hosts like Endeavor client Tyra Banks, recently signed WMA client Mary J. Blige and her music, acting and endorsement businesses, or animation show creators like Endeavor client Seth MacFarlane.

The latter’s Endeavor-brokered deal to create original animated shorts for the Web indicated the potential for agencies to bypass networks and studios and plug talent directly into distribution outlets, something that can be a game-changer for talent agencies when technology matures in several years and Web programming can be streamed directly to TV sets.

Frank Rose, whose book “Agency” covered the history of WMA (without the agency’s cooperation), is writing a book for Norton about how the Internet is changing storytelling. While surprised that the agency has altered its name to WME, he said that after WMA tamed format changes over a century, perhaps a risk-taker like Emanuel is the right person to tackle the profound changes to come when Silicon Valley brings Web programming to TV screens.

“Looking at it logically, there is no reason someone like Ari can’t make programming deals directly for the talent, bypassing the traditional networks,” Rose adds. “When any of these developments came along in the past, agents at WMA were able to figure out how to take advantage for their clients, and themselves.”

Entrepreneurial dealmaking is already taking place at both of those agencies, and elsewhere.

WMA, for instance, signed Hasbro when it placed client Michael Bay into “Transformers.” Five movie projects with top-tier writers and directors have already been set up, with WMA drawing commissions from Hasbro, which it established as a first-dollar gross producer in its overall deal with Universal.

Endeavor incubated (and part-owned) Media Rights Capital with former partner Modi Wiczyk and his Harvard Business School roommate Asif Satchu, which means first-dollar gross paydays and equity ownership stakes in films for Endeavor clients Sacha Baron Cohen and Matt Damon. A new division startup looms at Endeavor where ex-Goldman Sachs banker Joe Ravitch and ex-UBS Warburg banker Jeff Sine will plug media companies into coin. Endeavor also went the extra mile and saved “Friday Night Lights” by plugging in Direct TV for exclusive first showings, without the show losing its place on the NBC schedule.

No agency has exclusivity on the idea of exploiting brand opportunities.

UTA, for instance, has done it with Miley Cyrus and Dwayne Johnson, the latter of whom has smartly been re-cast from a wrestler to a star of family fare.

“The fundamental elements of our business will improve,
the economy has to get better and some of these new delivery systems will become mature,” said UTA co-owner Jeremy Zimmer. “DVD matured and it is no longer a growth industry, but if I had to guess the next form of ancillary revenue, it would be digital delivery over the Web. As people develop better systems, people will spend money to buy content online, and there will be great opportunities for agencies there in distributing directly to buyers, a system where you’re not so dependent on the studios for all your distribution.”

Cynthia Littleton contributed to this report.

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