Talent agencies take on new roles
Talent agencies now handle finance, consulting, and more.
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| Sasha Baron Cohen, comedian and client of William Morris Endeavor, in Bruno |
(Fortune Magazine) -- Traditionally the mission of talent agencies has been to find jobs for actors, directors, and writers. In exchange, the agencies take 10% of their clients' fees -- the trade paper Variety even refers to these firms with the sobriquet "tenpercenteries." But agency upheavals like the recent merger of the venerable William Morris Agency with the upstart Endeavor suggest their world is changing. Among other things, success will depend on how the merged agency's leader, Ari Emanuel (brother of Obama chief of staff Rahm and the model for the HBO show Entourage's Ari Gold character), and his partners finesse the balance between old-style and new-style Hollywood dealmaking.
In recent years talent agencies have branched out into ancillary businesses -- like corporate consulting, which William Morris offered for Hasbro's Transformer toys, or financing, which Endeavor helped put together for director Alejandro González Iñárritu's movie Babel. But some industry veterans feel those noncore businesses are a waste of manpower -- that the agency with the brightest roster of stars and creators still wins. "They'll play around with little things, but I don't think they'll be particularly meaningful," said Peter Chernin, outgoing president of News Corp (NWS, Fortune 500)., at a recent conference.
So why do the agencies bother? One reason is to open up new revenue streams when old lines of business are contracting: Studios are releasing fewer movies, and TV networks are trimming lucrative guaranteed contracts with producers, writers, and actors. And monetizing digital ventures has been as hard for the agencies as it has for everyone else.
The agencies' urge to diversify has led to some intriguing new offshoots. William Morris now has a venture capital fund with AT&T (T, Fortune 500) and a stake in a $100 million independent-film fund set up by financier Screen Capital International, and it has nascent plans to launch a professional-content channel on YouTube with Google (GOOG, Fortune 500). (Not everything works out: Last year the agency was a partner in a blank-check company that aimed to raise $500 million for media acquisitions, but it was shelved.)
Endeavor, meanwhile, helped incubate Media Rights Capital, an independent production company set up by agents at the firm. Now separate from Endeavor, MRC has had problems in its TV efforts. But it has succeeded in producing several movies, including the upcoming satire Bruno for comedian and Endeavor client Sasha Baron Cohen. MRC's angle: It puts together financing for movies in ways that allow talent to get big paychecks upfront but also the opportunity to keep ownership rights to the film -- control of an asset that has traditionally been off the table with studio films.
The agents, barred by California law from self-dealing, stay on one side of a wobbly line in these deals by insisting they are merely helping set up new places for their clients to find work as the majors cut back.
Heavyweight agency Creative Artists has backed a film-finance venture headed by a group of former Merrill Lynch bankers. Endeavor has explored setting up a boutique investment bank with Joe Ravitch and Jeff Sine, formerly media bankers with Goldman Sachs (GS, Fortune 500) and UBS (UBS), respectively.
For all these efforts to diversify, the new lines of business probably represent less than 10% of overall agency revenues. But they are growing. Still, the newly dubbed William Morris Endeavor Entertainment must be mindful of the recent lessons of Wall Street: that there's no easy substitute for the good old ways of doing business. 
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