(FORTUNE Magazine) – No matter how Hollywood changes, one thing remains the same--talent drives the entertainment business. This was true when pioneers like Louis B. Mayer created the studio system to lock up the biggest movie stars, it was true when the talent agency MCA and its president Lew Wasserman dominated television in the 1950s, and it was true for Michael Ovitz's Creative Artists Agency in the 1980s. It's still true today--when the man to see in Hollywood is Brad Grey.

In just a few years--first with his partner Bernie Brillstein and now on his own--Grey has built their company, Brillstein-Grey, into a powerhouse: the town's hottest management firm, a thriving TV production company with ten series on the air, and a budding movie producer. Even better, he's done it using other people's money--vast infusions of cash from media giants like Sony, Disney, and Universal, all eager to get into business with Grey and his client roster, which includes television performer Garry Shandling, movie stars Brad Pitt and Nicolas Cage, comedian Dana Carvey, and about 150 others. "Brad's one of the most talented guys his age in the entertainment business," says David Geffen, recording industry mogul. "In his peer group, he's at the absolute top."

In true Hollywood style, the 39-year-old Grey, has remade himself from a pudgy kid from Buffalo who booked comedy acts into a sleek, savvy, and sophisticated executive, with chartered jets and a lavish new home. He's made lots of money for himself, his company, and his clients. The trouble is, the networks and studios that pay his bills haven't fared as well. This, in fact, may be the most remarkable thing about the rise of Brad Grey: He has made a reputation in television and persuaded the big guys to spend eye-popping amounts of money to back him without creating or producing a prime-time hit show. To be sure, he's enjoyed success on the fringes--in pay cable and late-night TV-- but his efforts in prime time, which drives the business, have produced only frustration and red ink for his backers. That's what leads skeptics to say that while Grey may be a great talent manager and a great businessman, he's barely average as a TV producer.

Indeed, Grey's most valuable skill may be his ability to exploit the insecurities of the studios and networks that live in constant fear of missing out on the next big star or hit. Four of six networks are losing money; most are losing audience too. "There's never been as much fear, greed, lack of leadership as there is in television right now," says an industry veteran. "The buyers are wildly nervous. So if you can play upon those fears, you can sell them anything." TV is a seller's market these days. And Grey's the best salesman in town.

Still, one of his most important customers is disgruntled. FORTUNE has learned that Disney-owned ABC wants to dissolve its 1994 partnership with Brillstein-Grey that put Grey into TV production in a big way. While keeping its stake in Grey's current shows, ABC wants to stop funding future projects. Grey's other major backer, Universal, remains firmly behind him. Says Ron Meyer, the president and COO of Universal: "I believe in Brad....We intend to support him."

Like Ovitz, a mentor, Grey likes to keep a low profile. He declined interview requests for six months, then called just before deadline to defend his record as a producer of such oft-praised shows as HBO's Larry Sanders and NBC's NewsRadio. "I'm very proud of what we have on the air," Grey says. "It takes years before you know whether you are going to have a hit television show." Over time, he insists, all his partners including ABC will make money from their investment in Brillstein-Grey. Says Grey: "We're meticulously and methodically building this company."

Grey has always been a man with a plan. He knew every episode of The Honeymooners and studied the comedians on Ed Sullivan as a kid. The son of an insurance salesman, he majored in business and communications at the State University of New York at Buffalo, and signed his first client, comedian Bob Saget, while still an undergraduate. Saget introduced Grey to his friend Garry Shandling, who would become the young manager's most important client because of his stature with fellow comedians. Grey attracted such up-and-coming comics as Dana Carvey and Dennis Miller, and guided them onto Saturday Night Live; in his mid-20s, he was earning $175,000 a year.

Soon after moving to Los Angeles, Grey met the legendary manager Bernie Brillstein, whose clients included Muppeteer Jim Henson and stars from Saturday Night Live, among them Dan Ackroyd, Gilda Radner, and John Belushi. The two men hit it off. Brillstein recalls: "He loved show business. I loved telling stories. And he listened, which any older guy likes." Grey proposed a partnership--he could learn from Brillstein, and in return bring in young talent. As it happened, Brillstein was growing weary of scouting new acts. "He had gotten in my mind somehow," Brillstein says. "It was so intelligent." They became a duo: Bernie, the white-haired, roly-poly, back-slapping Broadway Danny Rose, and Brad, the short, trim, perfectly coiffed executive who, to his mentor's surprise, read the Wall Street Journal every day. Says Brillstein: "He was meeting everyone, and he was absorbing--which is his great aptitude. He is a great student."

Grey is a world-class networker too. "He's always on the phone with Edgar Bronfman or someone," says comedian David Spade. Grey has cultivated Hollywood's power elite in a way that is both smart and just a little chilling: first Brillstein, then for a long time Michael Ovitz, and now, in the post-Ovitz era, Geffen, Bronfman, and the media investor Herbert A. Allen. There are residual traces of Ovitz in Grey. He slimmed down with a personal trainer as Ovitz did, and speaks in a low voice, full of portent, which a friend says conveys "that intimacy combined with intimidation that he learned, I think, from Ovitz."

Even with his friends in high places, Grey stays close to the clients who are the heart of his operation. "They know we're all a bunch of maniacs, and while it drives them crazy, they make allowances for it," says screenwriter and playwright Alan Zweibel, a Brillstein-Grey client. "I'm actually shocked that those guys give us their home phone numbers." Saturday Night Live veteran Jon Lovitz is a big fan of Grey's, not only because his income has doubled every year since he became a client, but also because of the time he called Grey for help when his uncle needed a heart transplant. "The next thing I knew, my uncle was on a plane from Denver to L.A.," Lovitz says. "And a week later, my uncle had a new heart. Brad literally saved his life." Grey is on the board of the medical center at UCLA and managed to cut through some red tape.

The bottom line is that Grey makes money for his clients--and they are steadfastly loyal. Phil Hartman, another SNL veteran, credits Brillstein-Grey for casting him in NewsRadio and doubling the fees he gets for commercials. Jokes Hartman: "If I pitched myself as strongly and enthusiastically as they pitched me, I'd look like a real asshole. I may be, but at least I'm not carrying on about it." Saturday Night Live has been a gusher of talent and wealth for Brillstein-Grey, which collects 10% of its management clients' income.

But these days, the big dollars at Brillstein-Grey are being generated by the firm's TV studio, Brillstein-Grey Communications, which makes money when it sells programs to the networks, and stands to make lots more by selling them in syndication. Unlike agents, who are licensed to negotiate contracts but are prohibited by law from producing TV shows or movies for clients, managers are free to do deals and produce. While many managers occasionally get into production, Grey has taken the business to a new level with his network and studio alliances. "Brad redefined the business for all of us," says Craig Baumgarten, a manager-producer.

Grey made his first major production deal in 1991 with Sony-owned Columbia Pictures, which for five years financed the deficits on Brillstein-Grey's TV shows, paying about $200,000 per episode for sitcoms on broadcast TV and $150,000 an episode for cable shows. This means that Brillstein-Grey, while retaining ownership of the shows, ordinarily doesn't have to spend its own money to produce them. In return, Columbia got the rights to sell the shows in syndication and collect distribution fees worth roughly 25% of gross revenues. This is lucrative if you're selling a hit; reruns of popular sitcoms like Friends command several million dollars per episode in syndication.

Next, Grey spotted an opportunity at Capital Cities/ABC. The network wanted to own more programming, but efforts to create an in-house production unit had flopped at great expense. Moreover, ABC executives grew nervous as studios like Fox, Warner Bros., and Paramount launched networks of their own. "I worried that the pipeline of product was not going to be as rich as it had been," says Robert Iger, then ABC network president. Grey was only too happy to lend a hand. "Whether it be writer, director, actor, network, or studio executive, Brad has an ability to say, 'Let me be your partner and let me help you figure out what you need,' " says former ABC programmer Ted Harbert.

The resulting partnership gave ABC a 50% stake in Brillstein-Grey Communications. For its part, ABC agreed to fund the company's overhead, development, and production costs--costs that mounted quickly as Grey spent a fortune hiring writers to create shows. ABC also got a "first look" at Brillstein-Grey programs, but not the exclusive rights to them--as Iger and Harbert would learn, as more of Grey's shows flowed to top-rated NBC.

Last year Grey pulled off his third big deal. Once again, he sold half of Brillstein-Grey Communications, this time for nearly $100 million, to Universal Studios, which wanted to increase its ownership of TV comedies. (Hollywood joked that Grey is like the character in the Mel Brooks film The Producers who sold 25,000% of his musical to backers. Grey, however, retains full ownership of his management business.) Universal wanted to be in business with Brillstein-Grey for the same reason Sony and ABC did: Their executives think Grey and his clients will produce comedies that will become big moneymakers in syndication. "Brad has a roster of really young, contemporary talent that is exactly what you're looking for when doing these comedies," says Greg Meidel, the chairman of Universal Television.

But Grey's three major deals have one thing in common: While making scads of money for Brillstein-Grey, they have yet to pay off for his backers. That's not entirely surprising, since Sony, ABC, and Universal all figured that they were investing for the long haul. "Since we did our deal, he's had more shows on the air, not less," says Universal's Ron Meyer. "The odds are that at least two or three are going to pay off." Certainly Grey has proven that he can get shows onto the network schedules, no small accomplishment.

Brillstein-Grey's track record as a producer, however, isn't encouraging. The company's signature program, Shandling's Larry Sanders Show, has been a great property for HBO, generating critical raves and Emmy nominations. The trouble is that even after five seasons, reruns of Sanders haven't been sold because their value is questionable. The show, about a late-night talk show, was written for pay cable, with coarse language and no commercial breaks. What's more, even by HBO standards the program isn't high-rated. "The very things that make it a great show would not make it a big hit," says an ABC executive.

Other Brillstein-Grey productions stand no chance of paying back investors because, like most TV shows, they were cancelled after a season or two on the air. Among them: the NBC sitcom called A Black Tie Affair; CBS' Good Sports, with Ryan O'Neal and Farrah Fawcett; a much-touted ABC sketch comedy starring Dana Carvey; and The Jeff Foxworthy Show, which failed on ABC and NBC.

The jury's out on the rest of Grey's production slate. Two NBC comedies--NewsRadio and The Naked Truth starring Tea Leoni--have yet to catch on. Both will be back this fall after further revamping, along with Just Shoot Me, another NBC sitcom. Two other shows, an ABC police drama called C-16 and Alright Already, a WB sitcom, debut soon. Besides Larry Sanders, Brillstein-Grey's most successful production has been the talk show Politically Incorrect, with Bill Maher, which gets good ratings following Nightline on ABC. Grey says Politically Incorrect alone should repay ABC's investment because it has given the network, "a late-night franchise they haven't had."

Grey's detractors say his failure to produce a prime-time hit is no accident. His talents as a manager and an executive don't necessarily translate into TV production, which requires the ability to work with writers, and create and fix shows. In fact, Grey isn't involved day to day with most of the shows, although he collects an executive producer's fee of up to $50,000 per episode for every show he gets on the air. Alan Zweibel, a Grey admirer, wonders whether the writers at Brillstein-Grey are the right fit for prime-time TV. "It would be hard for anyone who came out of Saturday Night Live to write something that's terribly mainstream," he says.

Disney and ABC executives have lost confidence in Grey's ability as a producer, which is one reason they want out of a partnership that has cost them $100 million. "We could have cut ourselves a better deal," Iger says. ABC also has less need for Brillstein-Grey now that it is part of Disney, which has its own TV studio. Besides that, Disney execs, at that time including Ovitz, were infuriated after Grey made them fifty-fifty partners in his company with their longtime rival, Universal.

Grey's ambitions have also provoked grumbling about the conflicts of interest that inevitably arise when Brillstein-Grey functions both as the producer of a show and the manager of its writers and cast members. As executive producer, Grey is paid by the networks to make the best possible show; as a manager, he's supposed to support his clients. So what happens if the network wants to replace an actor managed by Brillstein-Grey? Is Grey working for his clients, or are his clients working for him? "There will be difficult situations now and then," Grey says. "It's all about how you handle them."

By most accounts, including those from clients, Grey has proven to be an honest broker when balancing the needs of the networks with those of his clients. But complaints surfaced when Grey found it hard to be tough with clients Dana Carvey and Jim Belushi while developing shows for them. More broadly, a key rationale behind Grey's production deals--that he would deliver his clients to his network and studio backers--raises questions about whether he steers clients who might be better off elsewhere to his own production company. A case in point: Grey recently took on Cher as a client, and she's looking to do a TV sitcom, either at Brillstein-Grey or at a rival studio. It'll be interesting to see where she lands.

What's next for Grey? He now runs all of Brillstein-Grey, having bought out Brillstein's share with the money from the Universal deal, a move that set off whispers that Brad had shoved Bernie aside. Not so, Brillstein says: "I didn't go, maybe, as gracefully as I should have, but I'm really happy now." A priority now is movies: Grey is developing a Universal movie for a new client, the writer Elmore Leonard, to be based on his forthcoming novel Cuba Libre and written by Joel and Ethan Coen of Fargo fame. Grey is also producing a Broadway musical written by singer-songwriter Paul Simon. But Grey knows that, more than anything, he needs a hit TV show to silence his critics. With one, he's golden. Without one, he could become another Ovitz--a very wealthy man with a reputation for promising lots more than he can deliver.