Hollywood's New Deal

SAN FRANCISCO (03/05/2000) - Last month, the Endeavor Talent Agency in Beverly Hills unveiled a big idea: Form an editorial board with Broadband Interactive Group to dream up broadband programming for the Internet.

The deal, which gives Endeavor an undisclosed stake in BIG, focuses on creating content that marries Endeavor's experience in story-line development (the agency's roster includes such luminaries as Ally McBeal writer David E. Kelley and Seinfeld cocreator Larry David) with BIG's technological know-how. "We looked at models like Pop.com, [television producer] Brad Grey's [Z.com] and Digital Entertainment Network," says Endeavor partner Marty Adelstein.

"Basically everyone's been through here. BIG seemed the most well rounded."

BIG was formed in October from the merger of sports media company Gotcha International and some assets of Broadcom, which makes chips that drive 80 percent of set-top boxes. BIG's goal is to create niche content channels that will ultimately be distributed through broadband pipes. The first, Bluetorch, targets extreme-sports enthusiasts. The creation of the editorial board followed soon after Endeavor revealed a partnership with Web developer KPE to "incubate Web businesses" for the talent agency's clients.

The moves have kept Endeavor in the new-media headlines alongside similar Internet-focused deals by mainstays Creative Artists Agency, International Creative Management and the William Morris Agency. Such efforts are increasingly common in the century-old talent agency industry, whose players want to make sure they get their piece of the Internet pie. But the agencies are finding that on the Net, the old rules don't apply.

Typically, an agency takes home 10 percent of every deal it lands for its clients. On top of the hefty commission, the agency gets an interest in future renditions of a creative product - for example, a television show that goes into syndication - known as royalties and residuals. But the model has yet to find an equivalent on the Internet. A big factor is that Net content companies are often cash-poor and can't afford to pay commissions or packaging fees normally expected by agencies. Instead, says Endeavor partner Ari Emanuel, fees are converted to equity in the company. And while the payoff can be big, it's unpredictable.

Agencies are also concerned about the lack of protection they have in deals involving traditional entertainment programs that find new lives online.

Whereas traditional industry groups like the Screen Actors Guild have established regulations that guarantee agencies residuals for TV syndication deals, there are no rules outlining whether or how agents get paid if those shows reach the Net. The absence of industry guidelines for Web residuals may be a matter of practicality. Audiences for online entertainment haven't reached a point where a per-click or per-viewer model would make sense. For example, Shockwave.com, Macromedia's entertainment site, boasts 35 million visitors per month, but it does not break out numbers for individual site areas or shows, of which there are hundreds. By contrast, ABC network program NYPD Blue pulls in 17.9 million viewers for one hour each week.

"The biggest challenge for agents is that the Internet does not yet provide a cash-flow opportunity in a deal-by-deal [agency] business, based on commissions. [Internet] ideas are not immediately monetizable," says Leonard Armato, CEO of Management Plus, which counts NBA player Shaquille O'Neal among its clients. Says a former agent, "If you want to get involved with the Internet, you've got to put up some money; you've got to take some risk." But that's something agencies aren't used to doing. And when it comes to new media, they're still hedging their bets.

No doubt they haven't forgotten their efforts in the mid-1990s to participate in interactive software developments like CD-ROMs. Around that time, agencies launched interactive divisions to make the CD-ROM business an additional outlet for their clients as well as to strike deals on behalf of software developers.

But the two industries suffered from severe culture clash, and when CD-ROMs failed to take off, many agencies were left feeling burned.

Still, many talent agents are hoping things will be different this time. For one thing, more senior partners are getting involved in their clients' online dealings. Every partner at Endeavor is looking for Internet deals for clients.

At the William Morris Agency, senior partner Mike Simpson was instrumental in negotiating deals with Shockwave for clients Trey Parker and Matt Stone, the creators of South Park, and director Tim Burton.

Some former agents have launched their own dot-com companies, including former ICM agent Steve Stanford, cofounder of animation startup Icebox.com, and former William Morris TV agent Bob Crestani, who incubates corporations as part of his Inter-Content Group. William Morris has been the most aggressive dealmaker in the Net space recently.

An eight-person corporate advisory board on new media has evaluated the field for clients for the past eight years. The agency has also signed Internet companies like About.com as clients. In this relationship, the agency becomes an extension of the Internet firm's business-development arm, developing and closing partnership deals. Other agencies haven't been quite as ambitious. CAA was seen as an early leader, setting up an in-house "media lab," which housed demonstrations of the latest, greatest new-media developments. But sources say it hasn't been updated and is little more than a dusty hall of artifacts now.

Last June, CAA inked a deal with Internet incubator Idealab to create a slew of entertainment-themed Web properties tied to the agency's client list. So far, nothing has come of that agreement. And though ICM CEO Jeff Berg is a familiar face among the Silicon Valley set and is widely regarded as an advocate for new media, the agency itself is hardly viewed as cutting-edge anymore. ICM has found it especially difficult to keep up since losing its new-media chief Stefanie Henning last year to Shockwave.com, where she is president.

Some in the talent agency business say agencies aren't moving quickly enough because they view the Web as a threat. "Agencies realize their businesses are in major, major trouble once you have an artist with the ability to communicate one-to-one with consumers," says a former agent. Indeed, talent agents haven't locked up relationships with Internet companies the way they have with television networks and movie studios. Did someone say "disintermediation?"

On the other hand, Endeavor is hoping its deal with BIG will serve as a model for creating tight relationships between agents and Net companies. Says Adelstein, "It gives us access to providers" of technology in the broadband space. Adelstein and BIG CEO Matt Jacobson insist their partnership does not mean that all Endeavor clients will be automatically directed to the broadband company. However, the deal ensures that Endeavor gets a piece of any agreement between its clients and BIG. Since industry groups' rules - written or unwritten - have not yet extended to the Net, agencies are on their own to protect their incomes.

There may be relief in sight. The Association of Talent Agents, for one, has created a committee based in San Francisco to protect agents on the Internet.

Furthermore, new proposed rules from the Screen Actors Guild, to be voted on March 7, would change the way agencies do business in general. SAG is expected to approve an agreement that would allow agencies to take ownership positions in offline media and production companies, and vice versa. It makes Endeavor's move look prescient. After all, the Internet Economy is all about equity.

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