The merger comes as fierce rival talent agencies CAA and ICM unite in order to survive in a post pandemic Hollywood
Creative Artists Agency completed its acquisition of ICM Partners, a deal that combines the two entertainment agencies at a time of tremendous change in the media and talent representation landscape.
The combination of the two talent agencies is being driven in large part by the consolidation of the entertainment industry over the past several years. As companies such as Walt Disney Co., DIS -0.28%▼ Warner Bros. Discovery Inc. WBD -3.59%▼ and Amazon.com Inc. grow in stature in the entertainment space, talent agencies are seeking strength through size as well.
CAA’s leadership said in a statement the acquisition will position the agency to better deliver for its client base. However all this comes with a price to the agencies employees. The combined company will boast more than 3,200 employees, but 105 of ICM’s 425 staffers will reportedly be let go and need to find work elsewhere.
While from all the press releases and marketing the companies are doing to convince us show this to be a positive merger and one that will strengthen them. We must remember that these agencies were once fierce competitors in talent representation. But they are going to play nice now that they are married, even though the realty of the merger is that the marriage was out of necessity. Further support of this is that CAA sued Affiliated FM Insurance for refusing to cover losses tied to business closures forced by the virus. Recently, a federal Judge rejected this claim giving a devastating loss to CAA. Why did CAA sue, because at the time well before this merger was even in its eye, they sued because they needed the revenue from the possible insurance settlement to survive. We also should note CAA is not the only one that sued their insurer, United Talent Agency’s (UTA)nearly identical suit against its insurer, Vigilant Insurance, ended the same way in a dismissal. UTA and CAA as well as other agencies sued their insurers to “metaphorically speaking” mine for gold/revenue to survive with no revenues/monies coming in and loss mounting as well as investors demanding returns on their investments, insurance agencies became their focus out of desperation to raise funds. There have been 73 lawsuits filed by companies in the industry, blaming it on COVID-19 (according to insurance litigation tracker), than on their poor management of revenues, talent, staff before the pandemic and post-pandemic.
This demonstrates the truth that no one in Hollywood is talking about publicly which is that in a post pandemic era a lot of talent agencies had trouble generating revenue including thee three mentioned above. While the industry was shuttered for two years due to the pandemic. Due to the pandemic they had trouble maintaining their influence in the industry which hit their bottom line or else why would CAA and ICM who were fierce rivals merge. It brings that old Sun Tzu saying to mind: “Keep your friends close; keep your enemies even closer.”
During the pandemic these agencies and the other large agencies furloughed several hundred employees instead of paying their salaries during the pandemic, instead of cutting their own salaries. Now due to the ICM and CAA deal we hear that another 105 employees will have to find other jobs elsewhere. This is in addition to all those hundreds of employees who were furlough/fired during the pandemic. Which in a post pandemic era in the talent agency business will be tough for these employees to find work since many agencies are not hiring as they themselves are concerned about their bottom lines and the unsure marketplace to generate revenue.
Many talent and talent representatives are leaving the larger agencies and favoring other agencies that are not these traditional agencies who have always held a strangle hold on talent representation industry in the US. So they can merge all they want but hemorrhaging staff that have knowledge of the industry is a major IP loss to that agency, which further weakens these top agencies. Proof of this is that we have seen the departure of several agents who have left these top agencies and set up their own shop as well as the talent leaving these agencies to sign with boutique agencies or smaller agencies who have adjusted well to the changing market. The market caps and revenue generation needs such as salaries, percentages, etc. are less for these smaller agencies agents and managers. We have also seen these top agencies venture into buying companies that have nothing to do with talent representation in order to survive and provide much needed revenue to keep them afloat and their investors happy.
In researching this we find this is a two fold situation. As the industry changes and moves to a streaming world, more so than the way the consumer traditionally received the offerings from studio and network TV. Smaller production companies that funnel their projects to streaming services are less likely to pay the large prices tags these agencies want for their talent to be booked on these projects and thus generating less revenue for these large agencies.
These large agencies were not prepared for this shift as it will bring in smaller revenue for them, which will be problematic for them to sustain their big paychecks and large overhead. This is why we are seeing agencies merge for survival. If the pandemic never happened then we would not see this change happen so fast as it would be a slow change process for these large agencies. But not generating revenue for two year has now caught up with them and either you merge, break apart or go out of business.
This is why we see talent shifting who represents them to agencies that have connections with smaller production companies that cater to the streaming services. They are doing this for survival too as they want to continue to work and if their large agencies can get them work they are going to shift their representation. Another reason many talent are leaving the larger agencies is that they feel their current representation will not do deals for them at these smaller revenue rates since their agent commissions will be less than they traditionally get.
We recently saw this when Nicole Kidman did Nine Perfect Strangers on Hulu. Her paycheck was smaller, but still substantial by regular streaming actor standards, but not what it was with the larger studios on project she was booked on. Who would have thought Nicole Kidman would do a Hulu show. HBO CEO Richard Plepler saw this industry shift so after the merger was finished with HBO and AT&T, he left HBO and started his own boutique production company with a staff of 4, far smaller than his staff of hundreds at HBO. He signed his first deal with Apple TV+ to provide that streaming service with content. The smart talent agents and executives have realized or seen this shift and left the larger agencies for smaller agencies or started their own.
The second part is that with each agent and talent departure it means a loss of revenue and intellectual property for these large agencies. When agents leave these larger agencies they lose that agents relationships with studios, production companies etc. as relationships in Hollywood are based on personal contacts, thats how deals get done in Hollywood and revenue is then generated. Also, with the loss of talent who leave for agencies that are aligned with the production companies that can get their projects on streaming services their revenue further suffers.
Why this industry adjustment? We are seeing a younger generation of consumers who prefer the immediacy of getting their shows and movies on demand when they want them and since they are the subscribers they get what they want when they want it. Traditionally the networks did not care about the consumers and could do what they wanted as far as producing content since they only cared about the networks buying their shows and the networks only cared what the ad companies thought who were paying for the shows. The only time a network cared about a viewer was when the viewer had a problem with an actor or show and refused to buy that shows main advertiser’s product or service until they fired the actor. Now it has shifted to the subscribers who are also the viewers who yield a lot of power on the streaming services.
Production companies have to produce a lot of content to meet the demands of these subscribers and need to turn out more and more content at a faster rate or the streaming service will lose their subscribers and revenue will drop. In order to do this they do not have the revenue in their budget to pay big salaries to big celebrities or talent since it needs to go to the production of these shows and movies at a more frequent rate. A 25 million dollar salary an actor may traditionally want through their agent might be the whole yearly budget for the streaming production company to produce content under their contract with the streaming service.
That is why we are starting to see the rise of unknown actors via these programs on the streaming services. The large studios are producing less films and shows to save revenue. They are also looking to buy content from these smaller production companies and slap their studio label on them and do deals with the streaming services to generate revenue. An example of is this Netflix’s Cobra Kai, where most do not know it was a struggling web-series on YouTube before it was purchased by Sony who slapped their label on it and then sold it to Netflix. Another project was Carnival Row, which started as a student school film project and was bought by a production company and turned into an Amazon series. Shonda Rhimes also pivoted after then end of her shows Scandal and How to Get Away with Murder ended to the streaming services with Bridgerton which is based on a book series. Book series seem to be the cheap popular go too for many of those seeking to put content on the streaming service the show Shadow and Bone is another example of this book to streaming series.
The way agent and agencies have traditionally conducted business and generated revenues has to modernize. Until this happens, we will continue to see these mergers, bankruptcies and departures etc. Unless these larger agencies and studios adapt, they too will go the way of the dinosaurs.