How Hollywood Agencies Pivoted in Pandemic: Downsizing, Streaming and Making Peace With Writers

Hollywood’s movie studios weren’t the only industry players that shifted business models during the pandemic. The talent agency business was rocked to its core as well. In the early months of the pandemic, live events and movie and TV productions ground to a halt — and with them went the agencies’ primary sources of revenue. Soon enough, there were thousands of layoffs and furloughs at UTA, Paradigm, ICM Partners, APA, CAA and WME. “You have to try to bring costs down more in line with revenues,” one agency insider explained. “All the agencies had to make that tough call based on recurring revenues and what you had coming in… And you always have to keep those options on the table the longer the pandemic drags on. It’s hard to find new money to make up for that loss.” The revenue crunch felt by the agencies led most of them to do what had been thought unthinkable: cave to the three-year campaign by the Writers Guild of America to end the practice of packaging — bringing together different talent elements of a film or TV project and collecting fees from the studio on top of commissions from individual clients. The guild’s fight against packaging as well as agency ownership of production companies — which prompted thousands of guild members to fire their agencies en masse in April 2019 — had been losing momentum, with a federal judge dismissing several key charges in a WGA lawsuit last spring. But when the pandemic hit, there was new value in selling scripts (that don’t have to be produced right away). Within months, the top four agencies resumed long-abandoned talks with the WGA and agreed to virtually eliminate packaging fees by June 30, 2022. ICM and UTA reached agreements in the summer, and CAA followed in December. (As of Tuesday, WME remained the lone holdout as negotiations with the guild continued.)

“Agencies are just trying to get by and focus on their core businesses; which is very similar to what they did in 2007-2008 during the Great Recession and the 100-day WGA strike and the de facto SAG strike,” one top agent told TheWrap. “The key to surviving the pandemic is focusing on the core business and also focusing more on the writer side of the business since that really hasn’t been that affected by COVID-19, although obviously it has affected if those scripts are actually produced.” Ironically, the agent added, “There has also been more of an emphasis on packaging.” Some agencies have struggled more than others during the pandemic. Paradigm, which relies heavily on income from summer concert tours for its extensive list of music clients, has had a particularly hard time. The company was highly criticized for the way it laid off or furloughed more than 100 people in the early days of the pandemic; one of those agents, Debbee Klein, filed a lawsuit in April accusing owner Sam Gores of multiple professional and financial misdeeds and, essentially, using the pandemic as an excuse to cover the costs of those misdeeds by reducing payroll. (Gores denied any impropriety.) Later, as the Wrap exclusively reported, sports and media mogul Casey Wasserman began negotiations to acquire the Paradigm’s lucrative music assets. And in September, 180 Paradigm staffers were permanently let go. WME parent Endeavor, which abandoned a planned IPO in 2019, also faced a financial crunch — one that was made worse by the debt load from a recent acquisition spree on live-events businesses like the Ultimate Fighting Championship and On Location Experiences that were also impacted by the pandemic. Endeavor managed to secure a $260 million term loan in May through JPMorgan Chase, with Oaktree Capital Group LLC as the chief purchaser. That was on top of an existing $2.8 billion term loan and came with an 11% interest rate.

The volatility in the agency world led many to branch out on their own — often as managers, where there are more potential financial gains. WME’s David Stone and UTA partner Ben Jacobson launched The Framework Collective. Former eOne executive Peter Micelli launched Range Media Partners with a group of agents who left the top agencies (including CAA alums Dave Bugliari, Michael Cooper, Mick Sullivan and Jack Whigham). And former WME partner Philip Sun went to Charles D. King’s Macro and launched a new management firm, M88, focused on amplifying diverse artists and creators. Many ambitious young agents are bristling at the lack of opportunity within their firms. Especially at CAA, rising stars realize they “have hit the ceiling there because Lovett/Huvane/Lourd/Light are still so relatively young these agents know they will never have a say in the management of the agency,” one top agent noted, referring to longtime CAA leaders Richard Lovett, Steven Huvane, Bryan Lourd and Rob Light. “They’re destined to be just very well compensated employees. If you look at the post-Ovitz CAA era, this has happened routinely there every five to seven years or so.” It’s easy to see the appeal of management — especially if agencies really do back away from packaging. An agent, who must be licensed by the state, can seek out employment opportunities for their clients, while a manager can “package” a client and pair them up for a project that can be shopped, in essence becoming producers. Regardless of pandemic pressures or the economy, the agent added, “Eventually all agents just want to focus on the their top clients that actually work and earn — the old 80/20 rule; maybe 90/10 — so management is somewhat inevitable.” The “80/20 Rule,” derived from the Pareto Principle, is the idea that roughly 20% of an agent’s clients produce 80% of their business — meaning 20% of their time leads to 80% of their results.

Several insiders warned against reading too much into the flight of top agents to management companies, a development that has continued for much of the last decade. “This is part of the natural cycle of our business, and for us it’s a positive thing,” a second individual at a major agency told TheWrap. “Prior to COVID, our industry was already being highly disrupted, and with COVID, many new, entrepreneurial opportunities have opened up. The manager exodus is a cyclical part of this business (as are any exits from the agency).” The cycle from agencies to management is driven in part by the growth strategies at the agencies, particularly since the top three all have significant outside investment from private equity firms who expect a steady growth in revenues and profits. “A very effective way of doing that is by gutting the sort of well-paid middle class agent and replacing them with new young homegrown ones that are cheap and hungry,” the top agent said. That explains why UTA, which laid off 50 employees in May, promoted 35 junior executives across over 20 divisions in October. “You see this all the time in ‘strongest link’ professional sports, like basketball, where the stars get all the money and the money at the end of the roster is filled veteran minimum wage players,” the agent said. “Haves and have-nots with no in between.” The press for growth also drove ICM Partners to acquire the soccer agency The Stellar Group in October; the rebranded ICM Stellar Sports is now the fifth largest sports agency in commissions, according to Forbes. Despite the pressures of a very challenging year for all of Hollywood, no one is counting out CAA, WME, UTA and their peers. “As the world gets better — because it has to eventually — I would bet on agencies in the long term,” the first insider said. For some agencies, particularly those like Paradigm that rely on income from live concert tours, recovery will depend on the speed of the COVID-19 vaccine rollout and consumer willingness to congregate in crowded public spaces again. That could also factor into the recovery of movie theaters and production on big-budget tentpole films. But even if entertainment consumption returns to something resembling pre-2020 normalcy, many expect that pandemic-fueled surges in livestreams, animation, esports and digital businesses to continue. “Agencies will rebound just fine post-pandemic,” the top agent said. “The need and appetite for content, especially for all these new streamers, is unrelenting and the only place to get it is from an agency.” He suggested that agencies have become “the new studios,” charged with packaging “non-branded” content while the legacy studios are sticking to “big IP like Marvel/DC/Bond/Fast&Furious/Harry Potter.”