Most Important Story of the Week and Other Good Reads – 24 May 19: The Writer’s Breach the Agency Lines (while One Agency IPOs)

Here’s the most important narrative question of the entertainment industry:

Are we overusing war metaphors in our articles on streaming?

Just off the top of my head: Will Netflix kill the studios? Is Disney Plus the death of Netflix? Is the bundle is dying? The #StreamingWars. War, death, murder. Clearly the disruption of the media industry is taking our coverage of what is–at the end of the day–a bunch of people talking in front of cameras to overwrought heights. And yet…

The Most Important Story of the Week – The Writer’s Breach The Agency Lines (While Endeavor Grabs the Money)

I debated when to check back in with the WGA-Talent Agency fight the last few weeks, and this week finally pushed me over the line. Let’s start with WME, or Endeavor, or William Morris Endeavor, all names or former names of a company that filed this week to go public.

Endeavor is hoping to IPO at a price that will impart a market capitalization of about $10 billion, according to reports. That’s roughly the same size as the Sinclair-RSN acquisition of a few weeks back. So it qualifies for my most important story just on size. Though, looking at that market capitalization, does it sell the impact of this move short?

Because what Endeavor means as a publicly traded company could impact all agencies and hence all of Hollywood. The entire point of an agency was to be solely focused on the needs of their clients–actors, writers, directors, athletes, musicians, models–as they negotiated with giant studios and leagues, etc. The talent is arguably the most important part of a film or TV show, but historically compared to massive multinational conglomerates, they have much less power. That’s where agents come in. “We have tons of power and knowledge and negotiating prowess, so we’ll fight for you,” they tell clients, “and you’ll make that much more.” Of course for this to work, they had to be completely separate from the studios. That’s why California passed laws keeping them at arm’s length from producing anything themselves.

Until the agents realized how much power they had. If you have all sorts of power, you should be able to make money off it. Like by making more money producing shows. Or distributing those shows. That’s why the agencies are buying sports leagues and marketing firms and streaming video providers and even starting production companies. You can make more money by owning all the parts of the value chain, instead of tangentially helping talent.

Of course, if you own a production company, and a streaming video company and the marketing first, well that doesn’t sound that much different than the studio system of the yesteryear. If your agencies are just studios, why have agencies? I can’t answer that, just tell you why we’re here. Money. Private equity saw the power of the agencies, saw that it could be monetized more, and it took a stake in the agencies. Now the PE backers are looking for their exit, which means the “exit” which is the IPO.

And while PE started pushing the agencies away from clients as the center of the business, the markets will permanently end it. Since “shareholder value” is the be all end all for businesses, when it comes to clients needs versus shareholder needs, well clients won’t win that war. The clients move from being the core of the business to being one cog in that machine. Maybe the cog that drives the core competitive advantage in the first place, but still just another cog.

That brings us back to the news this week that at least one agency has broken ranks to sign the WGA. I hadn’t heard of the agency–Verve–but this seems brilliant to me. Frankly, if you’re anyone but CAA, UTA or WME, I don’t know why you haven’t broken ranks yet. The huge agencies have PE backing and the best clients already, and as they merge they’re only getting bigger. In a crowded market, you need competitive edge and it seems like one agency finally realized that. Add to the bad branding of the IPO, and upcoming agencies strike now!

Of course, if the writers all abandon WME (and maybe CAA/UTA), are those agencies as valuable on the open market as public companies? How does that not hurt their alleged core competitive advantage?

I’m with others, though, in saying I still don’t know how this ends. The WGA still seems really dug in and at least initially, they can keep getting work. This isn’t a strike. Meanwhile, if other agencies break ranks following Verge, the writers will even have agents. On the other hand, the agents are negotiators, and I could easily see an end where they end up on some compromise that only tangentially helps the writers in the long run, because that just seems like how things go.

(Best read of the week goes to David Lidsky at Fast Company who read the entire Endeavor prospectus.)

Other Contenders for Most Important Story of the Week

Last week was big for TV with two huge American TV series ending. But I’m looking across the pond for another huge TV event most Americans missed.

Eurovision Song Competition Aired

Last Saturday–I back date these articles to Friday–the Eurovision song competition aired. If you’re like me, you may have missed this news.

But abroad…182 million people watched. Who says monoculture is dead? Europe may be breaking apart, but they’re still watching their version of American Idol. (In fairness, it came first.) Meanwhile America waits for its version, which may be coming in 2022.

If I had to draw a large conclusion from this, I’d add that 40 million people watched on Youtube and none in America (except for those Youtube folks) because it doesn’t have US partner. Seriously, how is BBC America not airing this? For American executives, this is also a great reminder that certain things (Eurovision, soccer) can be huge everywhere except America, and if you’re programming globally, well don’t assume American culture rules invincibly.

Lionsgate Is Debating Selling Starz to CBS

Lionsgate apparently listened to an offer from CBS to buy Starz. Given that CBS already has Showtime, this move somewhat confused me–since they have their premium add-on already–but their pitch is they can bolster their content portfolio even further to help compete in the streaming wars. Essentially, having three must have streaming channels is better than 2, but also that 3 valuable OTT channels is even better than forty so-so channels. Since Lions Gate has been looking to sell itself for a while now, this move comes as “interesting but not defining” for the week. (Cynthia Littleton had the a great article on the Starz talks, while Anousha Sakoui had a good summary of Lionsgate’s earnings report.)

Rhianna Opens a Fashion House

I had glossed over this story when I first heard it, but in one of those coincidental synergies, I heard this story again in both in the After Hours podcast, which I just started listening to, and Trapital, a website which was just recommended to me. They convinced me it is a big deal when an old Parisian fashion conglomerate reaches out to hip-hop.

The only thing I will add is to answer a question proposed by After Hours, “Will this lead to more deals like this?” To which I say, yeah, obviously. Businesses love copying each other. But really, the question is, “Will other deals like this succed?”

To which, I had the analogy in my head of franchises by big movie studios. Essentially, I think Rhianna is the Marvel of fashion-hip hop partnerships. She’s already shown she understands both her fan base and fashion. And she makes money, like Marvel. But there will be plenty of hip hop stars looking for similar partnerships (Kanye came up in both discussion) but the lesser artists are the ones I worry about. The “monsters” universe that still haunts Universal’s dreams. Or maybe the Transformers franchise: profitable at first, but declining over time.

ICYMI – Game of Thrones Made HBO $2.2 Billion (and other ratings thoughts)

The busiest man in Hollywood award this week goes to Casey Bloys. I think he did an interview with every news outlet in town. With good reason: HBO and Bloys want everyone in the world to stay subscribed to HBO. And to their credit, the content slate looks promising upcoming. (But I mean, the dailies always look great on future content.)

HBO also reported that the total viewership on this season of Game of Thrones is up to 44 million in domestic viewers through this season. I wonder if on the four week lag time frame that kicks up to over 50 million just in the US, to compare to the Netflix type numbers. (To further compare to that, the show had over 3.8 million viewers in the UK and at least another 1 million in Australia. We don’t know the rest of the world’s numbers.)

But really, the best story of Game of Thrones was my article at Decider about how my estimate is that HBO made $2.2 billion over the last ten or so years airing/owning Game of Thrones. Yes, some people on Twitter may disagree with me on the specifics, but you know my philosophy, “Strategy is Numbers”. So if you think HBO will be fine, or this is the death of HBO, I’d listen to either argument, just give me the numbers so I can hold you accountable. (And read my series on “the battle for the next Game of Thrones” for all my other thoughts on the future of epic TV.)

Entertainment Strategy Guy Update – The Pac-12 Finances Don’t Really Improve

The Pac-12 released their fiscal year 2018 numbers, which is obviously interests me, if you read my thousands of words on the big bet the Pac-12 made back when they launched their network without a partner. But as a business case study, it’s worth reading about too. As always, the excellent breakdown is from The Pac 12 Hotline’s Jon Wilner. The concerns I’ve written about before–the expenses at the network, taking on an equity partner that won’t recoup the losses–are all still present. Worse, the Pac 12 is actually losing revenue year over year, while it continues bumping up executive pay. It’s hard to sign on an equity partner when you’re losing money.

As for my model specifically, if anything, the numbers show the Pac-12 is in an even worse situation. In my model, I assumed about $32 million in “profit” for the Pac 12 Networks in 2018, instead it looks to be about $26 million. So the number is going backwards (mainly driven by AT&T dropped the Pac 12 Networks). Again, any shortfall now will require even more monumentally huge deals in 2024 and beyond.

Long Read of the Week – Nollywood in Bloomberg

I’ve wanted to learn more about Nollywood–Nigeria’s film industry–for a few years now and love when I see articles on it. This Bloomberg coverage provides a good summary of the issues facing it, which boil down to the two challenges of the 2010s: streaming and piracy. Take a read.

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