The CAA/ICM Merger is Easy to Explain: Size = Power

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on email

We’re switching things up this week. Since Nielsen delayed this week’s streaming ratings data, you’ll get the “Most Important Story of the Week” column today, and the “Streaming Ratings Report” on Monday. Sound good? If so, then onto the big story of the week, which I’ve been itching to write about since last week.

(As always, sign up for my newsletter to get all my columns, streaming ratings reports, and articles in your inbox.)

Most Important Story of the Week – A Colossal CAA and ICM Merger

Like the cable industry, global shipping, cellular phones, accounting, investment banking, airlines and countless other industries, the small field of talent representation is shrinking. Again. (The last major merger was WME merging with IMG in 2013, and before that Endeavor itself acquiring William Morris back in the late 2000s.) Specifically, this week CAA agreed to buy ICM, leaving WME, CAA and (maybe) UTA as the three biggest agencies.

The move struck me has fairly…boring? Which I didn’t expect. At first, I thought, “How juicy!” Then as I dug in…just “Meh”. As with most mergers, we all know why CAA wants to buy ICM, and we also know how they’ll justify it. Let’s explain both of those and why I don’t quite buy it. 

The Obvious Reason to Merge

When two companies in the same part of the value chain merge, it’s a “horizontal” merger. And those type of mergers are often fairly easy to explain: 

Size begets power.

With vertical mergers—meaning different parts of the value chain—it often isn’t as easy to explain. Why did AT&T want to buy Warner Media? Because something about owning content and selling it via cellular networks or something. Same for DirecTV. AT&T bought it and figured something about distribution and telecommunications and something something efficiency will lead to profit. (Neither of those vertical integration dreams came true.)

But horizontal mergers don’t need complicated business strategy explanations. Instead, with fewer competitors in a given industry, the remaining companies have that much more power. They can demand lowers prices from suppliers and charger higher prices to buyers. If you’re the only producer of a good, well, customers have to pay what you charge, right? 

This applies to agencies, even though they’re unique compared to most businesses. Their supply is writers, actors and directors, access to whom they sell to studios and producers to make TV shows and films. Their power comes in the relationships they have with those studios and producers and the talent. They sell their connections. The more connections they have, the more money they make.

So, for a quite boring reason, CAA wants to buy ICM is to increase the percentage of top talent it represents so it can wield more power to make more money.

The Rationale CAA Will Use To Justify the Merger

Now, this is distasteful to most folks isn’t it? If only one business dominates an industry—say it with me, a “monopoly”—it will acquire too much power and abuse said power. Nothing about free market capitalism says “Monopolies are good”. In fact the opposite: a market without many buyers and sellers isn’t a market, isn’t free, and often isn’t capitalism.

(Also oligopolies aren’t much better. If you have only three or four major players, they often collude on pricing, often accumulate too much power, and usually abuse it.)

This is why horizontally-merging firms are so careful disguise officially the reasons for merging. Everyone understands it’s about power, but everyone pretends its about scale, efficiency and ensuring customers will pay lower prices for goods. 

Or it’s defensive. That’s why I expect CAA won’t say this is about power, but about surviving in an age of “disruption”. (Or they’ll have their favorite news outlets say it for them.) 

Specifically, surviving the consolidation of entertainment conglomerates. Over the last decade, we’ve seen Comcast buy NBC-Universal, Disney buy Fox, Discovery buy Warner Bros by way of AT&T, Discovery buy Scripps, and Amazon buy MGM. And everyone is constantly speculating about who will buy ViacomCBS. 

With fewer buyers of shows, the sellers of talent need to scale up to compete. If having fewer agencies gives the remaining agencies more power, having fewer studios gives the remaining studios more power.

The agencies didn’t invent this rationale. It’s probably been perfected by the pharmaceuticals industry: pharmaceutical companies merge because they claim pharmacies are merging and pharmacies are merging because insurance companies are merging, and insurance companies are merging because hospital chains are merging and the hospitals are merging because the insurance companies are merging, who claim they are merging because pharmacies are merging who claim it’s only because Big Pharma is merging.

In short, everyone is merging because everyone is merging. A vicious cycle.

The agencies are just playing out their own version.

The Reason These Explanations Don’t Make Sense

But is this true? Do agencies really need more size to keep up with the streamers?

For one thing, for all the mergers, the entertainment industry still seems to have as many buyers as ever. While Disney did buy Fox, it was replaced by Netflix and Amazon. And maybe Apple too. So that’s two point five new major studios to buy more film and TV shows. 

But more interestingly, it’s not clear that agents actually do have a place in the value chain? I mean, seriously here’s my super generic version of the video value chain…where do agents actually fit?

Presumably, the talent part? Because they connect talent to producers and studios. But it’s not like talent has to have agents. They only have the agents to maximize their salaries. Yet all the writers fired their agents and…life went on? Is it even clear that the majority of talent needs their agents?

Well maybe, but only because they have to. Maybe the key to this deal isn’t the part about negotiating with studios, but negotiating with talent. If you have to have an agent to work in Hollywood—and you do—the fewer agencies means talent has fewer and fewer options to work in Hollywood.

Really that’s probably the story here. Back in the days before streaming, all talent needed someone fighting for their piece of the pie. Nowadays, in an increasingly stratified industry, only top tier talent needs that, which means the need for fewer agencies. Is this a good commentary on the state of labor in Hollywood? Probably not. Is this a good rationale for having agencies at all? Honestly, not really. But that’s a much longer topic for a future article.

Update To An Old Stories 

Over the last two weeks, some old stories have been back in the news. And not just updates, but in some cases the end to the story, with a “Huh, so that’s over already?” vibe to them.

Scarlett Johansen and Disney Settle

Arguably the biggest story of the summer was ScarJo suing Disney over Black Widow profits. I wrote about it here, explaining that it’s tough to reconcile driving streaming growth with profits.

Well it must not be that hard, because it’s all over.

That was quick! Like most lawsuits, the results will remain secret. Who won? Who lost? We’ll probably never know, though Disney likely isn’t bankrupt and ScarJo is still very wealthy. And will make another film for Disney, Tower of Terror.

Youtube TV and NBC-Universal settle their carriage dispute

Most carriage disputes end because companies like making money too much to fight them forever. (Though HBO was off Dish Network for longer than any of us would have guessed.) Unlike the 2010s, when we fought carriage wars over linear cable channels, the battle has moved “over-the-top”. The latest dust up involved YoutubeTV—a virtual MVPD—threatening to drop NBC-Universal owned linear channels, possibly because NBCU insisted on including Peacock in the bundle. Well, both sides settled with no update on whether YoutubeTV users will get free Peacock.

IATSE Workers Authorize a Strike

Not only did IATSE workers vote to authorize a strike, they overwhelmingly backed the union in both participation and margin of victory. This drastically strengthens the unions bargaining position, which makes the odds of a strike that much higher.

Other Contenders for Most Important Story 

Well, Netflix is Serious About Games

For those of us who were a pinch skeptical about Netflix’s entry into games, here’s evidence they mean what they say. Netflix really does seem to be heading down the gaming path. Their latest moves include buying game studio Night School Studio, developer of indie darling Oxenfree, and rolling out mobile gaming to more territories in the EU. 

From the reporting in Europe, right now this means customers can play the games (on Android mobile devices) for free with a subscription, but they still have to play the game outside of the Netflix application. Meaning this is more similar to a “bundle” like Apple Arcade than a new platform. And I have to admit, I see this customer benefit, given that finding new mobile games that aren’t endless money traps is hard nowadays.

The End of Two Smaller, Indie Film Studios?

For all my talk about how there are still a lot of film studios in the world to contest with the agencies, that doesn’t mean it’s easy to be a smaller indie studios in today’s day-and-age. The news of the week is that Solstice Studios is winding down, after releasing only 2 major films. The other news is that Mark Cuban backed Magnolia Pictures is exploring a sale. They’d obviously like to join the parade of studios/production companies seeking big exits, but it’s unclear if their content moves the needle.

Fox Launches a Weather Streamer

NuFox—the pieces left after Disney bought 21st Century Fox—isn’t averse to the streaming business. It has Fox Nation for Fox News fans and announced it would launch a weather streamer named Fox Weather—an ad-supported service—on October 25th.

Lots of News with No News – Some Social News

Facebook Suffered a HUGE Outage.

For a few hours on Monday, Facebook’s entire operation went offline. Every social app, website and even their internal systems. Down. Done. Offline. Yet by Monday they were back online. 

Was this a test by Mark Zuckerberg to prove, even after a bad weekend of news, that we still need him? A test by economists to see how much more productive America would be without social media? Or just a random fluke that likely won’t happen again?

Probably the last one. Which is why I don’t think this is huge news.

TikTok Passes 1 billion Global Users.

Many websites celebrated TikTok’s passing of the 1 billion user milestone. To which I just ask this:

Does anyone actually buy this number?

Don’t get me wrong. TikTok is absolutely popular and absolutely growing insanely fast. I too have friends who spend hours each day letting the algorithm fill their feed with videos. (I haven’t succumbed yet.) The challenge is that all the numbers I hear out of this service seem off by a factor of ten. Seriously.

Once you start exploring the world of fake views on the internet—On The Media once reported that half the views on Youtube are fake; Scott Galloway went at fake traffic this week too—it’s hard to trust anything you read about social media.

Other Things to Listen or Read – A Great Read on Vertical Farming

What’s the one story I love more than self-driving car? Vertical farming. I could read about these for days. (Fine, I love me a good article on clean energy too.) Here’s a good nee great read on vertical farming at Bloomberg.

The Entertainment Strategy Guy

The Entertainment Strategy Guy

Former strategy and business development guy at a major streaming company. But I like writing more than sending email, so I launched this website to share what I know.


Join the Entertainment Strategy Guy Substack

Weekly insights into the world of streaming entertainment.

Join Substack List
%d bloggers like this: