As Hollywood studios make fewer movies in an effort to tighten their belts, top talent agencies quietly have sauntered into the void, becoming de facto bankers by enticing private equity money and wealthy outsiders to fund movies featuring their clients.
The trend marks a significant shift for Hollywood, where studios have long served as the largest source of film financing. The expanded role gives agencies more latitude in guiding the destinies of their clients and assures that artistic films continue to be made at a time when studios are taking fewer risks by emphasizing superhero sequels and franchises and in some cases forcing stars to take pay cuts.
"With movie stars, your first instinct was to go to the studios first -- now it's not," said Patrick Whitesell, a partner at Endeavor Agency, whose clients include actors Jude Law and Matt Damon. "Now you will think about going these alternative ways to get your movie financed. If you just put five more movies together, then you have five more opportunities to send your writer, actor or director to work."
The changing relationship of studios and their stars was writ large this summer when Paramount Pictures cut loose Tom Cruise because he was too expensive, sending the actor and his agents at Creative Artists Agency scrambling to find backers outside the traditional studio system. On Thursday, CAA emerged victorious by brokering a deal that pairs Cruise and his producing partner, Paula Wagner, with private equity fund Winchester Capital Management, which will provide the production duo with $100 million for approved movie projects.
The expanding role of talent agents in the production process raises an age-old question: Is talent compromised when the people who represent them have a hand in financing their movies? The actors' union has maintained for decades that agents are liable to put their own interests ahead of those of their clients if they are allowed to reap in the financial rewards of the projects they put them in.
Some financiers who have teamed up with talent agencies have had other complaints. Bob Yari, an independent film producer who joined with William Morris Agency in a pioneering effort in 2003, said agents tended to push projects because their clients were in them, not because they were financially sound.
"I don't think it works," said Yari, who has produced dozens of films including best-picture Oscar winner "Crash." "There are too many conflicts of interests. The predominant motivation of the agency is client representation and that seems to take precedence over the profitability of a movie."
For their part, agents say their remuneration from films they arrange financing for are so nominal that self-interest is not an issue. They say they can easily serve their clients as well as the financiers who back the projects.
Agents have long wielded power in Hollywood because of their ability to "package" films. Agencies link actors, directors and writers from their client list and present ready-made projects to a studio or a network. The packaging fees from those films and TV shows are the lifeblood of the agencies, sustaining them through work shortages and other periods of volatility.
Now agencies are looking to include financiers in that bundle to offset a contraction in the movie business as marketing and production costs have spiraled. By keeping the movie-making machinery churning, agencies ensure that clients get their paychecks and that agents get their 10% cut of those earnings.
"It's a move to equalize control so that talent agencies have a major voice in the kinds of opportunities their clients get and are not beholden to the studios," said S. Mark Young, a professor at USC's Marshall School of Business who studies entertainment management. "The studios have lost so much money on so many movies and they are asking people to share the risk more and more."
Studios in the last year have pulled the plug on several expensive bets and reneged on huge payouts to actors, asking big stars such as Jim Carrey to reduce their fees. Walt Disney Co., NBC Universal and Time Warner Inc. have all slashed their workforces or announced plans to do so in the last few months.
In recent years, the major agencies have brought in financially minded executives to spearhead their fundraising.
Although CAA and United Talent Agency often go to a short list of individuals willing to put its money at risk in movies, other agencies have looked to hedge funds and trolled overseas for money. International Creative Management enlisted a $100-million private equity fund to help finance film projects. Endeavor has signed with a large Japanese advertising agency to put money into client films, while Paradigm Agency has found sheiks and princes in the United Arab Emirates interested in financing Hollywood's dream machine.