Talent agents get into film fundraising

As studios cut back, agencies are arranging for private equity firms and others to step in.

By Claire Hoffman
Times Staff Writer

November 3, 2006

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.

Talent agencies are tapping into a wider trend also embraced by among the major studios to outsource the financing of movies. Stand-alone independent financiers put money into a number of last year’s Academy Award contenders, such as “Brokeback Mountain” and “Good Night, and Good Luck.”

Bulging with capital, private equity funds have poured billions of dollars into the financing of movies in the last few years, sometimes in conjunction with the major studios.

An early partnership between a financier and a talent agency was Yari’s deal with William Morris to produce a slate of six films in 2003. One of the resulting projects, 2004’s “A Love Song for Bobby Long,” shows some of the pitfalls of allowing agents to guide the production process. The film, which starred two of William Morris’ biggest clients, John Travolta and Scarlett Johansson, ended up making less than $200,000 at the box office and was panned by critics.

“I don’t think I would do another one of those deals,” Yari said.

William Morris declined to comment on the partnership, which has two more films set to be released.

Until 2002, the Screen Actors Guild had a long-standing agreement with the agencies that barred them from the production business. Contrary to Yari’s observation, the union was convinced that agents would put their own investments ahead of the interests of their clients. The issue was deeply contentious for SAG, but ultimately it was not able to broker a new deal when the agreement expired.

Agents said that the standard protocol today was to function as if the agreement were still in effect. Yet because their role has been assailed, agents are tight-lipped about how they are being compensated under these new deals. The projects are structured in a variety of ways, sometimes providing agencies a minimal consulting fee or fees based on the performance of the films. Some agencies provide the service at no charge although they still collect their usual percentages from their clients in the projects.

Some of Hollywood’s biggest talents are now looking to tap into agencies’ money connections. For instance, instead of trying to persuade a major studio to open its wallet to make veteran screenwriter Tony Gilroy’s newest script, the agency lined up the money from a Boston developer who made a fortune building shopping malls.

“We are arranging financing for movies that could have been studio films and one of the ways we do this is by building them from inside the agency,” said Rick Hess, who oversees a team of six other agents that set up dozens of such deals a year at CAA for the likes of Cruise and Steven Spielberg.

CAA went to a handful of financiers they had identified as potential partners with Gilroy’s new script, called “Michael Clayton,” about a Manhattan lawyer who battles an evil conglomerate.

Developer Steven B. Samuels, who founded Santa Monica-based Samuels Media in 2004, read the script and met with Gilroy, who penned such blockbusters as “The Bourne Identity.”

Gilroy told him his vision he wanted to direct the picture himself and Samuels felt he could trust him with his investment. When CAA said it would draw upon its vast roster of movie stars to cast the movie if he funded it, Samuels bit. Shortly after, George Clooney signed on in the leading role.

“The beauty of what CAA is doing now is they are putting people in a room early on who can put the puzzle together and make the film go with or without the studios,” Samuels said.

claire.hoffman@latimes.com

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Talented fundraising

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Here are upcoming movies developed by talent agencies, their clients and the investors who funded or co-financed the projects:

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Agency: Creative Artists Agency

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Movie project: “Fur: An Imaginary Portrait of Diane Arbus”

/ Clients: Director Steven Shainberg and actors Nicole Kidman and Robert Downey Jr. / Investors: Minnesota Twins executive Bill Pohlad’s production company

Movie project: “Into the Wild” / Clients: Director Sean Penn and actors Marcia Gay Harden / Investors: Bill Pohlad’s production company

Movie project: “In the Valley of Elah” / Clients: Adapted and directed by Paul Haggis / Investors: Real estate mogul Steven Samuels

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Agency: Endeavor

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Movie project: “Rescue Dawn” / Clients: Actors Christian Bale and Steve Zahn / Investors: NBA star Elton Brand’s production company

Movie project: “Rogue” / Clients: Director Greg McLean and actor Michael Vartan / Investors: Union Bank and Media Rights Capital

Movie project: “Sicko” / Clients: Director Michael Moore / Investors: Comerica and Hakuhodo DY Media Partners

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Agency: International Creative Management

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Movie project: “Ferris Wheel” / Clients: Actors Nick Stahl and Dennis Hopper / Investors: NewBridge Film Capital and Bank of Ireland

Movie project: “Bella” / Clients: Actor Tammy Blanchard / Investors: Real estate magnate Sean Wolfington

Movie project: “Ruby Tuesday” / Clients: Produced by former client Mick Jagger, featuring Rolling Stones songs / Investors: Mick Jagger

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Agency: United Talent Agency

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Movie project: “Synecdoche, New York” / Clients: Writer-director Charlie Kaufman and producer Anthony Bregman / Investors: Yet-to-be disclosed individual

Movie project: Untitled Alan Ball Project / Clients: Writer-director Alan Ball and producer Ted Hope. Adapted from book by Alicia Erian. / Investors: Manufacturing billionaire Steven Rales

Movie project: “The Darjeeling Limited” / Clients: Writer-director Wes Anderson and actors Jason Schwartzman and Owen Wilson / Investors: Steven Rales

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Agency: William Morris Agency

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Movie project: “Bobby” / Clients: Actors Sharon Stone and Harry Belafonte / Investors: Belgian financier Michel Litvak

Movie project: “Away From Her” / Clients: Writer-director Sarah Polley and actor Olympia Dukakis / Investors: Echo Lake, a production company backed by private equity

Movie project: “10 Items or Less” / Clients: Director Brad Silberling and actors Morgan Freeman and Paz Vega / Investors: ClickStar, an Internet company founded by Freeman and Intel Corp

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Source: Times research

Cruise in deal to revive UA

The actor, just bounced out of Paramount, will help run a resurrected United Artists with his producing partner.

By Claudia Eller
Times Staff Writer

November 3, 2006

Two months after he was kicked out of Paramount Pictures, actor Tom Cruise and his producing partner are returning as part owners of one of Hollywood’s most storied movie names.

The deal for Cruise and longtime associate Paula Wagner to own at least 30% of a resurrected United Artists reflects a changing economic climate in the movie industry in which outside money from sophisticated investors is increasingly bankrolling stars and filmmakers as an alternative to studio checkbooks.

Cruise and Wagner will partner with UA owner Metro-Goldwyn-Mayer Inc., another historic name in Hollywood now controlled by private equity firms, to take charge of reviving a company that is in effect returning to its roots as an artist-operated studio. In 1919, UA was founded by four of the most important figures in the silent-movie era Charlie Chaplin, Douglas Fairbanks, Mary Pickford and director D.W. Griffith to offer artists creative freedom and ownership in movies.

At UA, Wagner will serve as chief executive, a role she has never held in a career that has included being Cruise’s production partner for 14 years and, before that, his agent.

Cruise won’t have an executive title but is expected to be heavily involved in developing and producing UA movies. He will star in an unspecified number but will still be able to act in movies for other studios.

The two, who are not risking their own money, plan to produce at least four films a year averaging $40 million to $50 million that MGM will market and release, and can give the go-ahead to projects costing as much as $60 million.

“When you look at the tradition of UA and what the philosophy was to make pictures driven by artists it fit into what Tom and I wanted to do,” Wagner said.

Cruise said in a statement, “It’s our desire to create an environment where filmmakers can thrive and see their visions realized.”

But some industry watchers were skeptical. Cruise and Wagner have a mixed track record as producers, and they lack experience overseeing what amounts to a mini-studio.

“Good for Tom it’s a great press release,” said media analyst Harold Vogel. “But it’s little beyond a press release and the revival of a moribund label that happened to be available.”

Although he is still one of the world’s biggest stars, Cruise has hurt his public image lately with off-screen antics that have turned off some moviegoers. And, at age 44, he is no longer the youthful superstar he was when he made such films as “Top Gun,” “The Firm” and “Jerry Maguire.”

Although Cruise and Wagner are considered bona fide producers, making hundreds of millions of dollars over the years for Paramount when Cruise starred in such movies as the “Mission: Impossible” films and “War of the Worlds,” they have not done as well on films without him as an actor. Last year’s “Elizabethtown” lost about $30 million for Paramount.

The Cruise-Wagner deal comes as Hollywood’s biggest stars and filmmakers are seeking outside money as they are being squeezed by cost-conscious studios coping with soaring production and marketing costs, erratic box-office returns and flattening DVD sales. Over the last year, thousands of jobs have been slashed, and lavish talent deals like the one Cruise and Wagner had at Paramount for 14 years are coming under scrutiny.

Top actors often branch out into production to make pet projects, gain creative freedom and to get a bigger slice of the profits. Cruise for years enjoyed by far the richest studio-funded production company deal of any top star, with Paramount paying as much as $10 million a year to cover payroll, script purchases and fees he and Wagner were guaranteed.

However, Cruise and Wagner were jettisoned from Paramount in August after the studio balked at continuing to fund the duo’s production company at that level. In a move that blindsided Cruise, Wagner and even Paramount’s own management, Sumner Redstone, chairman of studio parent Viacom Inc., publicly trashed Cruise, saying the star hurt the studio with his public behavior.

Cruise had jumped on talk-show host Oprah Winfrey’s couch professing his love for actress Katie Holmes, aggressively promoted his Scientology beliefs and criticized actress Brooke Shields for taking medication to treat her postpartum depression.

Redstone estimated that Cruise’s actions cost the studio as much as $150 million in box-office receipts for “Mission: Impossible III.” Although Paramount expects to break even on the film, which grossed nearly $400 million worldwide, Cruise could reap as much as $80 million because of his lucrative arrangement.

Despite that, Redstone issued a statement Thursday saying, “I wish Tom and his associates the greatest fortune in their new venture.”

A few years ago, even a star of Cruise’s caliber might not have pulled off a venture such as UA. But money from new sources such as hedge funds and private equity groups is pouring into a business once financed almost exclusively by major studios.

MGM, whose two biggest investors are private equity firms Providence Equity Partners and Texas Pacific Group, will initially fund UA and be its majority owner. MGM Chairman Harry Sloan said his studio would provide money to help Cruise and Wagner get UA off the ground. Before long, Sloan said, he will seek financing from hedge funds, investment banks and individuals to make the company more independent from MGM.

Wagner confirmed that a new fund, Winchester Capital Management, whose partners include former top CBS and Sony executive Jeff Sagansky, is providing $100 million for approved movie projects that may be cofinanced by UA.

Sloan said MGM was considering offering other top talent who want to work outside the studio system a chance to join Cruise and Wagner as partners in United Artists, which will be based at MGM headquarters in Century City.

“The studios are accusing the talent of putting them at big risk, and the talent is accusing the studios of wasting money and being political bureaucracies,” Sloan said. “This way we can create a new studio model where everyone can win.”

Having a studio part owned and run by talent is reminiscent of UA’s original philosophy when Chaplin, Pickford, Fairbanks and Griffith founded it. Even after the four were no longer involved, UA continued as a creative force. It arguably hit its zenith in the 1960s and 1970s, earning best-picture Oscars for such hits as “West Side Story,” “One Flew Over the Cuckoo’s Nest,” “Midnight Cowboy,” “Rocky” and “Annie Hall.” It also was the home of the blockbuster James Bond and “Pink Panther” franchises.

But the studio nearly sank in 1980 while owned by insurance giant Transamerica Corp. when “Heaven’s Gate” became one of the all-time box-office debacles. A year later, billionaire Kirk Kerkorian bought UA and merged it with MGM. Cruise worked with UA in 1988 when he starred with Dustin Hoffman in the Oscar-winning “Rain Man.”

In recent years, UA evolved into a label for small, independent films such as “Capote.” UA was mothballed after MGM was bought in 2005 for nearly $5 billion by four private investment firms in partnership with electronics giant Sony Corp. and cable operator Comcast Corp.

Ever since Sloan was hired by MGM a year ago, he has tried to figure out a way to revive UA and even entertained offers to sell it. Shortly after Redstone cut Cruise loose, Sloan called Creative Artists Agency, where Cruise’s representatives include Wagner’s husband, Rick Nicita, floating the idea of getting into business with the two.

Cruise and Wagner had received a multimillion-dollar infusion into their production company from Washington Redskins owner Daniel Snyder. When Sloan pitched running UA to them, Wagner said, it was a “unique opportunity” they had to grab.

“We’re moving onward and looking to the future,” Wagner said. “It’s a dream Tom and I have had to set up a company we can run, manage and be part owners.”

claudia.eller@latimes.com

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United Artists: a chronology

1919: Charlie Chaplin, Douglas Fairbanks, Mary Pickford and D.W. Griffith team up to form their own studio, which they name United Artists.

1940: UA releases Alfred Hitchcock’s “Rebecca,” which wins the studio’s first best-picture Oscar.

1951: Chaplin and Pickford, the surviving partners, sell UA to entertainment lawyers Arthur Krim and Robert S. Benjamin.

1967: After a succession of hits, including “The Apartment,” “West Side Story” and “The Greatest Story Ever Told,” Krim and Benjamin sell UA to Transamerica Corp.

1975-77: UA wins three successive best-picture Oscars, for “One Flew Over the Cuckoo’s Nest,” “Rocky” and “Annie Hall.”

1977: United Artists sets an industry record for film grosses.

1980: UA’s release of Michael Cimino’s “Heaven’s Gate” becomes a critical and financial debacle for the studio. The film makes back only $1.3 million of its $44-million cost.

1981: Kirk Kerkorian buys UA and merges it with MGM.

1988: UA releases “Rain Man,” its 10th and most recent film to win a best-picture Oscar.

1990: Kerkorian sells MGM/UA to Giancarlo Parretti. He defaults in 1991, turning over the studio to Credit Lyonnais.

1996: Kerkorian reacquires MGM and UA for $1.3 billion.

2002: The UA film “No Man’s Land” wins the Oscar for best foreign-language film. Later in the year, UA releases “Bowling for Columbine,” which wins the Oscar for best documentary.

2005: MGM, including United Artists, is bought by an investment group led by Sony Corp.

Thursday: Tom Cruise and producing partner Paula Wagner sign a deal to run and be part owners of United Artists.

Times research by Scott Wilson