Hollywood's Desperate Deal

Reed Saxon / AP Photo The William Morris-Endeavor merger may seem like a smart power play, but Kim Masters says it's actually a sign that the entertainment industry is on the brink.

Yesterday’s merger of William Morris and Endeavor may seem like Hollywood inside baseball, but it’s also a sign of the times—a symptom of the deepening troubles facing the film and television business.

Agents in rival shops have been saying for weeks that they are looking forward to capitalizing on the culture clash that undoubtedly will ensue, creating an opportunity for them to poach agents and clients. But all Hollywood agencies are battling the same market forces that drove the venerable William Morris—which opened its doors in 1898—into the arms of its upstart 14-year-old competitor.

While William Morris apparently puts everything into the pot, Endeavor does not. And that, says a veteran talent representative not involved in the deal, makes it look a lot like William Morris got taken to the cleaners.

William Morris has been a Hollywood behemoth for many years—an agency whose talent roster ranged from Elvis to Ryan Seacrest. But it's lost some sizzle and in recent years, only its music division—an asset that Endeavor lacks—has shown real growth. Some of the agency’s problems can be attributed to weak management but clearly larger issues are at play when a legendary name simply vanishes. (The combined entity reportedly will be named WME Entertainment.)

In Hollywood the deal has been spun as the industry equivalent of a May-December romance, in which a brash younger suitor—personified by Endeavor’s 48-year-old Ari Emanuel—deigns to marry a richer, older spouse whose good looks have faded, a role played by William Morris’ 61-year-old Jim Wiatt. But industry sources say that Endeavor needs the deal as badly as William Morris. “People want to make it about Ari Emanuel’s and Jim Wiatt’s egos,” says a veteran executive. “But this is really about the desperation of the business.”

A prominent producer agrees that the two agencies are responding to pressures that are being felt throughout the entertainment world. “We’re seeing in this a microcosm of what’s going on more globally in the business,” he says. “And it’s awful.”

Just yesterday, partners at rival United Talent Agency were congratulating themselves at an internal meeting because the agency has the same number of clients appearing in this season’s television pilots as it did a year ago. And that is a big achievement considering that the number of pilots has dropped like a stone from about 100 to about 60 in 2007 (last year wasn’t counted because of the writers’ strike). But hearing about this discussion, an industry insider said the chest-thumping seemed like putting “a good spin on a bad long-term prognosis.”

Despite weekly reports of audiences flocking to the movies, big box-office numbers won’t save the studios. The studios build their fortunes on DVD sales, which are falling dramatically. In television, the broadcast model is breaking down as advertising drops and local stations—which used to be cash cows for the networks—lose their value. And moving forward, cable companies will find it increasingly difficult to explain why customers should pay for subscriptions when they can watch programs on demand on their laptops or handheld devices.

To save money, the studios are making fewer movies and paying marquee stars much less. For agencies, that means fewer commissions on lower-paying deals. Endeavor execs have long bragged about the handsome packaging fees they generate on television shows like Heroes and Ugly Betty. (Packaging fees are in effect a commission paid to agencies for assembling various elements of a program. William Morris used to be the champion of the package fee, including The Andy Griffith Show, one of the most profitable syndicated shows of all time.) But in the Internet era, television shows don’t generate big money from airing in repeats and the value of a package fee isn’t what it used to be.