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On the morning of Dec. 9, Alan Nierob, then the president of public relations agency Rogers & Cowan’s entertainment division, left his Beverly Hills home and strolled the few hundred yards to the Montage hotel. This was business as usual for the veteran publicist, a quick trip to do some hand-holding at a movie junket for Universal’s Welcome to Marwen, directed by client Robert Zemeckis.
Nierob wasn’t the only publicist there. In the green room, he started chatting with Cindi Berger, the chairman and CEO of PMK•BNC, a PR company almost exactly the same size as Rogers & Cowan and linked to it through their joint owner, Interpublic Group. Small talk gave way to weightier matters about how to compete in a consolidating business, eventually leading to further meetings among the companies’ leaders, all centered around a new proposal: What if the two firms merged?
The July 30 announcement that these entertainment industry pillars would become a single, yet-to-be-named, 385-person-strong entity — the biggest Hollywood PR firm — was the latest volley in a veritable war of attrition that film and TV businesses have been waging as they seek to build scale to survive in an era dominated by ever-larger tech and media giants.
Since the Walt Disney Co. began the modern-day charge with its acquisitions of Pixar, Marvel, Lucasfilm and most of Fox, the notion that “bigger is better” has replaced the once-fashionable conceit that “small is beautiful,” articulated in the best-selling 1973 book of that name by economist E.F. Schumacher. “Even today,” Schumacher wrote, “we are generally told that gigantic organizations are inescapably necessary; but when we look closely we can notice that as soon as great size has been created there is often a strenuous attempt to attain smallness within bigness.” Because of this, Schumacher warned of the intoxication of “gigantism.”
Now gigantism is penetrating midsized companies and massive ones alike, organizations with only a few hundred staffers as well as mega-corporations with thousands. This summer alone, Hasbro snapped up indie studio Entertainment One for $4 billion, CBS and Viacom finally agreed to combine to form an entity valued at $31 billion, and United Talent Agency tried but failed to acquire rival Paradigm Talent Agency. The middle ground is receding, giving way to two extremes: the very large and the very small.
“The entertainment world is similar to the rest of the world,” says PMK/Rogers & Cowan CEO Mark Owens. “On one hand there’s the need for mass and scale, and then there are smaller, very bespoke agencies that represent a few clients [for whom they] do absolutely everything. The ones in the middle are getting squeezed.”
Few business experts these days advocate staying midsized, and many also are skeptical of the benefits of being small. Remaining small, they acknowledge, has the advantage of being nimble, offering a personal touch and having the freedom to act quickly without a governing board to slow things down; but almost all the experts interviewed for this article lean heavily in favor of bulking up.
Owens singles out several reasons for his companies’ decision to combine forces, in addition to the obvious cost savings in human resources, accounting, field offices, etc. Among the others are the ability to combine complementary divisions, providing a one-stop shop for clients, and the opportunity to strengthen global offices, especially when day-and-date openings around the world make it imperative to have multiple people in multiple places. “You need boots on the ground,” he says.
Macro-economic factors also are at play in the current spate of midlevel mergers — among them the lower corporate tax rates ushered in with the December 2017 passage of the Tax Cut and Jobs Act (rates that encourage M&A activity, says Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting) and a flood of private equity cash that’s entered the market.
“People are looking for alternative investments at a time when interest rates are very low,” notes a leading investment banker. In the past, she says, private equity may have preferred larger investments; now it is targeting offerings of $100 million or less, along with the harder-to-find billion-dollar deals. “There’s so much money out there that they’ll come down-market and write smaller checks as long as the companies have repeatability and some sense of what the future is like.”
For executives hoping to tap into this money, either as a way to bolster their businesses or gain a whopping paycheck, there’s all the more need to seek a merger, given that the bigger they are, the more appealing they tend to be to investors. Mergers and acquisitions throughout America have been heading upward since 1985, when their total value was a mere $305 billion, and peaked in 2015 when their value reached $2.2 trillion, according to the Institute of Mergers, Acquisitions and Alliances. There have been three times as many mergers and acquisitions in the first eight months of this year alone (7,112) as there were in 1985 (2,309).
Media and communications consultant Tom Wolzien believes this trend will continue in the entertainment arena as well as in other industries because “in theory, synergies are a necessity in a maturing business. You don’t have much choice if you’re going to play. You’ve got to have scale until you’re down to the optimal number, which legally is two or three.”
With data playing an ever greater role in the entertainment business, there will be further pressure for companies to combine in order to make the most of their underlying information, argues McKinsey & Co. partner Jonathan Dunn. That’s especially true at a time when there’s billions in “newfound money from entrants like [shortform video startup] Quibi, which creates an environment where the rest of the capital is under pressure.” Feeling under pressure themselves, many midlevel companies now believe they need to emulate the megacorporations’ strategy, betting on size to give them leverage, both to compete with rivals and have extra negotiating power.
That’s especially true of those in the talent agency and public relations fields, who are seeing the power pendulum swing away from their side of the business as studios, networks and streamers increasingly call the shots.
For the past few decades, says Paradigm chairman Sam Gores, the talent held the power. But that is shifting as we watch the consolidation happening with big media companies, especially as they intersect with technology and challenge the traditional economic models. “This tendency to go bigger is a response to a tectonic shift in the industry,” he notes. “It’s like a game of tug-of-war. Some companies believe scaling up is the answer.”
How much more scaling up can still take place is, of course, the great unknown. Ari Emanuel’s fall plans for an Endeavor IPO — with assets ranging from talent agencies to an in-house production company as well as the Miss America Pageant and Ultimate Fighting Championship — might be the greatest test for the bigger-is-better mantra.
But going bigger is not without danger to midsized companies that run the risk of having fleet-footed smaller rivals nip at their heels. Already, in the PR world, even as companies such as PMK and Rogers & Cowan have consolidated, boutiques such as The Lede Co., Relevant and Shelter PR have shown they can hold their own, delivering the “bespoke” service Owens talks about. Does this mean small may still be beautiful, after all?
No, says Wolzien. “Being small is tough. Small is not having leverage. Small is not being able to sit at the same size table as the big guys. Small is not being able to play the bumper cars. True, if you’re small, you have the freedom to try new things. You can innovate — but innovation doesn’t necessarily mean success.”
Stephen Galloway is executive editor at The Hollywood Reporter.
This story appears in the Sept. 4 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
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