Hot New Power Agent: Private Equity

2012-17 REP Private Equity Illustration H

WME sells 31 percent to Silicon Valley as the race to replace film and TV money heats up.

WME sells 31 percent to Silicon Valley as the race to replace film and TV money heats up.

The Hollywood talent agency business is undergoing a radical change, with private equity investment increasingly becoming part of the picture.

WME announced May 2 that it has sold a 31 percent non-controlling interest in the agency to technology-centered PE firm Silver Lake. The deal -- arriving on the heels of a 2010 move by CAA to sell a 35 percent minority interest to PE firm TPG Capital in a deal creating a $500 million investment fund and an earlier foray by ICM -- has been characterized by WME as accelerating the agency's push into the digital space. Indeed, Menlo Park, Calif.-based Silver Lake made a name for itself after buying a majority interest in Skype for $1.9 billion in 2009 and selling the company to Microsoft for $8.5 billion in 2011.

WME hopes that as traditional agency revenue streams -- star salaries, lucrative TV packages -- are being squeezed, opportunities in the digital space will supplement that revenue for the agency and its clients. To that end, WME will create a technology advisory council to identify tech-related opportunities. The agency's music business, home to such digital-media-savvy stars as Lady Gaga and Deadmau5, could benefit quickly.

But if past involvement of private equity in Hollywood is an indication, potential issues lie ahead. CAA used a portion of its PE money to move into the sports business, though several agency veterans received large cash payments, irking some insiders. Chatter in the agency community has pegged the value of Silver Lake's WME investment at $100 million to $150 million. While the deal's structure is unclear, big payouts are not said to be part of it. (WME declined comment.) Still, the investment means Silver Lake managing partner Egon Durban will join the agency's executive committee, though WME will continue to be managed by an eight-member board led by co-CEOs Ari Emanuel and Patrick Whitesell.

Some rivals believe that any dilution of power is bad, even if WME retains a controlling interest. Others argue that investors simply don't understand Hollywood. "Private equity sees the world differently," says a top agent. "Not all creative decisions make good business sense. I can't believe private equity wouldn't become an intrusion to the culture of the agency."

Just ask ICM. In 2005, it gave up a controlling interest to PE company Rizvi Traverse Management for $100 million to spur growth. The relationship soured as Rizvi co-founder Suhail Rizvi became frustrated that ICM didn't provide a platform for bigger media investments. An agreement to buy out Rizvi and convert ICM to a partnership is being finalized.

Despite the cautionary tale, sources say more agency investments could be coming. "There is a trillion dollars of private equity out there, and there is this pressure to deploy it," says a high-level agency source. "The question is, in what way?"