Industry debates financial role for agencies

Endeavor's relationship with film finance company Media Rights Capital has the industry buzzing

Should agencies be allowed to have a financial stake in entertainment product? That question has been the topic of industrywide conversation lately in the wake of recent reports that Endeavor is a minority investor in a film financing company, Media Rights Capital.

In the past few years, the influx of outside financing from Wall Street, hedge funds and other sources has made its influence felt throughout the industry, and the agencies have not been immune.

ICM created an alliance with Newbridge Film Capital, a partnership between Merrill Lynch and Rizvi Traverse Management, and CAA, ICM, WMA and Endeavor have all launched in-house units geared toward packaging and finding financing for independent films.

But it's news of Endeavor's stake in MRC that has cast the issue in a new light, largely because the agency has an actual investment in an outside company that -- by virtue of its financial contributions -- will have a stake in product.

Former Endeavor agent Modi Wiczyk and a former Harvard Business School colleague Asif Satchu founded MRC in 2003, but in the past year, the duo has secured financing from AT&T, the WPP Group and the Goldman Sachs Group, among others, with Endeavor participating as what MRC officials describe as "a nonvoting minority stakeholder." The company now has enough capital to finance up to $400 million of annual production, according to Wiczyk.

Representatives for Endeavor and MRC are emphatic in stressing that MRC is purely a financier and not a producer. They say the company is "platform agnostic," intends to provide funds for TV, mobile and broadband content and plans to reach out to all talent agencies.

Nonetheless, MRC's relationship with Endeavor has rekindled discussions about what agencies should and shouldn't be doing to create work for clients at a time when the business is experiencing consolidation among the major studios and cutthroat competition among the indies.

Some have questioned whether the partnership falls within the parameters set by the California Labor Code and Screen Actors Guild rules that prohibit agencies, which essentially have a monopolistic hold on work procurement for talent, from engaging in potential conflicts of interest.

Of course, this issue has been around for ages -- not so long ago, William Morris Independent's Cassian Elwes and Rena Ronson triggered similar speculation when they partnered with real estate mogul Bob Yari on the now dormant El Camino Pictures banner, a company formed to finance (mainly Yari's) indie projects.

The question of agencies owning an interest in outside companies that have a hand in creating product brings a deeply divided response from industry insiders, some of whom asked not to be named for fear of antagonizing their representatives.

One A-list writer says he was so disturbed by the notion that he called a meeting with his agency. "I did have a long conversation with my agent about exactly that," the writer says, "and how uncomfortable I would be as a filmmaker in that case (if the agency negotiated a deal with a company in which it had a financial stake), wondering, 'Well, how much money did I leave on the table? And am I getting screwed over twice?'"

Producer Marshall Herskovitz, who also serves as president of the Producers Guild of America, says: "We have seen so many destructive corrosions in the industry of the separation of powers. What happened (to allow) the networks to own the television programs they make (with the abolition of the financial interest and syndication rules in 1995) has been great for these companies but a disaster for the artists.

"And now, managers have become producers," continues Herskovitz, who is careful to point out that he is not speaking on behalf of the PGA in this instance and adds that he is not commenting on the Endeavor/MRC relationship in particular.

"All these separations that were there for a reason -- to protect competition and keep the playing field even -- are so eroded already; maybe we don't even notice if agents have ownership as well. But that doesn't make it right."

Or maybe the rules simply don't reflect the realities of today's market. Managers, who are precluded by law from procuring work for clients, appear able to do so with impunity -- as long as their clients don't report them -- and agents have watched with envy as some of the most successful managers have become millionaires many times over by diversifying into producing, Paramount chairman Brad Grey being one such example.

As written, the laws governing agents are rather vague. California Labor Code Section 1700.39 says: "No talent agency shall divide fees with an employer, an agent or other employee of an employer." That financiers are not employers is one way to look at it. Others see the issue in a different light.

"Ultimately, talent agents' foremost concern must be to look out for the interests of the talent they represent, and not those of employers or financiers," SAG general counsel Duncan Crabtree-Ireland said in a statement."The guild has long-standing concerns about conflicts of interest -- both of a legal and fiduciary nature -- connected with the growing involvement of talent agencies in the finance and actual production of projects in which their clients and our members are employees."

For others, the situation is more complex. "There is a huge conflict-of-interest issue that in some cases may be cut and dried and in other cases would lead you to wonder if a decision was made for the best interest of the film or the clients," producer Mark Johnson says. At the same time, he acknowledges, "Anybody who causes a film to happen should be encouraged."

Those in favor of abandoning the old ways argue that looking out for a client's interests and backing that client's films go hand in hand, and to the extent that agents can help get their clients' projects greenlighted, they're just doing their jobs.

"My own view is that it's a good thing," director James Gray notes, saying of anything that gives creatives more opportunities to projects made, "How can that be bad?"

Adds producer Carol Baum: "If these new companies can help make a difficult movie, I am all for it. If Rena Ronson and Modi Wiczyk are going to get pictures like (Baum's 2002 indie drama) 'The Good Girl' made, I am behind it."

Wiczyk, who gained knowledge of the international sales markets as a rep for Summit Entertainment before joining Endeavor and now serves as co-CEO of MRC, says as far as he is concerned, the issue is not one that is germane to their business. MRC is a company that finances filmed entertainment, he says, but does not produce.

"We are not producorial," he says. "That is not what we think we are good at. We don't have a development staff because we don't develop things."

While in principle, the PGA would agree that financing and producing are two separate and distinct undertakings, others would argue that there is a fine line between the two. Just where that line should be drawn became a prominent issue when the PGA and the Academy of Motion Picture Arts and Sciences ruled that financier Bob Yari should not qualify for an Oscar as one of the producers of 2005's "Crash." (Yari was unavailable for comment at press time.)

MRC already has contributed to the funding of films such as 2006's Oscar-nominated drama "Babel" and the upcoming Sacha Baron Cohen spoof "Bruno" (which the company sold to Universal for more than $40 million), along with features such as Sony Pictures Classics' planned 2008 remake "Sleuth," directed by Kenneth Branagh and starring Jude Law, and Fox's upcoming release "The Tourist" with Ewan McGregor and Hugh Jackman. Additionally, it is developing films with directors Todd Field and Bennett Miller, both Endeavor clients.

"We see ourselves as a financing and monetizing engine, but we are not just a bank," Wiczyk says. "We can decide on the appropriate media and distributors for each project."

Because of this, the Association of Talent Agents says that Endeavor hasn't crossed a line in owning a stake in MRC. "We have said for years, and we continue to believe, that agents assisting in the financing of entertainment content creates more work for clients and is therefore in the clients' best interest," ATA executive director Karen Stuart says. "Agencies have been focused for decades -- in full compliance with state and guild regulations -- on assisting in financing, and the current marketplace makes it even more critical."

David Ginsburg, executive director of the entertainment and media law and policy program at the UCLA School of Law, says that all of these parties are wrestling with broader shifts in the business.

"Agencies would like to be of greater assistance to their clients and participate economically to compensate them for the benefits they are conferring," he says. "I don't think you'll find a single client who'll be upset when (his) agents raise significant production funding to enable the production of films that might not otherwise get made."

Veteran attorney Robert Darwell of the law firm Sheppard Mullin Richter & Hampton Llp. is more dubious as to whether agencies should be allowed to expand their role in the product chain. He says: "I don't think there is anything in the marketplace that mandates a change. And if the other agencies move in this direction, you are likely to see some level of legislative scrutiny."