In The Wake Of The Paradigm-UTA Non-Merger
In recent weeks, the live industry has witnessed one major talent agency file an initial public offering, acquisition and merger talks made public between two others on a Friday, and a public shutdown of those talks before the weekend was over. While the agency business (and the larger live business as well) has been in consolidation mode for some time, the sense of urgency was palpable the first week in June.
Talks between UTA and Paradigm for either an acquisition or merger became public Friday June 7, with few on the inside answering phones or emails for comment that day. By Sunday evening, a letter from Paradigm Chairman Sam Gores and statement from UTA CEO Jeremy Zimmer confirmed that talks had taken place but were called off with no deal reached on an offer reportedly in the $250 million to $300 million range, according to The Hollywood Reporter.
While Paradigm and UTA declined comment prior to the joint communiques, Pollstar heard rumblings several months back that just such a merger was being discussed. At the time, an agency source denied the rumors, but merging the third largest agency (UTA) with a mid-level agency (Paradigm) makes business sense considering the combined vertically integrated entity could better compete with WME and CAA, the two dominant agencies.
UTA has been making aggressive moves in the live space, acquiring Circle Talent Agency last year and The Agency Group in 2015, the same year it became the beneficiary of a mass exodus of comedy agents from CAA that jump-started a powerful comedy department.
See Also: UTA Acquires Circle Talent Agency; Artists Include Marshmello, Kaskade, Illenium, Excision
Black Coffee Productions – Pollstar Awards
Paradigm’s Marty Diamond and Sam Gores celebrate Diamond’s win for Bobby Brooks Agent of the Year at the 30th annual Pollstar Awards, Feb. 13 in Los Angeles.
Industry observers Pollstar talked with are unanimous in the opinion that UTA will remain in the expansion hunt and that the failure of talks with Paradigm owes more to a perceived “culture clash” than deal points. In an internal memo to staff, Gores hints to as much.
“There are reasons why a combination like this would have made sense for both agencies, but in the end, what is more compelling for us is how unique the culture at Paradigm is and how powerful our independent path can be,” Gores wrote.
Indeed, it’s hard to imagine cultural and music tastemakers like Paradigm’s Marty Diamond, Tom Windish or Dan Weiner – whose bones have been made by finding and developing unknown talent into superstar acts – happily sitting with bankers to determine which artists will bring the fastest return on investment to private equity shareholders.
As the major agencies – with sizeable stables of not just music and comedy performers but actors, directors, cinematographers, authors, models, athletes and brands – have evolved and diversified, with the largest backed by private equity funding, there is more pressure to produce return on investment to shareholders whose primary interest is in commerce rather than art.
It’s worth noting that WME’s parent, Endeavor, recently filed for an initial public offering and CAA has significant private equity funding. UTA also receives PE funding, though less.
See Also: United Talent Agency Adds Strategic Investors Investcorp And Public Sector Pension Investment Board
While Endeavor’s IPO is likely to become an impetus for M&A mania among rivals seeking a competitive edge, the complex agency landscape beyond music is fraught with land mines capable of causing disruption.
Music is but a part of the larger entertainment ecosystem – but one with a reliable and quick revenue stream, despite declining commission rates and some artists booking entire tours with promoters while availing themselves of other advantages full-service agencies provide, like commercials, branding opportunities, and TV, film and theatrical gigs.
Several sources told Pollstar the current Writers Guild of America dispute with agencies over TV and film packaging practices is an example of one such landmine, but one worth examining.
The WGA is suing the Big Four agencies (CAA, ICM Partners, UTA and WME) over the practice of taking “packaging” fees off the top of film and television production revenue, and with contracts ending in the next year with producers’ and directors’ guilds, major agencies may be attempting to hedge their bets by acquiring boutique music agencies in case the golden goose of TV and film revenues gets strangled by one or more strikes.
CAA’s music department founder and former partner Tom Ross has watched the evolution of the agency world from the breakup of MCA more than 50 years ago and believes the current atmosphere is similar to what the industry faced then.
“I think it’s a much bigger deal than people think,” Ross told Pollstar. “It goes all the way back to when MCA was the biggest agency. They booked bands but they got into television and saw some serious revenue with the package concept and realized, ‘We can make a lot more money doing television.’”
Ross explains the formation of CAA’s music department was a reaction, in part, to the agency’s need for additional income to keep the lights on in the event of TV and film work stoppages. He explains that music income can be booked fairly quickly from touring, whereas TV/film commissions can take up to two years to start rolling in once a product concept is adopted, written, filmed, edited and distributed.
Ross says that the model has come full circle – the agencies are booking their own talent on their own productions via packaging, and failing to protect the interests of their clients – and with little government interest in regulation or oversight, the situation is not unlike that which broke up MCA all those years ago.
He believes the various guilds are prepared to fight for a bigger cut of the packaging pie next year or reduction of packaging entirely – and the fight will necessarily affect music agents and agencies.
“It’s putting pressure on the agencies to reduce packaging and the owners of the agencies are now saying, ‘You’ve got to find new profit areas,’” Ross says. “You also have the smaller agents that aren’t owned by an equity partner that has deep pockets, and they’re saying, ‘If this strike happens, we’re clobbered.’
“So you get UTA reaching out to become one of the big agencies. They have private equity money behind them, but not the kind that CAA and William Morris have. They are looking to build a stronger base. In a UTA and Paradigm merger, [Paradigm] would have offered mostly music. In film and television, UTA is pretty strong.”
But if UTA is able to make a deal for a mid-level agency that is strong in music, “they pick up an incredible amount of money that’s quick,” Ross says.
“If there’s a six-month or eight-month strike and everything’s on hold, they’ve got the income from music to sustain their bottom line business, pay the salaries and the rent, and operational costs. That’s the basis why everybody is looking to ensure their nest egg.”