Ovitz's Rise Signals Shift in Global Entertainment

THE declaration at Potsdam. The disintegration of the Soviet Union. The departure of Hollywood uberagent Michael Ovitz from the Creative Arts Agency.

Of course it's an exaggeration: We are talking about the entertainment industry, after all, where hyperbole is the stock-in-trade and this week's designation of Mr. Ovitz as president of the Walt Disney Company has been treated with language most people reserve for earthquakes.

From New York to Beverly Hills, it has been a summer of seismic metaphor. Only last week, Disney itself said it would pay $19 billion for Cap Cities/ABC Inc., while Westinghouse heralded its planned $5.4 billion purchase of CBS. Those moves came on the heels of Canadian distiller Seagram's decision to buy MCA, owner of Universal Studios, from Japan's Matsushista Electric Corp.

Now, a twist in one man's career has further underscored and, perhaps, accelerated the transformation in the business of media, presaging an era where a handful of multimedia conglomerates control nearly every aspect of news and entertainment available in the United States and, to a great extent, the world. "On a micro scale, the more things change, the more they stay the same," says "Sleepless in Seattle" producer Lynda Obst of Disney's newest hire. "On a macro scale, it's enormous."

To understand how the micro and macro are linked in the figure of Disney's incumbent president, one must consider the man, the talent agency he helped to found, and the position both enjoy in Hollywood's food chain.

Creative Artists, known everywhere as CAA, began its life in 1975 as the rogue venture of five young and ambitious agents from the William Morris Agency.

Ovitz, then 28, became their leader and promptly proceeded to redefine the meaning of the term "talent agency."

Ovitz and his band became famous for their indefatigability and, to some degree, ruthlessness. They poached clients from the rosters of other agencies and shattered a prevailing gentlemen's-club ethos against "talent raids."

They assembled a dazzling list of actors, writers, and directors, winning record-breaking fees from the studios. And their president, the secretive Ovitz, became known universally as the most powerful man in the entertainment business.

This might have never changed, had the winds of regulatory change not blown as they did, ultimately sweeping Ovitz to Disney.

For years, federal guidelines ensured that "content was king." Studios produced television shows for broadcast on the networks. But the Federal Communications Commission saw to it that network profits came from advertising revenues; the studios, not the networks, owned the shows themselves. After the first run of a television series, the studio was free to take a series and sell it for repeat viewing on the syndication market. The network was shut out of all future profits.

That arrangement ended with the Bush administration, when new rules permitted networks to own their own programming, reaping advertising revenue during the first run and lucrative syndication profits down the road.

"The networks have a finite amount of time in their schedules, so there's a lot of competition among the production companies and the studios to fill those slots," says Daniel Broder, a network consultant with McKinsey & Co. "And all of a sudden they face the prospect of competing for these very time slots with the production entities owned by the network themselves."

Content is king

In this new environment, ownership of "content" has come to be seen as no more or less important than ownership of the means to distribute it. "These companies are scrambling for vertical integration," Mr. Broder says.

Australian media baron Rupert Murdoch was the early pacesetter. His News Corporation acquired the Twentieth Century Fox film studio, then started the Fox network, which has since allowed his studio to broadcast programs it would have been hard-pressed to sell elsewhere. Viacom, owner of Paramount Pictures, and Time Warner, owner of Warner Brothers Studio, have followed suit, each constructing networks through which to sell their own programming.

And now Disney chairman Michael Eisner has stepped into the breech, merging his company's enormous financial and creative strength with that of the nation's most successful network and news gathering operation, ABC, creating what one agent calls, "the new 8-million-pound Godzilla in this business."

That kind of talk, in turn, has led the other players to reexamine their strategies on the fly as they race to build the world's biggest and most competitive multimedia organizations. Atlanta media baron Ted Turner, whose eponymous Turner Entertainment now includes a studio of its own, is said to be strategizing to nab CBS away from would-be owner Westinghouse.

Some media analysts believe that General Electric Company, owner of NBC, will try to buy Time Warner for an estimated $30 billion. Others think it is Time Warner that will try to buy NBC from GE.

Which brings us back to Ovitz, CAA, and the role of superagents in this emerging entertainment order.

Ovitz & Co. were so successful in recalibrating the balance of power between studio and agency that other agencies benefitted as well, winning ionospheric fees for their A-list talents.

"It's great for the talent," says one highly placed studio insider, noting Universal's recent agreement to pay Sylvester Stallone $60 million to appear in three movies.

"It's madness for the moviemaking process."

Such madness, in fact, that studios have simply cut back on the number of movies they make, and devoted their resources to feeding the maw of cable television. The rub for talent agencies like CAA is that such programs don't require the services of stars commanding seven - and eight-figure fees. Which suggests to some that the balance of power may at last be swinging from agents and toward the companies that actually pay the bills.

"Ovitz saw the writing on the wall," says the insider. "The real action isn't with the agencies anymore: It's with the conglomerates. They'll own it all."

Under these circumstances, the surprise isn't that Ovitz left the agency of his creation, but that it took him this long to do so. He brokered Sony's 1991 purchase of Columbia and Tri-Star Studios, then turned down an offer to run the newly formed Sony Studios.

Since then, the industry trade press has followed rumors of his imminent departure from CAA with an avidity reminiscent of the bachelor days of Prince Charles. By many accounts, Ovitz has spent the ensuing years wrestling with the question of where one goes when one is already at the top of one's profession. Industry observers find themselves fascinated with his answer.

Ovitz's new empire

Earlier this summer, Ovitz walked away from an offer to run MCA amid rumors that he'd demanded as much as $250 million in total compensation. CAA co-founder and agency No. 2 Ron Meyer took the job instead. But Ovitz, it was reported, found himself adrift at his own agency, deprived of the loyal deputy responsible for administering CAA's day-to-day operations.

At Disney, he will receive a performance-driven compensation package that will make him a multimillionaire many times over. His stake in CAA, however, is said to be worth as much as $200 million, so he certainly isn't taking the job because he needs the money. As president, Ovitz will now answer to chairman Eisner - thus finding himself playing a supporting role in a town where he has long occupied the director's chair.

"If that doesn't tell you something about the direction of this industry, nothing does," says the studio insider.

As Ovitz himself put it to the editor of Variety last spring: "It's as though we were all sitting on this quiet beach and we're not aware of the huge breakers that are about to come down on us."

*Staff writer Christina Nifong contributed to this report.