I was watching you with Bill Murray at the 92nd Street Y. How great is Bill, right?
He's like the worst interviewer ever, but he's hilarious.
He's Bill Murray.
We'll let you talk more than Bill did.
Who got the truth?
Is it you?
Is it you?
Is it you?
Who got the truth now?
Is it you?
Is it you?
Is it you?
Sit it down.
Say it straight.
Another story on the way.
Who got the truth?
Welcome to Season 9, Episode 8, the season finale of Acquired, the podcast about great technology companies and the stories and playbooks behind them.
I'm Ben Gilbert and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.
And I'm David Rosenthal, and I'm an angel investor based in San Francisco.
He was the most powerful man in Hollywood for two decades.
He is responsible for movies and TV shows you love, like Late Night with David Letterman, Jurassic Park, Back to the Future, Rain Man, Goodfellas and literally hundreds of others.
We are here today with Michael Ovitz to tell the story of Creative Artist Agency CAA, the legendary talent agency he founded in 1975.
That changed the power structure in Hollywood forever.
And not just Hollywood.
As many of you probably know from our earlier episode this season, Michael and CAA inspired none other than Marc Andreessen and Ben Horowitz to similarly change the power structure of Silicon Valley.
Boy, did he ever.
Oh, what a great way to end the season.
I am so pumped.
All right, listeners, now is a great time to thank a new friend of the show, Koifen.
And it's funny, they're new, but actually I've been using their product for years.
My research project for every single new acquired episode involves Koifen.
So when they reached out to sponsor the show, I thought, well, this is convenient.
Yeah.
Indeed.
So Coifin is a financial research tool loved by both individual investors and financial advisors.
Individuals use it for stock research, graphing financials and portfolio tracking, and financial advisors use it to build model portfolios and create client proposals.
They have live market data and powerful analytics tools.
So it's kind of like a Bloomberg terminal, except without the huge price tag, right?
Yes, essentially.
It's a web app, and it's totally self-serve.
I've actually not talked to anyone at the company for the first few years that I used it.
So Koifin is a product that the broader market, like all acquired listeners, would use, not just Wall Street investment bankers.
It's where I pull things like growth rate or gross margins or the P-E ratio or revenue multiples for every company we study.
And you can compare these things over time with historical graphs or against other companies.
It's often what I use when we're studying private companies too, like Rolex or Mars or Ikea, to look at the comparables, to estimate what these companies would be worth if they were public.
They also have a screener that lets you filter across thousands of stocks, so you can quickly surface investment ideas.
Yep.
So the general idea is, if you're someone who's used to living in data, you should have that at your fingertips as you think about investing.
Exactly.
It's got these great graphs for data visualization wrapped around institutional grade data.
So if you want to understand what assumptions are baked into the stock price today, Coifin is for you.
I was about to say that Acquired listeners have a great offer.
But Koifin's free product is actually already really robust.
Which is what I was using for years.
I know, I know.
But indeed for Acquired listeners and also for you, Ben.
If you go to koifincom slash acquired and you end up upgrading to paid, you'll get 20 off your first year.
Our thanks to Koifin.
That's K-O-Y-F-I-N dot com slash acquired or click the link in the show notes.
Listeners, before we dive in, many of you already know this.
A ton of you have already subscribed, but the LP show is now publicly available in all podcast players for free.
So only the first two weeks of brand new episodes are in the private feed.
Everything else.
You can go search Acquired LP Show in the podcast player of your choice and get all those episodes.
Now, without further ado, our conversation with Michael Ovitz.
Michael, welcome to Acquired.
Thank you very much.
It is so great to have you here with us.
So we're thinking, of course, like any good creative artists, we're going to steal from your book and we're going to start in medias res and then rewind, just to set the stage for what's to come.
Just don't ask me any hard questions.
Well, I think you'll enjoy telling this story.
Can you tell us the Jurassic Park story?
You must be like me and like dinosaurs.
Well, that was the key to all of it, right?
Everybody likes dinosaurs.
I think that's accurate.
That's what got that movie made, basically.
So you had a pre-existing relationship with Michael Crichton, but he hadn't produced any new material in a while.
Is that right?
So Michael was a client of mine starting in the late 70s.
And we developed an extraordinarily close personal relationship that went way beyond our professional relationship.
And I literally talked to him every day of the week.
And I did that not because he was a client, partially because he was a friend, but mostly because he was one of the smartest and most interesting people.
He was really like a Leonardo da Vinci type, right?
He was amazing.
Here's a guy who was a medical doctor screenwriter director, travel writer, short story writer, novelist and just was probably the greatest guest to ever have at a dinner party, because he could talk about anything with an extraordinary depth of knowledge.
And it's fascinating to me because later we'll talk about another friend of mine who I love putting together, and that's Mark Andreessen.
The two of those guys probably suck 90 of the brain power that God gave away in their birth years.
They're just extraordinary.
But Michael ran into a very tough patch, really tough patch.
And a lot of writers and creative people, and you've probably heard the expression writer's block, you know they occasionally just it doesn't flow.
Artists have it as well.
I have a friend who's a phenomenal painter and she just couldn't get it together for six months.
It just wasn't coming out.
And I think that Michael was in a position where he was going on a couple of years and he just wasn't happy with what was coming to him.
And I used to have lunch with him once a week.
And I would push him constantly at the lunches to try to see if I could ignite a small spark.
And at one of the lunches, when things seemed the bleakest, he said to me what do you think of three people age younger and maybe one little older person, stranded in an amusement park off the coast of South America?
And the core of the amusement park are prehistoric animals.
And I looked at him and I said, wow, my young son likes dinosaurs.
I like dinosaurs.
And my dad likes dinosaurs.
This is really an extraordinarily interesting idea.
And we then talked for almost three hours about paleontology, about is it possible you could breed these type of beings in the 20th century?
Could it be made real?
Is it possible with in those days, with the kind of technical know-how that was available in the 90s, to do it?
And we came to the conclusion that it was worth him sitting down and trying to write it.
And lo and behold, he sat down and five months later, he called me up.
He said, I'm sending you a draft of a book about what we talked about.
And he sent it over and I remember sitting down around 6 o'clock in the evening 630 I had something to eat.
I had left the office early, and I just started reading typewritten manuscript pages.
And I didn't finish until around 3 in the morning.
And I called him at 7 a.m. and I said, this is the best thing you've written in 10 years.
And I said, I just couldn't stop turning the pages.
Just as an aside.
One of the great tests of whether something works or not is how quick you turn the page.
And you know from reading, just recreationally, if you turn the page, you like the book.
And I just devoured this book.
And I said to him, I said, look, this is brilliant.
It'll make an amazing book.
It'll make an amazing movie.
And I said, there's only one guy in my mind that can make this movie.
There are not two guys or three guys or four guys.
There's one guy, and if we don't get him, I would be worried about what this movie looked like.
And he said, who?
And I said, Stephen.
And in our world, there are certain people that have single names.
There's Madonna, there's Cher, and there's Steven.
Of course, Steven Spielberg, who was also the one director who is not your client.
He was not my client, and I wanted him to be a client very badly.
So my brain started to work on overtime.
And basically, I said, Michael, I'm going to call Steven.
So at 9 a.m.
I called Stephen.
We talked and I said, I've got something I want to send you.
And I know you don't read at night.
So I'm going to call your wife, Kate Capshaw.
And I'm going to ask her permission for you to disappear tonight and read.
This is like a classic agent trick, right?
Is to call somebody's spouse.
I had no choice because I had to create a sense of urgency around this, but also I didn't want to oversell and I didn't want to undersell.
So he agreed.
He said, call her.
I did.
She agreed.
Sent him the book.
He said, how much time do I have?
I said, you've got today and tomorrow.
And lo and behold, the next morning at 7.30 in the morning, my phone rang and it was Stephen.
He said, this just knocked my socks off.
He said, I couldn't believe this book.
He said, I'm making this movie.
And what year was this?
So this was about a year before the movie was made.
91, 92.
It's very unusual to begin this level of pre-production on a movie even before the book is published.
I mean, this is on the first version of the manuscript, right?
Yeah, this is highly unusual.
What's even more unusual is I asked Stephen to commit to the movie subject to a budget, and we had no distributor and no financing.
And Stephen was the most sought-after director in the business.
And to his credit, he said, okay.
And I called his producer Kathy Kennedy who oddly, her husband Frank Marshall, was my college roommate.
Whoa, no way.
So I had a little credibility there.
And Kathy runs Lucasfilm now, right?
Or no credibility, David, depending on how you look at it.
And...
I said, can we get a budget on this book?
He said, sure.
He said, but do you have a script?
I said, no.
So I sent him the book, sent her the book.
They both read it.
We did a rough budget, and Michael decided to write the script, subsequently brought in some help.
And basically, I went to Universal, which was where Stephen was housed.
And I called the head of the company, Sid Sheinberg.
And it was kind of a famous saying at the moment, but I said, Sid, we got good news and bad news.
He said, great, what's the good news?
I said, we've got a Michael Crichton book, Michael Crichton screenplay.
Steven Spielberg's committed to direct.
Kathy Kennedy's going to produce it.
And I said, and it's about dinosaurs, which we all love.
It's three people trapped in an amusement park gone awry, loaded with prehistoric animals.
And Sid, of course, is the number two to Lou Wasserman, who we're going to talk about in a minute.
So Sid says, okay, that sounds amazing.
What's the bad news?
I said, Sid, the bad news is you don't own it, and we do.
And I said so.
Steven doesn't control it, which means your first look with him disappears.
But Steven wants to make the movie at Universal.
And he said, how much time do I have?
I said, 24 hours.
And he asked what the deal was.
I told him the deal that we were going to be partners with Universal dollar for dollar.
And he got back to me about 12 hours later, said, we're in.
So this was all done under the tutelage of CAA, with Crichton and Spielberg and Kennedy and Frank Marshall who helped us with the budget.
And it was one of the premier packages we ever put together.
And we're going to talk a lot more about packages and everything you pioneered.
But in the old world, the old Hollywood, all these people would have been under contract with the studio and just paid employees, paid labor.
Jurassic Park went on to gross a billion dollars.
So actually, if you add all of them together, it's much more than that.
Wow.
And your team, the creative team and CAA kept 50% of that billion plus.
Well, the creative people had 50, which means we had five.
Right.
Because you had 10%.
Yeah.
Even though everyone chided us saying we never took 10%, but they were all wrong.
Yeah.
So is my math right then that Steven had about 50% of that and Michael had about 50% of that?
So each of them ended up with a quarter billion dollars from this franchise?
I don't know what they ended up with.
They didn't have an equal split.
Okay.
Steven had more because as a director, you command more.
But they both did very well.
And, as David brought up, if this was done under the old studio system, all of them would have been under contract to a different studio.
And the odds of loaning them out were nil.
And then the odds of getting this made outside the system would have been almost impossible.
Before we dive into this old system that David's going to take us to here, I just want to point out how unusual it is.
I mean, you represented Michael and for years he's sitting there with writer's block and you're just getting lunch with him every week, coaxing him along, trying to figure out what that next big thing is, even though.
He's your client and you're spending all this time and attention.
But the agency business model is to get 10 of what actors directors, writers are creating.
And if he's not creating anything, you're spending a ton of time with him as obviously client, friend and as your belief in his future, that sort of made this all possible.
Well, that's true, but I will say one thing about the agency business that is really not well known.
Agents are depicted as money-grubbing, as not loyal, aggressive, short-sighted sometimes.
But, you know, the reality of it is I don't know many agents like that.
The agents that I dealt with at CA, the agents that I competed against, were vigorously and ferociously loyal to their clients.
A lot of them were in the same position I was with Crichton.
There is zero chance that I would have let that guy down, none.
And I knew he was having a tough time and it was my job to be there for him.
Period, not a discussable issue, not a choice, not an option.
I had to be there.
And I will tell you, I tried some hokey things to get them stimulated.
I brought them other people's ideas.
Sometimes I'd bring him an idea so bad to try to get a chuckle out of him, where he'd look at it and say what are you thinking?
And I said well, I'm thinking that maybe you'll think this is so bad that you could do something just a little bit better.
And frankly, the agency, to their credit, went around telling everyone that Crichton was working on an original.
And by the way, that was unequivocally untrue.
He was working on nothing.
I mean, he could barely get out of bed in the morning.
He was really wiped out.
He felt he had just spent all his creative currency.
So my job was to just back him up and stimulate him into thinking that he could do it again.
Back when all these folks were under contract.
And really I mean reading about old Hollywood and learning how the old studio system worked.
To me it's like a sports league.
There were five teams, the major studios, then a couple independents, a couple major minors.
They were all a sports team that had the owners back in New York and had the GM and the manager.
Those were the studio bosses.
And then all the actors, directors, writers, they were players.
They were like LeBron James.
They might be paid.
Well, that's a bad example because the players make so much more money now.
It's like an NFL player in the 70s.
Yeah, they played for the team.
And if they didn't go out and play, they would get suspended.
Yeah.
I think that you could safely compare the studio system to today's NFL.
And they had people that made a lot of money.
They had artists that were getting in their time substantial sums of money.
You know, the Douglas Fairbanks, the Mary Pickfords.
They were paid in those days. money that was unthinkable.
Even for the folks where it was a large amount, it was committed up front, right?
They didn't get a share of the proceeds until Who was the first to really get a gross proceeds deal.
Well, the first is the famous story of the movie Winchester 73, where Lou went into the studio and suggested a lesser front money payment for a piece of the back end.
Prior to that, artists were paid what's called flats, which is a flat fee.
And they didn't get a basic participation.
And I think that what he did is he changed the entire fabric of the business.
And so that was Jimmy Stewart in Winchester 73.
And Lou was his agent.
Yes, was his agent, which is funny because then Lou went to the other side.
And if you go all the way up to Jurassic Park, you know, he got stuck with participations.
I had a similar issue with Lou and Sid over Back to the Future. where they were running the studio.
And, by this point in history, Lou's original trick of hey, let's get Jimmy Stewart cut in on the back end.
He's a partner in this movie.
He's going to participate from the upside.
You would take what he did and what CAA really did was multiply that over and over and over again, such that the talent was really participating in the upside.
So then by the time you bring Jurassic and you bring...
Back to the Future 2 Lou, when he's a studio head at Universal.
That's got to be kind of a wild full turn of events to really get the better of that deal.
Well, it was interesting.
One of the things I said to Lou when our director, Bob Zemeckis, who's a brilliant director, was going back for Back to the Future 2 and 3, and I wanted a larger participation for him.
My opening line to Lou was, you caused this problem.
It didn't go over very well, by the way.
Who was Lou?
Because from the outsider's perspective, here's how I sort of see things.
Lou was an agent.
He was like Anakin Skywalker, right?
He was fighting for the artists to get way more of the upside.
Yeah.
But then he went to the dark side and he stopped being an agent.
And MCA, his agency, bought Universal.
And all of a sudden he's on the other side of the table as a studio boss now, from your perspective, trying to stiff the artists.
How did this happen?
He made a decision.
First, he bought the pre-1948 Paramount Library for Universal.
And he made a decision. basically that it was better economics on the other side of the deal.
Why take 10% when you can have 90?
First, he bought Review Television.
Then he bought Universal.
For a period, by the way, Lou was still an agent while he owned Review Television.
Oh my goodness.
So he had the ultimate monopoly.
He's on both sides of the transaction.
Yeah.
You know, I've always felt and I still do I'm really interested in dealing with conflicted people, because if you have a conflict, in essence you want it to work out on both sides.
So a lot of times I'll go to someone with a heavy conflict to this day to work out a problem.
I'm thinking of Lou and MCA as sort of opening up a seam for artists, but then closing it again.
But maybe that's not totally accurate.
How would you characterize Lou then and what he did with Universal?
They gave participations out.
They didn't stop it.
They negotiated hard and tough on their side, no different than we did on our side.
But they were sympathetic too.
They didn't just say, look, we're not doing this.
We're reversing it all.
And frankly, as CAA gained momentum in the 80s and early 90s, they didn't have a lot of choice because of the 50 top grossing directors.
For example, in 90, CAA represented like 45 of them.
So it was impossible.
You couldn't say no.
I remember when we signed Mike Nichols, may he rest in peace, a great director.
I'll never forget a call he made to me.
He was getting $2.5 million to direct.
And when he became a client of ours, we went to make a deal for him.
I called him up and I got him $5 million.
And he said, I don't understand.
That's not my price.
And I said well, it is in the context of being a CAA client, because 5 million was what the top directors made at that point in time.
So I said, Mike, you're a top director.
I said, if you want, I'm happy to take two and a half of it and donate it to charity.
At the time, I was raising money for the UCLA hospital.
We were going to rebuild it.
So I said, I'd be very happy to take that two and a half million for the hospital.
And he said, I'd love to do that, but I'm very pleased to have the full amount.
Did he make a donation to the hospital at least?
He did.
He made a small donation.
It was not two and a half million, but he was very generous.
He was a great man and a great director.
All right, so let's go back to this era.
Before you got into the business here, you mentioned, Lou bought this pre-1948 catalog, which was a genius move because you could then run these films on television, which was rapidly proliferating around the US, and make all this money on owning the rights to this catalog that are playing.
Meanwhile, MCA buys Universal, so you have one company there that's both an agency and a studio.
Well, Washington DC, of course, doesn't like this.
And they use the same word that you did, which was monopoly.
So the hammer comes down.
And my understanding is MCA couldn't function as an agency anymore, right?
That MCA Universal turned into a pure studio.
Let me give you a sidebar rumor that most of us that were in the business would bet on as a fact.
Lou was the chief fundraiser for the Democratic Party in West L.A.
There are stories galore that Lou called one of the Kennedy brothers and suggested that MCA be broken up as a monopoly.
Why would he do that?
Well, it was really, if it's true, it makes a lot of sense because it's brilliant.
Because what Lou didn't want... was MCA to stay together as an agency and leverage him at Universal.
So by breaking up MCA, that whole company went into a group of tiny agencies, none of which could give him a problem until we came along.
We were his worst nightmare because we created MCA on steroids and we would never sell Any idea or client unpackaged or naked to a studio ever, ever.
So anything we did was pre-packaged, where we controlled all the elements and our clients controlled their own destiny.
By controlled all the elements, you mean the script, the director, the stars?
Everything.
Everything.
It was in our client's best interest for us to go with a package to negotiate because the counterparty they had no choice.
So we could dictate terms.
So frankly, we legally set prices.
Even though you're not supposed to price set, we basically did it.
Because you owned the scarce commodity, which was the complete package and no one else had access to that, and then you would just go sell that one package.
That's right.
So if you had Stripes or Ghostbusters or Gandhi or Twins or Kindergarten Cop or any of the 350 films that we packaged Tootsie Rain, Man and go down a forever list you had a choice.
You'd buy the package or we'd sell it to somebody else, because we viewed the studios as distribution entities period.
We didn't need them to tell our clients how to make the films.
Now we did need them to distribute and market.
They were great at that.
We never sold a single piece of material on its own ever.
It all came wrapped up with elements.
Where did that insight come from?
Because I know in the sort of pre-CAA studio world the talent agencies would represent the talent and then the studios would do development.
They would buy the script and they would attach a director and they would turn it into a film and then they would go cast the actors.
How did you sort of get the idea of, oh, we could do that?
Well, the idea was pretty simple frankly, in that when we started in 74, we didn't have any clients.
So all we had were relationships.
So all we could do is put elements together and try to attach ourselves and hang on to a bucking Bronco.
And by doing that and if we could hang on, it developed that as we took clients in, we'd surround them with elements, because it became very clear to us that clients were the creative force and they were the ones that were going to dictate what was going to happen.
It was kind of the same reason that I encouraged everyone at the agency to read a lot of magazines.
Now you can't think of magazines today the way we did.
Because in the 70s 80s, 90s and early 2000, magazines were a vital part of the culture of the country.
They were the internet.
It's correct.
Pre-internet.
My thesis was that art directors of magazines and editors were always six months ahead of.
They had to be, because it took three months to get a magazine out and a month to let it sit on a newsstand.
So they had to think six months in advance.
So I urged everyone at the agency to read.
We had a list of 100 titles that they needed to look through every month.
I subscribed to 200 magazines.
And I didn't read them all, but I would sit and thumb through them while I was on the phone.
So I would read things like Golf Digest, Motor Trend, Automobile, Car and Driver.
Why did I read those?
Well, I'll tell you why.
When I met Paul Newman, I actually had something to talk to him about, because Paul Newman loved cars.
Now, could I talk for days?
No, but I had enough to get through an hour.
So whatever we read current events, you know we read women's magazines like McCall's and Redbook and Vogue and Marie Claire.
Why did we look at these?
Wanted to see what fashion looked like.
If you want to talk to an actress, you got to have some insight into look and feel and what people are thinking.
It doesn't mean it was always right, but it gave us a firm overview of editorial process by people whose job it was to predict the future.
You're in the business of being able to relate to people and quickly build strong, trusted relationships.
And also get a sense of where culture is going.
We got the account to do all the advertising for Coca-Cola because we were really culture mavens.
We really had a sense of what the audiences wanted to see.
And before we did this, there was this kind of unwritten rule that only buyers could do.
That, you know, studio executives, network executives.
And my thesis was, I had a partner named Bill Haber, who was head of our television department.
He was one of your founding partners, right?
Yeah, Bill Haber could read a screenplay, a teleplay, and give as good of notes as any executive at any television company.
As a matter of fact, I could probably make an argument, he could probably do it better.
He was really good at it.
We put together Shogun, As a miniseries, everyone said Bill and I were crazy, that we'd lost our minds.
Who cares about the Far East?
And how do you make a TV series about a bunch of Asians and one an Anglo?
Well, it was our point of view, from everything we were reading, that Asia was becoming a very hot commodity in the 70s and 80s.
People were really interested in what was going on.
The rise of electronics and electronic companies like Sony and Matsushita, Panasonic, National.
These were major players in our business developing hardware for all of the software that our clients were creating.
And those are the kinds of things we would think about.
But moving back to Coca-Cola, we weren't in the ad business, but we had a sense of what people wanted to watch.
So I was at an Allen & Company conference, and Herb Allen was on the board of Coca-Cola.
And of course, the CEO and president of Coke were at the conference.
And we were having a coffee out on Herb's porch.
And both guys said to me, we're getting hurt by Pepsi-Cola.
And bear in mind, in the 80s and 90s there was a book written called The Cola Wars, where these guys were fighting like cats and dogs for market share.
We talked about all this on our Berkshire series.
This is, of course, Roberto Goisetta and Don Keogh that you were talking with, right?
Yeah.
So I said to Don Keogh and Roberto Goizeta look, I think you guys are making a mistake with your advertising.
And they said, why?
And I said, well, you're doing six or seven commercials a year.
I said how do you run the same commercial on Seinfeld that you run on daytime and that you run on, you know, late night?
I said, they're all different demographics.
What are you doing?
They said, wow, that's interesting.
I said, could you come to Atlanta with some of your people?
I said, yeah, if you send a plane for us.
And Coca-Cola historically is one of the most sought after advertising accounts in America.
I mean, McCann Erickson had this account, had it on lock for decades and decades and decades.
They sell a pure commodity product that's differentiated by brand.
They pour a ton of money into brand advertising.
Yeah, they were running, a business that spent five to 600 million a year on advertising worldwide.
So I gathered 10 of our agents and I took them from different demographics and different departments.
I had men, I had women, I had music agents, film agents, TV agents, I had a personal appearance agent, I had a book agent and they did send the airplane.
And we flew to Atlanta and they brought in all 12 of their worldwide geographic division heads.
They got them all there for an all-day meeting.
What did your staff think when you told them like hey, we're going to go do an ad pitch to Coca-Cola?
Well, I'll tell you what they thought.
Most of them thought I'd taken leave of my senses.
How could we be in the advertising business?
And a couple of them looked at me and said, wow, we can do this.
Why can't we do it?
But my point of view.
80 of our company thought there was something wrong with me, that I probably had food poisoning or something that went to my head because it just didn't seem to equate to them.
But to me it did because what do we do?
We read material and try to tell a client like Michael Crichton and Steven Spielberg do you make a movie about dinosaurs?
Can we recommend that?
To Dustin Hoffman, can you make a movie?
We think you should make a movie about an autistic guy and Tom Cruise should be your brother.
We took the same positions that a buyer took.
No one owns creative thought or opinion.
Look, you two guys look at something on TV tonight.
You have an opinion about it.
When you're right more than you're wrong, that opinion's a trusted opinion.
And we were right more than we were wrong collectively as a group.
So we flew to Atlanta.
We sat.
We looked at every single commercial they'd ever done.
We listened to the complaints of the department heads geographically.
And I said to them, give us 90 days and we'll be back to you.
And I knew it would take us two weeks, because I already had the idea that I thought was going to work.
But I never like to over-promise and under-deliver.
I like to under-promise and over-deliver.
So about two weeks later, I called Don Keogh.
I said, we're coming back to Atlanta.
They're going to pitch your idea.
He said, you said you needed three months.
I said, well, we kind of accelerated it.
We got so excited and we drank a lot of Coca-Cola.
Oh, you did.
Which cracked him up.
So we flew in three weeks to the day after we met the first time and we pitched a simple idea.
We said, look, for the same money you're spending, We're gonna do 30 to 40 commercials a year.
They're all gonna be for different demographics.
It'll cost you the same as your seven commercials.
We're gonna do a mascot for you.
Polar bears.
Which turned out to be the polar bears.
Still running 25 years later.
We are going to run your commercials like a relay race.
So first of the year, we're gonna do hopefulness.
February we're going to go into Valentine's Day and love.
Easter family, summer refreshment, fall back to school.
Thanksgiving, family again Christmas, polar bears.
And they said, how do we know that's going to work?
And I said, you don't, because we didn't.
They didn't.
We just said, we believe it.
Let us try one flight of commercials.
And they said, how many do you want to do?
I said, 40.
And they said, you're crazy.
But if you want to do 40 for the seven, the budget for seven, you got it.
So they asked us.
Then they called back and backtracked because McCann had been their agency for 40 years.
And they said, will you come do what's called a shootout?
And shootout is where you come in and all the ad agencies pitch to the executives.
And I said, we will do a shootout if Don and Roberto attend.
The CFO, Doug Ivester, attends because he is the keeper of the money.
Your head of marketing, Peter Seeley, attends.
And three or four of your other key executives attend.
And we'll do it.
And they said, okay.
And they set the date.
It was set, I'll never forget this, for 11 o'clock on a weekday.
And I flew our team of five people in the night before.
We checked out the room we were going to do it in.
We rehearsed what we were going to pitch.
And we went for a very nice dinner.
I bought everybody new Armani clothes.
And we got up the next morning.
Never forget this.
We went to the gym.
We had a nice breakfast and we walked in at a quarter to 11 and sat down and we looked the part.
One would say it's a show of strength.
And at five to 11, the McCann people there were 35 of them drifted in, having just gotten off a 6 am flight from New York.
And I'll tell you, they looked like they were all in a blender.
They kind of looked like live smoothies.
They were wrinkled and ratty and all screwed up.
And nice people too, but whoever said to them to fly in the morning made a critical error.
Anyways, they flipped a coin and they said they won.
And we were hopeful that they would say what we thought they would, which is they'd go second.
Because we wanted to go first and blow their doors off.
Of course.
And we did.
They won and they said, we'll go second.
And I said, great, we'll go first.
And we went in and we presented 35 ideas and we acted them all out.
And each one ran 30 seconds.
And we did it crisp and clean with music, with expression, with enthusiasm.
I started it, a guy who just passed away named Len Fink and Shelly Hockren, who worked with us, went in and helped us.
Len, I remember, did a commercial about a dog, and he barked like a dog.
He got on the ground.
And we had these guys.
And I will never forget, I was sitting next to Bill Haber, but next to me was John Dooner from McCann Erickson and then a guy who had been friends with Don Keogh for 35 years.
They were drinking buddies.
And this guy wrote Dooner a note and I saw it by accident and it said, we're screwed.
And sure enough, we finished and then they came up.
They were so bad that after seven or eight minutes of presentation, they sat down.
We got awarded the account.
And of the 35 commercials we presented, they approved every single one.
Wow.
And these commercials?
Am I understanding right that coming into this you know you didn't have big name actors wanting to do commercials?
You didn't have movie caliber directors doing commercials.
But one of your aces in the hole was not only are we going to come up with these great concepts, but we're going to go get our A-list CAA talent to do this.
And we did.
We got a lot of our top directors who were between movies to do the commercials, paid them well.
They made money.
You made money.
Coke did great.
Everybody was happy.
But more importantly, you know, it's funny.
Our competitors put out all this press.
CA is going to use their clients to make commercials.
How stupid, blah, blah, blah.
I'll never forget one of our clients, Dick Donner, who did Superman. called me up laughing.
He said, I just read this article in Variety that we're all stupid for doing these.
He said, I just cashed my check.
He says, I'm between movies.
I couldn't be happier.
I just want you to know that.
We thought out of the box.
Nobody else did.
And when we did the commercials, I said to Roberto, I want you to premiere them like a movie.
Invite the press to And run them all because 35, 30 second commercials is less than 20 minutes.
And he ran them for the press.
And the press we got was insane.
We got the cover of Time Magazine, which was important at the time.
We got a love letter in the New York Times.
We got unbelievable press, except for the advertising journals.
Shocking.
Who said we were robber barons.
I'm shocked.
Shocked.
Yeah, we were ruining the business.
But here's the factoid that is fascinating.
This is prior to people knowing the word or its meaning, outsourcing.
McCann Erickson had 300 human beings working on the Coke account.
We had six.
And we edited everything.
We just didn't make them.
But we hired a company called Rhythm and Hues to do the animation.
They weren't on our payroll.
But they did a great job.
Right.
Those polar bears cost a lot less than Tom Cruise.
Let's put it that way.
The polar bears, we did very reasonably.
And we delivered 35 commercials for the cost of seven.
One quick sidebar, then we'll move on.
We sent the bills to the CFO, who was a friend of mine at the time, named Doug Ivester, and we sent a bill for a commercial called Timeline that we made on an Apple IIe computer in black and white and it just showed the timeline of Coca-Cola at various times in history.
And we sent a bill, I think, for, as I recall, for like $35,000 for a 30-second spot.
And that was probably more than it actually really cost on that computer.
So they sent us a check for $3.5 million.
And I called up.
I said, what is the $3.5 million for?
Is this a bonus?
He said, no, we thought you made a mistake on the invoice.
No one's ever done a commercial for us for anything less than $3.5 million.
So we didn't want you to run out of money because we were a little shop.
And I said, Doug, I hate to tell you this.
I'm not going to cash the check, but it was 35 grand for the commercial.
He said, I can't believe you did that.
That's the kind of stuff we did.
That's wild.
So we're talking about this point in history where you had already become this big, successful agency.
You were already representing these people branching out into things like trying to take on Coke's advertising.
Can we hear the entrepreneurial story from you of how CAA came to be in the first place?
Because you really started with nothing, like zero.
It's actually pretty simple.
I'll try to give you the highlights.
A group of us, there were probably 15 young agents at William Morris, maybe 20, all in our 20s.
And I was the assistant to the president at the time.
Bill Haber ran the TV talent department.
Ron Meyer was a first-class talent agent.
Roland and Mike Rosenfeld were TV packaging agents.
And basically, we noticed a disagreement philosophically with where they were taking the business.
And, crazy as it sounds, CA was born out of a bad staff meeting at William Morris, where the guy I worked for, who was head of the television department his name was Sam Weisbord announced with great pride and passion that he had signed Ann Miller, which will mean nothing to you two young guys, but she was a 50s song and dance queen and a Broadway star.
We said in a staff meeting, we all sat in the back.
We weren't allowed to sit at the table because we weren't senior enough.
And one of us got up and said look, Ann Miller is a talented lady, but we should be signing Bob Redford and Paul Newman and Dustin Hoffman and Sean Connery and Sidney Poitier.
And we should be signing those people, not Ann Miller.
This is William Morris.
We've been around since 1898.
We're on the wrong track.
Well, The older guys went ballistic.
You then saw a division at William Morris that never healed.
And then they made a cardinal tactical error.
The head of the training department that trained all of us was the former roommate of the president, Sam Weisberg.
His name was Phil Weltman.
And he was a tough ex-Marine drill sergeant.
And he trained everybody.
And bottom line, they fired him.
And he called us down.
He was almost in tears.
This was a guy that used to get up on the top of his desk screaming at us at the top of his lungs.
This was before people were woke.
This was like we were trained the old-fashioned way.
And we felt, my God, we were embarrassed.
It was debilitating to watch this.
This guy was destroyed.
That was the beginning of the end.
We started talking, all of us narrowed it down to five people that we wanted to be in business together.
And we made a decision to leave and set up our own business and do it our way.
That's it.
No more, no less complicated than that.
All right, listeners, it's time to talk about another one of our favorite companies, Statsig.
Since you last heard from us about Statsig, they have a very exciting update.
They raised their Series C, valuing them at $1.1 billion.
Yeah, huge milestone.
Congrats to the team.
Timing is interesting because the experimentation space is really heating up.
Yes.
So why do investors value StatSeg at over a billion dollars?
It's because experimentation has become a critical part of the product stack for the world's best product teams.
Yep.
This trend started with Web 20 companies like Facebook and Netflix and Airbnb.
Those companies faced a problem how do you maintain a fast, decentralized product and engineering culture while also scaling up to thousands of employees?
Experimentation systems were a huge part of that answer.
These systems gave everyone at those companies access to a global set of product metrics, from page views to watch, time to performance.
And then every time a team released a new feature or product, they could measure the impact of that feature on those metrics.
So Facebook could set a company-wide goal like increasing time in app and let individual teams go and figure out how to achieve it.
Multiply this across thousands of engineers and PMs and boom, you get exponential growth.
It's no wonder that experimentation is now seen as essential infrastructure.
Yep.
Today's best product teams like Notion OpenAI, Rippling and Figma are equally reliant on experimentation.
But instead of building it in-house, they just use Statsig.
And they don't just use Statsig for experimentation.
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So if you would like to help your team's engineers and PMs figure out how to build faster and make smarter decisions, go to statsigcom slash acquired or click the link in the show notes.
They have a super generous free tier, a 50000 startup program and affordable enterprise contracts for large companies.
Just tell them that Ben and David sent you.
To my mind, looking from the outside at you all in the beginning of CA, and then everything it would become, no doubt, a absolutely essential and probably the primary ingredient was just all of your collectively and you personally, just your like raw ambition certainly, and lots has been written about that.
I'm wondering though, too is it also fair to say that your background because most, if not all, of you came from television was that kind of a secret weapon?
Because packaging was more common in television, A, and B, television was still relatively new.
I'm imagining most of the old people at WMA and then also in the studio business just weren't tuned into this new world right.
No, actually, it's a good question, but let me correct something.
William Morris was the top television packaging agency.
And we all knew how to package television, but it's very different than packaging movies.
Because in television the producer is a key element and in movies it's the director and the director-actor.
And actors are cast in television prior to the 80s when...
Fading movie stars were brought into television.
But the thing about William Morris is they bifurcated TV and movies at a time when they were starting to come together.
And that was a thesis that we didn't agree with.
So that helped us leave.
But it was a different business at the time.
And William Morris wanted to keep them separate.
And we were asking the head of William Morris Picture Department and Television Department to run joint meetings because people could work in both areas, and they refused to do it.
That was another nail in their coffin.
So when we started we made a conscious decision to be TV only because by SAG rules they had to pay every Thursday.
And we started our business on $100,000.
And we never went into debt beyond that, paid that debt off in six months and never carried 10 cents of debt ever.
And the reason we didn't is our TV clients got paid every Thursday.
So we took our commission.
But in 1978 we made a decision that we needed to be in the movie business, and the only way we could do that was was to dedicate agents to the movie business.
So we made a decision that I would start the movie business in 79.
And the rest of the guys would stay in television.
But that Mike Rosenfeld, who was in the movie division at William Morris with me, would start a movie division at CAA.
That's a great insight because you could cash flow the business if your customers, your clients, were getting paid every week.
But it's pretty hard to run a business when you haven't raised any money, if you're waiting one two, three years for film projects to come together and then get paid on the back end after it gets made.
Correct.
Can I ask, what was it like to get your first big star?
And what's the story of CAA sort of actually building a sort of reputable, enviable talent roster?
So there was a lawyer in Century City named Gary Handler.
And we moved into Century City very early on.
And I noticed his name on the placard in the lobby did a little homework and discovered that he quietly had a tax practice and he represented every major movie star in the business.
So I decided to sign him as a client.
You signed the lawyer, a tax lawyer.
Yep.
He was going to be my client.
So I went up, knocked on his door, introduced myself, learned everything that I could about him, and then proceeded to become close friends with him.
And he delivered Sean Connery to me.
And I will never forget talking to Sean, 1979.
I grew up on Bond.
I remember a call being set.
I didn't have a clue what to say to him.
And I was struggling for words.
But I should have gotten Academy Award for Best Actor for that goal.
Because I actually sounded like I knew what I was talking about, but I didn't.
But I learned on the job.
I'm sure Sean's not a dumb guy, and he'd been in the business forever.
Why'd he go with you?
There must have been some rational reason for doing that.
He went with us for only one reason.
Gary Hendler told him we were young, aggressive, hot, and had good taste.
And Gary Handler proved to be right.
We did an amazing job for Connery.
He had come off three really low-grossing, not-so-good movies, and we turned his career upside down.
But after him, Dustin Hoffman signed with us, and just one after the other.
I will tell you a funny story.
There was a literary agency top literary agency named Adams Ray and Rosenberg.
They had about 400 of the greatest writers in television, few feature writers, but mostly TV.
And Rick Ray was best friends with Mike Rosenfeld, one of our partners.
And Mike was desperate to merge with them.
And I said, I'm happy to entertain it.
So we had this meeting with the three Adams Ray Rosenberg partners and Sam Adams Rick Ray, and I think his name was Lee Rosenberg.
And the five of us, and we sat in a little conference room in our crummy little Beverly Hills office which, by the way, was raided by SAG, because the people that we leased it from were running a house of ill repute out of it.
And the Screen Actors Guild was going to yank our license.
Little did we know.
So we got out of that mess and we were sitting in the conference room and I will never forget this.
Rosenberg said You know we're going to have the best television agency in history because we're never going to sign Robert Redford or Dustin Hoffman or any of these people.
And this was before we signed Sean Connery.
And Ron Meyer and I looked at each other and Mike Roosevelt, and we looked at them and I said well, that's not true.
We're going to sign all those people.
And they said, you're nuts.
You're not going to sign any of them.
So I said well, we plan on signing every single one of them because we want a monopoly on talent to give us leverage to turn the paradigm around against the distributors.
And they said, that'll never happen.
I said, thank you.
Meeting's over.
We're never going to merge.
And about six months later, we signed Connery.
And then every week, we signed a famous movie star after that.
And didn't you take out an ad in Variety announcing it?
Yeah, thanks for reminding me, Ben.
We took out these giant red ads in Variety every Friday and The Hollywood Reporter on Monday.
And it said, CAA is pleased to announce the worldwide representation of...
Robert Redford, Sean Connery, Dustin Hoffman, Sidney Poitier.
And we just went on and on.
And every time we ran an ad I ripped one out of the variety, folded it up and mailed it to Adams, Ray and Rosenberg.
And it got to be a stale joke after a couple of years.
Well, this feels like a huge principle of yours in CAA, which was really strength leads to strength.
It seems like you were always looking around and identifying what's the new way that we've become more valuable, and how do we leverage that into the next thing?
Can you talk about that and some of the other ways that you just by sheer force of will or by counter-positioning against other agencies, how you were able to be different than everyone else around you and win?
Well, we were different for one solid basic reason, which is that we basically worked as a team.
So if the two of you were clients of ours, you didn't have one agent.
What we resented at William Morris is that one agent coveted one client and you couldn't go anywhere with that, because human nature is such that eventually there's a relationship problem.
It just is.
The longer you're around someone, the more there's a relationship problem.
So we went ahead and put teams on people.
We had some clients that burned through three, four, five agents, but they never left us.
As a matter of fact, in a 25-year period, I think we lost under five or six clients.
We never lost clients. because we had teams of people on them that they could relate to.
No actor ever had a literary agent.
We'd have a literary agent on an actor.
Well, why would we do that?
Well, it would be stupid not to.
Why wouldn't we?
What does an actor do?
All they do is read scripts to see what they want to do.
What does a literary agent do?
All they do is read scripts to see what actors' roles are available.
So we were in a state of shock that actors didn't have literary agents.
When we looked into it, we were saying, wow, are we stupid or is everyone else stupid?
I mean, obviously you all were young and aggressive and willing to think differently.
But why was the competition so weak?
I don't think they were weak.
I think they were very comfortable in the old shoes.
They liked the one-on-one.
They coveted representation.
Their meal ticket was their individual clients.
At CA, your meal ticket was how well the whole company did.
If the company didn't do well as a group, every individual suffered.
Who owned these competitors?
Like you said, when CAA did well, y'all did well.
It was partnership.
How were economics structured at other agencies?
They just made what they called market deals.
So if you wanted to hire an agent, you'd try to pay them whatever they asked that was a market deal.
And we did just the opposite.
We paid very small front money and said at the end of the year if we do great, we're going to overpay you.
We're going to pay you more than you can get elsewhere.
You know we had an agent who was co-head of our movie department.
Get offered a job by Jeff Berg at ICM, who was a very good agent.
And Jeff invited him to a meeting and the guy came in to see me.
And he said, what should I do?
I'm just going to turn it down.
I said, absolutely not.
Go take the meeting.
Now, I had two things in my head when I told him that.
One.
I wanted to know what they were going to be doing and what their thought process was going forward.
And I knew that he'd get that out of them.
But two, I knew they'd under-offer him.
And I wanted him to see what he could get elsewhere.
Now I didn't tell that to him.
So he went and took the meeting and they were having a jolly time until it came to comp.
And I had instructed our guy to ask for what he'd get paid.
So the answer came, I'm gonna pay you more than I'm making.
So the question is, what are you making?
And so Jeff said, I'm going to pay it like, you know, a million a year or something.
And the guy who took the meeting looked at him and said that's very generous, but I'd have to be taking a 75 pay cut to do that.
And that worked for me at every level.
One, it was good for my guy to hear what he was worth at a competitor.
Two, I love the competitor knowing that a guy way beneath his station is making four times what he's making.
And three, it created a loyalty factor for me.
And why were you able to just make so much at CAA and frankly just overpay to keep people there?
What was it structurally about CAA, where you were able to just run this incredible cash-flowing business?
Well, first of all, we were accused constantly of taking cut commissions.
And finally people realized we couldn't be paying what we're paying to people if we were cutting commissions.
Secondly, we had a monopoly on the high-end TV and film business.
So we were minting And we just paid it out to our executives.
Period.
And as you're talking about all this, of course a team-oriented approach makes more sense than this individual lone wolf thing.
But there are trade-offs involved in every decision.
And the trade-off involved in showing up to every meeting with five people and having a network of people surrounding every client is that you need just way more communication and way more structure and way more systems.
What are some of the examples of the things that you put in place to actually make this work?
Because I'm imagining you probably talked to like 50 people a day for 15 years.
Well, you're off by about a factor of five.
Yeah.
So an average agent at our place would run 200 to 250 phone calls a day.
Some were 15 or 20 seconds.
So you got to bifurcate this into pre-internet and post-internet.
So pre-email, we had a system that we developed that was fail-safe.
One, return all internal clients first.
Two, you don't go home at night without... returning every call.
And three, we had what's called a buck slip system, which was everyone had buck slips, which were these pieces of kind of heavy paper that had your name on it.
And you'd write a note to an associate.
And I would say, Ben spoke to Scorsese, recommended Goodfellas, call me if questions.
That would get sent from my office to that person's office, to your office in real time.
It was our form of email.
Then he had to answer me that he had read it.
So he'd strike it out and answer it, send it right back to me.
So when Scorsese called him, which he did, He'd say, fantastic, Marty.
I heard that Michael talked to you about Goodfellas.
Couldn't be happier about the decision.
And then Marty goes, wow, these guys are on their business.
Is there an archive of all these somewhere?
No, they're all trashed.
Oddly, we locked up our trash every night, just so you know, because we found someone going through our trash.
And that was really scared me to death, if you want to know the truth.
This adds some color as to why the mailroom was so important.
When people say it started in the mailroom at CAA.
You were an essential part of the fabric of the system.
Oh, the mailroom at our place was a fast track to a career.
If you could make it through the mailroom and the way we handed down clients.
So if you guys were agents with us and if we signed a giant star, we brought you in as part of the team.
And if you were good, you made your own relationship.
Well, that's the benefit of the team approach too, right?
Is.
You could go out and sign, I don't know X Y Z, let's say Scorsese, but then you could bring Ben and me in and then that probably let you go sign a lot more Scorseses, right?
Well, David, time was our enemy.
So I needed a way to loosen myself up.
So how would I do that?
Well, I'd have people behind me working with clients that I signed.
So we signed Hoffman, Pacino, and De Niro, which had never been done in history.
And they're known as leading men at the time, right?
They were sort of competing leading men.
Well, my thesis was they weren't competing if they were with us.
I said to Dustin Hoffman, help me get De Niro.
He said, why?
I said, because wouldn't you rather I told you what he's doing than me not knowing?
He said, wow, that makes sense.
So we got De Niro, you know, and then, when I got both of them, I said to both of them I want to sign out.
And of course they looked at me.
What are you crazy?
You got the two of us.
And I said, no, I'm not.
You can work with each other.
And on top of it, We'll all know everything.
And you're not really competing because at the end of the day, the director makes the decision.
The agent doesn't make a decision.
But we packaged De Niro and Pacino with Michael Mann, called it heat.
Yeah.
You build all this up and then you make the pie bigger for everybody by packaging.
Well, that would have never happened.
It would have never happened.
In Untouchables, they would have never gotten Costner and Connery and Andy Garcia in the same movie.
They were all clients of ours, and we wanted them to work together.
We were a very family-oriented business.
We wanted our clients to work together and it worked for us economically and it worked for them.
You took an aspect that people thought was a zero sum game and you made it a positive sum game.
Our job was to create product for our clients, period.
We had people dedicated that had no clients that were only involved in creating product.
That was their job.
No agency did that.
We also had 15 readers on staff.
Michael, can you take us toward the last few years of your time at CAA?
We talked about this period where you're signing your first clients.
You went on to represent 45 of the top 50 in Hollywood.
Talked about your foray into advertising with Coca-Cola.
There's sort of two little pieces of this chapter remaining.
One is you kind of getting into investment banking and maybe I should pull kind of there.
You definitely turned CAA into an investment bank.
And I think you were the top grossing investment banker in the world the year that you did your first deal.
And then the second I want to talk about when you explored Universal and potentially becoming a studio head yourself.
So the first was a natural evolution of what we were doing.
The studios were in trouble financially and it became very clear to me that they were going to need financing, and traditional financing wasn't going to work.
Universal was under siege.
People were taking stock positions, corporate raiders out of New York.
Columbia was in trouble.
MGM was in trouble.
Warner's, believe it or not, was in trouble.
So I was very friendly with a brilliant guy named Herbert Allen.
And Herbert was an investment banker, taught me a lot about the business.
We used to spend a ton of time together.
And I got this idea that we could bring financing to save our marketplace.
Because frankly, if any of those companies went out of business, so did we.
I couldn't afford for Universal or Columbia or MGM or Warner's to shut down or to reduce the scope of their budgets.
CAA couldn't put up a $100 million budget for a movie.
You needed a studio to finance it.
Well, it was worse than that, Ben.
We weren't allowed to produce.
I had a white paper written by the most prominent entertainment lawyer in the business at the time, Frank Rothman, who's passed away.
Great guy.
And he wrote a 10-page opinion that we couldn't produce because I wanted to go into that business with our directors and create a director's company.
But we didn't want to take on the guilds.
Plus, the Writers Guild and Directors Guild were run by CAA clients.
Right, you'd be pissing off your clients.
And we were settling strikes.
Bill Haber and I settled one of the writers' strikes in the 80s.
We couldn't afford that.
So back to the studios being in financial trouble.
Literally, you have the reverse problem of Lee Wasserman back in the day of you now have the power on the sell side.
You need fragmented buyers.
I needed people that are buyers with money, period.
So I started building relationships in Japan.
First relationship I built was with a division of Matsushita Electric.
And...
I hoped that I would be good enough in the meeting that the division would recommend to Matsushita that they meet with me.
But before I got to that, I was representing people that were involved with Sony.
And I got involved in the sale of CBS records to Sony and built a relationship with Noria Oga, who was the number two at Sony, who ultimately introduced me to Akio Morita.
And I became Morita's and Oga's consultant.
We consulted on the sale of CBS records.
And then Mr Morita came to see me and wanted to buy, get into owning content because he was upset that Betamax, which was a superior technology to VHS, was losing to VHS.
He wanted to own a studio.
So I started calling different entities that I thought made sense and brought Merida into meetings.
And the first entity I called was Kirk Kerkorian, who owned MGM.
And I had a meeting at my home one morning, late morning pre-lunch, with Akio Morita, Kirk Kerkorian and myself to discuss selling MGM to Sony.
And Mr. Morita was a very clever guy and we were a great team.
He came with a box and he stuck it in the middle of the table and Kirk couldn't get his eye off that box.
And halfway into the meeting, Morita opened the box and he pulled it out.
And it was a tiny little video camera, which was a prototype for a videotape recorder camera.
And Kirk was blown away by the fact that when Morita would take pictures, video of us in the room with natural light and play it back through our tv set, kirk went nuts.
It's the equivalent of steve jobs putting an iphone on the table in 2005.
So morita just kept talking and then kirk said how do you want to pay for this?
And Morita said you know, we would finance it through Sony and we have the cash.
And then as the meeting ended, I could see that Kirk was lusting after this camera.
Morita packed it up, put it under his arm and left.
Power move.
And that was how we ended the meeting.
Subsequently, I couldn't get traction with Kirk.
So Herb and I started working. on Columbia, which Coca-Cola owned.
And the rest is history.
We worked the deal and, through a long process, arranged to sell Columbia and TriStar to Sony.
And that became Sony Pictures Entertainment?
Yes.
And Herb and I did that deal with no one else, just the two of us.
And it became a template that he and I then did over and over again.
What do the economics look like when you arrange a deal of that magnitude?
Do you agree upfront to a fee?
Do you say, hey, let's figure it out later?
Do you agree to a fixed price?
So I did something in those days that cannot be done today.
And let's bear in mind guys, this is 35 years ago.
I worked my tail off to understand japanese culture and i read everything that was published.
I studied the language, i studied the culture, i studied the art, i studied how they treated people.
I read everything under the sun that wasn't tacked down.
There was a Japanese American bookstore in Rock Center.
I was their biggest customer.
I love it.
And I took a shot at something which paid off for me in multiples.
So all of the banks, excluding Allen and Company and me, asked for a fee letter up front.
We asked for nothing.
We said, look, if we do a good job, you can pay us an obscene sum of money.
If we do a bad job, pay us our expenses and we're all good.
You didn't specify what the obscene sum of money was.
No, I remember in a meeting at Matsushita in Hawaii, they said, what fee do you want?
I said, if I'm not successful, I just want my expenses.
If I'm successful, I want you to load up a Brinks truck and back it up to my house.
They got the picture.
By saying that, we're saying look, we want to exceed all fees ever paid, but we never put a number on the table.
Do you know, I never once had a discussion with any of them about money, and I was paid handsomely by everybody.
So okay, we got to know.
What does the Brinks truck end up looking like for the Sony deal and then for later, the Matsushita deal?
I don't remember exactly what I got paid on the Sony deal, but I got paid twice because I got paid for the record deal and then for the studio deal.
On the Matsushita deal...
They gave me $120 million to pass out to all of the consultants.
And I passed out money to everybody generously.
Because we had Washington lobbyists.
We had PR people at Allen and Company.
And this is to buy Universal.
Yeah.
It was to buy MCA Universal.
Which, by the way, I tried to buy for Sony, but Lou turned me down.
Said he'd never sell to the Japanese.
But when his stock went from 65 to 20, he changed his tune.
And so Matsushita is the parent company of Panasonic.
Is that right?
The brand that Americans would know.
And they ended up owning Universal for... Was it 10 years before it sold?
To Seagrams, then Vivendi, then NBC?
They had a very bad experience with Universal.
So when...
I brought the CEO of Matsushita to the Universal lot after the deal was consummated.
I had had lunch with Lou the day before.
And I said to him, I said, Lou, you are the greatest executive in our business.
But once you sell this company, they're paying me to consult.
And I want you to feel free to use me because I understand their mentality and their culture.
And I said, with all due respect, you don't.
And I said, I'm here for you.
And a very apocryphal thing happened when I brought these guys to the gate.
I dropped them off and Lou looked at me, shook their hands and turned his back on me and didn't invite me in.
And that was the beginning of the end for him because he didn't understand them.
And they couldn't communicate with him.
He didn't understand how to deal with them.
And four or five years afterwards, they called up and his contract was up.
And he and Sid ran Universal like they didn't have owners, but they did.
And they're smart guys, but they couldn't make the transition And they didn't make the transition.
Well, clearly I mean having read about him and even going back to the Sony courtship clearly Lou and Sid didn't want to be owned.
They didn't want to be owned.
They took the deal out of fear of losing the company.
The value of the universal real estate was probably 18 bucks a share and their stock was going down to 20.
Wow.
So it was a no brainer. a no-brainer for private equity firm.
And when these situations come up, it's just got to be hard to go from entrepreneur mogul self-employed, king of the world to being an employee.
It just has to be an unbelievably hard transition.
I can't imagine how they did it.
I was always shocked that they were going to do it, but I knew they didn't have any choice.
But Matsushita didn't want to Ruffle Lou's feathers, because one thing the Japanese companies are always ultra sensitive to is politics.
And Lou was still very connected politically.
One of the guys on the MCA board was a guy named Bob Strauss who was head of the Democratic National Committee.
They didn't want to mess around with this, so they called Herb and I up.
Said we'd like to sell the company.
That was all they said.
And the reason was they didn't want to try to negotiate with Lou.
They just put up the company for sale.
And Herb and I were working with Edgar Brofman, frankly, on trying to take over Warner Brothers.
This was before the Warner Brothers and Time Inc merger?
This was before.
Got it.
And we had quietly accumulated 14% of the stock through Allen & Company for the Bronfman family.
And I met with Steve Ross three weeks before he passed away.
He was one of the greatest guys in history of the business.
And he gave me three hours of his time where I came to him and said that Seagram would put up 6 billion of cash with a standstill.
And Steve assigned the deal to his dealmaker.
And then as he got sicker and passed away, it all fell apart.
Well Michael, as we come up toward the end of your tenure here at CAA, can you talk us through the generational transfer and the sale of the business to the next generation, the Young Turks, and then your time at Disney after that?
How did that all come to be?
So...
I was pretty much hitting the end of my useful life as an agent.
I was about to turn 50.
I'd been working since I'm 16 in the entertainment business.
First for Lou, right?
At Universal.
It was my first job, tour guide at Universal Studios.
And I just didn't want to be in service anymore.
Wanted to try to run a public company for five years and then frankly quit, thought about going into public service, not private service.
And I was very friendly with Michael Eisner.
He was one of my closest friends.
He had a heart attack and a quadruple bypass.
Two of the board members started talking to me.
And I spent a year talking to them, on and off, on and off.
And then Ron Meyer blew up.
He just lost it. he just couldn't be in service anymore.
He just, he was over 50.
He had hit a point where he just couldn't talk. to clients.
I will never forget this.
He had a conversation on a Sunday that probably lasted six or seven hours with one of his clients.
It was Sylvester Stallone.
And he finished the conversation and tried to have a rest of his Sunday and Sly called back and wanted to start the conversation all over again.
And that's a little unusual, but not completely unusual.
That's within the realms of reality for an agent.
Yeah, in the entertainment business it is, yeah.
Look, actors are gypsies.
They have no one to talk to except their agent.
So Ron just couldn't deal.
And also I had thought about going to MCA and at the very last minute they tried to change the deal and it became clear to me that Edgar wasn't in charge.
And just too many signs, as a dealmaker said to me, this isn't going to work.
Now, that was before Ron decided to quit.
So I figured I'd stick it out another year.
And then afterwards Ron had already made up his mind to leave and I should have realized he had two feet out the door.
When he left, it just made me take the Disney conversation more seriously.
The board members that were friendly with me, one of the board members owned a boat with me.
We were... really tight.
And he said, we want you to come over and create the culture here that you had at CAA.
And Michael was sick.
He wasn't supposed to work every day.
I always like to say, I am the greatest cure for heart disease.
Because when I came over, I was working seven days a week, 14 hours a day.
And he was supposed to work two days a week.
And He started working harder and harder and his doctor was telling him not to.
And it just was very clear from the beginning.
It just it wasn't going to be a team effort for whatever reason.
I threatened him which shouldn't have, because I didn't want his job.
I had a game plan for myself.
I didn't want to die at Disney.
I didn't want to die at CAA.
I wanted to try different things with my life.
Like what I'm doing now.
I love what I'm doing now.
And All of the training I had as an agent has led me to a career in the digital world.
That's fantastic, because what am I doing?
I'm packaging.
I'm putting young founders together with money and distribution.
And nothing different than I did for 35 years.
It's all the same, except I'm doing it with smarter people.
And I really enjoy it.
But when I got to Disney, it was very clear there was a head-to-head conflict.
And Michael undercut me every chance he could.
And after a couple years, I just didn't want to deal with it anymore.
And it was one of those things.
Now is a great time to thank good friend of the show, ServiceNow.
We have talked to listeners about ServiceNow's amazing origin story and how they've been one of the best performing companies the last decade.
But we've gotten some questions from listeners about what ServiceNow actually does.
So today, we are going to answer that question.
Well, to start, a phrase that has been used often here recently in the press is that ServiceNow is the quote-unquote AI operating system for the enterprise.
But to make that more concrete, ServiceNow started 22 years ago focused simply on automation.
They turned physical paperwork into software workflows, initially for the IT department within enterprises.
That was it.
And over time, they built on this platform going to more powerful and complex tasks.
They were expanding from serving just IT to other departments like HR finance, customer service, field operations and more.
And in the process, over the last two decades, ServiceNow has laid all the tedious groundwork necessary to connect every corner of the enterprise and enable automation to happen.
So when AI arrived, well, AI kind of just by definition is massively sophisticated task automation.
And who had already built the platform and the connective tissue within enterprises to enable that automation.
ServiceNow.
So to answer the question, what does ServiceNow do today?
We mean it when they say they connect and power every department.
IT and HR use it to manage people, devices, software licenses across the company.
Customer service uses ServiceNow for things like detecting payment failures and routing to the right team or process internally to solve it.
Or the supply chain org uses it for capacity planning, integrating with data and plans from other departments to ensure that everybody's on the same page.
No more swivel chairing between apps to enter the same data multiple times in different places.
And just recently ServiceNow launched AI agents so that anyone working in any job can spin up an AI agent to handle the tedious stuff.
Freeing up humans for bigger picture work.
ServiceNow was named to Fortune's World's Most Admired Companies list last year and Fast Company's Best Workplace for Innovators last year.
And it's because of this vision.
If you want to take advantage of the scale and speed of ServiceNow in every corner of your business, go to servicenowcom slash acquired and just tell them that Ben and David sent you.
Thanks, ServiceNow.
If the Universal job had worked out, if you had gone to Universal, do you think things would have played out differently?
I mean Universal is a very different company than Disney, much more pure play focused on content at the time than Disney was.
Would that have been better or different?
You know David, I'm going to tell you two things that both conflict with each other, because you asked a really smart question.
Part of me thinks that I would have done an amazing job at building that business because when I went to Disney I put together seven initiatives that I wrote about in the book that would have made Disney a fortune, starting with buying Yahoo, buying CBS records for 2 billion, which is worth 10 times 20 times that right now.
Buying a publishing company instead of throwing money at a crappy publishing company that they had.
I had a chance to buy from Universal, Penguin, Putnam, which is now the biggest publishing company in the world. would have done that at mca those other part of me said i would have failed at mca too because the bronfman family would have never given me a free reign and frankly i'm not a very good employee you and lou wasserman both yeah i mean i shared that with lou my critique of lou goes for me I'm a terrible employee.
I like to swing for the fence and I like to have autonomy and I don't like to answer to anybody.
And I was too thick headed to see that clearly and only saw it in retrospect.
But I did the same thing Lou did and I should have been more self-actualized to understand that I'm not a follower.
I'm just not good at it.
And I have no problem admitting that now.
But, you know, hindsight is 20-20 vision.
And it's always easy to be a Monday morning quarterback in the height of transitioning from ca to disney i actually thought i made the right decision.
I was going to a place where the board solicited me.
I'd had a year's worth of conversations.
I had my best friend running it who had a heart attack.
To me it was a no-brainer five years there.
Then i go into public service.
I actually was on the council of foreign relations and was really interested in working at the state department in some way, shape or form And I had a whole game plan.
But you know, the best plans of mice and men.
And reflecting back on that, having one of the world's best dealmakers, both in Hollywood and then proven in the corporate environment, it seems like a natural fit for the State Department.
I felt really good about going into government service.
I really did.
And whether it was the State Department or something else...
I would have felt really strong about doing that.
But look, I made a game plan for myself just like I used to make for my clients.
And I made a mistake.
And I didn't take into consideration certain things that I should have.
But at the end of the day, it worked out fine.
I made a good settlement at Disney, made me comfortable.
I took some time off, then went right back to work and a guy named Mark Andreessen and his partner Ben Horowitz kind of saved my skin.
You know, they asked me to be on their board in 99.
They gave me a roadmap at loud cloud, right?
Yes.
At loud cloud.
They gave me a roadmap to a new career and They're two of my favorite human beings on the planet.
They're smart as hell.
They rival Crichton in intellect.
They are loyal.
They are smart.
They are wise.
And they are true, true friends.
And they beat me up pretty good, which is hard to do.
And they did it brilliantly and set a path for me that changed my life yet again.
I had a third career.
So you want to talk about luckiest guy on the planet, you're talking to him.
If you would have asked me in 97, if I was a lucky guy, I would tell you I was pretty stupid.
But By 99 these two guys came to the rescue and showed me another way to use my skillset, which I do every day now.
Weirdly, it's how I got to you guys.
You got to me through mutuality of interest in the world of the internet.
Can we ask you what playbook from CAA you learned that you brought to technology?
What are some things that you're doing the same or lessons you learned?
You know, it's funny.
I had this conversation with a founder yesterday, young founder that I'm investing in.
I do not do one thing different today than I did 30 years ago.
Not one thing.
I talk to guys your age that are the talent and I put them together with financing.
So they're the buyer.
And then I help them market, monetize, and strategize their product.
It's the same thing I did.
So if Dustin Hoffman says to me, I've got this idea.
I want to play a woman in a dress who sees life as a man through a woman's eyes.
And he's the motor.
He's the talent.
It's my job to surround him with more talent, get him money, help him market strategize how to do it and then monetize it so he makes some money doing it.
I'm not doing anything different today.
It's just the companies come out public, but they don't come out on film.
No different.
None.
Zero.
After you left CAA, the era was over.
It ended up getting bought by private equity.
The agency business, at least to our eyes from the outside, has been remade with WME and Ari Emanuel and Patrick Whitesell.
If you had stayed at CAA, what would you have done there?
What could have made CAA an enduring franchise that became a gigantic force rather than sort of apexing as you exited.
So, you know, it's funny.
I had dinner with Ari a couple of weeks ago and we were.
You know, he was a trainee at the agency and one of the best we ever had.
And I think he's done a fantastic job at building his business and diversifying it.
I spent a lot of time, which very few people know, looking into how I could diversify CAA.
Could I run it public?
Could I sell it to private equity?
Could I buy an ad agency?
And I looked at buying J. Walter Thompson.
I looked at bringing in private equity.
And at the end of the day, I didn't know how to divide it up amongst the players.
I couldn't figure out how to get it transitioned to a bigger entity.
And Ari said, well, yeah, Michael, you could have bought an ad agency and blown the company up.
But I said, Ari, this was 30 years ago.
Economics were different.
Public entities were different.
Private equity was different.
It just wasn't like it is today.
And I couldn't figure out how to keep my core group and compensate them all.
And I decided it was better to make a clean break and try to do it on my own in a different field.
So how could it have been?
Yeah, I could have bought J. Walter Thompson.
I would have gone into debt.
I wouldn't have known how to give options in what to so many people at the agency.
Because how do you tell a group that's all for one, one for all, and we're splitting all the proceeds?
And then go through.
What all these companies go through is how do you give options out to everybody?
Right.
Because it was you and your founding partners primarily that owned 90 plus percent of CIA.
No, we owned 100%.
Okay.
But there was no way to make everybody happy.
And all I could see, frankly, was the agency disintegrating.
And I like to think I made the right decision because, unlike the decision Lou made, where MCA disintegrated, CA is still going strong today.
They've done a great job in the core agency business.
They didn't expand it beyond that, but that's okay.
That's their prerogative.
But I think the guys have done a pretty good job.
It's not what I would have done, but it doesn't matter.
It's not my company.
But I still take pride that 45 years later still in business, good for them.
I can't think of any other companies we've covered on this show in the 200 plus that you really were a true family business.
I mean, it was a partnership, it was an llc.
Believe me, if i could have split up the business and made it bigger, i would have done it.
Ari said well, you could have been a the biggest investment bankers, biggest goldman sachs, And I reminded them I couldn't have been because A I'd have to compete with them.
And B, they're in a fee-driven business.
And that was the business I was looking to get out of.
And by the way, at that moment, I'll give you the kicker, which I've never said to anybody.
The thought of being in the client service business to big corporate clients was boy.
That soured my stomach because I had had enough of service.
One thing about going to Disney that I will say was positive man, it's easier to be a buyer because just everyone's calling you.
It's easier to be a buyer.
Yeah.
You created a lot of value and captured a lot of value in other scenarios and at other points of CAA's life.
You created a lot of value at the end and made a pretty sweetheart deal for the next generation that you sold the firm to.
And at least my research found that You sold all of CAA to the next generation for 200 million, which of course they didn't have in cash, and they were able to pay you with the profits over the next five or so years on an interest-free loan that you effectively made them.
And keep in mind, this is the business that has an enduring revenue stream of Jurassic Park and all these other franchises that have recurring revenue associated with it.
I only cared about the business staying alive and I felt that if I didn't do that, 20 people would peel off and do their own business.
And I wanted the franchise to stay alive.
Frankly, I didn't care if I got paid immediately or five years down the road.
It made no difference to me.
It wasn't about that for me.
I was very lucky.
I made quite a bit of money as an agent.
It wasn't a driving force for me.
And I knew I had the Disney thing lined up because that discussion, contrary to what people realize, had been going on for a year.
It wasn't fresh.
So I knew I had that and I was going to get paid handsomely to go there because they had outlined a deal to me.
Before Frank Wells died, he tried to get me to come over.
I was closer to Frank Wells than Michael Eisner was.
Oh, wow.
Frank Wells was part of a trifecta at Warner's.
It was Frank Wells, John Kelly, and Ted Ashley.
So Wells and Eisner...
Wells wanted me to come and be the third part of the trifecta, because that worked for him for 20 years.
So I knew what I was getting into, and I knew money wasn't going to be a problem.
Well, Michael, that's it for our storytelling and our analysis sections.
Thank you so much for being here with us today.
My pleasure.
It was really great.
I appreciate the time.
I appreciate your homework, and I appreciate...
Just being a part of what you're doing.
I like what you're doing.
I'm glad to be a part of it.
Oh, thank you, Michael.
Thank you.
I'll be shortly sending David a contract with my fee structure.
The Brinks truck is on route.
All right, guys.
Take care of yourselves.
All right, Michael.
Thank you so much.
Bye-bye.
Oh, so fun.
Listeners, thank you for joining us for the whole season.
But my gosh, what a privilege to have Michael Ovitz on the show.
I wish we could have made this like a five hour episode.
What is it?
We got to get Michael back.
For sure.
We have to.
We also have to do some kind of like acquired bingo, where there's an Allen and Company conference square and we figure out how many episodes that's come up on.
All right.
Here's the thing, though.
When are we going to do a live show at Sun Valley?
That does feel like that's the cake topper.
I think let's make it happen in 2022.
All right.
New goal.
All right.
Alan and company, if you're listening, let's make it happen.
Listeners, we want to wish you a happy holidays.
We want to say thank you for being with us this season.
Thanks to the close to 100000 who joined this year, or maybe over 100000 of you who joined this year.
Thanks to all the new folks who signed up for the LP feed.
LPs, of course, we love our LPs.
They make the show possible.
I'm saying this before the Zoom call, but I'm sure we'd had a great LP Zoom call for everyone who could join before we left for the holidays.
And we'll be dropping some more fun, exclusive LP-only content in the future.
For now, if you want to check out all 50-plus LP episodes that we've done, that back catalog is public.
So go check it out.
Search Acquired LP Show in any podcast player.
You can join the Slack at acquired.fm slash slack.
You can get your dream job at acquired.fm slash jobs.
David, there's so many slashes.
We're like the creative artist agency of tech podcasts.
Start doing some packaging.
Well, Michael would say we would probably be stepping on his territory but package some startups in the acquired community.
It's happened.
It happens in the acquired Slack all the time.
It totally has happened.
People have met co-founders in the Slack.
I know people have raised money in the Slack too.
100%.
It's pretty cool.
With that, listeners, thank you.
We'll see you next year.
We will see you next year.
Who got the truth?
Is it you, is it you, is it you?
Who got the truth now?
