Agents' multi-tier model dominates show biz.

After hitting the jackpot by bringing international formats to U.S. networks, Hollywood talent agencies such as William Morris have become some of the most powerful behind-the-scenes players in the lucrative formats business; and now, their roles are increasing even more in film and television.

"There is no question that they radically changed this business," noted former Granada America president Stephen J. Davis. "If you look at the pioneering agents, they broke down the barriers. As a result of their efforts, the U.S. networks are now willing to consider international ideas."

"The agents gave the format business credibility," stated Michel Rodrigue, CEO of Canada-based Distraction Formats. "They were the first ones to believe in these formats. The reason the networks took these shows was that the agents put a lot of pressure on them. It was the agents that made it happen, not the producers or format distributors."

According to Doug Schwalbe, head of International at New York-based Classic Media, a new business model is beginning to become popular which harkens back to the days where agents ruled the roost: "Agents are now, in some limited cases, acting as international sales agents, selling high-profile miniseries or TV movies to international broadcasters," he said.

Schwalbe explained that these kinds of deals are beneficial for producers and broadcasters, but bad for distributors, as they keep some of the most high-profile programs out of their hands. "Agents offer their clients [producers] a reduced fee. They also open broadcasters up to dialogue with some of the industry's top producers," he said.

But Schwalbe stressed that these transactions are reserved exclusively for high-profile miniseries and cater to producers who have big bucks. "A studio's distribution fee is based on putting up deficit financing. An agent charges producers a lower fee [than a studio does] because he or she doesn't put up that deficit. But, in turn, producers must risk that deficit themselves. They have to be able to afford to take on that debt if the miniseries or TV movie is unsuccessful."

This all highlights how the nature of the talent agent has evolved throughout Hollywood history. Back in the early 20th Century, agents were lowly talent bookers for Vaudeville and burlesque houses. But with the arrival of first film and then TV, actors gained more clout as the star system became the primary driver of the entertainment business. As stars developed more authority, so did their representatives.

Not surprisingly, agents have always been looked at with disdain by film and TV execs both for their hardball negotiating and for their fees, which producers claimed drove up production costs. At one point in the early 1930s, the studios made the mistake of conspiring to bring down the salaries of actors. That led to the formation of the Screen Actors Guild and a government code which established that actors had the right to work for the highest bidder. Suddenly, a good agent was a financial necessity.

It was during that time that the first back-end deals were established, which guaranteed a percentage of the box-office take. The first packager was MCA, which started the practice in radio and then applied the same strategy to television. Possibly more than any other business model, packaging made agencies major players because of the money it brought in.

At that time, talent agencies were such big players that the Eisenhower administration ordered an investigation into the practice that allowed agencies to collect not only their regular talent commissions, but broadcast licensing fees and profit participation. Eventually, MCA was forced to get out of the agent business.

But the spirit of MCA continued when Michael Ovitz and four other William Morris agents formed Creative Artists' Agency in 1975. Ovitz took packaging to a new stratosphere. No longer was it about offering multiple acting clients for a project; CAA did everything but supply the janitor--if a studio wanted a particular actor badly enough, they had to take a CAA director and screenwriter too. Ovitz also expanded the traditional agency reach by brokering deals for corporations, such as Sony's acquisition of Columbia Pictures, a deal that earned him the honor of being dubbed the first "superagent"--a celebrity in his own right.

So it was a natural progression for agencies to dabble in the format business. And in fact, formats are hardly new. TV series such as All in the Family and Three's Company were based on hit British sitcoms. But aside from the occasional U.K. programming, it was still a relatively rare occurrence for U.S. studios to import small screen formats ... until Who Wants to Be a Millionaire opened the floodgates. Since then, in recent years, the success of formats has been nothing short of staggering. Worldwide, there has been a 35 percent increase in the number of formatted shows aired over the past three years. But at least in the U.S., that gravy train may be a little less lucrative when it comes to the more established companies.

Since the first wave of formats hit U.S. shores--including Big Brother, American Idol and Who Wants to Be a Millionaire--companies such as FremantleMedia and Endemol have established their own direct relationships with U.S. broadcasters, negating the need for a costly middleman to broker deals. As production costs rise and advertisers tighten their purse strings with broadcasters and increasingly invest more money in non-traditional marketing, producers are becoming loathe to pay agency fees that amount to 10 percent of the production budget.

For companies without a strong U.S. presence, agents will continue to be integral to their businesses. Besides having access to talent, they also know the market and have access to the necessary network and studio execs who can greenlight projects.

And when it comes to gaining access to international territories, agents can be helpful as well. Classic's Schwalbe explained that, most commonly, agents are selling miniseries in "the major international territories."

While William Morris may have led the way in the format business, it now has competition from the other "A" agencies--ICM, UTA, and CAA. To some industry observers, that competition has a down side.

Agent-turned-Reveille-CEO Ben Silverman said the success of Millionaire caused a "feeding frenzy" that has hurt the vitality of formats, because smaller companies may be getting lost in an increasingly crowded pool. "The traditional agent would fly into Europe, court the local talent, sign people up and then you wouldn't hear from them for nine months," Silverman explained. "I never acted like a carpetbagger at William Morris. We had an office in London. I lived there and travelled all over Europe. We got to understand the market and we delivered on our promises."

Interestingly, as powerful as agencies are in the U.S., there seems little chance of world domination, with international execs pointing out that the role of the agent is unique to U.S. companies. As Endemol International's Lisette van Diepen explained, "In Europe, you don't need agents to package a show. Here you will often see a host start up their own production company and then pitch the idea directly to broadcasters. I don't see many agents coming in here to pitch shows."