The a16z Show - a16z Podcast: New Upstarts in an Old Industry

Episode Date: September 25, 2018

with Michael Ovitz (@michaelovitz), Ben Horowitz (@bhorowitz), and Hanne Tidnam (@omnivorousread) When Michael Ovitz co-founded the Hollywood talent agency Creative Artists Agency (CAA), he turned a number of the entertainment industry's well-entrenched traditions on their head. The origin story of a16z (not coincidentally!) is not that dissimilar. So in this episode of the a16z Podcast, Ovitz and a16z co-founder Ben Horowitz talk with Hanne Tidnam about Ovitz' just-released book, Who is Michael Ovitz? -- and about how CAA transformed the power equation in Hollywood. The conversation covers everything from the history of the entertainment business -- the days of vaudeville and the Jack Warners and William Foxes and Jurassic Parks -- to what strategies guided the differentiation of the new kids on the block. There's lessons for other founders here, too, about culture, negotiation, and more. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi and welcome to the A16Z podcast. I'm Hannah and I'm here today with Michael Ovitz, co-founder of the Creative Artist Agency and our own Ben Horowitz, co-founder of Andresen Horowitz. In this episode, we start by talking about the founding story of both CAA and A16Z and how exactly both firms went about redefining a traditional business in two different industries as a new upstart. We talk about the power equation in Hollywood and the history of the entertainment business, from the days of vaudeville and Jack Warner's and William Foxes to Jurassic Park, to what it looks like today and where it's going, and along the way, Ovitz and Horowitz share the strategies that guided them in building a culture, negotiation, and more. Michael has published a new book just out called Who is Michael

Ovitz? Is that like a reference to Kaiser Sosei? How'd you know? You're one of the few people that knows who Kaiser Sosei is. I met Ben in 1999 when he and Mark asked me to go on the board of LoudCloud. And I told a lot of. lot of stories about the entertainment business and about the film. Good. The print stories, the Rain Man stories. So I have to say, I wake up and they're talking about starting their own business and possibly using some of those principles. And I was in a state of shock that they actually listened to the stories. CIA was really an impossible thing in that if you looked at the agency business, it had been around since vaudeville.

And the firms were well established. And if you're a new actress and you're picking an agency, are you going to go with the one who like rep Betty Davis and Greta Garbo and all the greats? Are you going to go with some new start? What is the differentiation? Like, how could you possibly pull that off? And the fact that he was able to create by far the most successful talent agency in the world,

15 years after starting 75 years after vaudeville is an impossible business story. We come from tech where like, okay, you can turn something over because the technology changes, but this was not a technology story. It was one of organizational design culture and things that turned out

we'd use in venture capital. I thought what was really interesting is that you were fundamentally reconceiving the idea of the agent, what it should be. But in some ways you were kind of returning to an old-fashioned idea of what an agent was. Yeah, I think that's really well said.

We tried to ride a line between going back to the tradition of service, but couple it with the concept of putting the talent back in the driver's seat because they'd been taken out of the driver's seat. The ability to get product made in the business or to realize dreams was in the hands of the buyers. And when we started, there was a very large barrier to entry in the media business. Anything that you would read or see or hear was controlled by under 25 companies around the world. You had four television networks in the United States.

You had seven motion picture studios that had all the distribution. And without that, you couldn't get your movie in a theater. you had five publishing houses in New York that did books. You had about five record companies and then a scattered number of companies in Europe that had television networks but not a lot. So basically if you were an artist, you had a giant buried entry.

It's the opposite of today, which is so fascinating to me that today and Ben and I talk about this all the time, you could get almost, look, you can get this podcast. on again. It's very popular. And you can get people to listen to it. In the days when we started, that was impossible if wanted to get something like this out

into the hands of the consumer. There was no way to do it. Incredibly powerful, very few gatekeepers. So basically we decided that we would give a unique and ultra deep service to creative people. We'd couple that with an enormous amount of guidance and career. advice that was incredibly direct. We were less concerned about telling people things they didn't want to hear. We were actually more concerned about telling them things that they didn't want to hear. We thought too long artistic people had been given a lot of problem. Ben, when you were looking

at this model, what was it that really struck you from this other industry that felt so translatable? The whole thing. It's actually funny. Everything that we tried from CAA worked. Everything? All the core principles. So the first was this concept of a network. So, you know, a firm shouldn't be just a group of independent people who all had their own isolated networks. The network should be kind of owned and run by the entity itself. And CAA was a breakthrough in this because we had people who were dedicated to vertical parts of the network like publishing. And so that, of course, we did. As you know, our networks were different, but it was the same kind of systematic network that. that turned the platform into a franchise. The other thing was they took pitching the clients much more seriously. The agencies were very powerful. They didn't have to put together a great presentation to the clients about what they did.

I think we're for sure the first and maybe still the only venture capital firm that has a pitch to entrepreneurs that's formal and professional and involves lots of people, so that worked. But I would say the thing that I learned the most from were the cultural, things that Michael's talking about. So do you tell people the truth, not what they want to hear? That's like one of the cultural tenants of the firm, but there were many others. Do you take a long view or a transactional view of a relationship that came from CAA? A lot of the idea of the platform was to have the luxury to take a long view of a relationship. Things like, how do you treat

people in the firm? Everybody here, we refer to as partner. That was taken from CAA. We got a lot of criticism of that early. But it worked well because we're in the services industry. Look, if you're representing the firm, you are a partner. And then, you know, the other thing was honest but respectful. So, you know, showing up on time, being ahead of the competition, they did something at CAA, which is they just started their staff meeting before everybody else. And that just said to the company, you know, we're not effing around. Like, we're going to get this done. We're going to be the first awake. We're going to be the last to sleep. And we're going to get all the best clients. And that's what they did. I mean, it did strike me that a lot of those big

conceptual shifts were about culture. You talked about things like a focus on first impressions, a siege mentality, like you're with us or against us, never badmouth the competition, right? These sort of core things that trickle down in all kinds of ways. But some of what you were doing was actual business model innovation also. Can we talk about what those things were that were so different for the industry? So I think it's important to note the idea was to differentiate. So one of the things when Ben and I and Mark talked originally was there's several hundred VC firms that have been in existence for a long time. When we came into the agency business, there were 200 franchised agencies. New kid on the block.

New kid on the block with nothing, no clients. How do you make a name for yourself other than just saying, oh, we're fantastic, which is irrelevant because everyone thinks they're fantastic, even though they know deep down they're not. But the reality is that it was about differentiation and how can you make yourself different? And we decided we were going to create a service model that was completely different. If you're an entrepreneur, you come here, you have access to things that you didn't have

at a lot of other places in the community. And that would include budget help. You can get marketing help. You can get PR help. You can get advice about how to operate your business. You've got a built-in person to get operational advice on you. You've got extraordinary technical background so you can get technical advice. I view what we did very much like a point-to-list painting, like the painter-sur-a.

If you look at an square inch of a point-list painting, you see a bunch of dots. You look at two square inches, you see a few more dots, three, four, five. And all of a sudden, maybe at six or eight square inches, you start to see a picture. So I think what we tried to do is look at our business like a pointless painting, which is how many points of differentiation are there that create a full picture? Within the culture, there's all these little things. There's just all these little things. There's no one thing, Hannah, that you can say, my God,

you guys called everybody a partner. That's really a game changer. It's a composite. It's a composite of looking at a pointillist picture. On the business principle side, it was the same thing. So this sounds ridiculous, but telling someone the truth, it seems so logically normal. It was completely abnormal in the business we were in in 1974.

It didn't exist. Knowledge was power, but people felt they had the lie to show that they had knowledge. And what were those kinds of lies? Just you're great, I can get you. What were the actual? Empty flattery. That's not what people are interested. People want to know the truth.

They want to be critiqued. and they want positive criticism. They don't want you to tear them apart without some thing to say that's constructive. They want constructive, positive critique. In fact, you say that's where you often started when you were trying to sign somebody. Well, it was easier to tell the truth, frankly.

The truth is a funny thing in the entertainment. It's easier to remember. The entertainment business is loaded with untruthed. The TV business less so because everything was so fast. You could start a television idea and get it made into a show very quickly. But in movies, it's years to get a movie made and released. And the amount of story changes in not the story of the movie,

but the story around the story of the movie is quite extraordinary. We pioneered this concept of, I don't know the answer to that question, but I'm going to get back to you. Now, that's no big deal, right? But that's part of the composite. It's part of the hundreds and thousands of points that we did to be different. So let's shift gears again from, and towards the business models.

What are more of some of those ways you were really doing something new on the business model side? In the construction of business concepts, we felt that no client should come up with an idea and go out naked on their own with that idea standing on its own

in the marketplace. We felt that in-house we should take that idea like a lump of clay on a table and sculpted into a magnificent sculpture that was a composite of a lot of elements, other clients' input, and partnerships that gave us a full package

and really used that leverage against the buyer to be able to play the game of, you didn't put in any time or money to develop this. We did. So we want to be paid at premium. Now, that worked really well for the creative clients. It did not make us popular. There is some controversy around you,

and a lot of it came from prior to CAA, a top actor or actress made maybe a 10th or a 20th of what they did or maybe even a 50th of what they did after CAA because you changed the leverage from the studio to the talent, and that was not free. And so maybe describe what it was like, how you changed it and why they were mad. So I think, I don't know that mad, it's interesting.

I used to think that. And I think it's more, we did so many things that were positive for the creative community, but we coupled it with this relentless, aggressive attitude and this point of view that we had to win at all costs. The big question for me was, did we have to win at all costs? At the time, I actually thought we did. Someone asked me the other day, do you think you could have done it differently in the day? And I don't think that we could have, because we were in a cut-through. business to start with. We didn't invent the entertainment business. It was a cutthroat. It's notoriously

cutthroat. It wasn't a gentleman's business. My God, if you go back to the moguls of the 30s, 40s and 50s, the mayors, the Harry Cones, the Jack Warner's of Warner Brothers, William Foxx, you know, who founded Fox Studios. These guys were tough as nails. They took no prisoners. They made us look like we were in the priesthood, frankly. Now, to me, Pat, this prologue. So in studying all this, I actually thought that the toughness of those guys was good. Because why? Well, they were decisive. You may not like the answers, but they gave answers. And they were doers. When Diller decided to create the movie of the week on ABC, which everyone said is a terrible idea and impossible, you can't make a movie for 90 minutes for a million dollars. And he said,

watch me and he did it. That kind of attitude impresses. has me and help me think really hard and heavy about what we would do at CA. It's 45 years later. It's still working. So something worked. Now, could we have backed off and been softer and gentler, probably a bit all the way? I don't think so. Not in the business we're in. Can you walk us through what that looked like, how it would play out on a daily level as you were actually making those deals? Take a movie that you put together. Let's just take one, Jurassic park. Michael Crichton said, I've got this idea about something that I've always loved. It's paleontology. It's dinosaurs, but not in a prehistoric year, in a contemporary setting. And it's a amusement park

run amok. No movie stars. And I said, my God, everybody loves dinosaurs. Let's try to write this. So he writes it. He gives it to me. I can't put it down. It's a page turner. We decide there's only one director that can do this. We give it to Steven Spielberg. He calls the next morning at 6 a.m. and says, I'm doing this. After reading it, that's unheard of for a director of that stature to commit in 12 hours to a... I mean, to have read it that quickly, let alone. He gets it at 6 o'clock at night and calls at 6 the next morning. He says, I'm in. Kathy Kennedy's the producer. She does a budget. You've got a writer. You don't need movie stars. The star is the dinosaur. And you're sitting there, and no one has this except us. You talk. You talk.

to Spielberg, you talk to Crichton, who would you like to finance and distribute it? Because frankly, it doesn't really matter because it matters who's going to write it and direct it. And we have that. So they decide we should go to Universal. For an opening salvo, you know, you call the president of the company and say, I got good news and bad news. The good news is we've got Kathy Kennedy and Stephen Spielberg and Michael Crichton with a detailed book that's going to be a bestseller about dinosaurs and we've got a screenplay and it's going to cost this much money. So what's the bad news? Well, we own it and you don't. Now, take the six to eight other studios that don't get that phone call. They're not happy. Take the 30 directors or 40 directors that didn't get it. They're not

happy. Take the couple hundred screenwriters that didn't get a shot at the book. They're not happy. Nobody's happy. It reminds me actually when I first started as an editor and I was starting to say no to projects. There's a lot of relationship stuff that goes sour there too. And one of my colleagues said to me, you're not doing your job right if people don't not like you. Well, then Michael, you did your job right. I guess I did my job right. Look, this is tough to say, but I wasn't out to win a popularity contest. This was not high school. I started at the age of 27 in a business that had been around for 75, 80 years, kind of like playing hockey and skating down the ice. And the next thing, You know, someone's stick is tripping you up and you're falling on your face on the ice.

This was a tough game. Let's talk a little bit about that culture that you built, that both of you built, going from startup to a mature firm. Did those fundamental principles or those pointillus dots, did they shift? Did the colors start shifting? Did things change? It's a living organism. It moves on a daily basis.

You have these knobs, and it's endless, the number of knobs. There's a knob for every body in the big. business. There's a knob for every deal. There's a knob for every principle. There's a knob for every service. How do you stay the observing part when it's such a fluid living organism and there's so many dials? You sit with those knobs. I remember when we were at LoudCloud when there were 400 plus employees and they had to take those knobs because the business model was changing. And Ben's sitting there at those knobs 24-7 and sometimes you over-dial them, sometimes you under-dial them. And you never get them entirely right.

So many people like management consultants or even CEOs will talk about culture as though it's something they set day one and that was it. And that's never it. It's changing every day. And you have to pay attention to, as Michael said, to adjust it back. And you're really talking about how are people behaving when you're not looking? Do they return their calls? How do they treat their clients?

All these kinds of things emanate from the, the culture of the organization, you have to observe the behaviors. You've got to put in mechanisms. You've got to turn things this way or that way. And some things don't work anymore. Some things you were wrong about. And so, yeah, it's an evolving process. A perfect culture is a culture in constant flux and growth. Constant flux and growth. And the culture supports the strategy. So, like, you can't come in from the outside and know what the culture of somebody else's company should be because you don't know which direction they're taking it. So like an easy example is, like Amazon's got this culture of frugality because it's so important to them to be the low-cost

provider. Good cultural element for Amazon. You can't put that in Apple. They're like high design. Steve Jobs got fired because he made the product too expensive. But that's who they are. That's their strategy. Their culture's got to support their strategy. That's why they have a $5 billion campus. Jeff Bezos will never build a $5 billion campus because he doesn't care about what the doorknob looks like. It's why some businesses are fantastic and are run really in a phenomenal way and others aren't.

And the fish stinks from the head. If the person who's operating the business and helping create the culture and bringing everybody together is on at 24-7 and I mean every day it never goes away out of your head, I used to walk around

and do the rounds like doctors at a hospital. It was to go in the late morning and in the late afternoon just to show my face, to see if I saw someone nodded up in their office or to just get a sense of how people were feeling. I did it from the time we started where we had five people to the time when I left when we had 700 people. A thermometer read. And how do you get the read? You get it by frame of reference. You see the people enough on a daily basis and you get a sense if there's somebody's got a problem. Is it fun? Absolutely not. It's time consumptive.

And to be human is to err and to be human is to have a problem. Everyone had problems. And as someone who's like the gatherer of the culture, you're not allowed to have a problem. You have to solve everybody else's problem. So it's not something you can do by yourself, by the way. I want to be very clear that I did not do this by myself. I had a partner who was phenomenal at rounding this out, Ron Meyer. We would tell each other problems with individuals

and then one of us would shore it up and then the other one would go in and take the temperature to see if it was shored up. I used to wonder every day when I went home, you know, where did I make a mistake today? You know, who did I tell some bad advice to? Which executive in the company did I let down? And then when you get home, say the same thing about your own kids.

That is the one thing that is so dangerous when you're a CEO. You have to be in this mindset that you're making decisions. You're hard-nosed. You have high expectations of everybody. Your standard has to be very high, or it will slip for everyone. You take that attitude home. It's not good. That's not the way you need to be a parent.

And it's a real challenge. You talked about trying to agent your children for a while. I would come home and some... Sometimes not flip gears. Sometimes I go on and I didn't downshift. And I'm talking to my kids like their clients. Believe me, regrettable, but unfortunately, factually accurate. Well, you even use the word agenting as a negative.

The first time you used it, it really surprised me. You were talking about your grandmother, right? brutally agenting your father. What do you mean by that? It's a bad connotation. Agenting is, you know, it's manipulating, it's pushing, it's maneuvering. It's trying to force. force your will on someone, that's agenting.

And it's a tough word and it's a tough mechanism. It's the dark side of that. It is the Darth Vader side of the business. By the way, it's not just agents that do that. Producers do it. You know, some directors, you have a thing where some people call directors light-handed or heavy-handed or that they work by example or they work in different ways.

Well, they agent too. You know, everyone has an act that they use and agenting is a part of everybody's life in the entertainment business. So your career has spanned an incredible evolution of the entertainment business over the last several decades. What's your sense of what the entertainment and media landscape looks like now and where it might be going?

The entertainment business to me is, parts of it are wildly exciting and parts of it are incredibly disappointing. It's hard to not be excited about the disintermediation of streaming. It's hard to be excited about the disintermediation of streaming when it's taking the entire culture of 100 years of history and turning it on its ear. We had a business

with these barriers to entry that had some negative connotation and some positive connotation. People paid to go see people do big projects. Today, people go to streaming services and their viewing patterns are antithetical to history.

So for 50 years in this country. People sat around a radio or a TV set for set times when things were on. Right. So on Thursday nights when Seinfeld was on and something culturally happened on Seinfeld that was significant. Right, the water cooler effect. The water cooler effect. Everybody talked about it. There is no day and date except for sports.

People talk about things on social media as they see them, but everything's disjointed. So how do you think that will change if you had to look forward five years, the power equation, you know, that you guys really changed with your model? When I look at my old business, I'm happy for the progress that's being made. I'm sad that the traditions of the business have dissipated to this point. The idea of building a movie star now is not possible. What do you mean by that? The idea of finding a 19-year-old kid named Tom Cruise and building him brick by brick

with his own talent and putting a little bit of. with great directors and letting that mature and grow. It's hard to do right now because there's so few movies being made. Yes, people go to see movies, but a lot of them are event movies. They're sequels. Sequels. Remakes. And you don't get that risky business and then Top Gunn, and then all of a sudden you throw in Born on the Fourth of July,

which is a great actor's piece. that way of building a career doesn't exist anymore. It's very hard to do. You know, it's interesting because music is following a similar curve where, yeah, it's much harder to build a great artist than it used to be, you know, with a series of albums that everybody knows that's becoming a more rare thing. To nurture a whole career. Plus, there's so much here today going tomorrow. Yeah, that is. It's really tough on artists. Very fast. Yeah, extremely difficult. So what do you think will take its place? I have no idea.

I really don't. We're in the middle of the trough right now. We're not at the beginning. We're not at the end. We're dead center in the middle. We've got a big shoe to drop when Disney and Fox complete their merger and they start that streaming service.

What's going to happen with? Hulu's going to be interesting. Amazon seems very committed. They're not going to be left behind. You've got behemoth businesses that are well-financed, getting into content, and that's without Microsoft and Facebook and Google. Yeah, it's a great time to be a writer.

Oh, my God, it's a great time to be a writer. It's a great time to be a creative person because we went from a dearth of money to more money than anyone needs and a new form of distribution. So do I think it ends up good? Yeah. Do I think it ends up great?

Yeah. Do I know how it gets there? a clue. Let's talk a little bit about negotiation because that's obviously such a big thread through both industries. You talk about incredibly complex negotiations from, you know, signing Sean Connery to IMPA coming to design your buildings to the MCA deal. You talk about some of the key principles, kind of in a little offhand way. One of them was always plot out the desired end point. There was another moment in the book where you talked about the importance of reading body language during negotiations, I'd love to know what some more of those core principles are for you in how to

negotiate. I didn't want to put in a bunch of principles in a row, like make a list. Like, here's how you negotiate. And the reason is, I believe that every single deal that one approaches is like an art form. It's not a science. And everything has to be plotted out in its own vernacular. So selling universal to Matsushita Electric or selling Columbia pictures to Sony or CBS records to Sony or MGM's bad debt or signing Sean Connery who's come off three bad pictures or negotiating a new kind of deal for Jurassic Park

where no money changes hands and it's all about ownership. Every single situation is different and necessitates its own architecture. It's its own universe. Everything is different. Saying that you have to know where you want to end up when you go in is the same for everything, but that's not the art of putting the deal together.

They're two separate things. They're separate things. Of course, one wants to know where they want to come out. I always liked to have my end result in my mind as I was working toward it, because to me, I'm actually building a house when I negotiate. And I start with a foundation. That foundation is usually the idea or the material that I'm negotiating on,

whatever it is, whether it's a company, a screenplay, a movie, a television show, a book, a record. It didn't matter what it was. There's a foundation. And then we try to build a framework around it. And then putting the roof on is getting the right deal. Negotiating is not a real. road act, which is something that I learned early on from a man named Howard West, who was one of my bosses at an early age. I was 22 years old, and I watched him negotiate writers deals.

And I used to ask him, how did you decide what are writers' materials worth? $100 or $1,000 or $10,000? There's no rate card for it. And he explained to me this concept of how it's kind of a fluid and loose-moving idea around it that struck me. Well, we're all agreeing on value all the time, right? A value is always like ephemeral shifting thing that we just agree on. Except when you sit in a room and the other side vehemently disagrees with you. And then you've got to bridge the gap. It's such an important point than that we can improve in the way we think about deals

and how we train people and these kinds of things. but it's dynamic. You know, you walk in, you're dealing with a very, very complex person or entity on the other side. They have a history, they have needs, they have things they want, they have things they don't care about, they have motivations. And they want to win. And they want to win. They want to win in the deal.

And you have to understand all those things and then plan a strategy. But as soon as you get into a formula or a set of principles or something you can just run, then you're not listening. And that's death and a deal. And a lot of it is emotional. Like, you know, do you have the right mentality? And one of my favorite memories of being

CEO, it was the worst memory and the best memory. We were working on the deal with EDS and we had EDS and IBM both in the hunt. And, you know, we really needed the deal to finish at a certain time, but there was no reason to have it finished at that time. So I

asked Michael, like, can we say the deal's going to end here, even if it may not end here? And like, how do we think about that? That question just made him stop. And he said, look, I believe in artificial deadlines. I believe in playing one against the other. And I believe that you have to do anything and everything possible, short of immoral or illegal, to get the damn deal done. And I was like, okay, I've just been thinking about this one. You have to believe you can figure it out. You have to convince yourself and then convince the other side. I was thinking I was on my heels and like you have to be on your toes to win in a deal. But there was no, he could, I couldn't ask him for like,

what's the recipe? You know, cook this and you'll have a $64 million plus a $20 million year contract. Like that's not how you get that. No recipe, but kind of a constitution or like the walls of a house. I'm hearing still like kind of core concepts of how you approach it, like visualize what you want at the end, be aggressive. Everything is its own language is kind of its own principle. But all the houses are different. All the houses are different. That was that house. He gave me the rules for that house. Yeah. That rule may and would not have applied to about 99% of the other deals. You joke in your book about going from valley to valley. What are some of the differences between the two cultures and some of the advice you learned in your career that you now find yourself sharing

with tech entrepreneurs. I will say the one common denominator is everyone is particularly interested in mistakes because they don't want to make them. And we don't see that down in L.A. No one wants to know anything about mistakes. They want to forget them and sweep them under the rug. You don't see that in New York either. The founders up here say, so when you did this, what would have happened if you did that?

Why did you do it that way? In retrospect, it doesn't look like you did it the right way. And they're right, and they're really, really, they want to know. And look, they're also interested in some of the things that were successful. They're interested in the culture. Mark always talks about software eating the world. Our culture ate the entertainment business. It just did, and so did the Andries and Horwood's culture.

So it's interesting when something works a second time because you say to yourself, my God, it works. and it worked in a different silo, a different vocation. So the advice is usually specific to the business. The entrepreneurs up here are really interested in the good, the bad, and the ugly, and that's very different than other places that I travel. And pulling up the carpet. They want to know everything, and they're not afraid to ask.

Thank you both so much for joining us on the A16D podcast. Thank you.