In a large office scattered with drums, family mementos, and a well-used whiteboard, on the second floor of Creatlve Artist Agency‘s Los Angeles glass, steel, and marble headquarters, Michael Yanover is busy plotting which CAA-repped talent could be the next big entrepreneur.
Over a sixteen year career at one of Hollywood’s biggest agencies, Yanover has developed various strategies to align Silicon Valley’s tech industry with the star-making machine in Hollywood.
It’s a bid to keep agencies relevant (and profitable) in a world where technological innovation continually resets the fifteen minute clock on the famous, the almost famous, and the used-to-be famous.
Over the years Yanover (who isn’t an agent) helped start businesses like Funny or Die; launched CAA’s venture capital fund, CAA Ventures; and co-founded Haus Laboratories, the cosmetic business launched in collaboration with Stefani Germanotta (also known as Lady Gaga).
But it’s Creative Labs, a Vancouver-based business incubator that collaborates with CAA talent to build startup companies, that may prove to be the company that vindicates Yanover’s belief that new businesses can help shape the future of Hollywood’s big agencies.
At CAA, this presents another way for the company to operate in a way that aligns with what the agency’s new owner, TPG Capital, thought when it acquired a majority stake in the company.
“We were intrigued by CAA because they’re in the middle of the ferment that’s going on in this industry, but they’ve been brokers instead of principals, and we think they have plenty of opportunities to be principals,” David Bonderman, the co-head of TPG Capital is quoted as saying in The Hollywood Reporter.
The timing couldn’t be better.
For nearly a year, Hollywood agents and the Writers Guild of America have been locked in a bitter battle over a fairly arcane part of the industry — the collection of packaging fees and expansion of the agency business into production and distribution.
Packaging writing talent with celebrities for blockbuster productions was part of what made agencies like CAA power brokers in Hollywood and generated massive windfalls for clients and the agents who represented them. As new contracts from streaming services generate huge checks on the front end, but little-or-nothing in residual payments for the long-term success of a title or production over the course of its now near-infinite lifespan, agencies and their clients are looking for new ways to make money.
It’s also putting the agents at odds with the talent they represent. The Writers Guild laid out their claims in a fascinating report a few years ago.
The major Hollywood agencies now make much of their money by demanding direct payments from the studios that employ their clients, known as “packaging” fees, which are unrelated to their clients’ compensation and come directly from TV series and film production budgets and profits. Packaging fees are a conflict of interest because they introduce direct negotiations between the agency and its client’s employer over how much the agency will be paid. Agency success is severed from client income.
CAA co-chairman Bryan Lourd has said the fight over packaging and production is a distraction from the real threat — the multinational technology development, telecommunications, production and distribution companies that control the direct pipelines to audiences.
“The unspoken strategy of these multinational content and distribution companies is to drive prices down and wipe out ownership for writers and creators,” Lourd is quoted as saying, in an article by Variety. “This is happening in real time as we’ve sat here in limbo for these last two months, fighting with each other as opposed to cooperating with each other to face this real challenge.”
The rise of YouTube, Snap, Instagram, TikTok and Twitch have created transparency around artist discovery, audience discovery, and performance monitoring and management in an entertainment business that thrives on its opacity. And Netflix, Hulu, Amazon, along with other deep-pocketed producers create new ways of doing business for entertainers.
With the doors to reaching an audience wide open and new technology-enabled marketplaces emerging to connect brands with entertainers, agencies need to rethink their pitch.
“As celebs develop more direct channels to fans we will see more of this entrepreneurial activity,” according to Yanover. “For agencies it’s an essential part of our evolution with the talent.”
Back in 2003, with Silicon Valley still recovering from the collapse of the first generation of consumer companies built on the back of the Internet, Hollywood and Silicon Valley were still relatively strange bedfellows. And Yanover, a former executive in charge of developing video productions at the early multimedia streaming pioneer Atom/Shockwave, was an ideal candidate to help bridge the gap.
He started building relationships between technology firms and the agency, leveraging connections with investors at some of Silicon Valley’s top venture capital firms like Sequoia Capital to bring in corporate clients and create new opportunities for the agency’s celebrity talent.
“There’s three parts to my life here,” says Yanover. “One part is investing. The second part is I’ve created companies on behalf of CAA. And the third thing is I’ve created businesses on behalf of agents that are centered around particular clients.”
Funny… Or Die!
Yanover’s work launching tech businesses for the agency follows the trajectory of the relationship between Hollywood and the Internet era beginning with the early success of Funny Or Die.
The company was Yanover’s first attempt to marry the talent agency’s creative clients with new technology distribution platforms in a way that could reap new financial rewards for both parties. All leveraging the outside cash and technical know-how from investors in Silicon Valley.
In 2007, when Funny Or Die launched, YouTube had only recently been acquired by Google and comedians were discovering the website as a home for distributing more raw, short form experiments to a growing audience.
Michael Kvamme, the son of Sequoia Capital partner Mark Kvamme (an investor in YouTube) had the initial idea for what became the company, according to the former chief operating officer, Mitch Galbraith.
“In the very beginning it wasn’t even a per-se company,” says Galbraith. “The only funding that it had was out of Mark Kvamme’s pocket and they were just kind of messing around.”
Through connections, Kvamme and Yanover came together to discuss the idea, and it was Yanover who brought in Gary Sanchez to help get the company off the ground. “The most important thing was brokering the relationship between Mark and Gary Sanchez productions. [Yanover] played a role in getting those comedians and their videos,” Galbraith says.
The core group of founders got together and launched the website before it had even incorporated as a business, Galbraith says. “They launched this hastily built video and ‘The Landlord’ becomes this huge viral phenomenon. It goes hugely viral and they get all the traffic and they’re struggling to keep the site alive — it’s a single server at Rackspace.”
Thirteen years ago, YouTube, much like Google before it, was a product in search of a business model. Online advertising hadn’t become the juggernaut it now is, the iPhone was just launching, and “going viral” was still a phrase that was restricted to diseases.
The idea, says Galbraith, is that there was a new medium that celebrities could use as a promotional tool for their work and unlike a traditional productions the requirements were relatively low. It’s the same thing that drew comedians with far less wattage to the platform.
CAA and Yanover were there from the beginning. “Pretty quickly we staffed the creative side of the company with folks,” says Galbraith. “It was CAA and Gary Sanchez working together to pull together a list of the right type of people.”
In fact, for much of its run, the company operated out of the third floor of CAA’s offices.
Eventually the company evolved beyond its vision of a stand alone platform for comedy online. There was too much competition from YouTube’s user generated behemoth and the deep pockets of Viacom’s Comedy Central.
“The smart thing the company did was diversify from being a digital advertising business and we launched a TV business and we launched a commercial production business and built an early brand entertainment unit,” says Galbraith. “When we launched it in 2008 and it was very different… we were their first experience making custom content as part of an ad campaign… all of those instances helped to buoy what was tough sledding for the internet advertising business.”
Throughout it all, CAA and Yanover were there through the process, says Galbraith. “They had so much visibility into every nook and cranny in Hollywood. They really saved us a lot of time and effort.”
The experience with Funny or Die was also training for Yanover. “I learned how to deal with talent and how to integrate talent into a startup culture,” he says.
Adventures in venture capital
From starting one business, CAA expanded its model to investing in several. By 2012, when Yanover helped get CAA Ventures off the ground, Hollywood and Sand Hill Road had begun consummating their relationship. Social media had given celebrities unprecedented reach through tech platforms just as venture investors were beginning to pour more and more money into consumer-facing companies again.
Celebrities had the attention of a vast global audience and venture investors were looking to create new companies to capture that attention (and the inherent ad dollars which come with it). So actors like Ashton Kutcher and Jared Leto, athletes like Baron Davis, Joe Montana, and Steve Nash, and musicians like Nas were starting their own funds.
CAA Ventures became the agency’s window into that world while still dipping its toe into company creation.
Yanover helped build WhoSay, an early iteration of social media management tools, which sold to Viacom; and Empowered University, an education technology startup that was acquired by Qualcomm; and MoonShark, a mobile gaming studio developing celebrity-focused games in the years before Glu Mobile hit its stride with Kim Kardashian: Hollywood.
He also dabbled in private equity for the firm, starting Star Avenue Capital in 2009 to invest in consumer facing businesses that could also benefit from celebrity endorsements. These were companies like J Brand Jeans, which raised $25 million and sold two-and-a-half years later for $400 million, according to Yanover.
“I was learning about the consumer retail business and the landscape, and through that process I learned about the beauty world,” Yanover says of the experience.
On the venture side of the house, CAA turned a small, $20 million fund, into a portfolio of companies, the most successful of which have amassed over $600 million in follow-on financing.
The firm backed e-commerce companies like Bark & Co. (the company behind pet subscription service, Barkbox) and Neighborhood Goods (the brick and mortar home for direct-to-consumer brands); media properties including Patreon (the online payment service for independent creative professionals); Giphy (one of the gif publishing platforms at the heart of meme culture), and Medium (the publishing platform).
More randomly, the firm also has hardware companies in its portfolio. These are businesses like Bloomlife, a developer of wearable devices and technology for pregnant women, and Skydio, a novel drone manufacturer. In all, these companies alone have raised $640 million in follow on financing.
Haus Laboratories — a startup born this way
In the year of our lord, 2017, the marriage of influencers and brands was already being consummated to the accompaniment of the dulcet tones of ringing cash registers.
George Clooney sold his tequila company Casamigos, founded with multi-millionaire pals Rande Gerber and Mike Meldman, to Diageo for $1 billion. Rihanna launched Fenty Beauty, the cosmetics line she co-owns with Kendo Holdings — a spinout of the cosmetic retailing giant, Sephora. And Sequoia Capital invested in the cosmetics brand Charlotte Tilbury.
It was also the year that Yanover got serious about building the beauty business with someone connected to CAA.
“It occurred to me that the margins were fantastic and the beauty space was fantastic,” he says.
Michelle Phan had already proven that investors would back influencer-founded beauty lines when she raised $100 million at an $800 million valuation from investors including TPG Capital (the majority owner of CAA). In fact, Phan had help from a Funny Or Die alum, Marcelo Camberos, who was Ipsy’s co-founder and chief executive. “He learned the power of influencers at Funny Or Die,” says Yanover.
Then Sequoia had followed suit with Charlotte Tilbury just that year, and Yanover knew that among the agency’s roster of celebrities was someone who would be ideal to launch their own company. However, unlike the Fenty deal with Kendo, which industry insiders describe as more of a joint venture, this vehicle would be wholly owned by the celebrity.
“By 2016 I wanted to combine these two things. I wanted to understand and take advantage of the influencer side of beauty… but I wanted to do something that had a silicon valley structure,” Yanover says. “Fenty and Kylie helped build the case we were making to VCs, This is an area that has the potential to generate high amounts of revenue in a short amount of time.”
Planning actually began in the fall and winter of 2016 with a meeting at Germanotta’s Malibu home. Alongside Germanotta’s manager, a few agents from CAA, and Germanotta, Yanover made his pitch.
“It was one of those moments where she was telling me this was her dream to create a beauty line. In her words it was ‘inevitable’ that she would have a beauty line. [And] I was there to tell her that she should start her own company.”
The founding team recruited former Honest Co. chief digital officer Ben Jones by the end of 2017 to serve as the chief executive, and set about raising capital from investors — ultimately settling on Lightspeed Venture Partners (backers of Gwyneth Paltrow’s Goop and the Art of Sport, which was co-founded by Kobe Bryant) after pitching to several other firms. The company got its funding in the summer of 2018, according to Yanover.
Through CAA, Haus Laboratories also landed a big exclusive distribution relationship with Amazon. “Amazon came in through CAA… and we, of course, brought that to the company, and Ben managed that deal.”
The contract allowed the company to continue operating as an independent direct to consumer brand, but also exclusively sell through the largest ecommerce channel in the world.
“They have access to a product that nobody but we are selling and it allows us to have the promotional machine that they’ve unleashed on this brand… and we have access to their international reach and their customers,” says Yanover.
None of it would have been possible without CAA or Yanover, according to Jones.
“Michael is not an agent, which i think is important. When agents are involved the conversation is what’s the offer?” says Jones. Whereas Yanover was able to explain the ownership structures and how the business would be different from other kinds of corporate arrangements or spokesperson deals. “In beauty that’s a foreign conversation for people,” says Jones.
The entire endeavor is the crystallization of how branding, advertising, entertainment and changing, and how social influencers sit at the center, says Jones — whose experience before Honest was at gaming companies like Zynga.
“The impact of influencers in video games is pretty undeniable. They’re taking games other people made and driving them. Influencers in beauty have become key parts of the development community,” says Jones. “This idea that all of these direct to consumer companies including Honest co. They have this internal velocity and once you get past that you’re just burning through money… There’s a top 2% of influencers that are just different from anyone else and they can drive the acquisition flywheel.”
Can celebrity-linked startups be anything but a bad romance?
“These celebrity clients and influencers and artists and people who have large social media footprints — they are now way more relevant than they were five years ago,” says Yanover. “Because they have such a clear direct channel to the consumer and the fan they have way more opportunity to take advantage of that.”
It’s a simple equation. Add popularity, a large media footprint, and a product together to get an easier path to market success. Unfortunately if the formula were that simple, and the alchemy easily repeatable, everyone with over a million followers would have turned their digital likes into not just cold, hard cash, but profitable businesses.
Many undoubtably have made money, but their success is tied more to advertising dollars, which are controlled by the the platforms. Company building with a specific client base in mind can present opportunities for a different kind of talent packaging for agencies and their clients.
That’s the thesis behind Yanover’s next bet with CAA on startup businesses — the Vancouver-based studio Creative Labs.
Understanding how a small startup studio 1,277.2 miles from Los Angeles can change the business of a nearly 45 year old talent agency begins with cats and hockey. More specifically it begins with Nala Cat, one of the most famous living cats on social media (RIP Grumpy Cat), and the NHL business at CAA.
https://www.instagram.com/p/B8CAtvWAsKC/
“Seven months ago we got really interested in the pet food category. [It’s] high margin. Not a lot of celebrity in the space and the celebrity that was in the space was very successful,” says Creative Labs co-founder Leonard Brody, a serial entrepreneur and investor out of Canada. “Pet food is interesting because it is sold the same way to everybody.”
Coincidentally (or not) CAA happened to represent the most influential cat in the world — Nala. So the venture studio collaborated with Nala’s owners on the launch of a new pet food brand called Love Nala. “The whole brand is related to love and support for cat rescue,” says Brody. “[But] I did not think that one of our clients that we would be working with was one that poops in a litter-box.”
If Nala was a client-driven initiative to start a brand, then Blueline Studios is an example of a company launched from Creative Labs with an eye towards benefiting CAA clients. “Generally the way the ideation works is that it comes from clients in CAA or it will come from us,” says Brody.
Blueline, founded by two former members of the Electronic Arts sports game development division, was developed to launch multiple mobile gaming titles (like Scopely or Jam City). “The model is pick a platform and a game mechanic that we perfect,” says Brody.
The Blueline team, being based in Canada, settled on hockey for the first game. Not coincidentally, hockey is a big business for CAA. “It came out in partnership with the sports group and the hockey group,” says Brody.
Brody and Yanover, who first met a decade ago at a dinner, loftily think of the business as a combination of IAC and Procter and Gamble, fueled by the brand building power of celebrity connected through CAA.
“This was born out of CAA, in the image of — and for the benefit of — CAA,” says Brody. “CAA is a significant shareholder in the business. They are the largest shareholder in the business.”
Consumers can expect to see a slew of brands emerge from Creative Labs going forward, according to Brody. The company has a pipeline of around 15-17 products or companies that it’s currently working on which will either be wholly digital, or direct-to-consumer products with a technological twist, and nearly all of them will incorporate agency talent in some way, says Brody — even as the borders of where that talent resides become more porous.
“A celeb needs to have the passion and vision of a founder to do a startup just like any other one,” says Yanover. “I think the question is whether there’s a fit between the vision and the marketplace that can give rise to a viable business plan. Oftentimes that also gets validated by the fundraising process as well. We find out who steps up as a VC or other financier and if it is financable. Creative Labs serves a great purpose in that we can start building and iterating earlier and prior to seeking out VCs and having all the answers. There are fewer constraints there.”
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