Monday, September 11, 2017

Review of The Art of Profitability by Adrian Slywotzky (Chapter Four) and Power to Burn: Michael Ovitz and the New Business of Show Business by Stephen Singular

Two years ago we reviewed chapter one of The Art of Profitability by Adrian Slywotzky, and the reviews of further chapters have been long overdue.

You may recall that the first chapter and profit model is called "Customer Solution Profit". Skipping ahead a little in the book, the fourth profit model is called Switchboard Profit.

The example of switchboard profit is the Creative Artists Agency as Michael Ovitz moved it into putting together movie deals in the late 1980s. CAA represented so many of the best writers, actors, and directors (who they would package together into deals) that negotiating leverage shifted from the movie studios to the talent. This drove pay (and moviemaking costs) significantly higher, which resulted in much more profit for the talent agency as well since it got a percentage of what the talent was paid. A positive feedback spiral also developed because talent risked missing good opportunities for work if they weren't represented by CAA.

One of the keys to getting this virtuous cycle started was for Ovitz to lock up a good source of stories to make into movies. There was a top literary agent in New York, Morton Janklow, who Ovitz identified as having a good story pipeline. Janklow initially did not want to talk to Ovitz, so Ovitz called him every week for a year until Janklow agreed to a deal!

Introverts and northern Europeans can't imagine doing something like that. But another example of a connector with incredible telephonic persistence was a literary agent named Irving Paul Lazar, profiled in this New Yorker article:

In the late forties, after the war, Lazar decided to move to L.A. permanently, and he quickly established himself as the connection between New York and Hollywood. Not a reader himself (he is notorious for not bothering to read the books he is selling), he cultivated writers, publishers, and playwrights, and brought the studio heads projects they could never have found by themselves, for prices they would never have dreamed of paying to anyone else. In New York, Lazar became known as the man who could get you bagfuls of money from Hollywood; in Hollywood, he was known as the man who could bring you the hottest properties before anybody else on the Coast had heard of them. In the days when a transcontinental telephone call was a big deal, Lazar was in touch constantly, perfecting his peculiar blend of gossip, news, and sales pitch, and a lot of people didn’t know whether Lazar was speaking to them from his poolside in Beverly Hills or from around the corner on Fifth Avenue. [...]

Early on, Lazar hit upon three rules that have stood him in good stead for over fifty years. The first was that he could always reach anyone, anywhere, any time. His secret weapon is the world’s largest address book, full of the private, unlisted numbers of people whom nobody else can reach. Who else can pick up the phone and call Mrs. Norton Simon, Jack Nicholson, Barry Diller, Larry McMurtry, Arthur Schlesinger, Richard Nixon, Cher, Gregory Peck, or Henry Kissinger, and get through immediately? The second rule was always to go directly to the top. Lazar doesn’t deal with underlings. The last rule was to insist on a quick answer. Even now, if I tell Irving that I want to think something over or discuss it with someone else he will snap, “Never mind, I can see you’re not interested, I’ll talk to Phyllis Grann.”
One funny thing that Lazar would do is call his circle of important connections every day. People would get a daily call!

The Art of Profitability source for the Ovitz information was a book called Power to Burn, which he recommends that students of profitability read. I give it a solid 3/5; I think the summary in AoP is sufficient.

Also, I can't really think of switchboard models beside this one. And it is also puzzling that, for all the monopoly power that CAA had in the film market, his young lieutenants were willing to consider leaving the firm if they weren't promoted and given equity.

But could you consider Google a switchboard? They obviously have some powerful profit model. Read about being A Serf on Google's Farm.

Speaking of making money by connecting people, I have had two books on this topic by Ronald Burt on my list to read: Structural Holes, and Brokerage and Closure.

1 comment:

CP said...

Similarities between the two businesses run deep. It’s not just that the Andreessen Horowitz partners, including Mr. Andreessen’s longtime collaborator, Ben Horowitz, realized that a V.C. firm could be run like a talent agency. It’s that the economics of Silicon Valley are uncannily similar to those of Hollywood. And by exploiting that insight, they may have helped inflate a tech bubble.

Mr. Andreessen and his partners seem to believe they’re playing a role analogous to that of Mr. Ovitz and his fellow superagents: They do what it takes to lock up talent, which they eventually sell to someone else at a huge markup.