Firm Believer

Back - Index - Submissions - - What is RSS? Date: Jul 08, 2002 Source: Washington Post Submitted By: Gina Cates With His Hollywood Management Company, Jeff Kwatinetz Is Reaching for the Stars By Sharon Waxman, Washington Post Staff Writer, Monday, July 8, 2002; Page C01 Click here to skip to the section concerning the Backstreet Boys. BEVERLY HILLS, Calif. Here along the power corridor of Wilshire Boulevard, from the sleek, rounded hub of Creative Artists Agency to the darkened glass monolith of the William Morris Agency, a shift in the Hollywood pecking order is underway. Gone is the onetime prince of Babylon, Michael Ovitz, the agent-cum-mogul who as the head of CAA in the 1980s could set Hollywood atremble with a flick of his speed-dialer. Two months ago Ovitz sold his failed, three-year-old venture, Artist Management Group, to a company few in Hollywood had heard of, a music management outfit called the Firm. Assuming millions of AMG's debt and absorbing dozens of its top-notch executives, the Firm instantly became a player in the dealmaking district, this stretch of prime real estate in the heart of Beverly Hills. As Ovitz exits -- his final indignity a magazine interview in which he blamed Hollywood's "gay Mafia" for his downfall -- curious eyes have turned farther down Wilshire, toward a hulking '70s structure and the handsome, ambitious young man who works on its fourth floor. That man, Jeff Kwatinetz (pronounced QUAT-nits), co-founder and chief executive officer of the Firm, has plans to change the entertainment industry. He intends to do this by making "brands" of his artist-clients, by "empowering" them, and by leveraging their pop culture status throughout the disparate divisions of his company -- which, besides guiding artists, is into clothing, recording, animation, the concert business, and television and film production. In four brief years the Firm had already established a remarkable beachhead. Kwatinetz created one record label and bought another, along with two smaller music-management companies. He bought a defunct sneaker company, Pony, and invested in a media marketing company with the plush toy retailer Build-A-Bear, and another similar enterprise with the creators of the children's book character Arthur. With the acquisition of Ovitz's company -- a deal that closed late last month -- Kwatinetz, a 37-year-old, Harvard-trained lawyer, has suddenly became chief caretaker to one of the most prominent rosters of clients in the industry, including Cameron Diaz, Leonardo DiCaprio, Samuel L. Jackson, Martin Scorsese, Benicio Del Toro and Martin Lawrence in film, and Korn, Limp Bizkit, the Dixie Chicks, Linkin Park and Enrique Iglesias in music. Similar to agents, managers are regarded as the long-term custodians of artists' careers. In the Age of Ovitz, the agent reigned supreme in putting together "packages" of actor clients to appear together in films and demanding high salaries for them. As a manager, Kwatinetz hopes to do all that for his clients and more -- with the advantage that managers, unlike agents, are also permitted to produce movies and television programs. (For decades, state law and guild regulations have prohibited agents from doing this, to avoid the likelihood that agents would exploit their own clients if they could profit by doing so. There has never been a similar rule for managers.) He used to say that he intended to build the next AOL Time Warner. That was before AOL Time Warner stock nose-dived. When it comes to himself, Kwatinetz is obsessively media-shy and declined to be interviewed for this article until just before it was to be published. (In its first three years the Firm issued not a single press release, and a search of the Lexis-Nexis newspaper database turns up only half a dozen stories about him.) In the interview, this is how he outlined his philosophy: "With all the focus on the short term, on making immediate profits, people sacrifice building brand credibility. I have a different approach. I want to build credibility behind entertainers. Credibility is another word for brand equity." "I think he's a genius," says Bruce Kapp, a senior executive at Clear Channel Touring, who sets up concert tours with the Firm's clients. "He has pulled off stuff -- I've just scratched my head," he says of such innovations as a recent Korn concert that Kwatinetz had simultaneously broadcast live to 30-some movie theaters around the country. "I think he's going to make a lot of noise, I really do," says Jimmy Iovine, who heads Interscope Records. "He's very, very aggressive. He plays to win." But Kwatinetz has, even at this stage, many detractors. He is not shy about suing those he perceives to have crossed him, among them a former employer, a prospective investor and lately Sony Corp., over money he said was owed to his clients the Dixie Chicks. Former associates question the ethics of managing musicians' careers while, in some cases, also owning their record labels or touring company. They wonder about what they call his erratic behavior, with pedal-to-the-metal work jags followed by sudden disappearances for days at a time. He spins visions of grandeur for potential investors, while critics say he doesn't have a formal business plan. "His strength is the doppelganger of his weakness," says his former partner, Aaron Ray, who left the Firm last year. "He's passionate about things in a cultlike, Kool-Aid kind of way. But he doesn't have a real grounding in business. It's all a facade. . . . His business model is Pac-Man. People talk about playing chess. Jeff is really playing Pac-Man." "A lot of people who have dealt with him predict he will implode," says Haim Saban, an entertainment mogul who considered investing in the Firm, then decided not to. "I would not jump to that conclusion that fast. But people like him either implode or become very, very big." Inside the Firm Pass through a pair of frosted glass doors, which bear the words "The Firm" in 1940s-style, gangster-chic typeface, and you find a cavernous, echoing space filled with glass-walled offices encased in gray concrete. Huge columns rise behind a bank of receptionists. MTV plays on a built-in television. Two young women coo into constantly ringing phones, "The Firm, may I help you?" Handsome young people slouch about with an air of self-conscious distraction, dressed more for the beach than for Beverly Hills dealmaking. Many wear rumpled T-shirts with the Pony logo. A reporter has shown up without an appointment, since the Firm has not responded to requests for an interview. Is Mr. Kwatinetz available? The answer comes back from one of three assistants: "Jeff is on a plane." Soon a burly security guard arrives with a polite request to vacate the premises. "He doesn't want to appear boastful," Howard J. Rubenstein explains later by phone. The heavyweight New York publicist was recently hired to handle calls from the press. "People are pushing him as the next Ovitz; he certainly doesn't feel he's that. He wants to wait until he achieves something." As the reporter leaves the building, a tall, slender man in a billowing black shirt and skinny black pants is stridingtoward the front door. He speaks on a cell phone. His manner exudes urgency and get-out-of-my-way authority. Behind him an entourage is scurrying to keep up: an assistant carrying a bulky bag; a large, muscle-bound gentleman; a couple of associates in jeans. It's Kwatinetz (perhaps just off the plane). The reporter scrambles to catch up, slips into an elevator with him as the doors shut. An introduction is offered, but Kwatinetz refuses to speak, staring impassively ahead. He has a long, slim face with a jutting brow that slopes into a pointed nose, and shaggy brown hair with glinting gold highlights, the manager as rock star. He steps out of the elevator and away, without a backward glance. Four days later, after lengthy negotiations, Kwatinetz finally agrees to an interview, along with two senior Firm executives, Steve Bannon and Dave Baram. Today the CEO is dressed in a black Armani suit with white shirt and pale lavender tie. He looks -- sitting on his ecru suede couch, framed by crepe beige curtains and a '70s-era white sheepskin rug -- like one of those Gucci ads featuring cool people you'll never get to hang out with. (The ads, however, rarely have framed diplomas from Harvard on the wall.) He exudes a sheepish charm. He smells good, like balsam, or maybe sandalwood, and is utterly disarming, green eyes flashing warmth and intelligence. You think: JFK Jr., a little. Still, one foot wags incessantly, like a tic, through a 90-minute discussion. "We would like to build a company," he begins in a slightly nasal voice, "that is driven by artists and creators. . . . If you make great art -- musicians, actors, writers -- you should be able to figure out how to monetize it. Too much of this business is figuring out how to make money, making the quarterly and yearly numbers." He says: "If the goal was just to make money, I would keep things small, make millions of dollars a year and be another person." A beat. "We want to help our clients get a disproportionate part of what people do with their spare time and spare income." In practice, explains Bannon -- an investment banker who became a partner at the company eight weeks ago -- this means that brand-name clients can be marketed throughout the Firm's divisions. For example, Pony will be releasing a sneaker designed by Korn this fall, hoping to capitalize on the release of a new Korn album this summer. Or Limp Bizkit may be interested in designing a video game. Or Cameron Diaz may want to start a clothing line. In this sense, Bannon believes, Kwatinetz has devised a new kind of synergy in an industry where the consolidation of the 1990s, like AOL Time Warner's and Vivendi-Universal's, has not turned out to be profitable. "Quite frankly it's the beginning of a revolution," Bannon says, then mentions a couple of clients. "We're in the Vin Diesel business, or the Fred Durst business." It's not immediately obvious that Kwatinetz's vision is revolutionary, and it's not a word he uses himself. Instead he talks a lot about "the team" and sharing ideas and "investing in people" and "the long term." He talks about his genuine love for music and film and his understanding of "what's important to Wal-Mart and Target." How, Kwatinetz is asked, would he see his company operating in five years, under this philosophy? "I believe in five years we will be a very synergistic, artist-oriented company that is creating equity for artists. The exact shape of that, I'd be lying if I told you exactly what it would look like. But it will be artist-driven." Superstar Strategies Not everyone is convinced by Jeff Kwatinetz's concept, or by the man himself. Industry professionals warn that the movie and music industries are mercurial, and that a company with high overhead can run into trouble in lean times. A top-selling group can have one platinum album, and then produce no album -- and thus no revenue -- for years. Leonardo DiCaprio once seemed a solid member of the $20-million-per-film club; lately his career has taken a dip. With the Firm now numbering about 240 employees, and many of the top managers earning more than $1 million a year, knowledgeable insiders estimate its overhead at up to $2 million a month, a large sum for such a young company. (A spokesman for the Firm would not confirm or deny the figure.) Says one prominent Hollywood executive with a background in investment banking, speaking on condition of anonymity: "Inside Hollywood everyone is scratching their head: How do they go on? How are they financing this? Are they making any money at all? Where's the revenue stream?" Others say that Kwatinetz's strategy is vague and overly ambitious. "The business fundamentals weren't there for me," says Saban, a former chairman of Fox Family Worldwide, who had two meetings with the Firm's chief about investing in the company. "He never submitted a business plan -- he submitted a vision. He had a vision that was not compatible with mine." Frank Registrato, who until recently served as the Firm's office manager, says that the culture of the company is one of scattered, frenetic energy, rather than calculated strategy: "They're gamblers. It's like if you throw money on the roulette wheel," he says. "If you throw money at a bunch of things, maybe one of them will work out." And there are other matters. Aaron Ray, the former partner who is now one of Kwatinetz's most outspoken critics, says he left the company last year to start his own music management business because of what he called his boss's erratic and unprofessional behavior. The Firm's Bannon asserts that Ray was fired, though Ray disputes this. A May 2001 article in Variety says that he "exited" the company and took several major clients with him. On occasion, Ray and others said, Kwatinetz would disappear in the middle of a high-stress deal for two or three days -- for example, a deal with Will Smith's production company, Overbrook Entertainment, that subsequently failed -- and would reappear looking tired and disheveled. Ray and others -- who spoke on condition of anonymity -- said they had seen evidence of cocaine use or had confronted Kwatinetz about drug use, and said it got in the way of work. One music industry colleague who demanded anonymity came close to joining the Firm but backed off after a short trial period. He says he confronted Kwatinetz about suspected drug use, but Kwatinetz denied it. Then he asked the partners about it. One responded, he said: "It's being dealt with." Kwatinetz's response: "While I did use drugs in the past, I categorically deny having a drug problem, and I certainly don't use drugs now. I was particularly outraged by the accusation that I would have ever used drugs in the workplace, which was an outright lie by a disgruntled former employee." Ray says he also had issues with the way Kwatinetz was running the company. He argues that there were star clients whose careers were being neglected, or whose interests were at times compromised to benefit the Firm. Michael Jackson was a client for about a year. Kwatinetz has repeatedly said that he dropped the once-towering pop star. But Ray says that Jackson was unhappy with the Firm's guidance. "I was there. They were doing nothing for the guy," he says. "He needed direction. A client like that you need to spend a lot of time, be in the studio. But it was just a chip. Michael Jackson needed help. What did Jeff do for him? Nothing." Says Baram: "We absolutely fired Michael Jackson. . . . Some artists we desperately want to be in business with, some are not the right mix. We decided he should get other representation" after Jackson did not take their advice. Sources in the Jackson camp agree there was a breakdown in communications. Similar, according to Ray, was the case of the Backstreet Boys, whose career has been in decline for a couple of years. Ray says Kwatinetz spent the tens of millions of dollars earned from the Backstreet Boys to buy other companies, then milked the group for cash to the detriment of their career. (Kwatinetz says the opposite is true, that he has taken financial hits to nurture his clients, such as persuading the Backstreet Boys to move their concerts from stadiums, which they could not fill, to smaller halls where they would make less profit but play to a packed house.) "Why were the Backstreet Boys in a Burger King commercial?" asks Ray. "You can't make a strong argument that it helped their career. It reinforced their younger audience, which they were trying to get away from. But there was a check there." Kwatinetz responds: "It's a complicated question. When you have big clients, eventually some are going to leave, that's the short answer. Two of the guys in the Backstreet Boys had problems with the company. Three wanted to stay, two didn't." The Firm kept one of the Boys, Nick Carter, as a client, who has a solo album due out in the fall. The group is now managed by Irving Azoff; Azoff declined to comment. Ray says he saw problems regarding what Bannon calls "vertical integration": managing music clients while owning their record company and the concert tour on which the band is booked (a strategy the Firm is also pursuing for film and television clients, through its production company). The Firm's client Korn, for example, was part of the Firm-owned "Family Values" concert tour, and Staind -- another Firm client -- was on the tour. "Whose interests are we looking out for? The artist, the record company, the first act, the second act?" asks Ray. "Are they being given good advice?" Ray felt the bands were not. "The ethics got to the point where it became disgusting to me. We were using one client to leverage another. There were conflicts and we were not upfront about it." Kwatinetz says he is aware of such pitfalls, but adds, "We'll never pressure a client to do something sub-par because it serves the Firm's agenda. We're conscious of it, and we make sure we do the right thing for all our clients." Man on the Move Kwatinetz was born and raised in Brooklyn, his father an accountant in the garment industry and his mother a homemaker. When Jeff was in third grade, the family, which included a younger brother, moved to Marlboro, N.J. He attended Northwestern University for undergraduate studies, getting involved in the local Chicago music scene, then matriculated at Harvard Law School, flying back and forth to Chicago, where he had a concert promotion company. He moved to Hollywood inthe early '90s and briefly joined an entertainment law firm, then struck out on his own in the music business before joining the established management company Gallin-Morey. Kwatinetz's incipient empire was started just four years ago when he and Gallin-Morey colleague Michael Green decided to leave that company and set off on their own. With a handful of managers, the Firm began working out of Kwatinetz's apartment in Malibu, near the ocean. In a couple of years it had a staff of 15 working out of offices on Sunset Boulevard, crowding one suite, then two. They were managing not just Korn and Limp Bizkit but Staind, Ice Cube and the Backstreet Boys (the latter landed after the boy-stars were engaged in a well-publicized battle with their former manager). "It was nuts," says Eric Griffin, Kwatinetz's former assistant who watched the company grow to 55 people over the next year, eventually moving to Wilshire Boulevard. "A very crazy, hard-working and open atmosphere." Enrique Iglesias was added to the roster, and Mary J. Blige. Their phenomenal success could be monitored on cable television. Says Griffin: "MTV was Firm TV." In 1999, the company had the wind at its back, with several top-selling albums out, and with two movies opening at No. 1 at the box office, "Big Momma's House" and "Next Friday." And while Kwatinetz's work tempo was frequently manic -- arriving early in the morning, leaving late at night, yelling at underlings, making extravagant threats during negotiations for clients -- he was tempered by Green's calmer demeanor, according to former associates. A sense of inclusiveness made the hard work gratifying; each week Kwatinetz held a company-wide staff meeting (he still does), in which everyone from the mail sorter to the controlling partners offered opinions about Korn's latest music video or the trailer from Martin Lawrence's upcoming film. Soon after that high point in 1999, according to Ray and others, Kwatinetz increasingly went from music manager to visionary. He would constantly talk about "the long term," and wanting to be Time Warner. He began to buy companies left and right, acquiring the management firms for the Dixie Chicks and Sisqo; snapping up Flip Records, which belonged to Limp Bizkit. Then last year, Kwatinetz bought out founding partner Green for an undisclosed sum. Green did not return repeated calls asking for comment. According to officials at the Firm, the purchase of Ovitz's AMG involved the assumption of about $15 million of AMG's debt and taking over the contracts of top-name managers Rick Yorn and Julie Silverman-Yorn, who became partners. It's the biggest gamble yet for a company already on a steep growth curve. Says Kwatinetz: "This acquisition -- it's our biggest acquisition. We need to get it right. It's a big bet. But I'm feeling better about the bet every day." Asked to give his impression of the man many consider his heir apparent, Ovitz observes: "I think it takes a certain panache to be in this business. I don't think wallflowers do particularly well. Jeff is bright and tenacious. I think he's got great style. He's surely qualified to be in our insane business." "The odds are he will flame out," says Ken Hertz, a prominent entertainment lawyer who has counseled the Firm on business strategy. "But the odds are always long. That's why it's so interesting. I think he'll succeed. People want to see him fail for the wrong reasons. "He's prepared to put everything on the line. He's Donald Trump. He'll win huge, or he'll go down in flames." Comment on this item. 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