Production Is Jazz, Not Science: Caleb Dewart Urges Agencies to Rethink In-House Models

'Money Talks' is an interview series, created in partnership between Little Black Book and SYZYGY, that is set to bust taboos by shining a light on the role of finance in production.

We’ll be speaking to leading producers and production company owners about the financial pressures they face day-to-day, and what challenges they need to overcome in order to simply make top-tier productions happen. Over the course of these conversations, we’ll hear first-hand stories from the production frontline and get a little more comfortable talking about that most important of topics: money.

Fourth in the series is Caleb Dewart, managing partner and executive producer at Hungry Man. Caleb pulls no punches on the financial structures shaping production today – from sequential liability and bloated treatment expectations to the lack of space for companies to properly invest in emerging talent. He warns that in-house agency models could stifle the next generation of directors, but still holds hope for a shift back toward creativity and long-term thinking.

Caleb chats with LBB’s Addison Capper.

NB: Hit the links to check out parts one, two and three, with PRETTYBIRD’s Ali Brown, Knucklehead’s Tim Katz, and Love Song’s Kelly Bayett.

LBB> Something we often hear is that timely payments can be a tricky factor in production. There's a contradiction between the need to obey contract dates when it comes to the shoot but the terms of payment seem a bit more 'flexible'. What are your thoughts on this?

Caleb> This is certainly not a great trend we’re seeing. But in all honesty, as a larger company, we’re able to deal with payment delays and less-than-ideal payment terms. I can’t imagine being a small company right now. My objections to silly payment terms are in some ways more moral objections than true logistical ones.

Sequential liability (we don’t get paid unless the agency gets paid) is tied into this and is also a big concern. When covid hit, we had several agencies tell us they hadn’t gotten paid so we’d have to wait. We made an appropriate fuss and things worked out, but in general it does feel quite unjust that small companies loan the largest corporations in the world (whether it’s agency holding companies or massive clients) huge sums of money all the time. One of my covid conversations with an agency business affairs was over $1 million that we were owed that was almost a year old. Gigantic agency and gigantic client.

LBB> There's also the costs that go into bids and treatments, which can impact companies of all sizes. Is this still an issue do you feel, and what is the current status of this part of the production process? Can it ever be changed/adapted?

Caleb> I’ve had people tell me about the old days – when agencies did phone calls with directors and picked who they wanted to work with based on the call. No treatment. I’m not entirely sure how or why we ended up where we are now, but it certainly feels like the power dynamic with clients and agencies has shifted and that’s the root cause. Clients seem to have a lot more power now and just expect more and more of their agencies.

As far as change moving forward, I think our business is too big for the change to shift in the favour of production companies. We are tiny companies who are negotiating with huge corporations. Your question and my response about payment terms is one example. The expectations of treatments is another. Anti-trust laws exist mainly to protect consumers but the lack of anti-trust regulation also has a massive impact on small businesses of all kinds – production companies included. The biggest companies in the world control the market we exist in, whether that’s payment terms, bid spec mandates or no longer just taking an agency’s word that our director is the right one to hire and that everyone should just trust the process.

LBB> Talk to me about 'markup', and how it impacts the financial health of a production company. Is there truth in that or more of a myth? Why?

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Caleb> It’s definitely not a myth. If you ask folks who were around in the earlier days (let’s just say the 1990s), when markup was 35%, they speak of it quite wistfully.

Taking a step back – I think agencies and clients have a belief that production companies are wildly profitable businesses. I think it’s one of the reasons agency holding companies are trying to take work in-house as they struggle to make their traditional business model work. We are of course to blame to some degree for this perception – we spend lavishly on dinners and drinks and gift bags for clients and agencies. And some of our directors drive their expensive cars to set.

But what I think outsiders don’t understand is that production company margins are quite low compared to other businesses, especially companies like Hungry Man who have prioritised doing good work over profits.

And here’s my pitch for why the agency in-house production model represents a serious threat to the sustainability of our entire business (stick with me because this is a little tangential).

LBB> Go on…

Caleb> One of the reasons that production companies don’t make a lot of sense financially is because of what it takes to build a director’s career. It used to be a lot easier – there were fewer directors and we could slot new directors into opportunities. Just as an example – Wayne McClammy came to Hungry Man with zero commercials. His very first commercial was with Wieden+Kennedy for Nike. And the budget was $500,000. Those days are gone – there is no chance that a job at that level with that agency and that brand is going to take a chance on a director who has done nothing commercially.

So companies have to invest – both actual dollars and the equity we’ve built through relationships – to build a director’s reel. Over the years, Hungry Man has done this strategically and we have a reputation for building from within – Wayne being the best example but there are many others.

The in-house agency production model doesn’t allow for these kinds of wild swings – it’s freelance directors engaged in transactional opportunities. Nobody on the holding company side is thinking that the best thing to do for the director’s long-term career is adding an extra shoot day and paying for it themselves even though the client doesn’t want it because that job will get the director the next job and the next job after that.

So, when it’s short-term thinking and transactional opportunities, there’s no building of the next generation of directors. When this current generation of talent retires or ages out or moves on to make films or television, who is going to be there to replace them? Who will have amazing reels that inspire confidence and get agencies and clients excited?

And back to the mark-up question – decent mark-up allows production companies to take wild swings and make strategic investments.

"And our work is jazz. We aren’t making widgets and it’s not an exact science. So when we approach it like it is an exact science, it can be a hindrance to creativity and also the experience clients and agencies have."

LBB> PSAs can be great opportunities to be more creative and flexible in approach, and they can also gain great traction. But, they're often done for free! How do you feel about that tension?

Caleb> Everything is an opportunity. We’ve never been focused on the money as the first priority. If that PSA is the thing that’s going to keep our director working for the next two years because the spot is going to be that good, then who cares if we make money? Especially if it’s for an organisation we believe in. Hungry Man has, based on Bryan Buckley's (founding partner and director) passion, done several very high profile gun control projects – ‘Generation Lockdown’ and ‘The Lost Class’.

I think the tension is fine – the causes we do PSAs for are good ones. And it’s understandable that they don’t have money. I will point out that agencies have never invested as much as we have in our PSA projects – at least not our recent ones. And yet they seem to have unlimited funds to enter the work we’ve done into awards shows. But again, that’s tension we can live with.

LBB> When it comes to budgeting a production, what’s the most surprising thing that you need to account for?

Caleb> The joy of our business is that every job is different and there’s very often something new that we’ve never encountered before. Oh, we need to do research on bowl-cut wigs for miniature ponies? Sure! Are there sugar cane fields in Los Angeles? Answer: yes. So nothing is a surprise. It’s all just joy that we’re in an absurd business.

LBB> And what’s something that’s always forgotten in the budget?

Caleb> Money. These days we’re generally trying to hit an overall number, especially on the lower budget jobs. And when we’re dealing with cost controllers I think the biggest thing they don’t quite understand – or more likely just ignore – is that hammering every line item leaves us no room for the jazziness of production. And our work is jazz. We aren’t making widgets and it’s not an exact science. So when we approach it like it is an exact science, it can be a hindrance to creativity and also the experience clients and agencies have.

We’ve hammered a budget to within an inch of its life and then a client has a bad experience because they felt like they were hit up for overages when the smallest things came up during production.

"I’m really rooting for a shift back to creativity as a focus. Work can and should be better and more interesting."

LBB> Broadly speaking, how healthy do you think the financial landscape of the industry is right now?

Caleb> I think for the top tier companies and directors within those companies, it’s OK. I think it’s going to be a very challenging time for new directors and directors who sit in the middle.

As I said above, the in-house production model at agencies is very concerning. That’s both about creativity and the financial health of our industry. Small companies who don’t have directorial magnets are likely going to struggle as they compete directly with agency in-house directors.

LBB> For any production business-owners reading this interview, what’s the best piece of advice you’ve either been given or had to learn first-hand?

Caleb> That relationships matter. Now more than ever. Whether you win or lose a job, the experience that people have and the way we communicate with each other matters as much as anything else.

LBB> What’s being overlooked in the shift towards in-house production at agencies?

Caleb> Agencies need to, in the long term, move off the in-house production model. That will be the death of our industry. But, like so many things in the world, I’m not sure any one person or entity can stop it from happening. Hopefully they quickly learn that it’s not that profitable or easy. And that clients learn that it doesn’t benefit them. I’m actually quite curious how agencies frame the in-house model to their clients. Because from the outside, it doesn’t make a whole lot of sense unless the agencies are admitting that they’re always going to be the lowest bid and they’re passing that savings on to their clients.

LBB> Any parting thoughts?

Caleb> I think it’s possible to be pessimistic and optimistic at the same time. I’m not sure what I’ve said above reflects my optimism about Hungry Man as a company or our industry as a whole.

I’m really rooting for a shift back to creativity as a focus. Work can and should be better and more interesting.

We can do better, everybody!