Over his three decades in the entertainment business, Michael Sugar has witnessed the steady decline of traditional TV advertising’s effectiveness and reach. Sugar—the talent manager and producer of such award-winning and lauded titles as Spotlight, The Knick, and 13 Reasons Why—maintains that brands can help counter that challenging trend by becoming genuine partners in the production and creation of premium content. In a recent interview with McKinsey senior partner Marc Brodherson, Sugar spoke about the evolving entertainment and advertising business landscape, the challenges and opportunities of this new approach to brand marketing, and how his company is hoping to help scale it over the coming years. The edited transcript of their conversation follows:
Hollywood and brands—an evolving market
Marc Brodherson: Tell us a little bit about how you decided to expand significantly into this new form of content that is not what we typically think about as branded content or marketing spend. What specifically did you see happening or not happening in the entertainment and advertising marketplace that made you realize there was this underappreciated opportunity?
Michael Sugar: Everyone knows that there’s a lot of contraction in Hollywood. The post-strikes environment has created all kinds of distress in the industry. On the other side, the brands have been disintermediated. Linear television has dissipated quite a bit. We know that ads are being skipped. We also know that the thirst for attention is ever increasing, that audiences are hard to reach and harder to keep. But they still watch shows and movies, listen to podcasts, and read books.
I spent the majority of my career making films and television and managing the careers of iconic artists. It’s no surprise that things have not been going great in the entertainment industry. So about two years ago, the company pivoted to thinking holistically about how we can enhance brands’ relationships with the consumer by helping brands make the content they would otherwise just advertise against. I feel like the opportunity at this moment is for brands to reach the consumer directly through entertainment, rather than simply advertising against it.
The audience is searching for an authentic relationship with the brand. We’ve become very savvy. We don’t want to be sold to. In this climate, you need to sell a product to the consumer that has an authentic connection with the brand and believes the brand understands the consumer.
In our mind, the best way to do that is to create something the consumer already wants. Over the years, we’ve seen brands connect the content in different ways. We see brands put their names on stadiums. We see brands put their names on race cars. Crypto.com reportedly spent $700 million to put its name on what was the Staples Center. But they’re not telling LeBron James which plays to run. They’re not telling the Lakers which uniforms to wear. What they’re doing is creating this relationship. They are the entry point between the content, the sports or the concerts in that building, and the consumer.
What we’re doing is not branded content. If somebody wants to make branded content, I am all about it, but that’s not for us. I feel branded content is just a longer commercial. I think fundamentally, what’s different about the opportunity we’re creating with brands is that when you make branded content, you spend a lot more money getting the eyeballs than you do on the production itself, by a lot.
What we’re trying to do with brands is create shows, movies, and podcasts that are commercial, good enough for Netflix, Amazon, Apple, or linear television to want to air. And in that scenario, you don’t have to buy the eyeballs, right? You’re delivering a full show.
Shaping entertainment content to work for brands
Marc Brodherson: Are these primarily existing projects and ideas that brands jump into and help shape, rather than start from scratch?
Michael Sugar: The key here is that creators do not go to brands with the stuff they can’t get made in Hollywood. Brands want the best stuff, and historically, Hollywood has come to brands with its hands out.
We’re focused on original IP that can work for a brand or myriad brands. Modern Family or any half-hour sitcom you might have seen usually had 16 advertisers every half hour. That means some content could be right for 16 different brands, at least in terms of the audience it’s attracting, the demographic, and the message of that show.
I think the most interesting opportunity for brands is to see the things that Hollywood producers don’t need the brands for—things that are good enough to sell without a brand. If you can get a brand in early, the brand benefits, but the distributor also benefits from having a marketing partner, which is very helpful in this marketplace. Fundamentally, our secret sauce is tweaking the core idea, matching what Hollywood creates and what the brands want.
We had a great experience with one brand, for instance. We heard a strong pitch that included a particular type of business, and we just changed the business to a different category. The creator didn’t have an issue with it, because she was focused on the characters. For us, it was about the messaging that could come through those characters if their business amplifies something the brand was looking for.
I think the opportunity for the brands is to actually own the content, which gives them multiple benefits. One, they can impact the creative rather than integrate into someone else’s creative. They can make it just right. Two, they turn this media spend into an investment with its own ROI.
The content has to be brand forward, with the brand ethos at the center of its proposition. But the brand doesn’t have to be in every frame of that content. As long as the audience understands that the brand is behind the content, just like the consumer understands that Crypto.com is behind the building that creates the Lakers, loyalty and attribution will be associated with it. At the end of the day, the more forced the product integrations are, the more on-the-nose the content about the product is, the less authentic it will feel to the audience trying to consume this as entertainment, not as branded content or a commercial.
A new model with new opportunities for creatives and talent
Marc Brodherson: Top-tier talent and creatives are typically viewed as very judicious about who they want to work with and associating themselves with brands. How is it working in this model? Why do creators feel comfortable having brands involved in the creative process, often from the beginning?
Michael Sugar: I’ve managed movie stars and filmmakers for 30 years, and I never had a phone call from one of them saying, “I really want to do a commercial.” They’ll do it if they need the money, if they get a great offer and they like the product. But it was very rarely a relationship that artists proactively initiated.
We’re finding that as long as the talent are doing something they want to do and the brand is coming in to enable that, it rewrites the relationship between brand and talent. For example, we represent a very high-level movie star who gets offered commercials all the time. And 99 percent of the time, they don’t even want to see the offers. This actor had a passion project, something that they really believed in. We brought it to a brand, which is now making it. And this actor was so happy because the brand was giving them an opportunity.
So what’s interesting is that the talent love this model. We’re finding we can partner brands with talent they previously offered millions of dollars to, to no avail. Now the brands are spending much less money to partner with that talent by being producing partners and making something together. And the talent are very happy to show up for that brand.
Marc Brodherson: The best proof point of this right now is the “Way Upfronts” that you ran and conceived of. Talk about how it works, what you see as the benefits, and how it might evolve.
Michael Sugar: We sit between brands trying to solve a problem in reaching a mass audience and a creative community just trying to make more things. To bring those two sides of the market together, we created this event called the Way Upfronts.
The concept was we’re going to bring a bunch of highly curated opportunities from world-class producers to a room full of north of 100 brands and pitch early-stage ideas for brands to get involved in very inexpensively at the beginning.
The one caveat we gave all the producers was “You have to bring opportunities that you have not yet pitched in Hollywood.” So the brands were seeing the best stuff for the first time. We told the brands they had to come ready to hear and listen to these pitches. If they liked something, we would set meetings.
It was an experiment, and we really just did it on a whim. Yet we had global iconic movie stars showing up. These people wouldn’t get out of bed to do commercials but were getting out of bed for free to pitch opportunities to brands they were passionate about.
At the end of the day—and we’re still finishing up a lot of the deal making—six or seven of the properties that were pitched have now found brand partners.
We’ll be replicating this type of event quarterly, but we now ostensibly do this for our brand partners every day.
Marc Brodherson: To what extent should brands expect their projects to impact consumer behavior or beliefs?
Michael Sugar: Looking to history, you will see that what we’re saying isn’t so crazy. We know that The Queen’s Gambit changed the world of chess by accident or that Back to the Future, one of my favorite movies as a kid, helped launch the skateboarding industry. We know that the movie Sideways hurt the merlot business when Paul Giamatti said what he said about merlot.
So what we’re excited about, and the opportunity for those working with brands this way, is creating those accidents on purpose, creating cultural movements through entertainment. Because if the brand acknowledges that entertainment can shift culture, why not make the entertainment to shift culture to its own purposes?
The economics of the new content model
Marc Brodherson: When you meet with a CMO, how do you make this pitch from a financial standpoint? Do brands view this as a potential new revenue line item?
Michael Sugar: There are massive amounts of money to be made by the studios that are investing in television in particular. And the brands can sit in that position on the cap table.
When we speak to marketers, first and foremost, we want to learn what they want the world to know about their brand that they don’t already know. That’s the number-one question we ask, because that’s ultimately how you market a company, a brand, or a product. What do you want the world to know about it?
We find ways to answer those questions through entertainment propositions. So if a brand is all about sustainability, it can make An Inconvenient Truth. If a brand is all about optimism, hope, and joy, a show like Ted Lasso could work. If a brand wants to own the American family, then we can create a sitcom like Modern Family.
The financial upside is real, too. A fortune being spent on media is going to waste because of the ads being skipped. In this model, brands can come in as the owners, producers, and studios. Therefore, they have an upside in what that product creates. In a way, entertainment is a new SKU that brands can use. And the returns can be more than rounding errors in success.
Marc Brodherson: How big a financial commitment do brands have to make in this model?
Michael Sugar: I think it’s really important to know that by putting the brands in early, the investments are much smaller than what brands are typically used to making or considering. We have brands investing in projects for $100,000 or less. Every project is a new business, and the brands are invited to provide the seed capital. We all know seed investors in a business have the highest proportionate return and the most significant early impact on the direction of that company, which in this case is the direction of the creative.
The most important takeaway is that it’s not that expensive. Our job as producers—and by bringing brands in as our partners, they’re producers as well—is to spend as little money as possible to launch a business into the next level.
We’ve also derisked that investment. The idea is for the brands to get their money back the day we sell it to a premium distributor. There are no working dollars or nonworking dollars in this model. This is a one-time investment usually, and you don’t have to buy the media.
Navigating the stakeholders in brand-produced content
Marc Brodherson: What makes you confident that brand-produced content will get distribution?
Michael Sugar: Ostensibly, I see this as a four-legged stool. You’ve got the brand trying to reach the consumer, creative talent making shows and movies to do their jobs and have fun, media buyers trying to figure out how to allocate brand dollars for the maximum return and impact, and finally, the distributors.
The distributors don’t want to buy from a brand, because that feels like branded content, because brands don’t make shows, they make beer or diapers. But we have found that the distributors do want to buy from us, and by “us,” I mean makers of high-quality television and film.
And if a brand is involved, it’s even better because you have the potential for incremental ad dollars and incremental marketing to promote that show. The budget can even decrease, because the brands aren’t as concerned about every dollar of upside. They’re much more concerned about selling their products.
We’ve done this with multiple streamers and some linear distributors, and we found that if we bring something that the network or streamer wants to buy anyway, they lean in more if a brand is involved.
Marc Brodherson: What do the studios think about this? How comfortable are they with this model?
Michael Sugar: We’re really trying to disrupt an industry, but we’re not trying to disintermediate the stakeholders of that industry.
We’re not trying to disintermediate the streamers or the traditional distributors. We’re trying to bring them more products at a higher level through marketing partnerships.
We’re not trying to disintermediate the talent agencies but to give them more opportunities for their artists.
We’re not trying to disintermediate the creative agencies. We’re going to them and, in many cases, partnering with them on their brand clients. Creative agencies understand what the brand is looking for. We can skip a step by working directly with the creative agencies.
We’re not trying to disintermediate the media buyers. We’re talking to media buyers regularly about how we can unlock new opportunities for their brand clients on their media spend through entertainment.
And we’re not trying to disintermediate the studios. On the contrary, we are going to them. We can cofinance with them. Brands and studios can coexist on the cap table. Studios, especially in television, don’t spend money on marketing. They rely on the streamers and the distributors to pay for the show’s marketing. That’s how brands are going to get their attribution. That’s how they’re going to amplify the value proposition for themselves. So studios love this model, and we already have many partnerships between them and brands.
Keys to success: Ensuring authenticity and measuring impact
Marc Brodherson: Why do you think consumers will be so receptive to and influenced by this approach, compared with everything else in the marketers’ tool kit? How will it feel authentic to a consumer?
Michael Sugar: Authenticity is everything, so we have to find ways for the brand to deliver this content to the consumer in a way that the consumer doesn’t feel annoyed. You don’t see consumers at a NASCAR race saying, “I can’t believe Busch Lite put its name on this race car hood.” We have to create authentic relationships.
So how do we create that relationship through entertainment in a way that the consumer embraces? It has to feel like the entertainment the consumer pays to watch. If a brand had made Ted Lasso—and there are myriad brands that could have, whether Coca-Cola, Budweiser, Nike, or many others—I don’t believe the audience would care if a brand’s logo was at the front of Ted Lasso and authentically integrated within it, as long as it was still Ted Lasso. The audience would think that was cool, that “This brand gets me.”
Marc Brodherson: The marketer’s ultimate game is to sell more products. I realize that with this approach, you can’t measure the impact through next month’s sales, for instance. So how do you think you can ultimately close the loop with metrics so that brands are as comfortable with this as they are with more traditional advertising?
Michael Sugar: I think brands are missing the point by being so focused on data and measurement. Of course, both are important. But just because you can measure something doesn’t mean it’s working.
We believe that if brands make content that audiences are paying to devour and enjoy, they’ll ultimately be able to get the kind of measurement and data they need because we, as producers, already get some of that data.
We are working on different ways to measure the impact of this model. But think about the data that brands currently have to work with, such as the number of eyeballs an influencer has and the size of a show’s audience. They can know how many fans walk into the US Open or see it on television. However, they don’t have a way to immediately measure the response to that advertising. After those events, that takes some time to gauge. In that respect, our limitations are not far from what they have already dealt with.
Our challenge is to prove it in the market, and we believe we will do that in the next 12 months.
Marc Brodherson: How do you think this revolution and disruption of brands and entertainment fits into the media ecosystem three to five years from now? What do you think it will look like then?
Michael Sugar: My hope and expectation is that in the next five years, 50 percent of what is consumed as premium television will involve a brand from the beginning.
This evolution is happening for myriad reasons: The cost of production is going up, and the appetite to spend is going down. There is a lot of friction at the moment between brands and distributors. The distributors want the ad dollars, but the brands are not seeing as much return as they want through advertising in any form.
I see the streamers leaning in more. And we’re going to see more need for brands to connect to the audience in a way that works and that’s entertainment. I believe it won’t be too long before brands make deals with Netflix, Amazon, and other premium distributors to have full slates of programming.
Five years from now, there will be more proof points that this is how you can create more scale for a television show.
