Is the Credit Crunch Hitting Hollywood?
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I'm Matt Holzman back from a summer hiatus with The Business Brief, a guide to what's happening in and around the business this week.
Hollywood has always been the crafty carnival barker, luring movie-goers into their theaters with promises of untold wonders and then shoving them out the back door with bewildered looks on their butter-covered faces and their pockets picked. Time after time, we buy their product sight unseen, even though they so rarely deliver on their promises.
But the public can be excused for continuing to play the rube since, for most of us, buying a movie ticket isn't a major investment. But what about the people who are throwing big money at Hollywood's paper-thin promises? What about those who continue to roll the dice on making movies even though that road is strewn with the empty bank accounts of those who have gone before? What is their excuse for being fleeced by Hollywood time and time again?
The bait has always been the big returns those huge box office numbers seem to imply and the glamour that's strewn across the pages of the tabloids every week; and Hollywood, home to the greatest storytellers in history, has done nothing to dispel these myths. So you can forgive the Japanese, the Germans, the insurance companies and many others from being distracted from the financial fundamentals.
A decade ago, the hedge funds came to town with gobs of more sophisticated kind of money. They were flush with cash and needed places to invest it, and they managed to make deals on terms that were generally more favorable than any that had gone before them. They were able to change the ground rules, in part, because they brought so much money to the table. They also arrived at a time when the studios seemed to want out of the film finance business so they could focus on making and distributing movies.
The creative accounting practiced by the largely unregulated hedge funds makes Hollywood's bookkeeping look positively transparent by comparison, so it's hard to know exactly how they're faring. But it is worth noting that the torrent of outside equity into the movies has slowed considerably.
That may be because, in fact, equity deals aren't bearing out the big profits their huge investments demand. It could also be because these deals almost always involve banks, and we know how banks are doing these days.
So has Hollywood been hit by the credit crunch? Well, a shortage of American money may be the reason that Steven Spielberg and crew had to go to Bollywood to get money to buy back DreamWorks from Paramount. It may be the reason that the good folks in the United Arab Emirates have announced that they'll be adding a billion dollars to a $500 million investment in Hollywood they made last September. Well, the UAE has shown good taste in movies before they banned You Don't Mess with the Zohan from their theaters earlier this year.
Perhaps a credit crunch in Hollywood could have an upside. The influx in hedge-fund booty was at least partially responsible for the bloated budgets of blockbusters in the last few years.
And quite frankly, investors from India and the Middle East are as interested in stepping onto the world stage through the world's most high-profile industry as they are making money from the movies. After all, what's another billion to a tiny country that's building an airport at a cost of $62 billion?
Freed somewhat from the hardball, bottom line focus of Wall Street, the studios would be able to back away from the "play-it-safe" blockbuster mentality. The result could be better movies. Of course, the new investors may also demand sequel to the Zohan that they can show in their own countries -- perhaps they'll call it Go Ahead: Mess with the Zohan, See What We Care, which quite frankly, I'd like to see.
I'd love to know what you think. Send me an e-mail at TheBusiness@kcrw.org.
You can podcast this commentary, share it with a friend, or embed it on your blog with the click of a button from our new media player at kcrw.com. For KCRW, I'm Matt Holzman and that's The Business Brief.