Hollywood’s fistful of dollars

I’m not sure why I’m taking the time to write this column, because I’m increasingly convinced no one believes what they read in the paper.

Here’s an example: Media pundits have been telling us insistently that box office is declining, costs are soaring and hence, savvy investors should ignore the traditional movie business and channel funds into the Internet. So if the smart money guys really buy that, how can you explain the fact that new capital is literally flooding into the movie business?

In fact, there’s so much money around that some top studio executives acknowledge they don’t know what to do with it. “The worst reason to make a movie is when you feel you have to move the money,” says one production president.

Yet, each week brings announcements of new funding entities under various labels. Warners has its Legendary group while Paramount has Melrose Investors and, most recently, Gun Hill, at both Sony and Universal. Some of the money stems from hedge funds, some of it arrives via the Deutsche Bank or Merrill Lynch.

“In some cases, I can’t figure out where the money is coming from,” says one studio suit. “When you go to premiere parties, you see an empty table amid the festivities. That’s what we call ‘the investors’ table.’ ”

All this should be great news to the corporate functionaries, who are delighted to lay off half the cost of mega-budget films like “Superman Returns” or of behind-schedule projects like Nancy Meyers’ “Holiday” (which is co-funded by Sony, Warners and random outside investors).

But here are some possible negatives:

  • Insiders worry that the inflow of capital will spur a glut of production.

  • Whenever there’s so much money around, talent deals get crazy and budgets soar.

  • Then there’s the biggest worry of all: What happens when the money stops?

Low interest rates have incentivized investors to look to movie slates as the secret to realizing a substantial return on investment, but a rise in rates could bring the curtain down with a thud. Equally daunting would be the implosion of a megabudget film — a $200 million tentpole that simply doesn’t open. The disappointing box office on “Mission: Impossible III” and “Poseidon” has stirred worries all over town.

Outside investors have flirted with Hollywood before, only to flee when films tanked or recoupment formulas became elusive. Silver Screen Partners funded Disney films in the ’90s and the Delphi Fund invested in Columbia product. There were also periodic tax schemes involving German money and, of course, regular incursions by random billionaires looking for a good party.

Today’s serious players do not believe the present situation can be dismissed as a cyclical phenomenon, however.

Groups like Legendary, run by Thomas Tull and Scott Mednick, can readily mobilize their computer models to demonstrate that their structures will yield a solid and dependable return. Billionaires like Philip Anschutz or Jeff Skoll seem stalwart in their business plans: Anschutz took a beating on “Around the World in 80 Days” but more than recouped his loss with “Chronicles of Narnia.”

Implicit in all this is the notion that movies can represent a sound investment as well as an amusing one — we’re talking about slates of movies, not just random ones. At least that’s what the computer models suggest.

As for media pundits? Their analyses are specious, assert the “new investors.” The best way to deal with them is not to read what they write.

OK, I can take a hint.

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