Panelists discuss imploding effect at AFM
The salad days of film financing are more than over, victim of the imploding economy.That was the message telegraphed Friday morning at AFM’s annual film finance conference, where panelists including J.P. Morgan Securities’ P. Clark Hallren and Union Bank of California’s Bryan LaCour assessed the impact of the global economic crisis. The crisis facing Hollywood is being felt on all fronts, from the studios to the indies. In the past several years, when money was cheap, private equity investors and hedge funds poured hundreds of millions of dollars into Hollywood, setting up slate deals at nearly every studio, as well as pacting with indie companies. But private equity investors fled Hollywood as disaster hit Wall Street, and panelist David Molner, managing director of Screen Capital Intl., doesn’t think they’ll ever return. He noted, however, that studio slates already in place at virtually every major are safe, since they were set up before the Wall Street meltdown. One exception is Paramount, which was still shopping for a slate financing deal. The failure of the credit market means that film production companies will have to put up more and more capital to qualify for loan money. Also, interest rates are going to surge, since it’s a seller’s market. “Everyone has been living off of borrowed money for 10 years, and then it went boom,” says Molner. “And I think it stays tight for five years.” Molner says one of the challenges for studios is that they are owned by parent congloms scrambling to cut capital budgets across all divisions. For indie companies, foreign presales will once again be paramount in raising financing. But that market was already sluggish, evidenced once again by a slow AFM. There is, however, a silver lining for the film industry: a reduction in the abundance of pics crowding release schedules. The previous flood of private equity money resulted in a glut of films from both studios and indies. Lately, it’s not uncommon for there to be four or more wide releases on any given weekend, not to mention a handful of specialty releases. “There was way too much capital coming into this space,” LaCour says. It was a point all the panelists agreed upon. “The market can’t sustain those kinds of numbers,” says Weinstein Co. chief operating officer Lee Solomon. “We just opened ‘Zack and Miri Make a Porno’ last weekend, and now Universal is opening another R-rated comedy, ‘Role Models.’ “ Talent paydays also could contract for the first time in years, says Molner. Panelist Mark Amin, CEO of Sobini Films and vice chair of Lionsgate, says marketing costs could go down as well, as ad rates drop. “Let’s say a major studio spends $30 million on marketing. We are lucky if we can get away with spending $25 million. We’d like to see that number reduced by 10% to 15%,” Amin says. Panelists concluded that the film biz will have to go back to the basics. One arena that will take on added significance are state production incentives and tax breaks. “These will be very important to have when seeking lending, because they are a great form of collateral,” LaCour says. Through the decades, any number of outside financiers have come knocking at Hollywood’s door with checkbooks in hand. Private equity was just the latest incarnation. Foreign investors — including those from India and oil-rich states like Abu Dhabi and Dubai — are looking like the next wave. Finance panel was sponsored by Akin Gum Strauss Hauer &Feld.