Is it cash infusion, or confusion?
Several sectors of our economy are showing signs of life these days, but here’s my forecast for the entertainment business: There will be a significant recovery thanks to increased spending, stepped-up production and an easing of the credit crunch.On the other hand, there will be sharper cutbacks, reduced output and a further pinch in the job market. Confusing? Sure. But if you talk to Hollywood power players those are the sorts of mixed messages you’ll hear. The narrow issue of film output offers an intriguing microcosm of this mixed outlook. The major studios believe there are vastly too many movies out there and say they’re cutting back. Co-financing entities are biting the dust and independents complain that the banks are still acting like skinflints. The picture is clear except for one factor: The movie business has always been remarkably self-replenishing. Though logic may dictate caution and cutbacks, there’s no way of reversing the engines. Take a quick glance at the studio horizon: Universal has had a dicey summer, Paramount is retooling and MGM seems to be nearing another corporate chasm. That’s the bad news. But Morgan Creek, DreamWorks and New Regency are newly energized and financially refurbished, Summit is riding high on its “Twilight” franchise while Spyglass is relishing its shares of hits like “Star Trek” and insiders speculate that it may expand its business plan to encompass distribution. Further, the co-financiers with portentous names like Legendary and Relativity are still finding abundant capital to meet their obligations, and Village Roadshow has reinserted itself into the marketplace thanks to its new resources. Mind you, the task of eliciting a greenlight is ever more formidable. The project with the dicey title of “Dinner for Schmucks” will finally move forward in October after a seven-year battle. Jay Roach will direct Steve Carell and Paul Rudd. Yes, this was originally the Sacha Baron Cohen project that DreamWorks was going to make, but now the funding will come from DreamWorks, Reliance, Paramount and Spyglass and it wouldn’t surprise me if even another financier clambered aboard. But the movie’s finally getting made — that’s the law of self-replenishment at work again. So where does all this money come from? Clearly, it doesn’t exist, except it does. Spyglass and New Regency can borrow against their very substantial libraries. Ryan Kavanaugh has his hedge fund to back Relativity and the redoubtable Jim Robinson underwrites Morgan Creek for a very “Hollywood” reason — he loves the movie business to the tune of four films a year. And for every nightmare like “Land of the Lost” there’s a “Twilight” to re-energize everyone’s business plan. “One big hit can cover over a lot of dumb mistakes,” confides the head of one indie company. Spyglass suffered through “The Love Guru,” but its success stories date back to “The Sixth Sense” and “Bruce Almighty.” To be sure, the majors may have to rethink their convenient business model of the last few years. A hedge fund was always on hand to provide downside protection. Funding from Relativity has thus propped up Universal and Dune has provided protection for Fox, but the sources of outside capital may have to be restructured in future years. That, in turn, may further incentivize the majors to try and cut back their production schedules. It’s risky out there in the sun without Wall Street’s sunscreen. But again, Hollywood always seems to find new money. The playpen is too entertaining and the upside too enticing. So, that’s the key explanation for an optimistic forecast: The party is too much fun to shut down.
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