The big movie
studios, all part of large conglomerates, should never be wanting for
cash. After all, they are owned by large
corporations and a trip to the financial departments of Viacom (VIA) or General
Electric (GE) should do the trick nicely, one would think.
Actually, that is
not the case. Most Hollywood productions
need barrels of money to finance production as well as a few extra dollars to
market the film once it is produced.
Film production budgets range from $20 million to $180 million. According
to an
article in American Banker, between 65 percent and 75 percent of a film
slate’s total financing is borrowed by studios and third-party financiers. As it turns out, many of the studios borrow
the money from the bank. JPMorgan Chase
(JPM) is a big financier preferring bank-like loans with lower interest and lower
risk.
Hedge Funds have
been getting into the act, lately. Relativity
Capital and Universal just announced a deal where Relativity will finance
about 75% of Universal’s slate until 2011.
It will get to review many artistic features of a film – actors,
directors, producer – and stand shoulder to shoulder with the studios in
green-lighting production.
So these new
alternative investors have cracked into the most exclusive club of them all –
Hollywood. But not everybody is coming
up roses. An LA Times
article talks about the downside that some hedge funds have experienced. That
extends to a personal level sometimes. Financier
Ryan Kavanaugh, who organized the Relativity deal, once lost $750,000 trading
options in one day. (And I think I have
it bad when my position goes down $750).
Whew.
The next frontier will be user-based financing of
films. Somebody has to defend freedom
of artistic expression.