The Convergence of Hollywood and Wall-Street
While corporate arbitrage, hostile-takeovers, and high-leveraged dealings of Wall Street may seem perfect for an action-packed script, the reality is, such financing mechanisms have been and are becoming more widely used to fund some of the largest film budgets in Hollywood.
It is estimated that in a span of three years (2005-2008) almost $15 billion was flung into feature film flicks from institutions such as Merrill Lynch and Lehman Brothers (Reuters, Sue Zeidler). This spreading and to some extent, transferring of risk – from studios to investment firms, has become a dichotomy of the world of finance.
Ironically, one would think that betting for or even against Hollywood would be a sure mistake. The outcomes of films are largely unpredictable, with promotions, marketing, viewer preference, star-power, and an array of other factors determining the gross ticket sales and thus the bottom-line. Even with a ‘bankable star’ the financial outcome can vary.
Moreover, the risk remains high for the investor, regardless of precautionary measures. Assuming a feature film is produced and distributed, profits must filter through the studio, various actors, directors, and associations (guilds), before even reaching ‘investors,’ who receive only the residual amounts (possibly losses).
Notably, one individual, Ryan Kavanaugh, has nearly created a precedent on the west coast. In 2007, he wrangled close to a $1 billion for such films as 300, Nancy Drew, and a host of heavy weight feature films. While some of these films have succeeded, a few (maybe more) of them have ‘flopped’ due to below average box-office performances (Portfolio.com, The Kid Pays For The Picture).
At any rate, the trend seems to be moving towards bigger, bolder, and – more expensive films, converging Wall Street and Hollywood Boulevard at some undefined point between smart business and the temptation of media-fueled notoriety.
Photo courtesy of Flickr.
@ 8:20 pm zhangsan said:
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