For movie studios, a boom in ticket sales is not translating to easy access to financing.
When the car-chase flick Fast & Furious set a spate of opening-weekend records last month, it gave a turbo boost to what has already been a very good year for the movie business. "People say the industry is recession-proof," says Artie Starrs, CFO and executive vice president of Rave Motion Pictures. "We believe, as an industry, that as long as quality product is coming out people will go to the movies."
Maybe even without the quality. One critic compared F&F to T.J. Hooker reruns and another said it was as fresh and lively as a piece of burned rubber. Nonetheless, ticket sales are up 7% and industry cheerleaders aren't shy about predicting a recession-fueled boom year. "Going to the movies is the new family vacation, because the cost of movie tickets is a lot cheaper than other entertainment options," says Hollywood com box-office analyst Paul Dergarabedian.
But despite an eager audience, Hollywood CFOs are finding it hard to secure the backing that major films require. For the past four years the industry was beloved by hedge funds, private-equity firms, and individual investors, but most of those entities have pulled back. So have investment banks; Deutsche Bank, Merrill Lynch, and Morgan Stanley all axed their film-financing units last year.
Jerry Nickelsburg, senior economist for the University of California, Los Angeles's Anderson Forecast project, which models various aspects of the California economy, says studio finance executives and producers will need to be more creative in financing and producing movies. "Studios are doing things differently already," he says. "We're seeing lower production costs [despite higher] revenue generation." But, Nickelsburg adds, don't feel too bad for Tinseltown. "The one advantage the film industry has is that the movies are selling," he says. "You can't say that about cars or big-screen TVs."
Article written by:
Kate Plourd - CFO Magazine
May 1, 2009