Hollywood Finance: Surviving In The Midst of A Meltdown

On September 19th, DreamWorks SKG and sibling company Paramount Pictures inked finalized a negotiation ending a long, two-year partnership. Steven Spielberg (that’s where the ‘S’ comes in, in ‘SKG’) signed a deal with India-based Reliance Big Entertainment ensuring $500 million in equity, as well as securing $700 million in credit through JP Morgan to back a new, $1.2 billion film company. This new venture is just one of many recent deals in Hollywood that have guaranteed billions of dollars in financing over the next few years. But wait. One minute I’m reading about the suffering economy, and the “impending doom” and “horrible reality” that awaits me, and the next minute I’m reading about the $230 million budget for just one movie, (the upcoming 007 sequel Quantum of Solace), along an entire slew of films that have just been slated for the next couple years that will no doubt have budgets that exceed $100 million. How can this be? Where is this money coming from? After yesterday’s stock market “meltdown” as only one of the more recent events that have threatened the very possibility of a functional economy, one must wonder: If every industry in America is failing right now, how is the film industry still finding the capital it needs to not only survive, but thrive?

This week, I’ve chosen to explore the blogosphere, and comment on two separate, but related posts that explore not only the recent split between DreamWorks and Paramount, but also other financing negotiations and how today’s economy is affecting the film industry. The first article, “Surreal Separation: Why Did DreamWorks Say Bye Bye to Par?” examines the DreamWorks-Paramount split and the repercussions of that negotiation, and was written by Editor in Chief of Variety magazine, Peter Bart. The second article, “Wall Street Finance ‘Banking’ On Hollywood?” which was written by Julia Boorstin, writer for both cnbc.com and Fortune magazine. For your convenience, I have copied both of my comments below.

“Surreal Separation: Why Did DreamWorks Say Bye Bye to Par?”
Comment:
Thank you Mr. Bart for clarifying so simply the reasons for why DreamWorks and Paramount Pictures have decided to end their partnership. While many people may be confused as to why these companies would want to sever their ties, it makes complete sense that a company which has put out very successful films believes they could operate much more successfully with their own financing. I can understand your comment about DreamWorks setting up a new distribution deal with Universal, but I don’t really understand why the most likely candidate for setting up a distribution deal with DreamWorks is Universal. How did you come to that conclusion for a studio instead of a studio like MGM? Has either DreamWorks or Steven Spielberg commented on a possible distribution deal with Universal or is that merely speculation? The only other question I was left with after reading your post was ‘Who came out the victor?’ Will DreamWorks be able to sustain itself over a long-term period on its own? Will Paramount experience the reduction in overhead through losing DreamWorks like they projected? And finally, if neither party came out the victor, but this was a win-win for both parties, and both parties wanted out of their relationship, why didn’t this deal occur months and months ago? While I understand your posts are not intended to examine an issue in depth, I think some explanation on these issues would really help clarify a lot of questions that readers have.

Overall, I really enjoyed the post, and I especially like your overall conclusion about Hollywood and its role in our economy, that it really doesn’t make sense, and we shouldn’t always demand that they do, especially in the film industry. When has the film industry ever really made sense? I also agree, that no matter what happens to our country, people will always want to go to the movies. While you have no answer now, is this an issue that you see yourself re-visiting? Thank you again for your explanation.

“Wall Street Finance ‘Banking’ On Hollywood?”
Comment:
Thank you Ms. Boorstin for your article explaining the financial role in Hollywood today. While I do believe the economy is in a state of shock right now, I do also believe and agree that “the entertainment industry is having no problem securing bank-financed credit.” Your explanation of the DreamWorks-Paramount negotiations was fairly brief, and on strictly a financial based approach, which is completely understandable for cnbc.com. However, I think a little bit more financial information, or possibly future projections could help readers gain a broader scope in the issue. Which big titles over the next year or two is this deal really affecting? Now that DreamWorks is on their own per se, how many films will they be able to produce each year with their secured financing? Also, what were the financial repercussions of this deal? Were there any at all? I also think your reference to Ryan Kavanaugh’s company Relativity Media and Relativity Capital is a very good example showing the outrageous capital that is being created in Hollywood these days. However, I think if you included some of the other studios or players that Relativity will be working with, readers can get a better idea of what possible films, or where in general the billions of dollars that Relativity has generated is going to go.

Aside from your explanations of recent financial booms for Hollywood, I was especially interested by your overall theory that Hollywood is counter-cyclical. While I did somewhat agree with blogger Peter Bart in that there really is no obvious explanation to anything in Hollywood, I believe that a counter-cyclical cycle is very possible. Hollywood does seem to act differently than any other industry, throughout its existence. While we may be in the midst of a possible depression, it does amaze me to see so much advertising and marketing for new television, video games, and movies. However, I think some other reasons as to why Hollywood is counter-cyclical would really help readers understand your view. Thank you for your take on the entertainment industry and the economy.

2009 Oscars: Why They're Going To Be 'Revolutionary'

America is in an economic crisis that is being compared to The Great Depression. The struggle in the Middle East still continues, with no end in sight. People can no longer escape the headlines. There is nowhere to hide anymore, not even a movie theater. This fall, moviegoers across the country will not be going to the movies to escape necessarily, but to entertain themselves while remaining anchored in the present. In recent years, the American public has become much more aware, and much more active in addressing our nations issues than we were a mere five years ago. While the realities of today may not be pleasant, both the public and movie audiences alike are no longer interested in the Wizard of Oz. We have seen the proverbial “man behind the curtain,” and will not be fooled by Hollywood wizardry any longer. While audiences are still enjoying movies for their entertaining aspects such as A-list talent or special effects, audiences of today and tomorrow are beginning to favor the balance between entertainment, and the focus on the similar or familiar issues of today. For this reason, I believe that the top contenders and winners at the 2009 Academy Awards will be the films that can properly achieve this balance. Two primary examples of this balance will be the films Frost/Nixon and Revolutionary Road.

The first, Frost/Nixon (see poster to the left), is a political-drama based on the play by Peter Morgan, focusing on a series of interviews conducted in 1977 that occurred between BBC talk show host David Frost, and former President Richard Nixon. The film stars Frank Langella as Richard Nixon, and Michael Sheen as David Frost, who both appeared together in the stage production, and directed by legendary filmmaker Ron Howard (A Beautiful Mind, Apollo 13). While the film may take place over 30 years ago, one cannot avoid the themes that Frost/Nixon addresses, and their similarities to today’s politics. Uncovering the truth, demanding accountability from our President, and the media’s role in politics are at the forefront of American discussion. While these issues are prominent themes in the film, the differentiating factor in Frost/Nixon is that these themes will not be force-fed to the audience, unlike other political films. Audiences are now smart enough to tell the difference between a film like this, and a film that over-emphasizes its cause. Frost/Nixon will be a perfect example of a film that will achieve the balance between Hollywood credentials (Ron Howard, Peter Morgan, Frank Langella) and the indirect association with topical themes.

Another film that achieves the balance both audiences and producers are seeking is Sam Mendes’ Revolutionary Road. Based on Richard Yates’ novel by the same name, Revolutionary Road (see poster bottom right) is a story set in 1950’s Connecticut, and focuses on a married couple once free spirits, caged in a life of suburbia in order to raise their kids. The primary theme of the story, an issue that also happens to face millions of Americans today is suburban malaise. While this is not the first potentially successful film about what the editor in chief of Variety magazine Peter Bart calles "suburban malaise" (1999’s American Beauty won Best Picture, and also happened to be directed by Sam Mendes), it too does not necessarily force-feed the theme to its audience. Along with its topical relevance, Revolutionary Road, like Frost/Nixon, also boasts an impressive cast of Hollywood talent such as Leonardo DiCaprio and Kate Winslet (whose last film together was 1997’s James Cameron epic Titanic which also happened to win Best Picture). I fully expect Revolutionary Road to not only captivate audiences, but also secure a position as a Best Picture nominee.

While it may not have been recently, this will not be the first time a trend like this has occurred in Hollywood. According to not only Peter Bart, but also esteemed film critic and University of Southern California professor Leonard Maltin, in the 1930s, “response films” became increasingly popular after The Great Depression. This was primarily due to the fact that people were no longer ignorant to the issues facing America. Producers learned all too quickly that educated audiences want to watch films that do not necessarily educate, but can assume that the audience is educated enough to understand the parallels between the film itself and modern issues. However, this is not to say that the only successful films this fall will be those that indirectly address issues facing the American public. There is a big difference between successful, and unforgettable. There are plenty of highly anticipated comedy (Zach and Miri Make a Porno) and science-fiction (The Day the Earth Stood Still) films alike that I’m sure will succeed tremendously in the box office. Conversely, this does not mean that the films that address these relevant, and for the most part morose topics will be the box office hits of the year. In fact, I can almost guarantee that both Frost/Nixon and Revolutionary Road will do less than favorably in the box office. I do however, believe that the films that not only excel in cinematic value, but also resonate with the American audience will be the films that dominate the Best Picture category. The American audience has progressed significantly since five years ago (2003’s Best Picture winner was Lord of the Rings: Return of the King), and the Best Picture winner this year will be a clear example of that distinction.