Independent UK: Credit crunch hits hollywood

[marmar]

Credit crunch hits hollywood

As Deutsche Bank closes its film financing unit and walks away from a $450m investment in Paramount, Wall Street is wondering whether movies have lost their magic.

By Stephen Foley

Wednesday, 16 July 2008



Think of it as the same sort of alchemy that briefly turned sub-prime mortgages into investment grade bonds (before they turned back again into the financial equivalent of toxic waste).

Those oversize brains inside Wall Street's top investment banks, hedge funds and private equity firms have, for the past half-decade, been doing the same sort of mathematical magic trick with Hollywood films, perhaps the most notoriously unpredictable investment opportunity of them all.

Only now the credit crisis has upended everything in the exotic world of high finance, and Hollywood faces a $5bn (£2.5bn) annual hole.

Will a movie be a sleeper hit? A blockbuster, even? Oh my, perhaps it will be so big it will become a "franchise", the start of a trilogy, a TV-syndication and DVD-sales cash cow that spawns enough merchandising to take up a whole wall of Toys R Us?

Or maybe it will be a turkey.

Such breathless gambling is not the way Wall Street works. And yet, in the past three or four years, some $10bn has been wired across the US to the major studios operating under that Hollywood sign in the mountains of California. Almost half of that came in the early part of last year, as investors sought ever-cleverer ways to put money into "non-correlated assets", investment opportunities that guaranteed decent returns whatever happened to stock markets. ......(more)

The complete piece is at: http://www.independent.co.uk/news/business/analysis-and-features/credit-crunch-hits-hollywood-868729.html