Paramount, Deutsche won't partner

Studio calls off arrangement; bank closes film-finance unit

Paramount's summer joyride just hit a pothole.

The studio has called off its pursuit of a $450 million film-financing arrangement with Deutsche Bank, while the bank has closed its film-finance unit altogether in the face of declining interest from outside investors.

The major obstacle to the deal appears to have been the senior debt component, an unattractive prospect to investors in such a tight credit climate.

"Eventually, this was bound to happen," said David Davis, an entertainment valuations expert and managing partner at Arpeggio Partners. "Just like with housing mortgages, there were deals done during the exuberant days of private equity that should not have been done. And those kinds of deals won't ever get done again."

Paramount's outside financing effort was designed to provide production funds for two dozen or more feature films from its upcoming slate, including "Tropic Thunder," produced by DreamWorks, and "The Curious Case of Benjamin Button." The Deutsche Bank investor group would have put up 25% of the costs of each financed movie, capped to $30 million per movie.

At the same time, Paramount had assembled multiple financing sources on a film-by-film basis for the movies involved.

"As a result of the current credit market conditions, Paramount decided a few weeks ago not to proceed with the film slate financing transaction," a Paramount spokesperson said. "The deal terms had evolved to a point where they were unattractive when compared to alternative sources of financing."

Even without the money from the Deutsche Bank deal, studio sources said next year's production slate is fully funded.

Paramount's 2008 has been strong thus far. It reached the $1 billion benchmark in domestic and foreign boxoffice before any other studio, beating its own record. Such releases as "Iron Man," "Kung Fu Panda" and "Indiana Jones and the Kingdom of the Crystal Skull" have reaped $200 million-plus rewards in theaters, but many of its biggest hits were movies that Paramount merely distributed.

Paramount has no plans to pursue a similar deal in the short term, betting that the credit markets will stabilize. But given the past year of Hollywood labor strife, a faltering economy and a housing market still reeling while it waits for government assistance, that could take longer to develop than another Indiana Jones sequel.

"There's a lot of trouble in the film-finance industry," Davis said. "That's why studios are looking for third-party money outside the U.S."
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