Recession-proof biz? Maybe not this timeIt's going to get uglier, and likely more litigious — and I'm not talking about the Anthony Pellicano trial.
It's the economy, and in particular how its worsening has started to impact Hollywood.
While inordinate amounts of ink have been spilled over the impact of the 100-day WGA strike, the effects of that stoppage eventually might pale in comparison to what the current unraveling of the economy, the housing crisis, the credit squeeze and currency woes might conspire to do to the business.
We all know the cliche that Tinseltown is recession-proof and that moviegoing, not to mention TV watching, still is the cheapest form of entertainment for consumers. So, yes, there will be folks out there who can afford their movie tickets and pay their cable bills. Although even there, a lot of families are starting to rethink even their modest leisure time spending — from how many magazines they buy to how many lattes they sip.
But it's the funding of the town's movie machine and the mergers and acquisitions of companies that likely will take a hit or be stalled in the next couple of years.
"The failure of the $19 billion deal from Clear Channel may just be the tip of the iceberg," is how one financial analyst put it to me in describing what is in store for the sector. In that case, two private-equity firms, Bain Capital Partners and Thomas H. Lee Partners, were trying to fund the buyout of the country's largest radio station group, but the banks grew antsy about the debt load they would be shouldering. Just take a look at most of the country's bank stocks and you'll see why.
Hollywood likes to think of itself alternately as insulated from, in control of or superior to the ups and downs of the market. After all, it traditionally has relied on a regular influx of foreign cash, relatively easy bank loans and the wide-open wallets of the proverbial dentist from Nebraska to help bankroll its content plays. Lately it's been hedge funds and private-equity players who have become the backers du jour for film slates or even, in the case of MGM and Univision, part owners of entertainment companies.
Now the question becomes just how many of the studio slates are going to continue to get this kind of backing now that half of Wall Street has its back to the wall, as it were. And just how impatient and demanding will the equity men get with their media and entertainment plays as they try to shore up their overall portfolios?
The promotion that NBC Universal's Jeff Zucker bestowed upon Bonnie Hammer this week can be read as a reward for the fiscal finesse with which she and her team turned the cable properties of the conglomerate into the biggest revenue and profit generator at the company. In short, conservative financial instincts coupled with risk-taking creative ones likely will be the combo that propels execs up the corporate ladder in the near term.
As for where the outside dough is going to come from for Hollywood not to feel too great a crimp, I'm betting the most noticeable sources will be India and China. Pumped-up Indian players such as Relianz, UTV and Zee already are dipping their toes into the biz stateside, while the Hong Kong-based Global Entertainment Group unveiled Thursday a $100 million fund to invest in mostly English-language movies. And the Chinese already own a sizable chunk of U.S. treasuries. How long will it be until they decide that investing in our entertainment is a lot more fun?