Entertainment growth factor: Money

Changes in film financing are occurring around the world. In the U.S., private equity is beginning to invest in films. These funds spread risk by investing relatively small amounts in a large number of films. The combined effect of multiple funds will be to make substantial monies available for large-budget productions. It is a boon to studios because such funding lessens their need to pre-sell rights or to enter into co-production arrangements, increasing their share of potential back-end revenue.

In other regions, governments are increasing their support for the production of filmed entertainment. In EMEA, the German government is planning new film financing incentive programs to replace discontinued tax-sheltered film funds. In Ireland, the government offers tax relief, amounting to as much as 80% of the budget. Sweden raised its subsidies to local filmmakers to $40 million annually. Spain, Hungary, and Poland also support the production of local films.

Asia Pacific countries such as South Korea, Taiwan, India, and China all introduced programs to encourage local filmmaking. In Latin America, Mexico, Argentina, and Brazil have similar incentives. In addition, Brazil provides special funding for the construction of new theaters.

View the complete article at:
Hollywood Reporter

The basic issue on DVD sales, Greenfield reports, is that there has been a decline in catalog sales, as the “halo effect” from an expanding DVD consumer base is over. In short, almost everyone now has a DVD player, and they’ve replaced their VHS catalog titles - so now the market will be driven largely by the ability of the studios to produce hits.

http://biz.yahoo.com/seekingalpha/061008/18035_id.html?.v=1

Growth in the DVD marketplace is definitely slowing. However, this is really not a surprise to anyone. The major studios and other distributors forecasted a leveling off of the business several years ago. They thought that a High-Definition format would offer an even better home entertainment experience, and fuel new growth for the industry. The forwat war that has ensued has been a serious obstacle to the industry.

The DVD slowdown has profound, and negative, implications for independent films. Currently, theatrical distribution is often a losing proposition for indie films. The marketing costs to launch a film are expensive and very hard to recoup. However, the theatrical release sets up a film for greater success in other distribution channels. Profits can be obtained from DVD, television/cable, and other ancillary markets.

With deterioration in DVD sales, retailers will start to decrease the shelf space that they devote to movies. The retailers have to maximize the sales per square foot of selling space.  If DVD is not selling, they will shrink those departments and give that space over to other products. This means fewer titles purchased by the retailer, worsening the odds for independent films.

Retailers will try to increase their profit from DVD by negotiating for lower wholesale costs with the distributors.  Faced with the choice of losing shelf space (and the significantly reduced opportunity to sell DVD), or lowering wholesale prices (improving profit for the retailer at the expense of the distributor), distributors will opt for lowering cost/improving retail margin.  This means less revenue flowing to the distributor. As virtually all distribution deals for indie films have a revenue sharing component, this ultimately means less money flowing to independent producers.

Google acquired internet video service. View the wacky message from the founders.

http://youtube.com/watch?v=QCVxQ_3Ejkg

Here is the official press release:

Google To Acquire YouTube for $1.65 Billion in Stock

Combination Will Create New Opportunities for Users and Content Owners Everywhere

MOUNTAIN VIEW, Calif., October 9, 2006 - Google Inc. (NASDAQ: GOOG) announced today that it has agreed to acquire YouTube, the consumer media company for people to watch and share original videos through a Web experience, for $1.65 billion in a stock-for-stock transaction. Following the acquisition, YouTube will operate independently to preserve its successful brand and passionate community.

The acquisition combines one of the largest and fastest growing online video entertainment communities with Google’s expertise in organizing information and creating new models for advertising on the Internet. The combined companies will focus on providing a better, more comprehensive experience for users interested in uploading, watching and sharing videos, and will offer new opportunities for professional content owners to distribute their work to reach a vast new audience.

“The YouTube team has built an exciting and powerful media platform that complements Google’s mission to organize the world’s information and make it universally accessible and useful,” said Eric Schmidt, Chief Executive Officer of Google. “Our companies share similar values; we both always put our users first and are committed to innovating to improve their experience. Together, we are natural partners to offer a compelling media entertainment service to users, content owners and advertisers.”

“Our community has played a vital role in changing the way that people consume media, creating a new clip culture. By joining forces with Google, we can benefit from its global reach and technology leadership to deliver a more comprehensive entertainment experience for our users and to create new opportunities for our partners,” said Chad Hurley, CEO and Co-Founder of YouTube. “I’m confident that with this partnership we’ll have the flexibility and resources needed to pursue our goal of building the next-generation platform for serving media worldwide.”

When the acquisition is complete, YouTube will retain its distinct brand identity, strengthening and complementing Google’s own fast-growing video business. YouTube will continue to be based in San Bruno, CA, and all YouTube employees will remain with the company. With Google’s technology, advertiser relationships and global reach, YouTube will continue to build on its success as one of the world’s most popular services for video entertainment.

The number of Google shares to be issued in the transaction will be determined based on the 30-day average closing price two trading days prior to the completion of the acquisition. Both companies have approved the transaction, which is subject to customary closing conditions and is expected to close in the fourth quarter of 2006.