The Going Private blog has an interesting commentary on the recent influx of Wall Street money into Hollywood. A couple of their observations:
“Both the DealBook piece and the New York Times suggest this is a new and revolutionary form of financing for film production. In fact, it is not anything like new and revolutionary finance. What is new and revolutionary is the wonderfully refreshing spanking delivered to spoiled stars like Cruise, and a formalized setup to drag Vegetable Capital into Hollywood.”
“What we have here is a Vegetable Capital fishing expedition. MGM wants to pull in outsider money into the coffers so it can direct its attention to sure things. Meanwhile, as to the the riskier projects, those that aren’t part of an existing franchise, well that’s where the Vegetable Capital comes in. What’s interesting is that, while this had become the norm, the only way the deal would fly this time was to throw Cruise and Wagner on the other side of the preferences. Apparently this segment of Vegetable Capital is getting a bit smarter, even if it is still part of the Platyhelminthes phylum. Even Cruise won’t invest in his own films. What does that tell you?”
Read the full post at:
I disagree with Going Private and think that this wave of capital flowing into Hollywood from Wall Street firms is much more sophisticated than in years past. An excellent seminar at the American Film Market last week helps to support my perspective. I will define the key details in a subsequent post. But, suffice it to say that the recent private equity and hedge fund investors are much better positioned than the Silver Screen Partners investors of the late 80’s. In those deals, outside investors were stuck with a slate of the weakest pictures.
There is often a question about major talent, and even film producers, personally investing in their own projects. I would argue that when a star like Cruise agrees to make a picture, he is making a tremendous investment, utilizing a currency he controls with a high cash value. The name recognition, and fame, that he brings to a project is conservatively worth tens of millions of dollars.
MI3 is widely considered to be a flop, but that seems to be more the characterization of some bitter Hollywood types. MI3 has a worldwide box office gross nearing $400M. While more of these revenues were generated outside of the U.S., that is less a commentary on the film and more a statement of the importance of international distribution. When global DVD sales and television licensing are factored in, this will likely be a hugely profitable film. It will be one of the few films of the year that generates revenues from every single ancillary market (licensed merchandise, video games, soundtrack sales, airplane & hotel viewing, digital downlaods, etc.) These “ancillaries” will be greater than the primary revenue streams of most films.