I've posted an article in the comments section from Variety.com. They call to attention the decreasing willingness for movie companies to make movies. Most companies are paring back the number of movies they are making to focus on different markets or increasing their quality.
It seems that hedge funds are getting involved in underwriting the costs of movies for a share of the profits. Movies can be highly lucrative if audiences like it, but can also (and often times are) not very profitable, especially when you take into consideration the costs of production, distribution and marketing. Unfortunately, the article doesn't give many details on which funds are buying into the movie business.
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The Backlot: The "chatter" in and around the entertainment industry is increasingly consumed by techno-talk, but one very basic reality seems to be emerging: The major media companies are significantly reducing their financial commitment to the motion picture sector.
Substantially fewer films will be produced over the next year or two. And a significant portion of the production costs of the reduced slate will be borne by hedge funds and other investment groups.
Talk to the corporate hierarchs and you quickly elicit the thinking behind this pullback: Too many movies have been crammed into a market whose appetite for new product has obviously leveled off.
Sony believes a cutback in production is vital to clear the clutter in the marketplace. Disney is intent on pushing further resources into animation, ESPN and ABC to create new content for newly expanding digital platforms. Warner Bros. wants to focus more on big "event" movies and cut back those discomfiting "middle" films. So it goes across the board.
The economics of the movie industry have always been intensely cyclical. Propellants like the advent of video or the expansion of the international audience cause a sudden spurt in the revenue stream, to be followed by periodic lulls.
"There's little doubt," acknowledges one CEO, "that we are now in a lull."
While the major companies believe this is a time to trim their sails, investor groups ironically are reaching for their checkbooks -- witness the major financing deals announced only last week by Sony and Universal.
Hedge funds and other groups seem convinced that promising deals can be made with the studios to help underwrite film slates. The risks, to be sure, are high, plus investors must pay fees to the hedge fund managers and then absorb distribution and overhead fees from the studios.
The fervor of the hedge funds may also work against investor interests in that they may again spur an uptick in production. The majors, nonetheless, seem resolute on preventing this. The time has come, they feel, to tighten their belts. And outside investors clearly are making the belt-tightening a lot less painful. -Variety.com
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