Monday, November 16, 2009

Riding To The Rescue

Movie business financing has been a recurring theme in a lot of conversations we’ve had over the last week or so. Currently in the news is the plight of the venerable studio MGM, the subject of a leveraged buy-out a few years back which weighed it down with a debt load of over $3 billion. MGM has found it impossible to trade out of that position - a tough job under any circumstances – and it hasn’t helped that the studio has hardly released any movies in recent years, the ones it has released have done poorly and the high-profile relaunch of United Artists under Tom Cruise has been a dud. A vicious cycle if ever there was one, and the press is now talking about the studio selling for something like $1.5 billion. Interestingly some are saying that the James Bond franchise alone is worth around $1.5 billion, but that’s a very big question mark. There is a library of over 4,000 movie titles but even that’s seen better days. So the prospects don’t look great but we hope a positive deal gets done to restructure the studio around a more sensible financial structure.

CNN reported earlier this year that some of the banks who got into the wave of slate deals with Hollywood studios over the past few years have been trying to offload their positions and were seeking potential buyers of their Hollywood interests. In familiar style, investment banks had hired teams of executives to get them into movie deals but got cold feet when the long-term film finance structures didn’t look like hits right away. Now, post-crash and with those high-powered teams of executives long gone, the banks find themselves with deals on their books which don’t fit their new reality. As we discussed with Euromoney magazine a while back, we believe that the banks weren’t really interested in the movie business long-term but they saw an opportunity to create complicated fee-based transactions and package up the residual debt to sell on to other buyers. However, that’s not how things panned out for them and the banks were left holding paper they couldn’t sell on assets which they didn’t understand. Great deals for some of the media assets buyers we know in Hollywood who are now picking up some very attractive asset pools from Wall St. and who know how to manage them over the true life of the assets. We always believe that movie investing over time and over a sensible portfolio of assets makes great sense, and that’s exactly how our Movie Portfolio Fund operates.

Over the past week we’ve all read goggle-eyed the reports about Nicolas Cage’s finances and, specifically, his amazing ability to spend his money on Bahamian islands and other exotic trinkets. We admire Nicky Cage a whole lot and as far as we can tell he’s a great actor who can spend his money on whatever he wants. He may be in a spot but it was nice to read over the weekend that Johnny Depp may be about to step in and help his old friend out. Big stars or not, it’s the simple gesture of helping out a friend that struck us most. Sure, Nic can go out and make a few more National Treasure movies and he’ll be back on the level again, but whatever your situation might be we all need a little friendly help from time to time. We’d all like to know we can count on a white knight to help us out in a pinch. On the road to Movie Beach there have been a few twists in the road and once in a while a friend or two has helped us stay on track, so we salute you Johnny Depp, and good friends in general. Cheers!

The Out Of Obscurity team

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