The credit crunch is taking its toll on Hollywood. Deutsche Bank's $450 million film financing deal with Paramount Pictures, a division of Viacom is falling through. The financing deal was meant to pay for up to 30 films, with Deutsche Bank proviing a 25 percent equity stake in each movie.
These are movies you've heard about, like the sequel to "Transformers" and "Star Trek" and many of them are already in production.
Now Deutsche Bankis closing its film financing unit, and it couldn't close its Paramount deal because it couldn't find adqueate investors to take on the senior debt level of the fund. These days potential lenders are avoiding asset classes that have less than that top triple-A rating. Can you blame them? But it's certainly a far cry from the crush of investors eager to pour money into Hollywood that we've seen in recent years.
These movies will still get made--Paramount will either find funds elsewhere, or will finance them entirely themselves, taking on more risk. These deals have been a great way for Paramount as well as other studios mitigate their risk, while also charging the investors a fee, making a bit of money on each investment. And will their be other investors? Probably. Right now Steven Spielberg is in talks with an Indian company to potentially help finance his next slate of movies. I wouldn't be surprised if the next spate of financing comes from overseas.
Why won't Paramount just make fewer movies? First of all, that's not the plan, and most of these films are already in the works. Second, Paramount has serious infrastructure it wants to make use of; and the numbers of executives, assistants, marketing flaks, is designed to support a certain number of films a year.
If all of a sudden it can't afford to make that number, it has lawyers or development execs who aren't working for a bit of time. And unless it's planning to overhaul its whole system, cutting the number of movies it aims to push through its pipeline every year, then it doesn't want to shake up its infrastructure.
For now, I'm looking out for a new financier, or financing option to swoop in. If not, I bet Paramount will take on the additional cost and bit of risk, itself.
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