GO
Loading...

Wall Street Crisis Reaches Madison Avenue And Hollywood

Hollywood
Hollywood

Wall Street isn't so far from Madison Avenue or Hollywood Blvd. and the upheaval in the financial markets will have aftershocks reaching far into the media industry.

It's sure to effect the already-suffering advertising industry as well as the film financing markets. But how bad will it be, and who will emerge on top? The near term impact is unlikely to be too bad, but over the next six months or so, it could start taking a real toll.

The advertising industry is already in a lull. Now Lehman Brothersand Merrill Lynch will no longer be buying ads, and it's too soon to say what will happen with AIG'sAd Spend. The good news is that Lehman's ad spending slowed to just half a million dollars in the first half of the year, and Merrill isn't an enormous advertiser either, spending just $37 million in 2007. So their absence won't be too painful. But Bank of America IS a big player, spending $407 million in 2007 up from $237 in 2006 (according to TNS) and by buying Merrill it may end up spending even more.

The bad news for the advertising industry: the economy crisis could depress advertising budgets across the board, causing marketers to withdraw from already-weak sectors like newspapers. Now advertisers will be even more focused on their return on investment. So we can expect Internet ads, which have a quantifiable return, to continue to be the fastest-growing part of the business.

And for advertisers who aren't looking to drive sales that can be measured online, they may be returning to the most tried and true ad method--television. At the end of the day, if you want to make a brand impression on a mass audience, TV is still best.

Struggle at AIG - A CNBC Special Report
Struggle at AIG - A CNBC Special Report

And how will Americans spend their entertainment dollars? The box office this past weekend was up a remarkable 35 percent over the same weekend a year ago.

But the fact is, movies face more competition than ever, from higher quality TV, cable, video games, the internet, and fancy home entertainment systems. Television can't lose--if people are watching their pocket books, they're sure to spend even more money at home, watching the tube. Even if the amount that advertisers have to pay per ratings point drops off, viewership is sure to rise in an extended economic downturn.

Behind the scenes, Hollywood has relied on Wall Street to co-finance their films, reducing risk, and enabling many more movies to be made.

Many of the major studios have financing slate deals that last through the next year to three years. Those major studio deals are solid, but when they expire studios will have to look for cash overseas, in India or Abu Dhabi, as Steven Spielberg and Warner Bros. have.

WALL STREET IN CRISIS - A CNBC SPECIAL REPORT
WALL STREET IN CRISIS - A CNBC SPECIAL REPORT

But Merrill Lynch's deals are sure to be under particular scrutiny by their new parent Bank of America, especially the $500 million production facility the bank put together for Tom Cruise's United Artists.

And some independent players are sure to lose some backing from Hedge Funds and individual Wall Street players. This will likely result in fewer movies being made, both by independents and the movie studios. Over the long run that could help improve the competition in an incredibly crowded industry, but it's not good for those filmmakers losing their backing.

    • Latest Hollywood script deals
    • Fox TV tackles contemporary "Snow White
Symbol
Price
 
Change
%Change
AFF
---
TWX
---

Featured

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.