Summary
India, China and Dubai are replacing traditional sources of financing.
Dreamworks Studios is one of many beneficiaries, but... would the new sources learn quick enough to be patient regarding their investment?
Analysis
Feature Length Films, is a business that plays the game of probabilities, and they are stacked against any investor valiant enough to enter into it.
Films are a cash intensive highly speculative business proposition. The key fact on it is that the ratio of projects that produce a return is very low, with the other side of the coin being that if you hit it, you have a good chance of hitting it long. To make an analogy: it is kind like baseball… just with a smaller batting average, where the few times you hit the ball the likelihood will be that it is for extra bases or, if you are very lucky, a home run.
You need to place in development an awful amount of projects before committing to those you will place in production. Then, of those that will end up being released, the pressure of the current marketing costs, will dictate which ones you will support a theatrical run. Then is kind of a crap shoot to find out the one with that elusive ‘Je ne sais pas’ that connects the project with the audience and creates a true blockbuster. You will miss more times than you will hit, but that few hits will provide to cover for the failed attempts and then some nifty profits. That it is why it makes no sense on setting a company to create ONE film or without having BIG cash reserves. It is the same reason why there is the need of deep pockets support and the reason why the new cash cows are looking at making their meal in the entertainment pastures. Entertainment, due mainly to the downfall of the DVD sell-through market, is struggling to prove, again, the best of recession resilient business.
Unfortunately it is not as much as folklore likes it to believe it is. Since the advent of Home Video, growth in the entertainment market has been closely tied to advances on consumer electronics and their ability to create renewed need for breadth of product. Today, due to the recession, we are stuck in between competing technologies and delivery systems, with one turning fast obsolete (DVD) and others delayed on their mass-market adoption (HD and VOD).
But if you are determined to enter the business you better do it acquiring the best of assets and if you consider that, as Jack Warner said, “The assets [of any entertainment company] go home to sleep at night” … you can’t do better than Mr. Spielberg (previous experiences not withstanding). The question still being… would these investors be on board for the long run?
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
