As the old joke goes, "How do you make a million dollars in Hollywood? You come to town with $10 million and start investing in movies." As this Business Week article makes clear, investing in movies is riskier than stock-picking on Wall Street. And, as it makes even more clear, Wall Street knows very little about the movie business.
The finance pros figured they had moviemaking all figured out. But several megaflops have some Hollywood insiders wondering if the private-equity guys are in way over their heads. "It's tough to be an investor when the studio gets to pick the films and you stand behind them in line to get paid," says leading Hollywood banker John W. Miller of JPMorgan Securities. "It's hard to see how you can get more than single-digit returns -- if you're lucky."
The Wall Streeters arrived in Hollywood armed with sophisticated models that they say will protect them from losses. Essentially they project film profits based on the records of directors, stars, genres, and even distribution dates.
Oh, yeah, that works. Just ask the folks who invested in the recent dud made by the man who had one of the best track records in Hollywood history, M. Night Shyamalan. Fellas, as they say on Wall Street, "past performance is no guarantee of future performance."
Someone had better tell that to Dan Snyder. The guy who owns the Washington Redskins hasn't done too well with Six Flags, but he thinks he has the time and the ability to go where Sumner Redstone fears to tread and make it work with Tom Cruise and his partner Paula Wagner, who, based on her statement last week apparently thinks that anyone with money is a hedge fund. So she knows as little about investors as he does about movies. I won't predict the merits of the films that are likely to emerge from this partnership, but I would by a ticket to a documentary about this new relationship. And I'm accepting suggestions for a cute TomKat style nickname for the partnership.
Update: be sure to see today's post from the always-hilarious Andy Borowitz:
In the latest ominous sign for the film career of actor Tom Cruise, a large video piracy ring based in Beijing said today that they will no longer sell illegal copies of the star's films, calling Mr. Cruise's recent behavior "unacceptable."