Revisiting Jeff Zucker’s Famous Comment
March 27, 2009
NBC universal CEO Jeff Zucker famously said in 2008, “We can’t trade analog dollars for digital pennies”. This statement has become increasingly false as advertising dollars continue their shift to The Web. According to eMarketer, online video ad spending will increase tenfold from 2008 to 2013 and more than double over the next two years, from $850 million in 2009 to $1.85 billion in 2011. Developing new distribution models to capitalize from this shift is key. Jeff Zucker would now be the first to tell you that there is money to be made form The Web. NBC Universal and Fox’s joint partnership Hulu now commands the 6th most popular property for online video in the United States, and unlike YouTube, Hulu is able to make money from most of its content. Analysts estimate that Hulu will generate domestic revenues on par with YouTube (approx $250 million for 2009) despite the massive difference in their audience size.
As a filmmaker, it is important to have your finger on the pulse of the industry. The good remain adaptive to changing industry trends and the great anticipate the evolution of them. Filmmakers need to ask themselves, “How can I leverage New Media to benefit my current projects?” and “What industry trends can I anticipate that will impact my future projects?”.
AIG Bonuses & The Bigger Problem
March 23, 2009
I got in a heated debate this weekend over the bonuses given to AIG employees. Being partially responsible for bringing the financial system to its knees, I like everyone else am furious that bonuses were paid by my tax dollars to the Company’s employees. Last week’s Gallop Poll illuminates the frustration, showing 76% of the American public believes the Government should block/recover the AIG bonuses. The fundamental problem is clear, failure should not be rewarded. However, I completely disagree with Congress’s decision to impose a 90% tax on the bonuses.
It’s always easy to point fingers in hindsight, but in this circumstance the problem was easily preventable (relatively speaking). The Federal Government is well aware that bonuses are built into compensation packages on Wall Street. So while everyone is shining a light on AIG (as they should), some focus needs to be placed on the Government who passed the bailout bill. Taxing bonuses at 90% is not a solution, its a cover-up… a cover-up that still allows employees to keep 10%.
The AIG issue exemplifies the lackadaisical financial regulation that exists in this country. I am not sure what upsets me more, the fact that AIG is rewarding failure or the fact that it is doing so legally. Speaking purely as a lay person, the Government needs to develop a productive solution that sends the right message – not arbitrarily change the tax code. Going forward, I believe President Obama said it well, “The best way to handle this is to make sure that you’ve closed the door before the horse get’s out of the barn”.
Panasonic’s Dream Camera
March 12, 2009
Read the full review of Panasonic’s AG-HPX300 at B&H Photo… Is it Christmas yet?
Wall Street’s Hollywood Woes
March 11, 2009
Banks and hedge funds withdraw billions of dollars from Hollywood deals, opening the door to discounts of 30 – 70% for film investors.
LOS ANGELES (Reuters) — The financial crisis is forcing Wall Street banks and hedge funds to pull out of billions of dollars worth of film deals, opening the door for specialty investors to scoop up Hollywood assets at discount prices.
From 2005 to 2008, hedge funds partnered with all the major banks from Merrill Lynch to Lehman Brothers to pump an estimated $15 billion into films, taking on risks formerly absorbed by studios like Sony Pictures and News Corp’s 20th Century Fox in return for a share of profits.
Typically, investors help finance “slates” of as many as a dozen movies and collect their returns after the films are released, or start to generate DVD and television revenue, which could be years from their initial investment.
But after some box office duds, such as Tom Cruise’s “Lions for Lambs,” and the credit freeze, most banks – with the exception of JPMorgan – have reduced their presence in Hollywood. Some are trying to sell off their positions in slate deals for discounts of 30% to 70%.
“Because of the credit crisis, banks and hedge funds have been writing down securities, including those backed by film assets, and are willing to sell them at lower prices,” said Stephen Prough, founder of Salem Partners, which advises investors on how to maximize film investments.
Prough and others cited strong interest and deep pockets for movie assets at current, reasonable prices from seasoned entertainment investors who specialize in the industry, know it well and take a longer-term view on returns.
For example, Content Partners LLC backed by Mark Cuban and Todd Wagner is a pioneer in acquiring films in the secondary market from hedge funds, private equity firms and banks.
“Not only are we buying from financial sellers but we’re also looking at transactions for the first time with studios and networks for participation in TV shows and film profits,” said Content Partners President Steven Kram.
“We’ve already purchased 34 films and over 200 hours of television. We can provide a new source of financing for studios and networks who are being squeezed for every penny.”
Another investor swooping in on slates of movie deals in Hollywood is David Molner, managing director of Beverly Hills, California-based Screen Capital International.
“I’m five times as busy as I used to be. We launched a $500 million fund that is financing the acquisition of assets in studio slate deals,” said Molner. “We are taking the participants in finance deals out of their capital positions in studio slate deals.”
Fewer films
With these deals, many studios have enough financing to make movies through 2010 and are cutting costs while waiting out the credit freeze to thaw before seeking further funding.
Nonetheless, the number of films released by major studios are expected to continue to decrease to correct an oversupplied market. Less than 200 films are slated to hit theaters in 2009, down from about 219 major studio releases in 2008 and 236 in 2007, according to industry estimates.
“There was too much money and too many films. The market couldn’t sustain it and the competition was too great to provide the returns the equity and hedge funds were looking for,” said PriceWaterhouseCoopers Managing Director Ron Cushey.
Some studios like The Weinstein Co and DreamWorks Studios, led by Steven Spielberg and Stacey Snider, are seeking financing.
Others like Viacom Inc’s Paramount ditched efforts to raise $450 million for a slate of films, and instead will co-finance on a picture-by-picture basis, after many of the big slate deals of recent years did not deliver as expected.
In some cases, investors racked up hundreds of millions of dollars in losses and complained the studios tilted terms to keep sure-fire hit movies out of the slates.
Moody’s Investors Services analysts Neil Begley said about $80 million in debt tied to Paramount’s so-called Melrose I slate, covering films released from 2003 to 2005, including “Get Rich or Die Tryin,”‘ may soon default.
“Based on the expected cash flows for the film assets, the Class A notes will not be paid in full by their legal final maturity,” said Begley. Paramount declined to comment.
Bankers told Reuters that investors in Paramount’s subsequent Melrose II film slate, with titles like “Blades of Glory,” are now unloading their stakes.
“There are numerous film securitization deals being shopped around right now,” said Ken Schapiro, managing partner at media investment firm Qualia Capital. He declined to say which deals his firm was exploring.
Other studios like Sony Pictures adjusted terms of their revenue-sharing agreements after films in a $600 million slate deal called Gun Hill Road I underperformed.
The next big round of financing for Hollywood will likely come from overseas or via deals that are backed by assets, such as film libraries, to minimize risk, bankers say.
Prough cited one situation where a studio’s film assets were worth much less than the $500 million it had raised in a private equity financing. “Eventually, they either have to find new money to keep going or sell the assets to get investors their money back,” he said.
Independent film and television studio Lions Gate Entertainment Corp has attracted interest from activist investor Carl Icahn, who raised his stake in the company to 14.28% even after it reported disappointing earnings and underperforming films.
Molner, Schapiro and Prough all said film assets generate good returns over the long term.
“The good thing about investing in film is that you have an asset that continues to generate revenue on pay TV, free TV and in every country around the world,” Schapiro said.
RIP 30-Second Spot, Hello Web TV.
March 4, 2009
I have read and discussed the debate quite a bit over the past year about whether television will merge with the Web. Some argue that the two platforms will never merge, as they provide two completely different experiences – TV is a passive experience and the Web is an active one. I understand their argument, but I believe they are wrong. The death of the 30 second spot metaphorically describes the change that is occurring, and supports my reason for believing that television will merge with the Web.
The 30 second spot is dying. Increasing channels for distribution, an explosion of content, and changing viewer habits are partially to blame. However, the real culprit is accountability. Businesses need to measure their return, and no matter which way you cut it, television in its current form cannot compete with the Web.
The strength of the beloved 30 second spot was that it could be created once and used anywhere, saving businesses money. Yet these cost savings that lead to the dominance of the 30 second spot are increasingly irrelevant as viewer habits change. No longer is the 30 second spot sufficient across all platforms. However, the death of the 30 second spot does not translate to the death of television.
The TV audience is growing steadily… just not on TV. AccuStream iMedia Research found that professionally produced online video grew nearly 25% last year, accounting for 41.6 billion views. What’s interesting is that around 17% of this content was originally produced for Television. TV is not dying, it’s changing.
Ultimately, money follows viewers. Yes, my 30 second spot can reach 100 million viewers during the Superbowl, but does this $3 million expense produce a return? Accountability is forcing advertisers to rethink and reallocate their ad spending. It is for this reason that television and web will merge.
The Television Bureau of Advertising’s 2009 estimates:
- Total spot TV ad revenue to fall 7% to 11%
- Local spot ad revenue to fall between 4% and 8%
- National spot ad revenue to fall between 11.5% and 15.5%
eMarketer expects online video ad spending to rise by 45% to $850 million in 2009.
