Is Hollywood in Trouble That's Lehman Brothers-Deep?

By Steven Zeitchik

Hearing people around town cluck their tongues over the awfulness on Wall Street but then play down that it will affect film production (or at least their own film production) is a little like hearing your neighbor talk about a housing crisis and then try to flip his fixer-upper.

The fact is that a slew of companies are going to face a very different world, and straight-up challenges, getting movies financed in a world where brokerages are collapsing like it's the latest fashion craze. It's just a question of who faces it first.

So what is the pecking order?

Bankers, lawyers and execs we polled today were hardly unanimous. But there is a general consensus. The freestanding companies with deals financing their entire operations are most vulnerable because they have little to fall back on.

UA has a $500 million production facility from Merrill Lynch; will Bank of America scrutinize that for a way out? MGM and The Weinstein Company are seeking money to finance slates -- and that's getting harder by the day. Summit and Marvel, who have debt facilitties, may be in a slightly better position because acquiring companies tend to scrutinize loans less than they do equity investments...but don't expect the companies to go back and get money on the next go-round nearly as easily as they did the first time.

All these companies are also imperiled by any single-picture financing they may be drawing from, because  the two main sources of this financing are getting hammered -- a) debt-financing (the more these banks go under, the higher interest rates go) b) equity financing (the more banks go under, the less likely they are to finance pictures as equity investors or lend money to people who would).

Next up will be the indies. True, they tend to rely on straight cash flow and foreign sales, and make movies for fewer dollars in the first place. But they rely heavily on single-picture financing, always more vulnerable to shaky credit markets and diminishing portfolios than full-on slate financing is.

The studios are least likely to feel the immediate impact. Their credit financing is mostly intact because they're housed within the conglomerates. But they'll feel some effects -- first when it comes time to renew slate deals, and then when it comes time to finance tentpoles. Many studio pictures get help from hedge funds, and hedge funds aren't nearly as liquid as they once were, because they get their money from...Lehman Bros and Merrill Lynch.

There's long been this anti-recessionist thinking that film-financing is immune to larger Wall Street problems because someone, somewhere will always want to be in Hollywood. Maybe so. But Wall Street in tough times like to avoid risk and unknowables, and the movie business -- with every picture a new entity-- epitomizes risk and unknowables. In a collapsing real-estate market, there are only so many houses you can flip.