Yield Hunting in Hollywood: Why Big Banks Want to Finance Blockbusters
In 2009 and 2010, when loans extended to companies like MGM Mirage and RHI Entertainment Inc. sank, banks started exiting the business of film financing. From over 30 banks that were in the business at the start of the financial crisis, only about half a dozen remained by 2011.
But three years down the road, lenders are beginning to return to Hollywood. According to Bloomberg BusinessWeek, there are now about 20 banks in the business, up from about eight that actively lent through the challenges of 2009 2010. There are even new players on the field like East West Bancorp (NASDAQ:EWBC) and OneWest Bank, competing with established lenders like JPMorgan (NYSE:JPM), Comerica (NYSE:CMA), and Union Bank (NYSE:UNB). JPMorgan has been lending to the film industry since 1920, according to Variety, and had $10 billion in credit lines extended to the entertainment industry in 2011.
Like everything big banks do, loans to film makers are highly structured. Institutions like JPMorgan will only extend major credit lines if it is confident (read: if it can model) that the content will be successful and generate the cash-flow necessary to repay the loan with interest. The reason for the resurgence is that the outlook for the entertainment industry is increasingly bullish. Revenues from the sale of tickets alone rose to a historic high of $10.90 billion in 2013, according to data published by the-numbers.com. This is after the industry experienced some volatility in the previous years as the economy grappled with the after effects of the financial crisis of 2007.
Lenders are also excited about the revival of the home entertainment market with the success of movie streaming services like Netflix, Hulu, and Amazon Prime. Streaming services are paying a lot of money to buy rights to offer exclusive content to subscribers, a line of revenue for film producers that never existed before, as they fight for these rights with cable channels like HBO. Netflix spent an estimated $4.8 billion in 2011-12 for buying copyrights, according to The Economist.