Business - Hollywood is banking on moviegoers' enduring desires

David Carr
One of the pleasures of flying out of Newark, New Jersey - and there are so many - is the epic view of Manhattan, that soaring bulwark of affluence and might just off the coast of America.
But on Friday, when we pulled out for points west just after sunrise, I imagined all the brick-and-mortar ambition sinking into the rivers that encircle it. No need to ask why so glum, not with everybody watching their retirement plans pirouette down a black hole. Each passing day has brought new nightmares on Wall Street and more shared misery.
Still, by the end of the day, I was sitting on a hotel patio in Los Angeles, staring up the hill at that Hollywood sign and chatting with a smart young woman who markets movies. When the subject of the tumbling economy finally came up, she said that she had indeed been cutting back - by ordering drip coffee instead of a latte.
I waited a bit for the woman to crack a smile, to hammer me for being so credulous, but then I realized she was serious.
Hollywood comes by its indifference honestly. Certainly, the stock prices of the big media companies that own the film industry are getting pounded, and the canyons are no doubt full of little rivers of blood as individuals watch their net worth shrink.
But out there at the box office, it is still morning in America.
Four major movies opened Friday, and they came on the heels of seven movies the week before, most of which did quite nicely, thank you. The fact that "Beverly Hills Chihuahua" has topped the box office for two weeks running and has taken in more than $52 million may be one of the signs of the apocalypse, but not the kind that has anything to do with credit default swaps.
"It's times like these that some of those jokes about the people in Los Angeles seem valid," said Peter Bart, the editor in chief of Variety magazine. "There has always been the suggestion that this city is not acutely conscious of what is going on in the rest of the world, and this is one of the times when it lives up to the reputation. There are many people here who don't read a lot and because of that are less obsessed by what is happening back in New York."
Spend any time here, and you will soon learn that Hollywood lives by its own clock. Because movies are generally large endeavors that take time to come together, they reflect things that were happening three years ago, while the studios' capital outlays speculate on the needs of the market three years hence.
After taking a big hit during the Depression, the Hollywood box office came back strong - and this time could be no different. The consumer might consider a night of watching the serial disaster on CNBC or CNN, or decide to head to the movies instead, which is why the people who finance Hollywood continue to make large bets that people will still go to the movies.
In the past few weeks, billions of dollars - not from the U.S. government, but from actual banks - have been invested even as brokers back East stare into the abyss of their trading terminals.
Reuters reported last Thursday that JPMorgan Chase - one of the industry's go-to financiers - knocked out three big deals, including a venture between Reliance ADA Group of India and Steven Spielberg's DreamWorks SKG. The bank has already put up $125 million - and $600 million more from other lenders is on hold for the moment, but there is no reason to think the deal won't go through.
JPMorgan also wrapped up a $350 million deal for Media Rights Capital, the company that is making the latest Cameron Diaz movie and was the leader in gathering $1 billion to finance the digital upgrade of 20,000 movie theaters to help increase the capacity to show 3-D films.
There is enormous pent-up demand for films that will be ready in 2009 and 2010 because the writers' strike held up production and then the threat of an actors' strike pinched schedules. But the industry seems to have collectively decided that actors will not risk a strike during a strong economic headwind. Approximately 50 movies from the various studios have received some sort of approval and will enter production soon, according to Variety.
Right now, there is still a clutter of films, many of them small-bore indies financed by hedge-fund guys looking for a place to store their winnings and pick up a little reflected glory in the process. Let's just say with current market dynamics and the closing of so many specialty divisions by studios - Paramount Vantage, New Line, Warner Independent and Picturehouse - that won't be a problem going forward. Studios will come under pressure from their stock-punished parents back East, but no one wants to be caught with no movies to show when the forest fire finally abates.
"It sort of emphasizes the obvious," said John Lesher, president of Paramount Film Group. Shares of Viacom, which owns Paramount, fell more than 17 percent Friday after it cut profit forecasts. "We have to find stories that have a reliable global appeal and make them in a prudent manner. As an industry, we can't just make a bunch of movies and see what sticks. But we still have to make the movies."
Another studio head, who did not want to be quoted by name, suggested something similar.
"If the films are good, people will go. And if they are bad, they won't," he said. "I personally believe that that will always be more important on any given day in the film business than where the Dow is or how liquid some bank's collateralized debt obligation is."
New Yorkers have long written off Los Angeles as a sideshow, a city where real business is not done. But for the time being, entertainment is making bets even as manufacturing, retailing and now financial engineering tank. Americans have not demonstrated a great deal of mastery over capitalism of late. But we still know how to put on a show.