Hollywood Thriving Despite Economic Downturn

To say that for Hollywood it’s  “the best of times and the worst of times,” as English novelist Charles Dickens famously wrote, is a bit of a stretch. But at a time when the local and national economies are nosediving, the global financial system is spinning out of control, the stock market is in a sickening swoon and home prices are getting decimated, the film and television business looks like a relative island of stability.

“If you’re looking for any good economic news over the next several months, you’re going to find some of it in film and television production,” says Jack Kyser, chief economist for the Los Angeles Entertainment Industry Development Corp. “Entertainment is going to be one of the few bright spots in the Southern California economy.”

By his last count, 38 theatrical features are currently in preproduction at the six big studios.

“And a lot of smaller production companies have films they want to get underway.”

That show business is counter- cyclical to the broader economy has been a commonplace in Hollywood ever since the 1930s.

A golden era for the studios coincided with the Great Depression. Audiences flocked to movie theaters to see Busby Berkeley musicals and other escapist fare.

The Golddiggers sang “We’re in the money” while people stood in breadlines.

“I’m not suggesting that the movie business is immune, but traditionally it’s been less affected by the world’s economic woes,” says Dreamgirls producer Laurence Mark. “People still like to be entertained,” he adds, noting that the price of a movie ticket, in spite of steady hikes, remains a relative bargain compared to what it costs to attend a Broadway show or a major league sporting event.

And in what seems like a case of déjà vu all over again, movie audiences are once more expressing a preference for distracting fluff over films tackling grim reality.

A current case in point is Beverly Hills Chihuahua, an unexpected box-office smash. Meanwhile, Body of Lies, costing nearly $150 million to make and promote, is the latest film about Iraq to bomb big, even though it features Leonardo DiCaprio and Russell Crowe, two stars who aren’t usually box-office poison.

“Traditionally we’ve been able to hold our own when economic times turn bad, because people still want to have some escape and that’s not going to go away,” says Ed Brown, business agent f o r IATSE Local 44, the Property and Craftpersons union.

And indeed film and television production has bounced back, at least from early 2008 when the Writers Guild of America staged a crippling three-month strike. The work stoppage left many members of below-the-line guilds temporarily unemployed, as studios stopped greenlighting theatrical films, and the television networks, lacking new scripts, were forced to start early reruns of primetime hits like Desperate Housewives, causing ratings to sag.

Last summer boasted a succession of releases that topped $500 million in global revenues such as Iron Man, Indiana Jones and the Kingdom of the Crystal Skull, The Dark Knight and Mamma Mia.

The skein of more high-minded end-of-the-year pictures in pursuit of Oscar nominations and other awards recognition is just now starting to hit theaters. Changeling, Frost/Nixon, The Curious Case of Benjamin Button and Australia are among the most anticipated.

But it’s not all sunshine and lollipops.

NBC Universal reportedly plans to cut its budget by $500 million, or 3 percent, in response to the global economic slowdown.

And members of the craft guilds have suffered from the usual work slowdown as the year heads toward a close. Meanwhile, the still unresolved Screen Actors Guild negotiations with the studios over a new contract continues to induce caution, and the possibility of an actors strike, albeit slim, suddenly looms.

“I see it being hit-and-miss for the rest of year, with a pick-up early in 2009,” says Brown. Other guild leaders see a more buoyant present environment. Steven Poster, ASC, president of the International Cinematographers Guild, IATSE Local 600, expects less than full attendance at the ICG’s executive board meeting set for October 18 and 19 “because so many of the board members have told me they can’t make it because they are working.”

Beyond the availability of work, what’s transfixed craft guild members is the wildly gyrating stock market. “When the market turned upside down a couple of weeks ago, our phones were ringing off the hook from members concerned about the volatility in the stock market and what effect it’s having on their pension plans and retirement future,” says the Local 44’s Brown.

Brown, who has been keeping abreast of pension fund portfolio changes on an almost daily basis, says he’s comforted by the fact that the pension funds, because they’re diversified, have lost far less the stock market averages, most of which are down some 40 percent from their 12-month highs. “Yes we’re losing money, but we’re only down about one-third of what the Dow has lost,” he says.

But though nearly 40 features are prepping, it’s not clear how many will wind up being made in Hollywood, let alone in the United States, though many states are offering handsome tax incentives to lure production from Hollywood.

“It’s a question of just how much production can we retain for our members here in town, and how much will be moving to places where it becomes more economically feasible to produce on a tighter credit line or a smaller budget?” says Brown. The recent strengthening of the dollar also doesn’t help. Falling currencies relative to the greenback amount to a de facto extra subsidy. The Canadian dollar, or looney, has gone down over 10 percent against the greenback in just six weeks, making it 10 percent cheaper to shoot films in Vancouver or Toronto, on top of existing subsidies.

The longer-term outlook is also clouded by the wider credit crisis.

“The financial instability among lending institutions means some of the lower-budget projects that depend on lines of credit, probably will be held up or not produced at all,” says Brown. “As a result, a lot of our people, who depend on these independent productions, won’t have as much work.”

Meanwhile, the view from the top is both optimistic and wary. “From everything I hear from agents and studio executives, the business right now seems to be booming,” says top entertainment attorney Kenneth Kleinberg, a senior partner in Kleinberg Lopez Lange Cuddy & Klein, and one of Hollywood’s most seasoned dealmakers. Though in past slumps show business has been cushioned by the unabated, and arguably enhanced, public desire to be entertained, “if you look through a microscope, you’ll see there have also been segments of the industry that were dramatically and drastically altered,” he says. “You’ve had lots of bankruptcies and a lot of reorganizations and mergers and a lot of dysfunctionality.”

This time around, he predicts a significant “tightening and a contraction” as companies post earnings even lower than now anticipated. The shares of leading entertainment conglomerates such as NewsCorp, Time Warner, Viacom, CBS and even Disney have recently been hitting new 12-month lows. The unavoidable upheaval, he forsees, will be accentuated by a “parallel digital revolution that is altering all parts of the industry.”

“It will always be a challenging business, but there will continue to be smart and creative people here who will figure out how to navigate the new terrain,” predicts Kleinberg. “Considering all of the things we’re accused of in Hollywood, our companies have been run with more substance and acumen than the big Wall Street firms which have created a financial meltdown for the whole economy. We’re still the dream factory, but that means actually manufacturing something—entertainment— and it remains one of our most successful exports.”

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