Hedge Funds Still See Value in Hollywood

Date: Wednesday, September 24, 2008
Author: Julia Boorstin, CNBC.com

The Wall Street fallout is having aftershocks throughout the economy, but believe it or not, the entertainment industry is having no problem securing bank-financed credit.

Sure, it's not boom time, but the fact that media companies are able to attract financing is impressive, and a testament to the fact that movie going is generally counter-cyclical.

On Friday the government was frantically putting together a bailout plan for the financial markets, while production houses attracted more investment. Last week Steven Spielberg secured $700 million in credit through JP Morgan to back his new production company in partnership with India's Reliance Big Entertainment, from which he's getting $500 million in equity. Friday Media Rights Capital, an independent production company closed a $350 million revolving credit fund led by JP Morgan Chase.

And hedge funds are still seeing value in Hollywood--they must see it as a counter-cyclical play. Elliott Associates, a New York-based hedge fund doubled its investment in Relativity Media, leaving the hedge fund-backed company that finances films with more than $2 billion on its balance sheet. Elliott was founded in 1977 and has $13 billion in assets.

In January Elliott invested $1 billion in the LA-based company run by Ryan Kavanaugh, who used those funds to create Relativity Capital, which backs individual films instead of putting together financing for slates of film as Relativity usually does. (Relativity is currently co-financing 75 percent of Universal Pictures' slate through 2011.) Now Relativity is planning to finance eight to ten of its own films a year, in addition to its slate deals.

The financing for these deals came together just as the financial markets were falling apart with MRC's deal coming together in the past six week. The timing is remarkable. Hollywood has more competition than ever-- higher quality TV, video games, fancier home theaters. But when consumer spending is tight, people do consistently go to the movie theater. If Wall Street is going to continue to suffer--and if hedge funds are limited as to what stocks then can short--Hollywood must look like an appealing alternative.