On The Corner of Hollywood and Wall

from the east-meets-west dept

Recently we discussed the emerging trend of Wall St. banks and hedge funds financing films. We noted that the interesting question was whether these institutions saw an opportunity to exploit inefficiencies in the existing model -- of which there are many -- or if they just saw themselves filling in a funding gap for Hollywood's typical slate of big budget features. Today, the New York Times looks further at the strategy these firms are looking to employ. So far, their approach doesn't look all that radical. In typical Wall St. fashion, they want to go with producers that have an excellent track record of making money. That sounds great, but given the randomness that characterizes the industry, simple backtesting, as traders say, isn't likely to reveal much good information. Other aspects to their strategy include focusing on genres that consistently turn a better profit (again, same problem) and making more cheap films, which is a smart thing. Another interesting angle to this story is the question of what happens to the studios as their funding role gets usurped by financial firms. It actually might be good for them. It means they can focus more on the distribution side of the business, an area that needs a lot of work. Ideally, this arrangement will free them up to come up with innovative ways of selling movies instead of the current system which is looking increasingly broken. Ultimately, it doesn't seem like the new funding model will bring about change too quickly, but anything that shakes the system up a little bit is probably good.

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