Private equity continues play in film business

A recent article in Variety reported that Lionsgate, the mini-studio, has just announced a slate of 23 films in a financing deal worth $400 million over the next 3 years. This is a big commitment for the studio and highlights its ability to produce mid-range fare at a conservative risk profile.

A couple things I find interesting from this article:

1. Goldman Sachs was involved in arranging financing. GS is no stranger to large-scale film business deals. They had a hand in the Weinstein Company $1 billion capital fundraising, the $2.1 billion purchase of Alliance Atlantis (included a 50% stake in the CSI franchise) and the $3.6 billion purchase of Endemol. GS is obviously committed to the industry. And its deep commitment show that the glow of Hollywood has not dulled. At a time when large studios such as Disney, Universal, Warner Bros., Sony, etc. have reduced their production slates, it’s interesting to note the rise of private equity players into the market.
2. Lionsgate most profitable franchises are excluded from this deal. I’ve always wondered why private equity gets in the game if only to participate in new and unproven titles. True, original titles can lead to big box office results. In addition, original titles are fresh. However, how can the studios keep the most profitable and guaranteed franchises to themselves and only open the doors to equity for their slates of original titles. For private equity, it seems risky. However, Lionsgate has proven its track record over time, particularly with the Saw and Tyler Perry franchises. It’s a wait and see scenario to see how these equity plays will pay off for firms like Goldman. But my bet is that with their business expertise, GS has not entered the market without substantial research and at least a sense of guaranteed returns on the backend.

Overall there is a glut of available money available in the market. That’s great for films and filmmakers. And it also provides a nice way for financiers to get into the sexy business of Hollywood. I say, “Play on!”