Page last updated at 07:38 GMT, Friday, 8 August 2008 08:38 UK

Hollywood feels the crunch

By Peter Bowes
BBC News, Los Angeles

Tinseltown may be facing tough times ahead

Hollywood is currently enjoying a record breaking summer at the box office.

Movie-goers have turned out in droves to see the latest Batman movie, The Dark Knight, which has earned more than $400m (200m) since its release last month.

Other 2008 releases, such as Indiana Jones and the Kingdom of the Skull and Iron Man have also been raking in the money.

But Hollywood is not recession-proof or immune to the global credit crunch.

Leaner times are ahead as some of the major banks and financial institutions pull back from investing in Tinsel Town.

Money is short and film-makers are scrambling to find new sources of revenue.

Movie overload

Deutsche Bank had been working on a $450m (225m) finance deal with Paramount Pictures, but the bank has closed its film financing unit, leaving the future of 30 movies in doubt.

Timothy Gray
Timothy Gray thinks Hollywood produced too many movies

"Part of this is that there was too much money coming in - people who wanted to be in the glamorous film business and partly [because] everybody was hoping on new media," says Timothy Gray, editor of Hollywood newspaper Variety.

"A few years ago I was talking to various people who were saying, 'People have so much money that they want to invest in Hollywood films, we don't know what to do with it.'

"I'm thinking the result is there are too many movies. For example, last year there were 747 movies released in the United States, that's an average of two movies a day. It's too many," he adds.

Financial success

The glut of films means that pinpointing a surefire hit has become a much more risky business.

"There's no way that all of those movies are going to make money," says Mr Gray.

"So I think Hollywood's going to cut back and get a little smarter on how they market things."

Often the most profitable films turn out to be low budget flicks that capture the imagination of the masses without costing a fortune.

Last year's sleeper hit, Juno, is a prime example.

I think Hollywood's going to cut back and get a little smarter on how they market things
Timothy Grey, Variety

The film is believed to have cost less than $10m (5m) but it has made over $220m (110m) at cinemas around the world.

The problem for Hollywood is that independent movies are two-a-penny and success stories are few and far between.

The recipe for financial success is becoming increasingly elusive.

The specialty production house, Paramount Vantage, made a number of films financed through deals with investors, including Morgan Stanley.

But while movies such Babel, A Mighty Heart and Into the Wild attracted positive reviews from critics, they failed to excite movie-goers in huge numbers.

Overseas investment

Hollywood will always need investors as long as it aspires to produce big screen extravaganzas. For now, the search for money is going overseas.

The Dreamworks studio has said it plans to use animators from India on future projects. Others are looking to the Middle East and South America.

Ellen Page in scene from Juno
Juno, starring Ellen Page, made a big profit

Another possibility is that rich celebrities will finance their own movies in the hope on cashing in at the box office.

Kevin Costner dug into his own pocket to pay for his latest feature, Swing Vote.

"George Lucas wrote the rules way back in the late 70s and basically he leased his Star Wars movies to Fox, Fox released it, they got a distribution fee but he owns that property," says Mr Gray.

But, he adds, "You have to be in a real superstar category - Steven Spielberg, George Lucas, to get those kind of terms."

Financing from multiple sources will be the only feasible route for most film-makers.

"It's going to be necessary because it is getting more and more expensive," says Catherine Winder who produced Star Wars: The Clone Wars, the animated version of the epic adventure.

"With that said it's kind of a shame because the beauty of what we're doing here is we have the unique opportunity of one vision.

"When you bring in financing from different sources, everybody, of course, is going to have their opinion and I worry that the product can get watered down," she adds.


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