Hollywood finance has been a hot topic in the media lately, as more people come to realize things like that returns on films are characterized by randomness, independent of the high paid stars that take up a large share of film budgets. And as more of the intricacies and surprises of the industry come to light, it's not surprising that more and more financial institutions from Wall St. banks to hedge funds want to invest in films. At first blush, this might be surprising, considering that the industry is struggling to find its place in the changing media landscape. But in a way it makes perfect sense. Few people realize that Hollywood studios are fundamentally banks; they do a few related things like promotion and distribution, but their main purpose is to connect filmmakers and film investors. But at the moment, they're not managing their money all that efficiently. This, then, is an opportunity for hedge funds to exploit. The question is whether funds will correctly sieze upon the opportunities. If they recognize that it's a poor idea to make major multi-film deals with stars who don't add much value, and that many production costs can be dramaticially reduced with the help of new technology, they may help impose a much needed spending discipline on films. But, on the other hand, it's possible that the hedge fund types won't appreciate the situation, and see themselves as filling a funding void for blockbusters and their spiraling budgets. This approach will do little to improve the culture and make the industry more competitive. Either way, some will argue that if filmmakers are forced to bow to Wall St., then quality will inevitably decline as everything becomes about profit. Yet Hollywood today is having this problem, and ultimately, a film can only make money if people actually want to see it.
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