Thursday, 30 April 2009

Hollywood Babble On & On #279: Miscellaneous Money Musings


If you have watched any recent movies from the Warner Bros. studios in the last decade then you've seen the logo of the Village Roadshow company. Village Roadshow is an Australian company that owns movie theatres, and co-finances movies with Warner Bros. Pictures.

At least, it's
supposed to co-finance movies with Warners.

You see, the venerable studio's parent company Time-Warner recently had to pick up a whopping $120 million debt that was supposed to be covered by Village Roadshow to pay for films like
Gran Torino, Get Smart, Nights In Rodanthe, and Yes Man. Now this is a twist, because it's usually the studio that fails to pay millions to their investors.

But seriously, this is a pretty serious situation, because there are reports that the company is cash short and might be unable to kick their part into the 2009 production slate. Many are saying that this whole problem was caused by problems with a third party lender messing up their credit line.

Which brings me to my point.

Money has become too complicated.

It should be simple, but it isn't. Money comes in, money goes out, and hopefully you have more money coming in than going out. But now you have derivatives, sub-prime mortgage backed securities, and other things that seem to lose more money than earn. And we now have CEOs who can't tell you what it is that their companies are doing.

This situation is caused by experts, who sell the CEOs these overly complicated ideas on the premise that anyone who refuses to dive in headfirst, just isn't smart enough to appreciate these incredible money making opportunities. I heard a piece on the radio about an insurance company that recently went up several notches in relative size because their CEO took a look at their books and said: "What the hell is going on with all this? I don't understand what the hell is going on, and we're getting out."

They did, and they survived.

How much are you willing to wager that Village Roadshow itself and its third party lender got in over their heads with things they didn't understand and the ripple effect turned into a wave that threatens to overturn their boat.

Which brings me to my ultimate point.


Investors put money in movie, movie makes money, and everyone gets their fair share, so they can kick some more money back in for future movies. Everyone is happy, making money, and money keeps getting made because people know what the hell they're doing.


Reader Tony asked...
After having read the linked article, I have to think; if old Sumner is as serious about staying in control of the National Amusements empire as he says he is, then there may never be a Charles Bludhorn to his Adolph Zukor (at least Zukor knew to quit when Paramount was failing), thus fulfilling my earlier prediction.
You might be right. But I'm of the never-say-never school of thought. Because there are ways of deposing a CEO, even when he's a majority shareholder, especially when the company is sinking fast, but those involve lawyers, and all sorts of complicated crap that make my brain hurt.

Besides, he might be forced to sell out just to save his own skin, because of the massive debts he's amassed.

But the real risk for Paramount is the possibility that there just isn't a Gulf + Western or a Charlie Bludhorn around anymore, and that the company would get stripped of its assets and sold off in pieces.

It would be a shame to see it go, but I won't say if it's a definite thing or not. Unlike New Line and Robert Shaye, Paramount's identity does not begin and end with Redstone. He was just one of a long list of owners-CEOs and someone can follow him. If there's any company left when he finally does step down, well that's to be determined.


  1. You don't pay Harvard MBAs $500k/year to simplify things. You pay them to screw another 20 mill out of someone. And that means financial structures which are humanly incomprehensible.

  2. Then I say stop hiring Harvard MBAs.

    Just look at many of the most successful CEOs, and you'll see a lot of either history/English majors, or just plain college dropouts.

    Why are they the most successful? Because they stick with what they can understand, which is making or selling a product that makes money, not relying on the winds of fate because some mathematician told him it was a sure thing.