So You Want to Be in Pictures? Bankers View Movie Financing
When lending to film producers, banks do not look at who is starring in a movie or who is directing, but at collateral such as distribution agreements and at limited partnerships. The following transcript is based on a panel discussion at an Arthur Young& Co. symposium on financing tactics for filmed entertainment. The symposium was held last year in New York City. The discussion was moderated by Barry Franzen, an audit partner in Arthur Young's Los Angeles office. He is a member of the accounting and consulting firm's entertainment industry group. The other participants are Malcolm Birnbaum and James Parsons. Mr. Birnbaum is president of United Film Productions Inc., East Meadow, N.Y., and senior vice president of United Artists Cable Systems Corp. in Westport, Conn., both subsidiaries of United Artists Communications Inc. He was formerly a vice president in Chemical Bank's entertainment group. Mr. Parsons is a vice president at Bank of America, with responsibilities for the bank's lending activities in the entertainment, media, and health care industries.
James Parsons: Bank of America's involvement in the motion picture industry dates back many, many years. Going back in time to 1909, the bank made its first $500 loan to a man by the name of Sol Lesser, who owned a San Francisco nickelodeon.
In 1921, the bank made its first $250,000 loan to finance a Charlie Chaplin movie called "The Kid" and took a security interest for the first time in that film. In 1930, Bank of America made its first $1 million loan for a movie. It was to Sam Goldwyn, when he financed "The Kid from Spain," starring Eddie Cantor. The bank's long-standing relationship with Walt Disney also began in the 1930s, when it financed his first movie, "Snow White and the Seven Dwarfs."
So the bank's history of financing goes back a long, long way. It certainly transcends my involvement or any of my associates' involvement at Bank of America.
During the next period of years, from 1936 to 1952, the bank made more than 500 loans, totaling more than $500 million. It was during this time that the bank's focus shifted somewhat due to the 1948 consent decree with Paramount and the elimination of block booking.
The advent of television was also at that time. It changed the way we financed the film business. Our attention shifted more toward the major studios. Since we're in Los Angeles, it was a natural, and our involvement with the studios slowly progressed.
Moving rather quickly, in the period from 1960 to 1984, the bank's financing commitments to the industry rose from $67 million in 1960 to $228million in 1968. In 1984, the bank's commitments to the film industry exceeded $2 billion. In addition, we agent or are lead bank for another $2 billion worth of financing, so we have a fairly signficant position.
It's an industry that we've lived with for many, many years. We have been through some very tough times, but enthusiasm for these projects remains high. Currently, the bank's portfolio shows a significant increase in our activity in this area.
One of the things that we're finding to be a very attractive business is purchasing receivables. During the past 12 months, we have purchased or been the lead bank for receivable purchases exceeding $400 million.
For example, one was a very large syndication of more than $300 million with one of the major film studios, where we purchased on- and off-balance-sheet receivables. We also put together a $1.3 billion financing for Disney, with a one-week turnaround time. All of this indicates a very significant commitment by our senior management.
We have not forgotten the independent producer. The bank has recently put together its largest independent line, roughly $50 million, for a major independent producer in Hollywood.
However, we find that financing independent films is extremely lega intensive and labor intensive. …