If the film industry has any fears about how it will weather the global financial crisis, there was no sign of them at this week's closing party for the Middle East International Film Festival (MEIFF). Against the pink-lit backdrop of Emirates Palace, women in sequins and men in kanduras lounged on poolside cushions waiting for movie stars to strut down the floating catwalk. Blue orbs hovered among the crowd. Champagne and fruit juice flowed in equal measure. It looked like a scene from the golden age of Hollywood, with an Arabian twist. But many of the A-list stars on the red carpet on that final night had flown in from a Hollywood gripped by nervousness about how it will continue to finance its films. A combination of falling share prices of the media conglomerates that own the studios and the tightening of credit used to fund movie projects has made an already risky business even more distressing to many in the industry. But it has also opened up opportunities for new centres of film financing, particularly in the Gulf, which had been rising in prominence even before the markets took their historic tumble. "I think in the next six to nine months, we'll see a down cycle for some companies in Hollywood that will create changes in the industry," said Edward Borgerding, the chief executive of the Abu Dhabi Media Company, which recently launched the US$1 billion (Dh3.67bn) Imagenation Abu Dhabi film fund and is the owner and publisher of The National. "Generally speaking, there will be companies that will go out of business and their assets will have to be sold ? Those assets might still be valuable for people with money." Mr Borgerding downplayed any notion that Imagenation Abu Dhabi would be interested in picking up those assets. The fund has announced tie-ups with National Geographic and Participant Media since its launch last month, and more are on the horizon. "We have enough to deal with at the moment," he said. But Mr Borgerding, a former Disney executive, did acknowledge that the credit crunch was likely to alter the rules of film financing. "It will change the landscape of Hollywood quite a bit," he said. This landscape has been growing rockier with each passing week. One of the first signs that film financing would be hit by the tightening credit market appeared in July, when Paramount Pictures, a subsidiary of Viacom, abandoned efforts to raise $450 million in a deal with Deutsche Bank. The studio had been seeking the financing to contribute to a three-year, 30-movie schedule, including sequels to Transformers and Star Trek, but decided not to proceed. Instead, it said it would co-finance future movies on a picture-by-picture basis. Viacom received more bad news this month when its owner, the 85-year-old media mogul Sumner Redstone, was forced to sell a fifth of his family's stake in his two media companies, Viacom and CBS, on a day when the companies' shares were trading at record lows. Some media conglomerates have seen their share prices fall as much as 70 per cent in the past year. Also this month, NBC Universal announced plans to cut $500m, or about three per cent, from next year's budget, despite recently posting good quarterly results. The company's parent, General Electric, recently reported a drop in quarterly profit that it blamed on the credit crunch's toll on its financing arm. The reorganisation of the banking world has also put some Hollywood deals in question. Last month, it was reported that the future of MGM's United Artists was in question after worries that last year's $500m deal with Merrill Lynch to fund up to 18 films could be pulled by Bank of America, Merrill's new owner. Unstable financing in the West has sent some studios looking East. This summer, DreamWorks and India's Reliance ADA struck a deal to create a $1.2bn film company. MGM was reported to be in talks in August for Reliance to come in as an investor. The Weinstein Company also is believed to be seeking further financing, turning to Asian sources after its Goldman Sachs fund closes, according to The Hollywood Reporter. But even Asian media companies have shown signs of being affected by the tightening of credit. Half-year results for eSun group, the parent of the Hong Kong film company Media Asia, were down 102 million Hong Kong dollars (Dh48.3m) compared with a profit of HK$68.2m in the period a year earlier. The company had put up US$200m to create the Studio City casino and entertainment venue, but plans to put another US$300m into the project are now on hold due to the credit crunch. "Whatever is happening now is going to affect everything, no one is going to escape it," said Jake Eberts, the chairman of National Geographic Films. But the veteran producer was not particularly worried. "It means you are going to be focusing on better projects. It's part of the cycle. I've seen this before. I saw it in 2002. I saw it in the early 1990s. It happens every 10 to 15 years. There's a shakeout, and it's not necessarily a bad thing. It tends to make you focus on controlling budgets." This tighter control meant the film industry might actually become more profitable, said Stephen Margolis, the chief executive of Future Films, a UK-based finance and production company. "The credit crunch right now is making it much more difficult to get certain films made, and there are undoubtedly a number of funds that have been involved in film financing, and which are not going to achieve the results they were expecting to achieve from those films," he said, referring particularly to hedge funds that have financed much of the UK film industry. "But once you get over that hump, we will end up with better quality films, which in themselves are more likely to be more profitable." The profitability of films had suffered in recent years because too many of them were made, driving down the price of films, he said. "There's been an oversupply. Now, new films coming on the market I think will be coming into a market where there will be less films. There are more chances for that film to create a profit." Mr Margolis thinks films made from now on will be a better investment. "From my perspective, the Middle Eastern film funds are actually a very smart move," he said. "I think the new money will be the smart money." The new money is being spent on more than celebrity-packed parties and headline grabbing film funds. The MEIFF was preceded by a series of events organised by The Circle, an Abu Dhabi-based initiative devoted to film financing, production and the encouragement of film-making talent in the region. One of the events was a workshop for regional investors to meet international film financiers to discuss the benefits and opportunities of investing in film. Some in the industry believe these opportunities will be improved by the harsher financial climate. They point to the surge in ticket sales after the Wall Street crash of 1929, when audience figures jumped 58 per cent on the previous year. John Fithian, the president of the National Association of Theatre Owners in America, told London's The Times newspaper that recession was good for the movie business. "In the past four decades, there have been seven recessions in this country and the box office has climbed strongly in five of those years," he said. "The strongest of those years was the most recent in 2001, when US box office receipts rose by $650m." Home viewing also receives a boost. "Rentals have shot up 40 per cent since the sense of impending economic belt tightening began," said Tina McFarling, the head of industry relations for the UK Film Council. "It's maybe the affordable luxury for the moment." Mr Eberts shares this optimism. "I think as a general rule, people seek entertainment when times are bad." email@example.com
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