Hollywood goes prospecting in the booming Gulf
LOS ANGELES: Last autumn, just as Hollywood was starting to panic about the slowing injections from hedge funds, Warner Brothers struck oil.
The studio, home to Bugs Bunny and Harry Potter, reached an unusual multibillion-dollar agreement with investors in Abu Dhabi, a Gulf emirate. The partners agreed to build a theme park, a hotel complex and a chain of movie theaters in Abu Dhabi, while also creating a $500 million fund for making movies and a $500 million fund for developing video games.
The Warner deal seemed to offer a solution to worries that hedge funds were tiring of Hollywood after several movie-financing deals went under. No problem. Send in the sheiks.
But Dubai, another part of the United Arab Emirates, and nearby Qatar are not delivering the kind of gusher the industry had hoped to see. While media companies have signed lucrative licensing deals to create movie-themed amusement parks, Hollywoods money hunters are largely coming home without investments designated for movies.
“Film people are making the trip, but the money is mostly a mirage,” said Amir Malin, a partner at Qualia Capital, a media-focused investment firm.
As it turns out, Hollywoods typical bag of tricks does not work well with the people who control the sovereign wealth of the Middle East. Unable to guarantee sizable returns, moviedom relies on selling investors a lifestyle. But Middle Eastern investors, for the most part, are not enticed by the chance to rub elbows with celebrities or walk the red carpets.
Content poses a bigger hurdle. Gulf companies are never going to pour money into sex-themed comedies (”The 40-Year-Old Virgin”), films that deal with politically charged topics like terrorism (”The Kingdom”) or prestige projects that go against cultural and religious beliefs (”Brokeback Mountain”).
And because the studios keep potential blockbusters for themselves, investors are mostly offered middle-of-the-road pictures that carry a lot of risk. Sheik Sultan bin Tahnoon al-Nahyan, a member of the Abu Dhabi royal family, recently told Variety that those types of movies would not cut it with financiers in the Gulf.
“If we convince the businessmen in the region there is a return, then they will jump in and invest,” the sheik said.
Still, the emirates are doing a lot of flirting. In recent years, Abu Dhabi and Dubai have created sparring film festivals, courting stars like Sharon Stone and George Clooney to attend. Abu Dhabi created a film investment fund in October but never said how much money would be available. Five months later, no big deals have been announced.
Theme park deals are great, but keeping the movie pipelines going is the true focus of the studios. As the cost of making movies escalates, “studios have come to realize how much they dramatically need outside capital,” Malin said.
So how did Warner pull it off?
Hunt Lowry, a veteran producer, attended the Dubai World Cup horse race in 2006 and was stunned at the regions building spree. Abu Dhabi had just unveiled plans with Ferrari for a theme park, and Lowry saw an opening for Warner. In its pitch, Warner emphasized how it could help Abu Dhabi become a bigger tourist destination and how they could make mutually agreeable movies with broad appeal.
After several trips to the United Arab Emirates - Warner was also talking to Dubai - Lowry and the studio walked away with a huge deal. “We looked them in the eye and we felt that we could be long-term partners,” said Kevin Tsujihara, head of Warners home entertainment unit.
