One executive's view on the future of film
The movie industry is adapting to a changing world of diverse formats and platforms. One executive with years of industry expertise is helping production companies and distribution companies manage risk and create the next blockbusters.
David Shaheen says he has never read a movie script. Yet, as the head of JPMorgan's Entertainment Banking Group, based in Los Angeles, the soft-spoken Shaheen has a huge impact on the films you see at the movie theater, on television and through digital outlets like Netflix and Amazon.
JPMorgan's relationship with Hollywood dates back to the silent film era of the 1920s, when the entertainment group began providing financing to production companies that make movies. Today, of course, its reach extends to the wide variety of distribution companies that show films in theaters, on cable, and the internet. Under Shaheen's leadership, JPMorgan's business in Hollywood has steadily grown, to greater than 90 percent market share for what's known as senior debt financing—that is, financing that goes to production companies, not individual films.
“We're in a Golden Age for independent television and film production companies," Shaheen says. “Whether it's Facebook, or Google or Apple, they're all spending tremendous amounts of money to commission and create content for their channels. They're catering to a lot of different tastes, people are enjoying entertainment in different ways and that's creating vastly more consumption."
Adapting to the new world of film production
Hollywood is thriving on the proliferation of movies in a range of different formats, from huge IMAX theaters to tiny smartphone cellphone screens and everything in between. Greater competition for high-quality dramas and documentaries is also giving a boost to the unaffiliated independent makers of smaller-budget films, such as those being shown at this year's Sundance Film Festival in Park City. “For the truly independent producer," Shaheen says, "having more opportunities to show their products and more buyers who might end up exhibiting their productions is a very good thing."
But speed and technology can also have its downsides, too, he notes. While a company can spend $100 million on making a new film over more than a year, from script to final editing, the instant digital age means negative consumer reviews on social media like Twitter and Snapchat can kill a film's chances globally within hours of opening.
Shaheen says that as a result of these challenges, making a movie these days is in some ways as financially risky as an investment in a venture capital startup. “You need to build a company and a brand every time you are making a new product," he says.
That's why he emphasizes that JPMorgan is not in the business of financing individual films, but instead provides traditional financing to production companies, giving them the wherewithal to make a dozen or more films a year. While the volatility of individual films performing is extremely high, the risk is greatly reduced by turning out what Hollywood calls “slates" of movies—packages of between four and 20 films.
“We look at how producers perform across portfolios," he says. “Once you start grouping films into slates, the revenue is pretty predictable." Once a film starts earning money, it can keep on producing revenues over a seven-year period, with little added investment, through such things as DVDs and cable TV.
Forging a westward path
Shaheen started his career in New York with Chemical Bank, which later merged with Chase Manhattan, and then merged again with JPMorgan.
While still a trainee banker, he asked John Miller, the legendary head of the entertainment group, if he could use his help for a year. When Miller agreed, Shaheen, who had never been west of the Mississippi, transferred to the west coast and has been there ever since.
Shaheen worked in various roles over 15 years for Miller, who he recalls as a larger than life character who had a shock of white hair and stood 6 feet 6 inches tall. He recalls Miller's favorite words of wisdom to his team: disciplined client selection.
“That mentality is still fundamental to our business today when dealing with an industry that is inherently risky," Shaheen says.
The Sundance Film Festival boost
When assessing a potential investment in the entertainment industry, JPMorgan looks at the quality of the firm's management team, the soundness of the strategy, the firm's historical performance, and the trends in the industry, just as it would for any other business loan. But evaluating a production studio also requires a specific level of industry expertise. “While a lot of things are the same with other businesses, there is a specific language that exists in the film industry that you need to speak fluently," says Shaheen. “You need to live it to understand the trends."
To help boost his industry knowledge, Shaheen attends festivals like the Sundance Film Festival and the Cannes Film Festival in France, where the talk is often about new media and unique sources of revenue.
For example, he says, filmmakers used to be able to depend on certain screenwriters, directors and actors to produce predictable megahits, but that formula isn't effective in today's environment of instant information. “Just because you have a good writer and a good star, doesn't mean they're going to click," he says.
Shaheen attributes the entertainment group's success to the team's consistency with clients, even at times other banks were withdrawing from entertainment banking completely. “When things got rough like in 2001 and 2008, we didn't turn and run. We're with our clients through good times and bad."