Mark Lamb | Wednesday, 25 February 2009

California dreaming

Weekly international investment round up to 24 February 2009

• Success at the box office scuppers attempts for a ‘Hollywood handout’

• While their movie industry may be booming California’s wider economy is suffering

The glitz and glamour on display at this weeks Oscar’s ceremony in Los Angeles was a welcomed distraction away from the continuing crunching of credit in the real world. In times such as these it was fitting that the film which stole the show was about the rags-to-riches tale of a young man who wins a fortune on India’s version of ‘Who wants to be a Millionaire’. By winning the award for ‘Best Picture’, the filmmakers behind ‘Slumdog Millionaire’ have also struck gold. It cost about US$15 dollars to make and leading up to the result it had taken around US$120 million at the box office. Winning eight Oscars will surely help send this figure into overdrive but is still unlikely to eclipse a successful Hollywood blockbuster such as ‘Dark Knight’ which netted nearly half a billion dollars for its producers.
It is ironic that while much of America and in particular the State of California is hurting, its film industry is booming. For example, January was a record month with over a billion dollars in movie ticket sales taken at the box office, an increase of 19 per cent compared to the previous year according to industry tracking firm ‘Media by numbers’. These figures did not help the American film industry’s arguments that they, just like the banking and car industry, should also receive a government handout. Although this was a consideration in President Obama’s recent economic stimulus bill the Senate eventually voted 52 to 45 to drop the film industry’s attempts to have a ‘Hollywood handout’ included within it, reportedly costing the film industry around US$250 million in tax breaks.
While January was a record month at the box office film financing in Hollywood has not been left unaffected by the problems in the wider world with new projects starting to dry up and the prospects of a continued slide in the sale of DVD’s throughout America continuing to follow last years decrease of approximately 10 per cent.
Outside Hollywood the wider Californian economy is having bigger problems. If California was a country it would be the eighth largest economy in the world it therefore plays a very significant role and generates nearly 13 per cent of US total GDP. When it suffers, America suffers. Unemployment in America’s most populous state is creeping towards 10 per cent, around a third higher than the national average, and following the bursting of the property price bubble over a quarter of America’s reposed homes can currently be found there. California also now has the lowest credit rating of any American state making borrowing money very difficult.
These factors have obviously led to a sharp reduction in tax revenues and has caused ex-Hollywood actor and State Governor, Arnold Schwarzenegger, having to make tough decisions in is recent budget. These measures included US$15 billion in state spending cuts and the possibility of making 20,000 state employees redundant.
Investors will note that the current turmoil has sparked a ‘Californian-like’ rush for gold, as the metal which coats the winners’ of the silver screens most coveted statuette breaks through the US$1,000 an ounce barrier.

Mark Lamb is Head of Life at Citadel Insurance plc which is authorised to carry on general and long term business of insurance under the Insurance Business Act, 1998 and is regulated by the MFSA. Contact by email; Tel; 25579000. Website;
This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.


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California dreaming




25 February 2009

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