The world is teetering on the brink of the Great Depression, The Sequel. Now for another piece of amazing news: The financial mugging being perpetrated on much of the manufacturing sector in the U.S. seems to have thus far avoided crippling many entertainment-related businesses. There may be an empty seat or two for a Cher or Bette show at Caesars, but you can bet money that all the lights will be working. As it turns out, the industry sectors represented by the initials of this magazine — production, projection, lighting and staging — are proving true the nostrum that entertainment-related business tends to be insulated to some degree from economic downturns. As of mid-year, the concert touring business was holding steady, according to Pollstar. Film box office grosses are on track to exceed 2007’s take, and Broadway is up 7.5 percent as of October, with the lucrative holiday theatre sea-son still ahead of it. It’s true: people want distractions when they’re worrying about money.
They call it a credit crunch, but Nick Freed, president of Inner Circle Distribution, the Coemar distributor in Sunrise, Fla., says his capital sources keep making more credit available to him. “Getting leases approved has not been a problem so far,” he said, noting that leases account for 75 percent of sales to production companies, events producers, live touring companies and the other entertainment sectors Coemar sells into.
Regular-customer orders have not declined year-to-date, Freed stated. However, as the scale of the order decreases, payment begins to shift to lines of credit, and the requests by customers for extended terms does increase somewhat. “We’ve been asked to change the terms on smaller deals, out to 90 to 120 days,” he says. That crimp on cash flow is eased, however, by the willingness of ICD vendors to extend their terms.
John Huddleston, director of lighting services at Upstaging in Sycamore. Ill., says he’s been watching the credit crunch but has only seen it impact those in the production business with less-than-pristine credit. “We have a relationship with a bank that’s not in trouble, good credit and a good work ethic,” he says. “I’m a lighting guy, not a finance guy, but it seems to me that if you have all that, you won’t have problems.”
Picking the right bank before the crunch took hold, though, was as much luck as anything else. With names like Wachovia and Washington Mutual now suspect, it’s more difficult to select a lender with absolute confidence. The net effect of the failures has been to push more business towards the remaining major financial institutions like Bank of America and Citibank. That trend is further accelerated by how the U.S. Treasury Department is allocating the initial distribution of the $700 billion bailout Congress approved in October, with most of the cash transfusions going directly to them and largely bypassing regional and local banks. This doesn’t necessarily increase the risk to smaller banks — most are financially solid and had a more intimate relationship with and thus a better understanding of the finan-cial soundness of the clients whose loans and mortgages they approved. And while it’s not making those banks happy, most should remain a good bet as a source of credit and capital for regional touring and production providers. That’s especially important given that the fuel cost surges of the summer changed the way many touring productions operated, shifting from a single national production services provider to a string of regional ones to minimize cartage costs.
Jan Landy, president of leasing and capital company Soundbroker, said that some entertainment-related businesses also benefit from highly predictable depre-ciation schedules. “The digital lighting controller and LEDs have been around a while now,” he said. “There haven’t been any radical new technologies that make predicting depreciation problematic. If you know what the value of something is going to be three years down the road, it makes it a lot less risky to lend or lease on it now.”
Bob Gordon, president and CEO of A.C.T Lighting in Agora Hills, California, which distributes M.A. Lighting and other lines to a mostly entertainment client base, puts it this way: “Our numbers this year are up over last year’s, but they’re not up as much,” he said, the result of some anxiety about large capital expenditure out-lays at the moment. But some of the ongoing financial trends have a positive side. Gordon says the dollar’s recent 20-percent increase in value against the Euro allowed him, as an importer of products, to announce a price cut last October, reversing an equal-sized price increase instituted last year. However, that same dy-namic is less pleasant for American equipment manufacturers who depend on export sales.
Landy expects to see slowdowns in the corporate event sector in the very near future. “Not only is there less money now at the corporate level for elaborate events, but you have stockholders looking at what happened at AIG,” he explained, referring to the insurance giant bailed out by the Federal government in September, and the controversy stirred by the $440,000 tab rung up by those same AIG executives the following month for a corporate retreat at the St. Regis Monarch Beach Resort in Cali-fornia.
Landy also expects some decline in orders from systems integrators as a result of tighter credit, especially in places like his headquarters city of Las Vegas, where several large mixed-use venue projects have been put on hold. “It might be that they can get credit, but their customers can’t,” he says. “Either way, it means less sales to the systems sector.”
Those who make a living from supporting entertainment ventures have a lot more to smile about than most businesses these days. And while even that remains subject to change — the election of a Democrat to the White House historically sees a bit of a business spending pullback— you can take comfort in the fact that you’re still probably doing better than your stock broker is.
