By Scott Van Voorhis
Banker And Tradesman
October 13, 2008
Construction is slowing down around Boston and across the Bay State after an historic boom. You can wave goodbye to grandiose plans for skyline topping towers, until the next boom that is. But there are two things I wouldn’t bet against, especially in a downturn: Hollywood and casinos.
As the office tower builders pack it in, another crop of developers is waiting in the wings. One group wants to make Massachusetts Hollywood East. The other would like to bring Las Vegas, or at least a replica or two of Foxwoods, to the state.
And as the general economy tanks, the fortunes of aspiring movie studio chiefs and would-be casino builders is likely to rise.
Let’s start with the movie business.
Tim Pappas, an amateur film producer and South Boston condo builder, is pushing ahead with his ambitious plan for a movie production complex in South Boston.
After having briefed City Hall on his plans, he is now preparing to take his plans to the South Boston neighborhood for a crucial community hearing on his plans, state Rep. Brian Wallace (D-South Boston) told me.
In the works is a sizeable movie production complex, with at least a couple sound stages and the opportunity to expand as business grows. One of South Boston’s more prolific developers, Pappas is looking to build on a vacant lot he owns at the corner of West First and E streets.
Wallace said Pappas’ plans are especially refreshing after a steady stream of meetings with developers whose plans to build in once–booming Southie have stalled.
“He is planning a good–sized project,’’ Wallace said. “He has the money.’’
Not alone, former top Paramount executive David Kirkpatrick is forging ahead with his plans for a sprawling, $300 million-plus movie complex in Plymouth.
Both projects, however, are better bets than office buildings or, even worse, another luxury condo project.
It’s hard to see demand growing anytime soon for more office space, especially with a likely round of layoffs coming after the market madness starts to hit home.
But hard times have traditionally been a boon to the movie industry. The 1930s were a golden age for Hollywood as millions sought escape from the harsh realities of Depression-era life in darkened theaters.
The same logic should eventually help would-be casino developers, though that industry has seen its own revenues decline amid the economic downturn.
Still, some of that fall-off has been tied to high gas prices. Gamblers have been turning to slot machine halls closer to home, such as Rhode Island’s Twin Rivers, over Connecticut’s more distant casinos.
Imagine, then, what kind of business a casino at Suffolk Downs in East Boston, or out on Interstate 495, might do?
Whatever the case, there are at least four different prospective casino developers quietly at work across Eastern Massachusetts.
It’s a lineup that includes Sheldon Adelson, the Dorchester boy who heads one of the world’s largest gaming companies, Las Vegas Sands, and veteran casino developer Richard Fields, the lead investor at the Suffolk Downs racetrack. Other groups are taking out options on land in New Bedford, Palmer and in the Milford area.
It may be hard to get the financing to build a mega resort given the meltdown on Wall Street, but a slimmed down casino might fit the current market just right, said one developer exploring plans for a Massachusetts casino.
And the casino crowd is betting that recalcitrant Bay State lawmakers, with state finances now in freefall, will finally see the light and roll the dice.
“Everything tells you if you don’t put a proposal together now, you are a making a big mistake,’’ the would-be developer said.
Back when times were better, the anti-sin-and-fun crowd was busy dismissing the idea of casinos and movie studios in the boring old Bay State.
Bills to provide tax credits to help a proposed, $300 million-plus studio complex to get off the ground in South Weymouth were slammed as a bad deal for the public.
Casinos were derided by State House jobs as bad bets as well.
While that was just a few months ago, it is also now a world and a stock market crash away.
And with jobless rates rising and construction sites silent, neither idea looks so bad right now.
The Entertainment Industry During a Recession
The stability of the entertainment industry in times of economic stress has been proven time and again dating all the way back to its first test, the Great Depression. It seems inconceivable that a time when 25% of American families had no income could spawn such hits as King Kong and Gone with the Wind, the highest grossing domestic movie of all time (when adjusted for inflation).[i] It is a well known fact that when times get tough people find other areas to cut back such as travel, preferring to hold on to less expensive escapes and experiences.
According to Market Tools 2008 Insight Report on American Spending, 54% of those surveyed said they planned to cut back this year on travel and vacations. Julia Boorstin from CNBC explained the term “staycation,” to mean more people staying close to home, playing video games and watching TV. And the statistics seem to bear this out with airlines slashing routes in 2008, like Southwest and US Airways cutting back Las Vegas flights by a dozen and thirty respectively. Delta and Northwest also cut capacity by 10 percent and 5 percent.[ii] Yet, North American television shipments in the second quarter of 2008, jumped 28% from the previous year. And video games are being referred to as the new recession proof industry with a gain of 27% in 2008.
In 2001, the last time the economy slumped, monthly aircraft departures plummeted by 15 percent from the previous year’s totals. However, during this same period, post 9-11 and in the midst of the dot-com bubble burst, movie attendance, after suffering an intitial dip, rebounded strongly, outdoing the $7.7 billion of 2000 with 2001’s tally of $8.5 billion. This success is not owed to a rise in ticket prices either. The actual number of movies people see in a year tends to rise in recessionary periods.[iii]
Whether it is in spite of or because of the recession, there is a great need for people to escape to the comfort of social experiences and family outings. Indeed, the Great Depression, the attacks of September 11, and the recessions of the early 1980s and 2000, all drove people to the box office in great numbers, showing that the movie business may be “countercyclical to the economy.”
Throughout the years the business of entertainment has come to be known as a “recession proof” industry, with box office grosses rising during five of the last seven economic downturns, including the 70s oil crisis, when movie-ticket sales went from $1.9 billion in 1974 to $2.1 billion in 1975. And during the energy crisis of the early 80s, sales still climbed steadily from $3 billion in 1981 to $3.5 billion in 1982.
One study, conducted over the summer of 2008, by a cultural trend tracking firm found that nearly half of adults reported cutting back on health foods and products, yet 43% reported spending more on their homes with consumer electronics at the top of the list, including televisions and video games. Even DVD player penetration continues to rise, doubling over the past five years, reaching 87% in 2007.[iv]
As people increasingly monitor their spending, movies continue to reign at the top of the entertainment list as a good value, especially when compared to sporting events or concerts. In fact, in 2007, movies continued to attract more people in the United States than either theme parks or the major sports combined.[v]
And in a business that is product driven, meaning, “Money concerns typically haven’t been what keeps people glued to their sofas. People decide whether to go to the movies based on how compelling the films are,” says Paul Dergarabedian, president of Media by Numbers, a box office analysis firm. Again the numbers bear this out with the domestic box office continuing its climb, up 5.4% in 2007, reaching $9.63 billion.[vi] What you will see, if anything is people cutting back on concessions. And 2008 is on track to be another record year with first quarter revenues running 4% ahead of last year’s, according to Media By Numbers.
For production companies it is still business as usual. Media Rights Capital, a prominent independent production company, closed in September on a $350 million revolving credit fund. “In a credit climate that on its surface has completely shut down, this deal proves there is money available. Banks are still in the business of putting money to work,” says Marni Wieshofer, a senior vice president of Media Rights Capital. And Steven Spielberg just secured $700 million in credit to start a new production company in partnership with Reliance Big Entertainment of India.[vii]
· North American television shipments in the second quarter of 2008 jumped 28% from the previousyear, the largest leap in at least four years – Danny King, TVWeek.com, August 15, 2008
· Digital cable subscriptions grew 5% in 2007 – 2007 Additional Theatrical Statistics, MPAA
· In 2002, after the dot-com bubble burst, the Dow Jones Industrial Average dropped 22%, yet videogaming revenues increased 43% — istockanalyst.com
· Employment in the Motion Picture Industry in the midst of the recession grew 6% during the period from 2001 to 2002 – Additional Theatrical Statistics, MPAA
· In 2007, movies continue to draw more people than either theme parks or the major sports combined in the U.S. – 2007 Theatrical Market Statistics, MPAA
· Domestic box office grew 5.4% in 2007, reaching $9.63 billion – 2007 Theatrical Market Statistics, MPAA
Average Ticket Prices:
Football Game $65.25
Theme Park $35.30
· In 2007, worldwide box office reached an historic high with a 4.9% increase, reaching $26.72 billion – 2007 Theatrical Market Statistics, MPAA
· Domestic theater admissions held steady at 1.4 billion tickets in 2007, on par with 2006 – 2007 Theatrical Market Statistics, MPAA
· The Dark Knight, released July 2008, set an all-time opening weekend record with $158 million – BoxOfficeMojo.com
· During the Great Depression box office receipts soared 22% — istockanalyst.com
· Released in 1933, Gone with the Wind went on to be the all-time top grossing domestic film (adjusted for inflation) – BoxOfficeMojo.com
[i] Micahel Lev-Ram, “The box office indicator: When times get tough consumers bee line to the movies,” CNNMoney.com, August 22, 2008.
[ii] Daniel Gross, “Clear Skies, Empty Runways,” Slate.com, April 12, 2008.
[iii] Rebecca Winters Keegan, “Hollywood to Recession: Bring it!” Time, March 21, 2008.
[iv] Motion Picture Association of America, “2007 Additional Theatrical Statistics.”
[v] Motion Picture Association of America, “2007 Theatrical Market Statistics.”
[vi] Motion Picture Association of America, “2007 Movie Attendance Study.”
[vii] Brooks Barnes, “In Hollywood, credit remains, at least for a few big names,” New York Times, September 22, 2008.