Hollywood Loses Its Luster

This is the summer we said good bye to The Hills.  The departure of the popular reality-esque television show set in the hippest locations of Hollywood has left many fans distraught.  Personally, I never watched the show… that is, until literally the last week it was on when one sleepless night I stumbled across some sort of marathon running earlier episodes back-to-back without end.  I was instantly hooked.  It was the most ridiculous thing I’d ever seen on television and it hooked me like a bad cocaine habit.  I could not tear myself away from the glittering parade of freshly quaffed twenty-somethings streaming across the screen and talking endlessly about nothing of any consequence.

Coming in on things at the very end as I did, The Hills seemed to me like a sort of time capsule, perfectly capturing the mood of the great economic credit boom from which we now find ourselves emerging.  Images of the “expensive life” flashed in succession, with every meal eaten (more often left behind) at the trendiest of restaurants, every day a new adventure in fashion and clubbing, every personal exchange the promise of new best-friendship-forever or frivolous whirlwind romance.  The show got me thinking about the wild carefree mood of the roaring 1920’s, before the stock market exploded and melted down into the worst economic depression our country has ever known.

My mother once told me the secret to successful party going is to leave before it’s over.  That way you leave them wanting more.  Being far less suave than she and suffering from perennial issues with lateness, I’ve more often found myself the last guest lingering, and worrying the next day if I’d overstayed my welcome.  The Hills left the party at just the perfect time.  Of course we’d expect nothing less from such a stylish phenom.  Its time was coming to an end and it elusively slipped out the door back to it’s pumkin coach in the valet lot before the first stroke of midnight, never to be recaptured and always to be recalled with a tear.  Now as we wake in the wake of its splendid dream, we open our eyes to a Hollywood that seems somehow changed.  It has lost its luster, I’m afraid.  The party is over and the place has been left a bit of a mess.

Hollywood has long seen itself as recession proof.  Historically, the business of film making profited during hard economic times.  Growth of the fledgling movie industry coincided with the onset of the Great Depression and business boomed during the early 1930’s despite the severe unemployment and poverty sweeping the nation.  The explanation of this has always been that when things get hard, people need the relief of a bit of inexpensive escapism more than ever and a night at the movies has always been more affordable than many other forms of entertainment.  Now days, even softer on the budget are DVDs and services like Netflix and I Tunes that provide the movie viewing experience in the comfort of one’s own home.  For these reasons industry insiders have felt relatively secure that their jobs would remain stable through any economic hardship.  However, things may not be playing out quite as expected in the current economic downturn.

Work in the film business is growing scarcer under the deflationary pressure of the broader downturn.  One problem is there are fewer investors to fund film making these days.  Foreign money that gravitated toward the glamor of the industry in the past is no longer flowing in.  Investment from Wall Street has dried up.  The result is that there are fewer movies being made and so fewer jobs are available.  Production is down by as much as 25%.  People who are getting jobs are making less than they have in the past.  Even big name star actors are taking sizable cuts in pay.  Smaller specialty divisions have been closed down or absorbed into larger studios.  Distributors have been equally hard hit, so it has become extremely difficult to get any film up and running for business.

“It’s not that the cinema business is completely immune to recessions,” says John Fithian, chief executive of the National Assn. of Theater Owners. “But the industry appears to be recession-resistant.  If there are decent movies, people are going to come out.”

Unfortunately, decent movies seem to be growing scarce as well.  One of the worst tolls the recession has taken on the industry has been that the creativity of film making has been tremendously stifled.  Studios are willing to finance only what they see as a sure bet at the box office.  This means we are seeing a lot of tired sequel making or just plain derivative conceptual development in today’s cinema, which then fails to attract serious talent.  The trend is likely to end badly, as it produces films that no one is excited to see, let alone pay hard earned and increasingly rare cash for, and this perpetuates a downward economic cycle.  Fewer good films produce fewer people in the audience, which produces less money for the next film, which produces tighter restraint on creativity, which produces less access to talent, which produces fewer good films… and so the downward spiral goes.

Director Michael Moore, the man behind Roger and Me, Bowling for Columbine, Fahrenheit 911, and Sicko complained recently in an interview with Jane Boursaw of NBC Dallas television about Hollywood’s unwillingness to take on creative challenge.  “The money has really dried up since the crash,” Moore said. “They only really want to spend money on sure bets.  People don’t want to take risks, so we’re missing out on an American art form that could really speak to the country right now in profound ways.”

On another front, new technology has expanded what is available to today’s public as entertainment.  We have a fairly new and very exciting invention called the internet at our disposal.  The internet allows us to watch a seemingly infinite array of movies, television and all sorts of original media at a very low cost or even for free.  Sites like YouTube and Hulu offer a huge variety of viewing material without directly charging for it.  Adding to the economic stress is the fact that the internet generates substantially lower revenue than established business models like 30-second TV commercials and home video sales, which supported the costly economics of TV shows and movies until recently.

When it comes down to it, we really cannot compare today’s movie business with that of the 1930’s.  Film was a new and novel experience back then.  Just to see pictures moving about on a screen was worth the price of admission, which incidentally was something like a dime.  Today’s viewers are much more sophisticated and demanding.  They care about the subtlety of the acting, the believability of the storytelling and the grandeur of the special effects.  It is not exciting enough to just see images of people moving about.  Also, the cost of production was relatively minimal in the early days of cinema.  Crews were smaller and the technology was simpler.  There wasn’t the same involved system in place to produce a film that there is now, and the members of the crew were not making the kinds of exorbitant salaries many of today’s Hollywood employees have come to expect.

The mythology of Hollywood’s immunity to recession may actually be built on a false premise to start with.  The fact is, although cinema attendance increased during five of the last seven recessions, closer examination of movie box office receipts during the Great Depression tells a different story.  Attendance exploded in 1929 and 1930, after the advent of “talkies,” but as the novelty wore off ticket sales plunged sharply in subsequent years and did not recover until 1940.

It appears that Hollywood may not be as recession proof as it has liked to think itself.  Deflationary pressures are squeezing the industry as investment wanes and the availability of credit shrinks.  Workers in Hollywood are seeing projects cut back, wages furloughed and fewer opportunities for employment just as they are everywhere else.  This is in addition to other pressures that had already weakened the film industry’s resilience in recent years, like various labor battles and outsourcing to less expensive locations for production.  The real wild card in the outlook for Hollywood’s economic future is the length and depth of the downturn.  No one knows how bad things will get.  Me, I’m just waiting for that ticket price to drop a couple of bucks as deflation trickles down, and then I’m off to the movies to forget about all this depressing stuff.  In the meantime I think I’m gonna hit up Hulu and head for The Hills.

LA Times
Is Hollywood settling into a prolonged recession of its own?
August 23, 2010
Patrick Goldstein
http://latimesblogs

DFW, NBC Dallas
Michael Moore: Recession Killing Hollywood Creativity
By Greg Wilson
Updated, Aug 10, 2010
http://www.nbcdfw.com

World according to Dr. Castro
Hollywood LA Hit Hard by the Recession
Jan 16, 2010
http://livingstrongandhappy

LA Times
Downturn may not aid studios this time
Dawn C. Chmielewski and Meg James
October 29, 2008
http://articles.latimes.com

Celente Predicts the Greatest Depression

I first came across Gerald Celente while perusing the internet a couple of years ago.  He was calling the United States “fascist” and warning of economic collapse.  His views were so pessimistic and anti-establishment I was initially tempted to dismiss him as a rogue wacko.  Upon further examination, however, there did seem to be an underlying plausibility to much of what he was saying and I decided to read more.  I looked into his background.  It turned out the man has been a very successful trend forecaster, business consultant and author since the 1980’s, having predicted among other events the 1987 stock market crash, the collapse of the Soviet Union, the 1997 Asian currency crash and the 2007 subprime mortgage scandal.  The Los Angeles Times called his company, Trends Research Institute, the “Standard and Poor’s of popular culture.”  Praise and recognition of his work by a wide assortment of iconic sources such as the New York Times, The Wall Street Journal and even Oprah Winfrey grace the home page of his company’s website.

Gerald Celente now predicts we are headed for what he is calling “The Greatest Depression.”  He forecasts growing unemployment, social unrest and violence ahead, and warns the state of the economy is going to get much, much worse.  In a new interview on Tech Ticker, Celente points to the demise of the middle class as being at the heart of the problem and believes the only way out of the situation will be for the US to restore its production capacity so wealth is redistributed from the super rich to the rest of the economy.  He says we need to grow a new manufacturing base in fields that will profit and provide expanding production in the future, like bioengineering and green technology.  “We went from a country that used to be merchants, crafts people, manufacturers… to clerks and cashiers,”  he explains.  He says the government is getting in the way of progress, because it is squeezing out the entrepreneur while all the breaks go to the biggest and wealthiest, and then the taxpayer is left holding the bill.  “We the people are supporting people who build houses.”  The government’s effort to create jobs with stimulus funding has amounted largely to wasteful spending on projects that won’t provide long term growth, and so there will be no meaningful employment created from it.  Celente predicted in 2009 there would be no recovery, just a cover up.  Now, as the stimulus money runs out we will see the economy continue to decline.

I highly recommend you watch the full six minute interview with Gerald Celente at the link below.

Tech Ticker, Yahoo Finance
The Great Recession Will Give Way to the “Greatest Depression”
Interview with Gerald Celente
August 20, 2010
http://video.yahoo.com/

Double Dip Hits So Cal Housing

Talk about double dipping.  The numbers are just in from Data Quick and it seems July saw a dip in both the number of home sales and the median sales price in Southern California.  Sales were down a steep 21.4% last month from the year before.  Median price fell 1.7%, or about $5,000 in one month. Usually price declines lag a dip in home sales by 12 to 18 months and it is highly irregular to see both indicators dip simultaneously.  Sales seem to have dried up due to the government tax credit ending, and prices are falling as more foreclosures flood the market.

It is also interesting to note that July is usually a busy month in real estate with summer sales.  When we see the market in free fall during what is supposed to be the peak buying season, it is telling us homes are too expensive without government intervention.  Now that the tax credit is no longer available, prices are forced down.  Meanwhile, newly released jobless numbers show there were 500,000 new applications filed for unemployment insurance last week.  That alone was enough to send the DOW tumbling 145 points yesterday.

It looks as though we have just have entered a double dip in Southern California housing.  Expired subsidies, record foreclosures and rising unemployment have bum rushed the barricades just as we begin our slide into the seasonal downturn.  We might even say that rather than seeing a double dip we are merely witnessing a continuation of the downward slide we were already on.  I’m afraid there is no dam strong enough to hold back this raging river.  Home prices will continue to fall.

Data Quick
Southern California Home Sales and Median Price Dip in July
August 17, 2010
http://www.dqnews.com

Bloomberg
Jobless Claims in US Rose to Highest Since November
Bob Willis and Courtney Schlisserman
August 19, 2010
http://www.bloomberg.com

Reseda Price Check

Recently I got into a discussion about housing in Los Angeles, and Reseda was mentioned as a place that may have reached an affordable level for purchasing a home.  Of course, on an individual basis what is affordable is relative to a given buyer’s income and other personal variables, and so any area may or may not be considered affordable depending on those factors.  Thinking about the issue more objectively, however, I was inspired to take a closer look at the income-to-price ratio in the enclave to find out in real terms if Reseda has hit a pricing equilibrium or if it still has room to fall.

Reseda is a quiet neighborhood in the city of Los Angeles, located in the central west San Fernando Valley.  It was developed from a small farm town into one of the Valley’s first suburbs in the years following World War II.  As much of the neighborhood was built up in the 1950’s, Reseda is recognized for it’s Mid Century architecture and Modern era housing tracts.  Today it is one of the most racially and culturally diverse areas in Los Angeles.  The town has been immortalized by songwriters like Tom Petty and Frank Zappa, and featured in films such as Boogie Nights, Magnolia, and the Karate Kid.  It is known as a working class neighborhood without much glamor, but offers some good magnet and charter schools along with a reasonable cost of living.

The median annual household income in Reseda falls right into line with the median of the greater city of Los Angeles, at just under $50,000.  In this respect Reseda stands as an almost perfect example of a middle class Los Angeles neighborhood today.  Because of this, the area was not only hit by the wave of subprime loan defaults that popped the housing bubble in 2007, but is also beginning to see mid-tier market correction as a second wave of defaults hits the prime and jumbo loan markets.  Since the effect of the latter default wave has not entirely played out, I suspect we have not seen a pricing bottom in Reseda.  But let’s see what the numbers say.

As I’ve said in the past, house prices in any given area should be in line with the income level of the people living there.  If we use the traditional formula that a home should cost no more than the equivalent of two and a half to three times the buyer’s annual household income, the median house price in Reseda should come in right around $150K.  I decided to run a search with the Multiple Listing Service and see what Reseda has to offer at that price.  The result was comical.  There is currently one property listed for sale at $150K, and nothing for less than that.  This includes all single family houses, condominiums, townhouses and multi-family dwellings currently on the market.

Since Los Angeles has often run a slightly wider income-to-price ratio historically, I figured I’d up the median home price to four times annual household income just to be generous.  That would bring the Reseda median to around $200K.  Running a search at the revised median brought up a total of twelve properties for sale.  They are all condominiums, with 90% being short sales.  There are currently 156 homes listed for sale in Reseda.  Twelve short sale condos do not a median home price make.

So what is the current median home price for Reseda, actually?  It is $300,000.   While this is a huge drop from the bubble peak high of $534K in 2006, it remains fifty percent higher than incomes in the area can truly support.  If we look at this another way, it would take a yearly household income of $100,000 to properly support the purchase of a typical home for sale in the city right now.  That’s more than twice what people who live there make.  And here’s a final test… just ask anyone enjoying a $100K annual income in Los Angeles if Reseda is a neighborhood they would aspire to buy a home in.  They’ll most likely find that idea very amusing.

Reseda Income Statistics:
citydata.com
http://www.city-data.com

Reseda Median Home Price:
Trulia Real Estate Search
http://www.trulia.com

Los Angeles County Statistics:
US Census Bureau
http://quickfacts.census.gov

Los Angele City Statistics:
citydata.com
http://www.city-data.com