Hollywood's Growing Affair with Private Credit: A Risky Recipe?
Hollywood Joins the Private-Credit Market
Hollywood is embracing the booming private-credit market as media, entertainment, and sports industries increasingly rely on non-bank lenders.
Private-credit assets under management in media have surged to nearly $80 billion in mid-2022, a significant jump from $31 billion in 2018.
This trend has caught the attention of ratings agency Moody's, which warns of a rise in defaults among borrowers in private credit.
The reliance on non-traditional lenders raises concerns about how these lenders will navigate defaults in an industry where the product isn't always tangible.
Despite the risks, private credit funds are exploring opportunities in various sectors, including sports content and AI.
Navigating Defaults in an Intangible Industry
As Hollywood turns to private credit for funding, concerns arise about how lenders will handle defaults in an industry where the product isn't always tangible.
Unlike traditional industries, such as manufacturing or real estate, the value of media, entertainment, and sports products can be subjective and reliant on market reception.
This poses unique challenges for lenders in assessing the potential recovery value of defaulted loans.
However, the private-credit market is attracting experts who specialize in understanding the intangible value of intellectual properties and content.
These experts can provide valuable insights to lenders on the potential risks and rewards in the entertainment industry.
Moody's Warning Signals Rise in Defaults
Ratings agency Moody's has issued a warning about the increasing likelihood of defaults among borrowers in the private-credit market.
As Hollywood embraces non-bank lenders, the potential for defaults rises due to the unique nature of the entertainment industry.
Moody's cautions that lenders need to be prepared for potential losses and have robust risk management strategies in place.
The agency's warning serves as a reminder that while private credit offers opportunities, it also comes with inherent risks.
Lenders should exercise caution and conduct thorough due diligence before investing in the entertainment sector.
Opportunities in Sports Content and AI
Private credit funds are finding opportunities in the media, entertainment, and sports industries, specifically in sports content and AI.
With the rise of streaming platforms and the demand for sports content, there is a need for funding to produce high-quality programming.
Private credit funds see potential in financing sports media rights deals, content production, and technology innovations.
Additionally, artificial intelligence (AI) has become a crucial aspect of the entertainment industry, creating opportunities for private credit investments.
Funds are exploring partnerships and investments in AI-driven technologies that can enhance content creation, distribution, and audience engagement.
Private-Credit Strategies in Media, Entertainment, and Sports
The article explores the strategies of five private-credit funds that are investing in media, entertainment, and sports.
These funds are capitalizing on the growing demand for funding in Hollywood and leveraging their expertise in the industry.
They are deploying capital in various ways, including financing film productions, investing in live events, and supporting media companies' growth plans.
Each fund has its unique approach to the private-credit market, but they all share a common goal of supporting the vibrant entertainment landscape.
Their investments contribute to the continuous flow of Hollywood updates, film reviews, and the ever-evolving pop culture phenomena we love.
Navigating Hollywood's Risky Affair with Private Credit
As Hollywood embraces private credit, it is crucial for lenders and borrowers to navigate the inherent risks in this dynamic industry.
Lenders must carefully assess the intangible nature of entertainment products and understand the unique challenges they present.
Borrowers, on the other hand, should prioritize financial stability and consider the long-term implications of taking on private credit.
By exercising caution, conducting thorough due diligence, and implementing robust risk management strategies, Hollywood can mitigate the potential pitfalls of this love affair with private credit.
Ultimately, the collaboration between Hollywood and private credit can continue to fuel the creation of captivating content and shape the future of the entertainment industry.
References
Dan DeFrancesco. (June 28, 2023). Hollywood's love affair with private credit could be a recipe for disaster. www.businessinsider.com.
Gmaddaus. (June 26, 2023). SAG-AFTRA and Hollywood Studios Still at Odds Over Higher Residuals for Hit Streaming Shows. variety.com.
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