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Hollywood May Be Saying Auf Wiedersehen to Funds

Filmmaking: Anxiety spreads as a flood of cash from German investors threatens to dry up.


As the cameras panned the Kodak Theatre during this year's Academy Awards telecast, they caught Jim Broadbent striding to the stage to accept his Oscar for best supporting actor. Next came a shot of his "Iris" co-star, Dame Judi Dench. But most of the movie's producers were nowhere in sight. The theater couldn't accommodate the 9,000 Germans who financed the film.

During the last five years, more than $12 billion has quietly poured into Hollywood from Germany, bankrolling everything from art house hits such as "Iris" to megaplex flops such as John Travolta's "Battlefield Earth."

Virtually overnight, investors looking for prestige, profits and extraordinary tax breaks began funding as much as 20% of the industry's output--the most significant source of financing outside the studios themselves.

Without German investors, Arnold Schwarzenegger would not be back as the Terminator for a third time.

Now this torrent of cash is just as suddenly threatening to evaporate because of the collapsing stock prices of German media companies and the German government's desire to limit generous tax write-offs. As a result, anxiety is spreading throughout Hollywood over how an industry that has become addicted to massive injections of overseas cash will weather the withdrawal.

Although Hollywood always has been adept at picking the pockets of wealthy, star-struck foreigners, the staggering sums coming through various kinds of German investments will be hard to replenish. "Where is the next wave?" asked attorney Schuyler Moore, who specializes in financing independent films. "Nowhere."

The effect is likely to rattle Hollywood's rank and file as well.

"If you are making less movies, there are going to be fewer jobs," said Cassian Elwes, head of the William Morris Agency's independent film division. "It's that simple."

The tightening faucet, Elwes said, was evident at this spring's Cannes film festival, where German financiers have engaged in bidding wars that doubled the amount paid for distribution rights of American films.

"Two years ago, Cannes was jammed with Germans," he said. "The German yachts were lined up in the Old Port, at least 30 boats, one bigger than the next."

This year, Elwes said, the flotilla was down to three.

The loss of German financing also could put even more pressure on studios to shoot outside the United States, especially in Canada, where finance and production costs are cheaper.

"Clearly, the German money allowed us to spend less money making movies," said one top studio boss. "We'll have to find other money to replace it, and that will mean making more films outside of the U.S. That's where the money is. Without the German money, there will be a further shift away from Hollywood. Just the fact."

Paramount Pictures and Universal Studios, in particular, have used German financing to boost the number of movies they make each year. This has allowed them to stretch their film budgets in an era of corporate belt-tightening.

Ambitious independent studios, meanwhile, have come to rely on Germans to help generate big-budget productions, once the sole province of the majors.

This summer, for example, German investors are underwriting Intermedia Films' $100-million submarine thriller "K-19: The Widowmaker" starring Harrison Ford. They also are subsidizing Franchise Pictures' $65-million Michael Douglas comedy, "Till Death Do Us Part," scheduled for release next year.

"It has leveled the playing field for the independents who want to compete with the studios," Lions Gate Chief Executive Jon Feltheimer said of the German financing.

Now the biggest competition probably will be the race to lock in deals before it's too late. "It's a melting ice cube," said one studio executive. "Grab what you can."

That's why one of the more popular guys in Hollywood these days is Michael Ohoven, chief executive of Infinity International Entertainment, the studio arm of a company that pools money from thousands of investors to finance individual projects.

The investors--doctors, lawyers, industrialists--can write off 100% of their contributions to the investment funds, a boon that the German government is considering limiting, as it has done with other film investment vehicles considered too generous.

Ohoven, 28, serves as the eyes and ears of his father, Mario, who controls funding company Cinerenta, which has invested about $400 million in more than 30 Hollywood movies over the last four years, including "The Contender" and "Jeepers Creepers."

On one recent day the younger Ohoven was comfortably ensconced in a star trailer in a Hollywood parking lot, where he is overseeing his next movie, "Confidence," starring Edward Burns and Dustin Hoffman. Ohoven's powerful role as a source of dwindling money is not lost on him or on those who come knocking.

"Hollywood is very welcoming to us," he said with a smile.

For some studios, the German investment funds have become a way to avoid spending their own money on movies perceived as box-office risks.

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