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Hollywood Reacts to the Debt Deal With Relief

Deal passed by the House of Representatives on Monday eased exec fears about possible damage to the rebounding ad market

Hollywood breathed a sigh of relief Monday after watching Washington tie itself into knots over the debt ceiling and then finally come to a deal.

“It’s important that the advertising industry be strong because it is a big revenue (source),” NBC Entertainment Chairman Bob Greenblatt told TheWrap on Monday. “We want the recession to end.”

Bruce Rosenblum, President of Warner Bros. Television Group, expressed similar relief over the deal, which the House of Representatives passed Monday afternoon, and the Senate is scheduled to vote upon Tuesday.

“A healthy economy is critical to supporting the advertising industry, which supports television production and distribution,” he told TheWrap on Monday.

The absence of a deal, both agreed, would have only put more downward pressure on a weak economy.

Television has been one of the stronger sectors in a weak advertising market, but Rosenblum said that if the economy took a further nosedive, some advertisers could exercise cancellation options. Averting a debt crisis was critical for his business overall, he said.

“If the economy deteriorates further, that is a meaningful risk to our business,” he said.

Also read: Harry Reid's Debt Ceiling Plan: Auction Off Spectrum

Advertising revenue dropped sharply with the economic downturn in 2008, but has been on the upswing for TV outlets and digital platforms lately. Internet revenues alone hit a record $26 billion in 2010.

Media stocks have surged this year as a consequence. Walt Disney Co., CBS and Time Warner are all expected to post revenue gains in their quarterly reports in coming weeks. 

Uncertainty about the debt deal had been rattling investor — and consumer — confidence in recent weeks, stoking fears of a renewed recession. Still for the most part, executives across the industry interviewed by TheWrap said they had not been hugely worried about the debt deal.

“We haven’t had a bunch of meetings about it,” joked Greenblatt.

Bill Block, the CEO of QED International, told TheWrap that he had remained confident Congress and the president would approve a deal. He also expressed confidence in the movie industry’s ability to borrow money.

He said the financing he puts together is secured by foreign presales and by completion bonds. The money, he said, will continue to flow.

“This isn’t subprime,” he said. “This is one of the strongest lending sectors of the banking industry.”

In fact, he said, “there’s growth for good projects.”

But Robert Greenwald, the documentary maker, said the debt ceiling deal is ultimately more harmful than helpful.

“A terrible price has been paid for the radical right wing attack on people who can least afford it,” he said. “It means that the Tea Party has taken over the debate in this country and there is no moral compass.

"What it means is that the working folks in Hollywood, those who worry about their jobs and homes and health care and elderly parents are going to have to worry more, be attacked more and pay a price.”

At the very least, economist Hal Vogel said the deal provides Hollywood some stability — even if it's short-term stability. 

The deal cut in Washington means that “for now at least, interest rates will not be jerked higher,” Vogel told TheWrap. “There will still be capital available for making films at a cost of capital similar to what we had last week or the week before, so that’s important to the stability of Hollywood and its ability to finance.”

But, he cautioned, “we have not solved the problem. We have just moved it out a little further.”

For now, Vogel said, interest rates are unsustainably, artificially low. That means Hollywood — and other businesses — can borrow for an unusually low price.

“Short-term debt is as low as it can go — it’s zero,” Vogel said.

“And long-term debt is incredibly cheap compared to where it was and it can’t get much lower, so you’ve got a turning point toward a higher rate.”

Sharon Waxman contributed to this report