By Austen Chen and the STEBA Executive Board
Earlier this month, Silicon Valley Bank was seized by regulators after a bank run, marking it the second-largest bank failure in US history and the largest since the 2008 financial crisis. This has important implications for the financial and tech sectors, of course, but you may be surprised to learn that indie and mid-sized entertainment players were also swept up in the mess. But before we dive into the entertainment, let’s unravel what happened to SVB. How did we end up here?
Silicon Valley Bank is a commercial bank that focuses on technology and venture capital banking. Its deposits have grown rapidly in recent years due to its lending service, but when interest rates increased, the bank's securities lost value. With inflation on the rise, companies needed to withdraw large amounts of cash, causing the bank to sell its securities at a lower price and suffer losses. To meet depositors' requirements, the bank had to raise capital from investors, revealing its unstable financial position and leading to a bank run. TLDR; the bank engaged in practices that resulted in a loss of cash just when its customers were looking to cash out.
As the 16th largest bank in the United States, it wouldn’t be a surprise if an entertainment client was also dragged into the trenches. Wrapbook, a company that processes payroll for film and television crews, was a depositor at SVB. After the bank failed, it had to delay payments to production workers. Luckily, Wrapbook quickly announced that it had over 96% of its assets outside of SVB, and they have become fully operational now. Other companies in the entertainment business, like Roku, Vimeo, and Roblox, also have accounts at SVB, but they claim the bank's failure won't have a significant impact on their ability to operate. Well, that's a relief - our daily dose of dog videos and online gaming won't be gone!
In response to the SVB’s collapse, bank regulators in the U.S., the U.K., and other countries are working hard to contain the damage. They've taken control of a second bank, Signature Bank, which was also at the brink of bankruptcy due to its similar investment profile to SVB. Signature Bank is known for working with cryptocurrency companies, and used by many Broadway productions. According to Broadway News, an anonymous source revealed Signature was one of two banks preferred by the Broadway industry, with the bank reportedly managing 40-50% of Broadway shows and various supporting businesses.You can thus easily imagine the chaos that ensued when the Broadway community realized they might have to start checking their bank accounts.
But it's not just Broadway that was affected! Much of the entertainment world has traditionally relied on regional banks well-known for working with film and television productions. Production companies need specialized accounting and reporting, and typically open and close new bank accounts for every production. This is much easier with banks that know the industry.
There are several that are quite well known: Dallas-based Comerica Bank, L.A.-based East West Bank (known for working in China), and City National Bank, the favorite of the other half of Broadway. But, it seems like they were all hit by the financial earthquake too! Comerica stock fell by more than 26 percent and East West shares dropped 15 percent as fears of a widespread bank run spread.
As is the story in entertainment, the industry’s banking practices are split between the major players and the independent companies. Companies like NBCUniversal and Netflix are big enough to have banking agreements with the biggest banks, such as JPMorgan. These banks are highly monitored by the government and frequently undergo “stress tests” in an effort to avoid a crippling bank run. These giant banks can give some level of stability to the biggest players in the industry. But, as is the practice in many industries, the finance teams at these big companies are absolutely required to hold money owed to production companies out of their bank accounts, just in case the entire banking system were to fail… a scary thought.
Not everyone has the option to bank with JPMorgan. It can be expensive to maintain the type of service you need from a huge bank, and small players do not have that cash to burn. That's why smaller studios and independents often turn to regional banks who provide specialized services for entertainment financing. But now, as regional banks are proven to be shaky, small to mid-sized production companies are out of luck.
Lesson: After the collapse of Silicon Valley Bank, and especially the seizure of Signature Bank, smaller entertainment companies might find it difficult to secure loans and other sources of financing. While large national banks can definitely provide the stability needed, small companies don’t have deep pockets. As small production studios struggle to breathe while media giants are having afternoon tea with big banks, this could further wipe out the independents and exacerbate the market concentration in the entertainment industry.
If you're interested in learning more about these topics, check out these resources:
The Silicon Valley Bank Collapse, Explained | WSJ YouTube
Banking on Entertainment: A Special Report | Variety