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robdarling · 5th February 2005, 04:34 PM

This is actually a little cut and paste of what I wrote on Ross Hogarth's site at PSW. I feel like there's a lot of drama for something that isn't real.

I'm actually of the belief that, while the studio business is indeed not very great right now, for reasons we all know, the Cello and Hit Factory closings aren't really part of that.

Cello was never well-capitalized and had cash-flow issues. Being booked all day every day in a business where margins are thin can be a problem when those bookings stay a long time and people are slow to pay. If you don't have a big cash cushion, you have issues, and if one or two people stiff you or stretch into 180-240 days, well, you're out of business.

Hit Factory was, well, the Hit Factory. By the time the Germanos built 421, they were in the real-estate business, not the studio business. Anyone who ever worked there knows that IT NEVER MADE MONEY. You do the math. The shop is as large as Electric Lady's whole live room. Add the lobby and you have all of Electric Lady studio A. In the basement there is room for a Lincoln, a Jeep, a Ferrari, and a Porsche, and ALL of Bruce Swedien's TubeTraps, Microphones, Tape Machines, and anything else he wanted to leave there. Oh yeah- an elevator shaft that can move it all, too. That's the rest of Electric Lady plus some. Imagine that- a whole Electric Lady worth of empty space. Empty space doesn't make money.

But if that space doesn't make money and has cash-flow, it is very useful to a real-estate holding company. Now that the real-estate market in that neighborhood is maturing (that is just north of where the new Stadium for the Jets will be, just south of the new AOL/Time Warner building), it is time to sell the building unless they want to get into the development business (holding is very different from development.) That is why they are closing the Hit Factory. With the lease expired down the street at the 237 building and the market peaking, it is a perfect time to get out of New York.

I would wager that as much as BMG knew to the day when they would close the studios after buying RCA, the Germano's had a number that would make the building worth selling. That it came as such a shock to the employees should confirm this. The family will spend the winters in Miami and the summers in Quogue, but still have another struggling but cash-flow driven business (Criteria) as a nice way to move money around. They've known what they were doing for quite some time, regardless of the ups and downs of the studio business. If this is any indicator, I'd say Sony was next. Once an accountant's computer somewhere in a South-Asian office tower sniffs out the proper increase in the value of the property portfolio, it will be gone in a month.

5th February 2005, 04:34 PM	#23
robdarling Lives for gear Join Date: Jun 2002 Posts: 717	This is actually a little cut and paste of what I wrote on Ross Hogarth's site at PSW. I feel like there's a lot of drama for something that isn't real. I'm actually of the belief that, while the studio business is indeed not very great right now, for reasons we all know, the Cello and Hit Factory closings aren't really part of that. Cello was never well-capitalized and had cash-flow issues. Being booked all day every day in a business where margins are thin can be a problem when those bookings stay a long time and people are slow to pay. If you don't have a big cash cushion, you have issues, and if one or two people stiff you or stretch into 180-240 days, well, you're out of business. Hit Factory was, well, the Hit Factory. By the time the Germanos built 421, they were in the real-estate business, not the studio business. Anyone who ever worked there knows that IT NEVER MADE MONEY. You do the math. The shop is as large as Electric Lady's whole live room. Add the lobby and you have all of Electric Lady studio A. In the basement there is room for a Lincoln, a Jeep, a Ferrari, and a Porsche, and ALL of Bruce Swedien's TubeTraps, Microphones, Tape Machines, and anything else he wanted to leave there. Oh yeah- an elevator shaft that can move it all, too. That's the rest of Electric Lady plus some. Imagine that- a whole Electric Lady worth of empty space. Empty space doesn't make money. But if that space doesn't make money and has cash-flow, it is very useful to a real-estate holding company. Now that the real-estate market in that neighborhood is maturing (that is just north of where the new Stadium for the Jets will be, just south of the new AOL/Time Warner building), it is time to sell the building unless they want to get into the development business (holding is very different from development.) That is why they are closing the Hit Factory. With the lease expired down the street at the 237 building and the market peaking, it is a perfect time to get out of New York. I would wager that as much as BMG knew to the day when they would close the studios after buying RCA, the Germano's had a number that would make the building worth selling. That it came as such a shock to the employees should confirm this. The family will spend the winters in Miami and the summers in Quogue, but still have another struggling but cash-flow driven business (Criteria) as a nice way to move money around. They've known what they were doing for quite some time, regardless of the ups and downs of the studio business. If this is any indicator, I'd say Sony was next. Once an accountant's computer somewhere in a South-Asian office tower sniffs out the proper increase in the value of the property portfolio, it will be gone in a month.