Why does the Persian Gulf want to be a Hollywood player?

The state-owned Abu Dhabi Media Company is launching a film production arm, called Imagenation, which will commit about $1 billion in film financing over the next five years in partnership with three yet-to-be-named American producers.

The deal is only the latest example of Abu Dhabi's growing enthusiasm for investment in the West. As an oil-rich emirate, Abu Dhabi is awash with cash, and took large stakes last year in Citigroup and Carlyle Group as well as making substantial real estate investments in several American cities.

Officials at Abu Dhabi Media Company talk about this latest film financing venture as being in a similar vein to past investments -- a play to take advantage of other sources of capital in the industry drying up amid contracting global markets.

In May, Merrill Lynch cut back its film financing activities, and Paramount Pictures and Deutsche Bank announced in July that they had failed to find investors for a planned $450 film production fund.

"We're looking for a financial return and to be the best in class," Abu Dhabi Media's chief executvei, Ed Borgerding, told Daily Variety.

But the logic of counting on the film industry for big returns is drawn into question by a front-page article in the Wall Street Journal that contends that Hollywood is actually suffering from an oversupply of films, rather than a lack of funding.

"The competition is especially brutal in the market for small movies," says the Journal says. "Oscar-aspiring independent films -- that is, films not produced at a major studio -- were once seen as the most attractive segment of the movie industry. That's because sizable profits could be made on films that required relatively little investment. That calculus prompted all of the major Hollywood studios to launch divisions aimed at exploiting the market."

According to the New York Times, Imagenation is planning to make six to eight movies a year, with budgets of $10 million to $50 million a film --projects which would fit squarely in the investment danger zone described by the Wall Street Journal.

Of course, the $1 billion being invested is just pocket change to the oil-soaked emirate, and might just as well be written off as the cost of bringing a little slice of Hollywood to the Gulf.

If imitation is the sincerest form of flattery, then Abu Dhabi is becoming one giant air kiss to the western world. While Dubai has built itself up as a Vegas-style playground of theme parks, huge resorts, and shopping malls, Abu Dhabi has chosen an earnest approach to emulating western culture. It is creating its own symphony orchestra, branches of the Guggenheim and Louvre museums, and already has an English-language newspaper edited by a former editor of the Daily Telegraph.

In recent years Abu Dhabi has sought out ever more culturally symbolic targets for investment in the western world. Last fall the emirate created a $500 million production fund in partnership with Warner Brothers (Shorts, the first fruit of that venture, is currently in post-production). This summer, the emirate took a major stake in the iconic Chrysler building in Manhattan. Just last weekend Abu Dhabi announced a deal to buy Manchester City Football Club, which has overshadowed by the success of Manchester United in the last two decades.

So Hollywood is a natural addition to Abu Dhabi's wish list.

Liz Gunnison