If you were given the choice for the quickest way to lose money between buying a mediocre Northern football or investing in Hollywood films, which would you pick? Well, if you're the Abu Dhabi Royal Family, the answer is both and the plan is not to lose money in either case.

Hot on the heels of paying £200 million for Manchester City amid talk that the same again might be spent on new players, the Arab emirate has announced that it will spend at least $1 billion (£550 million) over the next five years co-funding Hollywood and other international movies.

It might sound like an awful lot of money, but in the context of Abu Dhabi's estimated $1 trillion of assets, it is a drop in the desert. And like so many projects coming out of the Gulf region, the intention is not so much short-term returns as long-term gains — not just financially but in growing industries within the region.

Edward Borgerding, who was poached from Walt Disney in March to head the new offshoot of Abu Dhabi Media, imagenation, which will channel the funds, said: “With imagenation, we are bringing Hollywood and the international production community to Arabia. Our aim is to make award-winning films which are commercially successful and appeal to audiences across the world.”

Echoes there of the Man City deal, where the new owners expect their new club to sponsor football academies and play tournaments in the region.

Borgerding is also clear that Abu Dhabi will not be throwing money at the most risky area of Hollywood — the blockbusters that can cost more than $100 million to make. Instead, he said, imagenation aims to fund six to eight films a year with budgets of $10 million to $50 million.

He is also prepared to look well beyond Tinseltown for opportunities to invest. But all deals will be true partnerships, where the Arabs' petro-dollars will have to be matched by other participants.

Imagenation is expected to unveil its first three producer deals at the Toronto Film Festival, which opens in just over a weeks. The firm will also take oversight of Abu Dhabi Media's existing deal with Warner Brothers, the film arm of Time Warner. That saw them invest a total of $1 billion last September, split equally between producing new movies and video games with Warner.

So far, the only visible fruit of that deal is the film Shorts, a family action adventure by director Robert Rodriguez and starring William Macy, which is currently in post-production with a release date early next year. But is Abu Dhabi's move well-timed if the US and world economies are suffering from a consumer downturn?
A couple of years ago, it was almost impossible to move around Hollywood and the more fringe areas of Californian film production for the rustle of investor dollars. Private equity and hedge funds had jumped on the bandwagon. In the last three years alone, Overture Films, which is backed by John Malone's Liberty Media, Merrill Lynch-backed Summit Entertainment and The Weinstein Company, which came out of Miramax, have all emerged as new film backers. At least two major Indian groups, including Anil Ambani's Reliance, have also put up major money for Hollywood.

But Borgerding, who grew up in Cleveland but now divides his time between Los Angeles, London and Abu Dhabi, said: “The subprime thing has hit a lot of those hedge funds. There was a glut of films because a lot of money was chasing a finite amount of creative talent and good stories. We reckon that we are buying into the bottom of the cycle.”

That is a view that will find resonance with the major studios. The last year or so has seen too many films chasing too small audiences, at the same that the back-up of DVD sales has been a mature, if not declining, market.

It got so cluttered this summer that Disney's planned blockbuster The Chronicles of Narnia: Prince Caspian was released in the States on the same weekend as rival megamovies Iron Man and Indiana Jones and the Kingdom of the Crystal Skull.

Hollywood and independent distributors released 517 films in 2007, which is almost 50% more than 10 years ago. Only Disney has so far announced that it plans to cut the number of films it makes, but other studios are certain to follow. As Disney chief executive Robert Iger told analysts: “Too many movies are being released into the market place. They cannot all be good enough or marketed well enough to drive good returns.”

Abu Dhabi also has special problems. Not all Americans are keen to work with what is effectively a state-run media organisation. Hence the hiring of an American to front the film business and its slightly wacky name imagenation — to distance it from the Gulf.

At the same time, Borgerding is keen to ensure he does not offend Arab sensibilities. “There is a line we will not cross,” he said. “We will certainly not be involved in any movies that are insulting to Islam or insult leaders of the country or the region. There's not an upside, creating a huge problem with the region. It's not good for business.”

So Sacha Baron Cohen had better look elsewhere to fund his next Borat movie.