WHY INVEST IN FILM? THE BENEFITS…THE RISKS…THE GLAMOUR

WHY INVEST IN FILM? THE BENEFITS…THE RISKS…THE GLAMOUR

Bruce Bisbey

Ever wondered what it would be like to be a part of the next blockbuster?  Want to invest in film but think it’s out of your reach? Looking to make an investment and want the best return on your investment (ROI) that you can achieve?

Investing in film is not for the fainthearted but with possible returns of 10% per annum and first recoup, it’s no wonder investors want a slice of the action. The risks have been minimized to some extent with globalization of the film and TV industry and the internet. Where as in the past, film relied on the box office and fairly defined and controlled distribution patterns. In the last decade the advent of a film or video being released straight to DVD, VOD (Video on Demand), and direct purchase and down load from a growing number of worldwide sources. These options and audience targeting can mean a quick return on the investment.

Films, particularly low – budget and indies are usually targeting a specific audience. A Zombie movie is targeting, horror, zombie, survivalist audiences, as is a documentary on the animal kingdom which appeals to a totally different demographics.

There are many reasons why people from all walks of life invest in a film or movie they usually have a passion for film and movies, a good return on investment, to be a part of the film industry, a financial stake, a family legacy, tax relief and savings, part of a financial portfolio, or it can be that the investor simply wants to be behind the scenes in a producing capacity.  Whatever it is, investing in films and movies is fun, exciting, inspiring, beneficial to you financial status, oh, and different!

For many film, movie and small business investors, it is often a ‘once in a lifetime’ opportunity to meet the stars, rub shoulders with celebrities, attend premieres and parties, not to mention the other perks that come with distribution, i.e. merchandise, posters, interactive games, DVDs and Blu-ray, even signed copies of the script and film set stills, visits to the set during filming, a Director’s or Producer’s chair with your name inscribed on it!  Some investors in a film are more involved than others by having a cameo role in the film or a film credit by investing in film.

There are a variety of ways in which you can investing in film and movies: as an ‘angel’ investor, via a film financing organization, as a private investor, through a crowd-sourcing platform, through a hedge fund, via an independent financial adviser, through equity finance or a venture capitalist.

Every producer wants to achieve the best ROI they can for a film and distribute the film or movie to as wide an audience as possible for an investor by investing in film.  Many different film and movie genres go on to not only break-even, but significantly surpass their budgets, ensuring that all investors generate greater revenues that often expected, often within the first year!

As any film investor will know investing in film, spreading your investment across a selection of projects in your portfolio is another way of protecting your financial investment further.

THE RISKS

Film funding; are films a good investment opportunity?  They are for the right kind of investor.  Why is film investment an attractive investment opportunity?  Is it because of the high return or because of the nature of business?

For many investors on film funding, the high return is a big draw, because film funding do have the potential for a very large return, though there is a very high risk with a lot of big “Ifs”.  The RISK, you can lose your entire investment if the project is not finalized and in the can and even then there is no guarantee. DO NOT invest if you are fainthearted, you cannot afford the loss or you are waiting for a quick buck. The quick return from a distribution network utilizing the box office, direct to DVD, VOD and purchased downloads is real, but DO NOT depend on it, there is no guarantee.

Again depending on your portfolio and how healthy your finances are, another plus is the potential of tax deductions on your capital expenditures and gains. Works for many people. A film can do extremely well if it has a good script, good acting, good production value, has a budget that fits the type of film this is, and strikes a chord with distributors or buyers for the TV, DVD, foreign rights, or other markets. Then, if the film goes into theatrical release, it has the potential to have an even larger audience, though theatrical is not the primary source of income for most films, just the big blockbusters, since the theater owners take about 60% of the box office unless a film goes into a long-term release and there is a high costs for prints (though an increasing number of theaters are going digital).  The value of a theatrical release is more for its promotional value for gaining other kinds of sales, except for the huge blockbusters.

Despite the potential for high returns by film funding for some films, investors in it for the money have to realize that any film investment is a big risk from film funding, because many problems can develop from when a film goes into production to when it is finally released and distributed. These risks include the film not being completed because it goes over budget and is unable to get additional financing or there are problems on the set.  Another risk is that the film is not well-received by distributors and TV buyers, so it doesn’t get picked up.  Or even if a film gets a distribution deal, the risk is that there is little or no money up front, so the film does not see any further returns.   So yes – a Film Funding or investment can have a high return, but an investor can lose it all.

PROTECTING YOURSELF

• ·         Get an attorney, preferable an entertainment one
• ·         Due diligence
• ·         Full disclosure
• ·         Track record
• ·         Understand the parameters of a fair deal
• ·         Obtain all promises in writing
• ·         Secure an arbitration clause
• ·         Interest on late payments
• ·         Completion bond
• ·         Take an active role
• ·         Make sure funds are spent on production
• ·         Obtain an experienced advisor
• ·         Don't invest more than you can afford to lose

As a result, for many investors, other key reasons for investing are more important on film funding.  They believe in the message of the film.  They like and support the film producers, cast, and crew.  They like the glamour of being involved with a film, including meeting the stars and going to film festivals.  They see their investment as an opportunity to travel to distant locations for filming and for promoting the film funding.  And they see investing in the film as a tax write-off, much like giving to a charity.

What kind of investment returns can investors can expect, since many independent productions are not designed for big screens, where are the sales coming from film funding?

If all the stars align, and there is a good film done with a reasonable budget and distributors, buyers, and an audience responds, the film could readily earn 4 to 10 times its cost, making everyone very happy.  A low-budget indie scenario for this level of return might be a film shot for $50,000-200,000.  It might get $500,000-750,000 for a TV sale and earn $1-2 million more through DVD, streaming, and foreign rights sales, even without a theatrical release. Remember depending on your investment strategy, there will be potential residuals forever or for as long as you have investment ownership in the property.

For most films, the main value of a theatrical release is the PR value of getting the film known, so buyers will want to purchase or rent the DVD and TV buyers will want to show it on one of the premium cable movie channels.  Also, most films don’t get a theatrical release, and the funds are earned through other channels. What kind of movies can usually generate good profits, since the recent Oscar Awards show that a big investment does not necessary mean big returns on film funding? Some of the big blockbusters that pass the $100 million threshold can certainly make a profit from a successful theatrical release, both in the U.S. and abroad.  But whether they make a profit depends on their budget.  Because of the high salaries of stars that are typical in these films and other high cost items, such as special effects, many blockbusters still may not make a profit by film funding. 

Thus, dollar for dollar, many low-budget indie films may be a better investment, since the multiples are higher with a success; there is more likelihood that a low-budget indie, which is done well at a reasonable budget, will be sold and make back its money, and the potential for loss is much less need to use film funding.

SOME OF THE GLAMOUR AND BEING PART OF FILM HISTORY

As an investor, you have the opportunity to be credited as an Associate or Executive Producer, take part with a cameo or extra role, and see you name as part of the film credits on the website and in the movie.  You will have the opportunity to visit the film set and watch the professionals, receive your personal, signed copy of the script, and go home with signed film set stills.  Fancy a bit of the glamour?  No problem… be a VIP at your home-town screening, trip the lights fantastic at the after show parties, walk the red carpet at world premieres, film festivals and exclusive private events, meet the stars in the Green Room and find out what really goes on behind those closed doors of the cutting room!  You will be one of the first to hear all the gossip, the latest news, gadgets and technology that nobody else knows about… go on, let your imagination run away!

Just about all of us have a favorite film, enjoy a visit to the cinema, or have bought a video, DVD or Blu-ray to watch at home.  How many times have you thought, “I can do that, I’ve got a great idea for a film…”

Your investing in film is your legacy… something that you and your family, your children, your grandchildren, can look back on in years to come.

Sources: Google, Wikipedia, Pinterest, IMDB, PMI, The Movie Fund, Your Money, Financial Times, Screen Magazine, Marc Jacobson, KPMG, Variety, Film Maker Magazine, Research Gate, Think Advisor

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