Investing in the Movies

Business - January 4th, 2008
Magellan Japan

Provided by MAGELLAN:
Tel. 03-3769-5511 

For the sophisticated investor there has always been a way to invest in the movies. Many of whom understand the risks and can commit large sums of money in the hope that they will be part of a box office hit and, as a result, a very big payback on their investment. Many of course suffer the ignominy of their film project going straight to DVD as it did not cut the mustard with fickle cinema audiences. Worse still, a complete artistic and financial flop can occur, no matter how big the movie stars are in the leading roles. Increasingly, more investors wish to diversify their portfolios or merely wish to develop their movie going interests into something more tangible so they can indulge themselves.

There are specialist firms that provide access to this exciting and high-risk investment area. Typically they select films for financing through a rigorous, multi-step process from a broad source of producers, directors, agents, managers, and production companies. They identify the most promising projects, based primarily on the property’s creative and commercial appeal and the skill, experience and accomplishments of the associated talent.

The screenplay is the most important aspect of filmmaking. The target script is broken down and analysed for marketability, budget, pre-production and shooting schedule, potential rating category, legal and copyright issues, insurance requirements and completion bonding considerations, among other factors. Interviews with filmmakers are conducted, a list of supporting documents are requested and reviewed or prepared, and consultations with potential distribution partners begin. Simultaneously, a full financial, legal and accounting analysis of the motion picture projects with the highest potential is undertaken to identify, assess and correct any deficiencies in these areas. A final ‘greenlight’ is given by an investment committee to the most promising motion pictures, only after complete assurance that the motion picture will generate significant profit.

Payback is usually in the form of a percentage of box office receipts or a flat return on the money invested. There is a quandary on which is the best route to take as unfortunately you cannot switch once you have decided. This is where professional advice comes into play from the experts—but then again sometimes they get it wrong. Having mainline actors is no guarantee of success at the box office.

One other way to invest is to select shares directly into movie companies, perhaps not as exciting as owning part of a specific film but it might satisfy the Cecil B De Mille tendencies in you.

Remember that some multinational companies such as Sony own Hollywood studios amongst their more traditional electronic product lines. The rationale for companies such as Sony or other news media companies is that it gives them an additional string to their bow and a bigger target audience for them to cross sell between all of their brands.

The cheapest investment of course is to invest in a Directors chair, baseball cap and a clapperboard— at least you can look the part!