Since I received so many interesting questions from friends and readers about my recent post 'Why you should invest in film', I think it would be fair if I get on with the second version. It is not a comprehensive one but it is a good enough for everybody to gauge the idea behind investment in film and possibly to supply answers based on my experience and knowledge.
Beforehand, yes I am in the final stage to set up a private equity or venture capital firm. The firm would venture in growing market of media and entertainment in the region. At present, we would work closely with sophisticated investors around the South East Asia region only. I would enclose more once it is up and running.
Anyway, yes one may say that film projects are in a 'loose' or inefficient market. It is almost impossible to produce a solid valuation model as well as arbitraging the margin but only if you are suggesting for an active management perspective. Meaning, you would be actively involved in script selection, casting, film directing etc. Usually you don't need to go that far. It is better off to leave that part to the studios or production houses though.
In reference to film financing, in the industry, we are indirectly referring to passive investment arrangements. The arrangement structures are varied depending on the preference and negotiations between the investors and studios, production houses and distributors. The investors may have controlling and non-controlling interests, equity securities or even a simple contractual arrangements. More deliberation in the future post.
And another reasons why you should invest in film.
6. Flexibility
Investment in film offers a great flexibility. In the UK, the team works closely with the producers to meet the expected ROI target of 100 - 200% on core equity. With a good casting, effective PR and marketing and low production costs within a short period of times, the cycle of producing one film is compensated. In fact, investors could enter and exit at any given point of the production cycle and at any given level of investment. Investors may want to invest in licensing or rights acquisition of the films or perhaps invest in the film distribution companies.
For instance, the existence of Beverley Hills' based film equity players like Lakeshore, +Relativity Media , Endgame Entertainment and +Participant Media offer venues for high net worth investors the flexibility in investment and of course the tax. In majority, they don't have a direct background from entertainment or media. Lakeshore's Tom Rosenberg is coming from real estate background. But his ability to treat film as another investment, has convinced JP Morgan Chase to provide the financing facility.
7. Numerous exit strategies
Similarly, investors may like the flexibility they have especially with numerous exit strategies. The common exits that I had known are including fixed ROI on capital supplied, sale of equity in the movie, complete sale of the rights and minimum ROI and dividends until the contract expired. Having said that, I figure that the arrangement could be more complex with the several parties involved in one single project.
For cautious and conservative investors, they prefer a fixed ROI on capital after repayment. The investors normally would agree with the fixed percentage on the equity capital. After meeting the target revenue, for example, the original capital plus the percentage will be paid immediately. If the investors prefer a steady income or dividend, they might want to consider a minimum ROI arrangement. They would receive a series of repayment like shareholder dividends over a film's life cycle. For how long? Usually until it becomes commercially not viable anymore.
8. Film insurance policies
Yes! Insuring film does exist. But probably a foreign concept in South East Asia region. Big studios insure their films from the start until completion. In the UK, film insurance is a compulsory. The basic should cover accidents on the production sets, death, physical loss and damage of equipment. Insurance policies will cover from the injury of an actor or stuntman to the lose of ability of filming due to the force majeure or weather, to say the least.
The insurance or the completion bond is also 'risk minimization' tool that the big studios need to ensure the director or the main star to complete the film within the said budget and schedule. If they failed to meet the requirement, the studio could replace the director or the main actor. Normally, this process is rigidly carried out before the start rolling. The commitment of director and actors are the 'insurance' policies. Most of the time, we heard about the original role was offered to somebody but was replaced right before the shooting started. Before +Viggo Mortensen settled as 'Aragorn', the role was offered to Nicolas Cage, Vin Diesel and Russell Crowe. Imagine that.
In light of TV shows, the insurance policies might contribute to the departure of Charlie Sheen from Two and a Half Men. Just maybe.
Insurance policies, nevertheless, do help investors to minimise risk should unfavourable circumstances took place. However, it is not something that insurance companies in the Asian region would have in their product lines. Perhaps I should start one.
Beforehand, yes I am in the final stage to set up a private equity or venture capital firm. The firm would venture in growing market of media and entertainment in the region. At present, we would work closely with sophisticated investors around the South East Asia region only. I would enclose more once it is up and running.
Anyway, yes one may say that film projects are in a 'loose' or inefficient market. It is almost impossible to produce a solid valuation model as well as arbitraging the margin but only if you are suggesting for an active management perspective. Meaning, you would be actively involved in script selection, casting, film directing etc. Usually you don't need to go that far. It is better off to leave that part to the studios or production houses though.
In reference to film financing, in the industry, we are indirectly referring to passive investment arrangements. The arrangement structures are varied depending on the preference and negotiations between the investors and studios, production houses and distributors. The investors may have controlling and non-controlling interests, equity securities or even a simple contractual arrangements. More deliberation in the future post.
And another reasons why you should invest in film.
6. Flexibility
Investment in film offers a great flexibility. In the UK, the team works closely with the producers to meet the expected ROI target of 100 - 200% on core equity. With a good casting, effective PR and marketing and low production costs within a short period of times, the cycle of producing one film is compensated. In fact, investors could enter and exit at any given point of the production cycle and at any given level of investment. Investors may want to invest in licensing or rights acquisition of the films or perhaps invest in the film distribution companies.
For instance, the existence of Beverley Hills' based film equity players like Lakeshore, +Relativity Media , Endgame Entertainment and +Participant Media offer venues for high net worth investors the flexibility in investment and of course the tax. In majority, they don't have a direct background from entertainment or media. Lakeshore's Tom Rosenberg is coming from real estate background. But his ability to treat film as another investment, has convinced JP Morgan Chase to provide the financing facility.
7. Numerous exit strategies
Similarly, investors may like the flexibility they have especially with numerous exit strategies. The common exits that I had known are including fixed ROI on capital supplied, sale of equity in the movie, complete sale of the rights and minimum ROI and dividends until the contract expired. Having said that, I figure that the arrangement could be more complex with the several parties involved in one single project.
For cautious and conservative investors, they prefer a fixed ROI on capital after repayment. The investors normally would agree with the fixed percentage on the equity capital. After meeting the target revenue, for example, the original capital plus the percentage will be paid immediately. If the investors prefer a steady income or dividend, they might want to consider a minimum ROI arrangement. They would receive a series of repayment like shareholder dividends over a film's life cycle. For how long? Usually until it becomes commercially not viable anymore.
8. Film insurance policies
Yes! Insuring film does exist. But probably a foreign concept in South East Asia region. Big studios insure their films from the start until completion. In the UK, film insurance is a compulsory. The basic should cover accidents on the production sets, death, physical loss and damage of equipment. Insurance policies will cover from the injury of an actor or stuntman to the lose of ability of filming due to the force majeure or weather, to say the least.
The insurance or the completion bond is also 'risk minimization' tool that the big studios need to ensure the director or the main star to complete the film within the said budget and schedule. If they failed to meet the requirement, the studio could replace the director or the main actor. Normally, this process is rigidly carried out before the start rolling. The commitment of director and actors are the 'insurance' policies. Most of the time, we heard about the original role was offered to somebody but was replaced right before the shooting started. Before +Viggo Mortensen settled as 'Aragorn', the role was offered to Nicolas Cage, Vin Diesel and Russell Crowe. Imagine that.
In light of TV shows, the insurance policies might contribute to the departure of Charlie Sheen from Two and a Half Men. Just maybe.
Insurance policies, nevertheless, do help investors to minimise risk should unfavourable circumstances took place. However, it is not something that insurance companies in the Asian region would have in their product lines. Perhaps I should start one.
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