This is an uneasy post for me to objectively justify something is so subjective and yet could offer a good alternative investment. Largely in the States and Europe, investors treat films like other investment. Of course, calculating Return-On-Investment (ROI) is possible. But does it guarantee a hit? Well, you need to go further down the road to finally say it is a hit.
Normally, investment in entertainment could offer a great personal satisfaction. With considerably high risk and high returns, investors need to be more diligent and precise in identifying the level of investment that they could tolerate.
1. Possible High Return-on-Investment
For a record, there are not particular factors that could determine whether the film would hit the box office. However, in the past, many would consider genre, the credibility of the director, budget, the lead actors and the type of contract may influence the success rate. Insofar, I could not say whether there is a set of valuation model that could help in finding the potential winner.
The truth is, usually, those factors are applicable to films produced by major studios. Independent films are rather more difficult to single out or even to establish the potential success rate. For example, a low-budget film like ' My Big Fat Greek Wedding' was produced for $5 million has gross return worldwide of $369 million. Of course, exceptionally, the film wrecks the valuation model. Similarly, 'The Blair Witch Project' and ' +Paranormal Activity ' which cost $300,000 and $15,000 respectively, gave a phenomenal $141 million and $191 million. Do the math.
2. Risk Minimisation is possible
Investing through dedicated mutual funds offer a good medium to minimise risk participating in the film project. Mutual funds draw the investment from various sources and professionally managed in which normally would spread across a range of companies at different level of investment. Essentially, diversification in segmenting investment minimise the potential downside risk as well as the upside of returns.
Major studios historically financed their own films through licensing deals. But until recently, they are also raising funds via investment banks as well as private equity firms. Some investment banks even have a dedicated team to cover investment portfolio in entertainment and media. You can refer to some well-known private equity firms such as Hal Vogel Capital Management, Noci Pictures Entertainment in Los Angeles, Ingenious Media in London.
3. Diversified Investment Levels
It is not practical for a single investor to place significant cash in one film project. Then, majority tend to believe that only large investors and established studios or production houses have a cut to participate in the entertainment industry. The reality is, mutual funds offer the opportunity to invest at various level. With a larger pool of capital, you might be able to be a part of major studios film making. In a more mature market like in the States or Europe, investors may be presented to own the distribution, syndication and licensing deals in which could offer a steady income on annual basis.
4. Long term play
Investment in film offers a reasonable long term play. The licensing deals, royalty on rights, syndication to television and merchandising usually may proceed more than 15 years or longer. On paper, the forecast favours to generate about 200% from theatrical revenues plus television syndication that widely available 3 years after release. Sometimes, they prefer to use 'Auxiliary Streams' in which royalty fees and rights are earned through media spin-offs, advertising, technology spin-off, film and TV library, product placement and merchandise.
In reference to merchandising, films like Spiderman, Batman and Teenage Mutant Ninja Turtles are bagging more than $135 million domestically for the past decade. Think about 'Transformers'. Marvel Comic and DC Comic's superheroes. Haim Saban's +Mighty Morphin Power Rangers. Ultraman and many more. Don't forget about movie franchises like +James Bond 007, +Mission Impossible, Indiana Jones, Terminator, The Bourne Identity. Many investors are sitting on the distribution deals, nevertheless.
5. Tax incentives
Undoubtedly, tax incentives for films industry are quite appealing. In the States, investors can utilise the tax credits provided at the state, federal and international level. Definitely, it is an efficient tool to upset risk, nevertheless. The tax relief, for instance, of British films with a total core expenditure of £20 million or less, the film production company can claim payable cash rebate of up to 25% of UK qualifying film production expenditure. Check UK Film Council for more details.
In Malaysia, government provide incentives for film industry in term of pioneer status and investment tax allowance. The latter provide allowance up to 60% on the additional qualifying capital expenditure. The allowance can be offset against 70% of the statutory income. What is more, government introduced a production incentive that will cover up to 30% of TV program and feature film budgets.
In conclusion, investment in films could also offer a considerable return to investor. Perhaps, investors especially in South East Asia should realise and start treating films as another venue of investment. The bottom line is the key reasons to invest in films like diversification, long term play and tax incentives are almost similar to other types of investment. Thus, never underestimate the potential of investment in films. A sound financial structuring, tax efficiencies and industry streams optimisation can make a significant difference.
Normally, investment in entertainment could offer a great personal satisfaction. With considerably high risk and high returns, investors need to be more diligent and precise in identifying the level of investment that they could tolerate.
1. Possible High Return-on-Investment
For a record, there are not particular factors that could determine whether the film would hit the box office. However, in the past, many would consider genre, the credibility of the director, budget, the lead actors and the type of contract may influence the success rate. Insofar, I could not say whether there is a set of valuation model that could help in finding the potential winner.
The truth is, usually, those factors are applicable to films produced by major studios. Independent films are rather more difficult to single out or even to establish the potential success rate. For example, a low-budget film like ' My Big Fat Greek Wedding' was produced for $5 million has gross return worldwide of $369 million. Of course, exceptionally, the film wrecks the valuation model. Similarly, 'The Blair Witch Project' and ' +Paranormal Activity ' which cost $300,000 and $15,000 respectively, gave a phenomenal $141 million and $191 million. Do the math.
2. Risk Minimisation is possible
Investing through dedicated mutual funds offer a good medium to minimise risk participating in the film project. Mutual funds draw the investment from various sources and professionally managed in which normally would spread across a range of companies at different level of investment. Essentially, diversification in segmenting investment minimise the potential downside risk as well as the upside of returns.
Major studios historically financed their own films through licensing deals. But until recently, they are also raising funds via investment banks as well as private equity firms. Some investment banks even have a dedicated team to cover investment portfolio in entertainment and media. You can refer to some well-known private equity firms such as Hal Vogel Capital Management, Noci Pictures Entertainment in Los Angeles, Ingenious Media in London.
3. Diversified Investment Levels
It is not practical for a single investor to place significant cash in one film project. Then, majority tend to believe that only large investors and established studios or production houses have a cut to participate in the entertainment industry. The reality is, mutual funds offer the opportunity to invest at various level. With a larger pool of capital, you might be able to be a part of major studios film making. In a more mature market like in the States or Europe, investors may be presented to own the distribution, syndication and licensing deals in which could offer a steady income on annual basis.
4. Long term play
Investment in film offers a reasonable long term play. The licensing deals, royalty on rights, syndication to television and merchandising usually may proceed more than 15 years or longer. On paper, the forecast favours to generate about 200% from theatrical revenues plus television syndication that widely available 3 years after release. Sometimes, they prefer to use 'Auxiliary Streams' in which royalty fees and rights are earned through media spin-offs, advertising, technology spin-off, film and TV library, product placement and merchandise.
In reference to merchandising, films like Spiderman, Batman and Teenage Mutant Ninja Turtles are bagging more than $135 million domestically for the past decade. Think about 'Transformers'. Marvel Comic and DC Comic's superheroes. Haim Saban's +Mighty Morphin Power Rangers. Ultraman and many more. Don't forget about movie franchises like +James Bond 007, +Mission Impossible, Indiana Jones, Terminator, The Bourne Identity. Many investors are sitting on the distribution deals, nevertheless.
5. Tax incentives
Undoubtedly, tax incentives for films industry are quite appealing. In the States, investors can utilise the tax credits provided at the state, federal and international level. Definitely, it is an efficient tool to upset risk, nevertheless. The tax relief, for instance, of British films with a total core expenditure of £20 million or less, the film production company can claim payable cash rebate of up to 25% of UK qualifying film production expenditure. Check UK Film Council for more details.
In Malaysia, government provide incentives for film industry in term of pioneer status and investment tax allowance. The latter provide allowance up to 60% on the additional qualifying capital expenditure. The allowance can be offset against 70% of the statutory income. What is more, government introduced a production incentive that will cover up to 30% of TV program and feature film budgets.
In conclusion, investment in films could also offer a considerable return to investor. Perhaps, investors especially in South East Asia should realise and start treating films as another venue of investment. The bottom line is the key reasons to invest in films like diversification, long term play and tax incentives are almost similar to other types of investment. Thus, never underestimate the potential of investment in films. A sound financial structuring, tax efficiencies and industry streams optimisation can make a significant difference.
I could only wish investing films in Indonesia would be this organized, but the reality is film investment in Indonesia is pretty much like walking into a wild jungle/uncharted territory. Maybe for developing countries the government should step in to help out more but I doubt this will happen.
ReplyDeleteTrue. The good thing is the industry is inefficient. Meaning, you can walk into a wild jungle while creating a safer path for others to follow. Would it be an ideal solution, for the time being?
Deleteit would be great if that happens but how would you get mutual funds/banks to invest if there is no studio system like Hollywood?
ReplyDelete