Every now and again, investment brokers and financial analysts will turn their attention to investing in movies. These discussions always seem to be framed as “unusual” or “creative” ways to diversify your portfolio. And inevitably, they conclude that investing in the entertainment industry is rarely a good idea.
In terms of risk versus reward, they’re probably right. The chances of funding the next indie “surprise” blockbuster is a long-shot to say the least, but that doesn’t mean investing in movies is a sure-fire way to lose money. The chances of winning the lottery is often used as the analogy for hitting it big in the entertainment industry, but winning the jackpot isn’t what it’s all about.
Just as in the lottery, there are many respectable subsidiary “prizes” to be won, even if you don’t hold the top ticket.
For a start, we need to make a distinction between investing in film, and putting money into a project. Investing suggests the expectation of return, while the motives for backing a film are numerous and varied. Making money is not the single, nor necessarily the prime reason, that people put their cash into producing movies.
Crowdfunding is an increasingly successful way for independent filmmakers to raise capital. What the filmmaker offers in return, however, is not a percentage of the illusive profits. Spike Lee raised money on Kickstarter by offering a thank-you tweet for $5 donations. For $10,000, he’d take you to a Knicks game. Other filmmakers have offered small speaking parts, tickets to the premier, or a day on set in return for “investing” in their film. They all got their projects into
production without promising any financial reward down the road.
For those who want to truly invest in the film industry with the expectation of making a financial profit, the most direct way is through mutual funds and exchange traded funds that focus on the industry. Here, your money is pooled with that of many other investors in a fund that then lends it out to promising projects. Funds like FBMPX, CEAAX and PBS all plow a significant portion of their holdings into the entertainment business, and investors have a reasonable chance of seeing their money grow. The downside is that these are simply assets in your portfolio. You have no real involvement in the industry, anymore than having shares in Coca-cola gives you a say in designing the can.
There are also specific film funds that operate roughly the same way but invest exclusively in making movies. There are usually minimum criteria for investing (think over $100,000) and the risk is much higher than with mutual fund investment. Again, you have very little personal involvement, but may get to meet the cast or attend a launch party down the road.
Direct investment in a single project is usually the purview of the wealthy, and the best way to invest in the industry if you want to have a personal relationship with the film and its makers.
Direct investment is what gets you “into the movie business”. Working with a reputable and experienced company to find the right project is the first step to ensuring your investment will bear dividends. We’re pretty confident about that because at Nimble Sage, that’s what we do.
In reviewing filmmaker proposals, we look at the potential for a brand-name cast, a reasonable budget, healthy tax rebates and fixed pre-sales. We can also find promising new filmmakers who will be happy to give investors a meaningful say in pre-production and distribution.
Working with a company that knows the business makes the difference between funding a Blair Witch Project and losing money on something you thought sounded pretty cool until you saw what real horror looks like.
Ironically, investing in film memorabilia can generate a higher return than putting money into the film itself. Marilyn Monroe’s white dress from the Seven Year Itch sold for almost $4.6 million dollars in 2011. Audrey Hepburn’s little black dress from Breakfast at Tiffany’s fetched just shy of $1 million. Not into dresses? The lion costume for the Wizard of Oz, made of real lion pelts, was snapped up in 2006 for $800,000. The point is that all the movie spin-offs, collectibles and memorabilia are integral to revenue generation and another way to invest in the film and entertainment industry. You won’t learn much about the movie business, but you’ll be able to show off your awesome collection to the grandkids. Somewhere in there, they might even find a way to pay for college. Still got your old Mickey Mouse lunchbox in the attic?
If you really want to support the film industry, purchase a ticket. Go to the movies, buy the popcorn, and enjoy the show. You’ll be reminded why you fell in love with all of this in the first place, and why sometimes the risk is definitely worth the magical reward.