Are movies a good investment opportunity? I think they are the right kind of investors. This is the reason. I’ve written this in a Q&A style to answer the main questions potential investors ask about whether or not to invest.
1. Why is film investment an attractive investment opportunity? Is it because of the high returns or because of the nature of the business?
For many investors, the high returns are a big draw, because movies do have a very large return potential, although there is a very high risk with lots of big “Ifs”. A film can do well if it has a good script, good acting, good production values, has a budget that fits this type of film, and attracts distributors or buyers for TV, DVD, foreign rights, or other markets.
Then, if the film hits theaters, it has the potential to have a larger audience, although theater is not the main source of revenue for most films, just big blockbusters, as theater owners take about 75% of the box. office unless a film goes into long-term release and there are high costs to print (though more and more theaters are turning to digital).
The value of a theatrical release is more than its promotional value for any other type of sale, except for the big blockbusters.
Despite the high profit potential for some films, investors in them for the money should be aware that any film investment is a huge risk, as many problems can develop from the time a film begins to be produced until it is finally released and distributed. The risks of this final project include not completing the film because it is over budget and cannot get additional funding or there are problems at the shooting location.
Another risk is that the film is not well received by distributors and TV buyers, so it is not picked up. Or even if a film lands a distribution deal, the risk is that there is little or no money upfront, and so the film doesn’t see further gains. So yes – a film can have a high return, but an investor can lose it all.
As a result, for many investors, the other primary reason to invest is more important. They believed in the message of the film. They love and support the producers, cast, and crew of the film. They love the luxury of being involved in a film, including meeting stars and going to film festivals. They see their investment as an opportunity to travel to distant locations to shoot and to promote the film. And they see investing in film as a tax write-off, like giving to charity.
2. What kind of return on investment can investors expect, since many independent productions are not designed for the big screen, where do the sales come from?
If all the stars were aligned, and there was a good film made on a reasonable budget and distributors, buyers and audiences responded, the film could easily get 4 to 10 times its cost, making everyone very happy. A low-budget indy scenario for this rate of return might be a $50,000-200,000 filmmaking. Probably earned $500,000-750,000 in TV sales and made $1-2 million more via DVD, streaming, and foreign rights sales, even without a theatrical release.
For most films, the primary value of a theatrical release is the PR value of getting the film known, so buyers want to buy or rent a DVD and TV buyers want to show it on one of the premium cable movie channels. Also, most of the films did not get a theatrical release, and funding was obtained through other channels.
3. What kind of films usually make good returns, as the recent Oscar Awards showed that big investments don’t always mean big returns?
Some big blockbusters that cross the $100 million threshold can definitely profit from a successful theatrical release, both in the US and abroad. But whether they make a profit depends on their budget.
Due to the high salaries of the stars that characterize these films and other expensive items, such as special effects, many blockbusters may still not turn a profit. So dollar for dollar, a lot of low-budget indy movies might be a better investment, as the multiples are higher with success; there is a greater chance that a low-budget indy, well done on a reasonable budget, will sell and make its money back, and the potential loss is much less.
4. Are documentaries a good investment opportunity?
A good documentary is a very good investment opportunity, because the cost of making a documentary is much lower than that of a feature film. They can be done with much smaller crews – even two or three people in the field – one for the cameras, one for handling sound and lighting, and another for coordinating setups and asking good questions in the field.
Post-production can also be easier, with fewer shots and less film to edit for the final cut. Many documentaries are made on a $10,000-50,000 budget, which can easily be recovered 5 to 20 times over on DVD, TV, and overseas sales.
5. Are there any legal or regulatory restrictions preventing individual investors from participating in film investment opportunities?
Generally, if you have money to invest, filmmakers will find a way for you to legally give them money. Various vehicles include for-profit corporations, LLCs, private placement memorandums, and loans. A typical requirement is that the individual has the funds to invest funds that may be lost in risky ventures and is informed about the investment risks.
6. What are the main risks behind film investing and how can you prevent them?
The main risk behind investing in films is the potential for losing everything if the film isn’t finished or doesn’t find distribution. The best way to protect yourself is to assess the potential of incoming feature films or documentaries; assess whether the budget and expected returns seem reasonable for the project; and assessing whether the producers, directors and others on the film appear to have the experience to complete and market the film
7. What is the initial investment required to invest in film production?
The initial investment can range from a few thousand to several hundred thousand, depending on the film and how the investment is structured. For example, some indy filmmakers who make low-budget films have found a creative way to raise funds by inviting a $1000-2000 investment from those who participated in the film, such as actors and crew members.
Others have split investment packages into $5000 each for 20 investors to raise $100,000. Still others are looking for some big investors, who can contribute at least $20,000, $50,000, $100,000 or more.
Once there is investment, there can be other sources of funding, such as GAP funding and incentives from states and cities in the form of rebates after filming is complete. VC funding is also possible, especially after the initial investment in the film, if the film’s budget is at least $1-2 million.
8. With the advancement of modern technology, what are the opportunities for independent and new film producers; or is this development more of a threat because of piracy and competition?
There is a growing opportunity today for indy and new film producers to obtain distribution through alternative means, such as via the Internet, self-distributed streaming downloads or DVD sales, playback on mobile devices, and selling DVDs or streaming rights to Netflix and Blockbuster.
While piracy is always a concern, new technological improvements can help prevent this, such as locks to prevent duplication or more than one or two screenings of a movie. Another protection can come through licensing the film for distribution to platforms like the iPhone, which has its own protection against copying.
Of course there is more and more competition, as more and more people can make films today, even though the big studios and distributors still dominate in the theater arena and they have the money to make big films with big stars and special effects. But new technologies for production and distribution offer more avenues for making and marketing indy films at much lower costs. So of course there are more movies out there than thousands of producers.
But with creative promotion, filmmakers can help their films stand out among the chaos. They can creatively use social media, such as LinkedIn, Facebook, and Twitter to tell people about their films. They can get recognition on the film festival circuit. They can get support from famous people. They can post an e-mail PR campaign to the media. They can rent theaters to organize shows in different cities.
They can host events with their film as the center of attention. And they can make themselves available to appear on radio and TV shows, as well as to interview journalists for print media. In turn, all these activities can help to sell their films to distributors and buyers for sale