The Professionalisation of Investing in Film

Film Investors Across a Table

For a long time, many one-off independent film projects have been received as poorly conceived investment proposals. But a growing number of film-maker entrepreneurs are building professionally managed, sustainable businesses with increasing scale and valuations.  Professional Investors have taken note.

It’s been a bumper year for the movies.  According to data collated by Box Office Mojo, global box office gross revenues totalled just over US$5.7 billion from January to July this year.  Compare that figure to the whole of last year, US$7.4 billion in global box office gross revenues, and this year looks very good for investors in film.

Those figures average out to be US$17 million in revenues for each of the 337 films officially released to cinemas so far this year worldwide.  According to data from Statista, the median production budget for commercial feature films in the UK was £2.24 million (~US$2.87 million) in 2019.  The Media C-Suite is advised that this median figure was similar in 2022, although there were significantly more films in production.  Marketing costs can be as much as 100% of the production budget.  These sums dramatically change with Hollywood Studio-level budgets, but so too do the box office gross revenue figures that those films must target. 

Without context and experience, the film industry can become an alluring opportunity. 

Financial statistics alone can generate significant interest for many private investors.  For decades, film-makers required little else to raise cash against the backdrop of glamour, fame and Hollywood-level profits that so easily lend themselves to investment proposals and passionate pitches.  As most investors know, there are many independent film projects at various stages of professional presentation in circulation. 

Statistically, the vast majority of those proposals prove disastrous for investors.

The Film-Maker Entrepreneur

Life can be tough for the tens of thousands of aspiring film-makers and television show-runners.  Talent is everywhere.  There are hundreds of thousands of untold stories and millions of unseen characters languishing within the pages of speculative novels, scripts, screenplays and treatments.  For many creatives, the long and emotionally expensive effort of writing a completed story turns out to be a climb into the low foothills prefacing a much longer, more arduous journey across an impossibly rugged mountain range.

Building a viable business plan and finding capital from investors to take the next steps can be a daunting task.

The internet provides as many field guides to film-making and financing a picture as one could want.  The optimistic “how to” industry is filled to the brim with advice, tips and sample forms.  There are roadmaps, Master Classes and entire university curricula dedicated to diplomas conferring doctorate degrees in the history, art and technical production of the motion picture.  It’s a booming business.

Many of the aspiring have at some point been inspired.  Illustrative examples of the Legendary film-maker abound.  Dino de Laurentiis.  Frances Ford Coppola.  Oliver Stone.  George Lucas.  Steven Spielberg.  There are many, many others.

Each of these legendary film-makers exercised the talent, determination and love for the story required of any aspiring creative.  But the legends each made use of a tool that gave them a competitive edge to leverage their ambition into a business. 

Legendary Film-MakerProduction Company
Frances Ford CoppolaAmerican Zoetrope, Inc.
Dino de LaurentiisDino de Laurentiis Company DLC
George LucasLucasfilm Ltd.
Steven SpielbergAmblin Entertainment, Inc.
Oliver StoneIxtlan Productions, Inc.

The names of legendary film-makers are brands.  They have value that attracts both distributors and investors to content cultivated by creative minds behind the brand.  But individual, legendary writer/director/producers are not the necessary ingredient to the business of content production. 

To transform the aspiration of film-making into the practical business of film-making, one needs the functional operations of a corporate structure.  From this, one can build creative ideas into balance sheet assets, engage with commercial partners and accommodate investors along-side other stakeholders a sustainable business.

What all of the legends learned is that investors cannot own a share of the person, but they can own a share of a company.

The Production Company

Any professional film, television project, or other type of commercial entertainment content, is almost always focused through the lens of a corporate entity.  For a film project, that is likely to be a company established specifically to own the rights to produce and commercially exploit a single motion picture.  Called special purpose vehicles, or SPVs, these companies concentrate all of the benefits and risks associated with production and distribution of entertainment content.

But before contracts with production services providers, talent and distributors can be signed by an SPV, commercial entertainment must be developed from an idea and into business plan.  Copyrights must be secured.  Scripts must be written and re-written.  Screenplays must be perfected.  Budgets must be calculated.  Marketing and distribution strategies must be agreed.  Production and acting talent must be attracted.

There was a time not so long ago when solo producers could form an SPV and raise money from investors eager to get involved in show business.  Often, that money was for development; an open-ended and high-risk endeavour that often fails to bear fruit.  Today, that is not the case.  Investors are increasingly well advised.  Special Purpose Vehicles generate value only once production can be scheduled, talent can be engaged and distribution is within reach. 

But acquisition of the copyright to stories, and their development into viable film projects remains the single most important element to value creation within the Media & Entertainment industry.  It can almost never be accomplished alone.

Film-makers that group together to develop a script and package a film project into a potential business have a much better chance of attracting the attention of investors at an earlier stage.  Acting as temporary partners, they can manage to pull off a production based on relationships and luck.  By formally joining forces within a Production Company, they offer longer-term value with multiple projects in development, diversifying risk and increasing probability of successfully bringing a production to market.  The ecosystem of Production Companies closely resembles that of the technology sector with specialist intermediaries seeking to broker deals between investors and media startups.

Tony Davis & Michael Flatley, discussing film investments at the MSFF.
Tony Davis (left), a professional capital introducer, with Michael Flatley, Director & Choreographer at the Monaco Streaming Film Festival in 2021. (image courtesy of MSFF).

Tony Davis has been introducing investors to entertainment and technology startups for decades.

“Investors have become much more informed.  Throwing money at a freshman producer who also wrote the script and wants to direct is not going to happen.  Those days are gone.”  Davis told the Media C-Suite.

“Investors in my network are looking for producers that have several projects in the works,” says Davis. “They want equity in companies that have IP and need capital for development of multiple projects.  If the team knows what they are doing, and they have a plan, then investors are interested in helping to grow the business.”

Professional Investors

Professional Investors include decision-makers at large asset management companies, private equity/venture capital firms, sovereign wealth funds and private family offices.  Some high net worth individuals study investment strategy enough to be included in this category. 

Professional Investors often add an allocation to “alternative” investment assets to enhance performance levels on their larger portfolios.  These investments tend to diversify portfolios away from direct correlation to the global stock markets, and to inflation, while also offering a chance to boost investment returns.  However, they are also much more risky.  For most, investment in alternative asset classes has been largely focused on managed funds that invest in resources, real estate and technology companies.

Increasingly, Professional Investors are focusing their attention on the Media & Entertainment industry.  The Media C-Suite surveyed 122 Professional Investors, 92% of which reported a first, or increased, allocation within Media & Entertainment. 

According to a recent analysis from the CAIA Association, adding investment exposure to the global box office increases compounded annual growth rates (CAGR) from 7.1% to 8.5% for traditional portfolio investors, while decreasing annual volatility from 8.8% to 6.5%.  Those are significant enhancements from an asset class that offers outsized financial returns.

Professional Investors have a lot of choice in where they allocate their capital.  Today, alternative investment opportunities within resource management, agriculture and food security are growing.  Professional Investors are already congregating around funds and asset managers who specialise in the deal flow from these sectors.  But few sectors are receiving as much capital from the largest asset managers as Media & Entertainment.

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PE Into the Big Top

Entertainment Grows as Private Equity Pours Money into Disruption

Private Equity investors are fast becoming the number one source of capital for a US$2.4 trillion industry struggling to cope with unstoppable growth.

According to filings made to the US Securities and Exchange Commission (“SEC”) for the end of 2022, nearly all of the publicly listed media companies count the top five largest asset managers as recent shareholders with stakes of 5% or more.

Private Equity

A key alternative investment asset for Professional Investors is Private Equity, which includes Venture Capital.   When not investing through managed fund products, Professional Investors tend to seek equity participation directly into the prospects of a company’s future growth in value.

Professional Investors that engage in Private Equity and Venture Capital spend time and resources to understand the businesses they invest in.  And while an entrepreneur may be receiving capital, a Professional Investor is buying an asset that, if cultivated, is more likely to generate profits than not. 

It is this cultivation of an asset that makes Professional Investors more valuable to entrepreneurs than the capital they contribute.  Once invested, Professional Investors tend to offer guidance on  avoiding commercial pitfalls that collapse other business ventures.  They push the entrepreneur to set objectives and pursue sound strategies to achieve them.  Professional Investors often expand networks of professional service providers and access to other Professional Investors, including the many companies they have invested into.

These networks open connections for trade, marketing and collaboration that might not otherwise be available.  The technology startup ecosystem is an example of how Professional Investors cultivated growth in the equity value of companies that might otherwise fail from lack of capital.

The vast majority of Professional Investors surveyed by the Media C-Suite (91%) expect their investment experience with technology companies to inform their assessment of opportunities in Media & Entertainment. 

“consumption of content of all description has far outpaced the industry’s capacity for production, resulting in significant competition for nearly any content that can be produced and delivered to distributors and streaming services.

Private equity investors are investing in that production capacity.”

From the article:  Why is Private Equity Betting Big on Film Libraries and Music Catalogues?

Value Creation

The creative energy that goes into entertainment content fuels a highly lucrative industry.  So lucrative, that companies who develop, produce and retain the intellectual property to entertainment content have been valued in the multi-billions.

George Lucas famously sold Lucas Film Ltd to the Walt Disney Company for a staggering US$4.05 billion in 2012. 

In 2021, Reese Witherspoon’s production company, Hello Sunshine, was acquired by Blackstone-supported Candle Media for US$900 million.

In November, 2022, Redbird Capital Partners invested a reported US$100 million into Artists Equity, a new production company established by Matt Damon and Ben Afleck.

In January of this year, the Qatar Investment Authority invested US$150 million into Peter Chernin’s production company, North Road.  This followed US$500 million from Providence Equity Partners six months earlier (Apollo provided US$300 million in debt financing to top it all off). 

In March, BlackRock Alternatives led HarbourView Equity Partners and Goldman Sachs Asset Management in a US$90 million investment into Macro, Charles King’s production company.

For the film-makers turned media entrepreneurs behind each of these deals, one can only enviously applaud in congratulations. Their legendary role models would be proud.

The Media C-Suite can’t wait to see who’s next.

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