Investing in blockbuster movies?

August 11, 2006

Hi.

This is a bit of a mad idea, but what steps do you have to follow to invest in these huge films? I always hear that these big time films are trying for as much money as possible, and most of the time they are a huge success.

So, if they are begging for more money, why dont they open up some kind of public investment fund?

What's stopping someone like me from giving them half a million pounds? (Apart from my bank)

I mean if I invested some money into Peter Jacksons new film, I'm sure I would make a good amount out of it, and they would just have a slightly bigger budget than they would have done. (Emphasis on 'slightly')

Tnx.

Dan.

Edited August 11, 2006 by Danny

David Sweetman · August 11, 2006

I've heard of some of this kind of stuff...of course you can invest straight into the studios, and that might be all you can do for the larger Peter-Jackson-scale films. You may want to get into stocks, if you're looking to invest. I'm not sure what kind of trading goes on in the UK...but I know some good online brokers for US markets. I've been watching Lionsgate Films and it's been doing alright over the past few months. Investing in the studios is much less risky than investing in the actual films, if that's possible for the average joe.

Mark Allen · August 11, 2006

There are two ways of investing. One is to invest in the publicly traded company itself. The other is to invest in the funds these companies set up. If you're a player (meaning you have lots of high risk captial), you could talk to a broker about these funds.

Disney did have some specific film funds for quite a while that people with lesser sums were able to invest in with a lot less money.

The other route is to just take that capital and decide that you are going to invest in 10 different independent movies and search or contact agencies for their best indie scripts, hire an experienced producer who can set them up and follow your gutt on making these much less expensive films hoping to make the money back. Sounds crazy? Well, I know a handful of investors who have done well. A handful have lost everything. Honestly - I think a lot of it had to do with the investor. However, the smart investor spreads the money out over a few films.

(I'm not a broker and I don't play one on TV)

Brad Grimmett · August 11, 2006

I think the independent route is the only way an individual investor can go. Bob Yari is a good example of this (Crash, The Matador, House of D, etc...). As far as I know the studio's get their money from banks and of course they are also publicly traded companies.

Nate Downes · August 20, 2006

There's also directly approaching independent exec producers to hear about their next project.

Truth is, the high-dollar blockbusters rarely turn a profit. They typically end up breaking even after you account for P&A. (That's Prints and Advertising for those that don't know) The true blockbusters are those that, budget aside, produce a huge profit, and that typically happens with the smaller films I've noticed. (less money invested == less money you need to recoup to turn a profit)

Danny Lachman · August 20, 2006

I really liked the idea that was brought up about a public fund. It almost seems that if too many people invested into the production of a movie then they would just break even and make enough to pay for their movie ticket - theoretically if it was a huge pool of little sums of money.

I think other commentators brought up a good point - stocks is really where little men can get their hands on motion picture production. I guess that's why stocks were created.

Brad Grimmett · August 21, 2006

Truth is, the high-dollar blockbusters rarely turn a profit.

I'm not sure that's true. Sure, they SAY they don't make money, yet they continue to spend more and more on every movie they make. If they weren't making a profit I can assure you that they wouldn't continue making these blockbusters. I don't think the blockbusters make as large a % profit as some of the smaller movies that do really well, but it's still a significant amount of money.

Michael Collier · August 22, 2006

'big budget movies don't make a profit'

accounting 101: if you define what profit is, you can make any kind of crazy statistic you want. It would be foolish to think that movies are loosing money. From what I understand however is STUDIOs are able to claim profits over the net of ALL their movies in a given year (why its a publically traded company, not an investment on a case by case basis)

Big hits make up for all the misses. If a blockbuster does hit, it hits big and bankrolls a few years of bad films.

As for investing in studio films, you must invest in the studio (and insodoing invest in all their bad films along with good films) unless you come in and bankroll a film that has gone overbudget (I have heard gap-financing can be quite lucritive since the film makers heads are in a vice at that point)

You can invest in independents (the usually sell units of their film) and you would get a percentage of the films equity, which loosley translates into gross (gross the producer recieves after the distro takes their money) producers as I understand it are bared from advertising in mass their offerings and must follow strict SEC guidelines. It seems like a torrent of laws and regs which determine how a film is financed.

You could always bankroll my next film :) actually I am looking for an active investor to put the money up to hire a producer who knows this stuff better than I and knows the investors better than I.

Nate Downes · August 26, 2006

I'm not sure that's true. Sure, they SAY they don't make money, yet they continue to spend more and more on every movie they make. If they weren't making a profit I can assure you that they wouldn't continue making these blockbusters. I don't think the blockbusters make as large a % profit as some of the smaller movies that do really well, but it's still a significant amount of money.

By rarely, the numbers break down to 3 in 10 turn a profit, with 1 of them being a stellar profit which makes up for all of the lossess of theother 7.

Mark Allen · August 26, 2006

The reason why blockbusters are more favorable economically for a studio is largely because of the marketing. It takes a certain amount of money to make the world aware of your movie.

So, if it take 30 million for people to be aware of your movie - that is where the concept of making 100 one million dollar fillms instead of one 100 million dollar films comes into play.

From a studio perspective, if you had 100 movies to market - you'd go bankrupt fast. So, you pick and choose, right? Well, if that's the case - why not just let other people make all these movies and then pick and choose which ones you want to distribute? Well, that is what is sort of happening now.

So why don't the studios do just that exclusively? Well, because they can make money off making money. They can take a huge fund and then fund their own movies and pay for their own services in the meantime. So a hard drive costs $30/day to rent from the studio's rental place - but the prodution must rent this hard drive from the studio. Sure, you could buy one for 300 bucks yet' you are rendint it for 60 days thus paying 6 times more, so it makes no sense. But it makes perfect sense as a line item on a budget. Passes an audit just fine. Now do that for everything imagineable. So the studio is making money whether the movie makes money or not. so it's the investors who have to face up to the question of will the movie be a big enough hit to pay for it's budget and marketing. But since profits are so easy to hide... I'm not sure I'd want to toss money into a hedgefund where someone else was controlling the expenditures.

There are a few people in town who frame their audit reports (and checks) from Titanic still. One producer I believe made $22 dollars off his profit participation. I don't remember the exact amount, but I do know it is framed behind his desk.

This is why, though, that SAG insists on getting their percentages off the unadjusted Gross. Meaning - if you say you made a 500 million dollars... then there's a pool of 15 million dollars to be shared among the actors.

David Sweetman · August 26, 2006

That was good insight Mark, thanks. The economics of this stuff is really interesting.

Jon-Hebert Barto · August 29, 2006

Countrys/states also put up finishing money. Or gaurantor money...whatever its called.

New Mexico put up 7 million bucks for "SUSPECT ZERO", for example.

Whats going on with Cruise/Wagner right this moment may well change a lot of things regarding financing in Hollywood.

Brad Grimmett · August 29, 2006

Whats going on with Cruise/Wagner right this moment may well change a lot of things regarding financing in Hollywood.

I don't think it will really change anything. It appears they'll just be independent producers as opposed to being financed by a studio. There are plenty of independent producers around already, the only difference will be that they have Tom Cruise, so they'll be able to get more money than the average indy producer. They'll probably still release through studios I would guess.

Michael Collier · August 29, 2006

Whats going on with Cruise/Wagner right this moment may well change a lot of things regarding financing in Hollywood.

I agree it probably won't change much. Cruise is a falling star, and that is just a crack in the fiscade. There probably aren't studios reconsidering how they do business cause of cruise. You just won't see any cruise/paramount pictures ever again. It really sounds more like bad blood between the two. Cruise mad because of his termination, the studio mad because they felt they should have got more money from MI3 (or they secretly have wanted to cancel his contract for years, and this gave them a legal out)

The one thing I know about big business: The really really rich and powerful will invest millions to ensure that its business as usual as long as possible.

Brad Grimmett · August 30, 2006

You just won't see any cruise/paramount pictures ever again.

This probably isn't true. C/W has a lot of projects in the pipeline with Paramount, and some of them will probably get made, just not the ones with Tom Cruise in them.