Investing in independent film is a viable option for Real Estate Investors.
Investing in independent films is like a real estate investment but with a Hollywood twist. Just like real estate, film projects require upfront capital for a potentially lucrative return. But unlike traditional properties, films can generate returns by way of multiple markets (countries) and through diverse channels like global distribution in theaters, streaming platforms, TV deals, rentals etc. and the “ancient” way of DVD sales; returns are often at a faster pace than your average real estate deal.
Let’s break it down:
Film is a very secure asset. Much like securing a property with tangible assets, film investments can be anchored by pre-sales and minimum guarantees. There’s also a low barrier to entry. Investing in films can start at a fraction of the cost of a typical real estate investment, making it accessible and scalable.
Pre-sales: Think of it as selling a house off-plan. Before a single scene is shot, distributors commit to purchasing the distribution rights, ensuring that a significant portion of the budget is covered. These aren’t just optimistic numbers; they’re contractual obligations from distributors to buy the finished product, offering a floor to potential returns. Securing pre-sales also means you start seeing returns on your investment even before the film is released. Not only does this mitigate risk but it also aligns the interests of filmmakers and investors from the get-go.
Minimum Guarantees: Your safety net in film investment, akin to having a tenant signed on to a long-term lease before you even purchase a rental property. This is a predetermined amount that a distributor agrees to pay for a film, regardless of its success. Imagine investing in a property knowing you already have a buyer guaranteed at a set price. The minimum guarantee is a contractual assurance from a distributor to purchase the film once it’s completed. This means that no matter how the film performs publicly, the financial risk you face as an investor is significantly mitigated.
Completion Bonds: Just like title insurance ensures that a real estate transaction is clean and clear, completion bonds serve as an insurance policy, ensuring that the film will be finished and delivered to distributors no matter what.
Diversification: Just as real estate investors spread their risks across various property types and locations, investing in films allows you to spread your investment across different genres, target markets, and distribution channels. This diversity helps mitigate risks and optimize returns, shielding your portfolio from volatility in any single market.
Markets: Real Estate is focused on a particular market where the property is located. Films are distributed in multiple markets across the world creating a greater probability of a high return.
Revenue Streams: When you invest in a film, just know the product will generate multiple streams of revenue—through box office receipts, streaming rights, international sales, TV and cable contracts, product placement/sponsorship and merchandising. Ancillary includes the money earned from licensing the movie to airlines, hotels, cruise ships, soundtrack sales, tie-in novels, video games etc.
Leverage: The concept of leverage is also prevalent in film financing. You can use not only your own capital but also capitalize on pre-sales and attractive tax incentives to fund a project. This is akin to using a mortgage to buy a property, allowing you to maximize potential returns while minimizing the upfront cash outlay.
Maintenance: In real estate, you’re constantly dealing with maintenance costs and management fees, leases ending, gaps before new tenants etc., which can start eating into your profits. Films have a clear cost structure. Once the film is made, there’s no ongoing “maintenance” besides maybe some marketing costs.
Risk Mitigation Strategies: There are many strategic film-specific risk mitigation strategies. One of them is predictive AI tools like Cinelytic (85%+ accuracy), in which it thoroughly analyzes a movie project and tells you if it has a chance at generating a ROI. This offers surprising diversification and an upside for the investor.
Please let me know any questions or comments that you have!