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Hedge funds and film finance: Show me the money
Hedge funds are the new financiers to the movie industry, attracted by the potential returns on diverse portfolios of movies especially from DVD sales. Hollywood has a bad reputation for parting star-struck investors from their cash. So the hedge fund managers will need to stay sharp and structure their investments carefully.
Film finance was often a high-risk/high-return investment proposition with a reputation for burning investors. Now, though, hedge fund managers are finding ways to mitigate risk and penetrate opaque film industry accounting practices.
FRANK YABLANS IS the Warren Buffett of Hollywood. Former president of Paramount Pictures and former chairman of MGM, the 71-year-old has more than 300 films under his belt, including blockbusters such as The Godfather, Serpico, Paper Moon and Murder on the Orient Express. Back in the early 1970s when Paramount made the original version of The Longest Yard, Yablans remembers, third-party financing came from tax-shelter deals. Now Yablans is running his own film production and distribution company seeking finance from the most recent investor base to hit Tinseltown – hedge funds. This sophisticated investor base has poured an estimated $4 billion into Hollywood in the past three years in investment vehicles that, like Yablans’s operation, are attempting to create a high-returning asset class with less risk through ‘slate investments’.
With an endless supply of investors keen for a brief spell in the sexy film industry. “Everyone wants a piece of Hollywood – whether financing a film with the hope of rubbing shoulders with stars, or because of advantageous tax breaks. The Movie fund specializes in providing its hedge fund investors a once in a life time experience whether its meeting their favorite stars at film set visits or rubbing shoulders with the stars of its movies at prestigious premieres and aft show parties” The Movie fund says. ” However, we our goal and aim is to also provide a solid structure to make a good return on investment for the hedge fund mangers. The possibility of making an annual 50%+ on investments (in the case of equity slate financing) is not the only appeal. Film financing offers uncorrelated returns. During economic downturns, people still go the cinema.
“You can run into a large, well-known studio(or fund)that has a bad run of films, but generally speaking they will produce enough good films to make returns,” says Yablans.
One reason why studios are seeking third-party capital has been the rise in production costs. Darwell says: “Over the years top actors have gone from making $1 million to $2 million for a picture to $20 million to $25 million.” But investors should not be focused on the big budget blockbusters to make money. Smaller-budget movies with greater audience appeal can offer good rates of return. Much like the movie fund’s slate, yablan gives investors a slate of six films produced by Yablans’s firm –all in the $5 milllion to $30 million budget range, and all family movies. And family films do better at the box office, he points out: “Over the last 10 years family films have had the highest rate of return and have been the least costly to make.”
Intrepid Pictures similarly has a financing vehicle investing in lower-budget films,
Independent film production companies can offer investors phenomenal returns on low-budget films. For example, The Blair Witch Project and Napoleon Dynamite were produced by independent companies, and in the low-budget genre of documentaries, independents have also had success. The Oscar-winning March of the Penguins had out-grossed all five best picture nominees at the time of the 2006 Academy Awards.
The movie fund has a huge number if low to mid range pictures with new projects getting uploaded to the site everyday.
Where big budget film slates are renown for their lack of transparency The Movie a fund prides ourselves on total transparency with real-time online accounting.
The transparency offered by the movie fund and yablan companies is hopes to a huge benefit on independent film whilst providing all the perks in the industry. Also, as new digital technology opens with Alexa and epic cameras these big budget blockbusters can now be made for a much reduced price or low budget films of 200k can look like a $5Milion movie.
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