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The Appeal of Investing in Films

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Are films a
good investment opportunity.  I think
they are for the right kind of investor. 
Here’s why.  I have written this
in a Q&A style to answer the major questions that prospective investors ask
about whether to invest or not.

 

1.   Why is film investment an attractive
investment opportunity?  Is it because of
the high return or because of the nature of business?

 

            For many investors, the high return
is a big draw, because films do have the potential for a very large return,
though there is a very high risk with a lot of big “Ifs”.  A film can do extremely well if it has a good
script, good acting, good production value, has a budget that fits the type of
film this is, and strikes a chord with distributors or buyers for the TV, DVD,
foreign rights, or other markets. Then, if the film goes into theatrical
release, it has the potential to have an even larger audience, though
theatrical is not the primary source of income for most films, just the big
blockbusters, since the theater owners take about 75% of the box office unless
a film goes into a long-term release and there is a high costs for prints
(though an increasing number of theaters are going digital).  The value of a theatrical release is more for
its promotional value for gaining other kinds of sales, except for the huge
blockbusters.

            Despite the potential for high
returns for some films, investors in it for the money have to realize that any
film investment is a big risk, because many problems can develop from when a
film goes into production to when it is finally released and distributed.
Theses risks include the film not being completed because it goes over budget and
is unable to get additional financing or there are problems on the set.  Another risk is that the film is not
well-received by distributors and TV buyers, so it doesn’t get picked up.  Or even if a film gets a distribution deal,
the risk is that there is little or no money up front, so the film does not see
any further returns.   So yes – a film
can have a high return, but an investor can lose it all.

            As a result, for many investors,
other key reasons for investing are more important.  They believe in the message of the film.  They like and support the film producers,
cast, and crew.  They like the glamour of
being involved with a film, including meeting the stars and going to film
festivals.  They see their investment as
an opportunity to travel to distant locations for filming and for promoting the
film.  And they see investing in the film
as a tax write-off, much like giving to a charity.

 

2.       What kind
of investment returns can investors can expect, since many independent productions
are not designed for big screens, where are the sales coming from?

 

            If all the stars align, and there is
a good film done with a reasonable budget and distributors, buyers, and an
audience responds, the film could readily earn 4 to 10 times its cost, making
everyone very happy.  A low-budget indy
scenario for this level of return might be a film shot for
$50,000-200,000.  It might get
$500,000-750,000 for a TV sale and earn $1-2 million more through DVD,
streaming, and foreign rights sales, even without a theatrical release. 

 

            For most films, the main value of a
theatrical release is the PR value of getting the film known, so buyers will
want to purchase or rent the DVD and TV buyers will want to show it on one of
the premium cable movie channels.  Also,
most films don’t get a theatrical release, and the funds are earned through other
channels.

 

3.       What kind
of movies can usually generate good profits, since the recent Oscar Awards show that a big investment does not
necessary mean big returns?

 

            Some of the big blockbusters that
pass the $100 million threshold can certainly make a profit from a successful
theatrical release, both in the U.S.
and abroad.  But whether they make a
profit depends on their budget.  Because
of the high salaries of stars that are typical in these films and other high
cost items, such as special effects, many blockbusters still may not make a
profit.  Thus, dollar for dollar, many
low-budget indy films may be a better investment, since the multiples are
higher with a success; there is more likelihood that a low-budget indy, which
is done well at a reasonable budget, will be sold and make back it’s money, and
the potential for loss is much less.

 

4.    Are documentaries a good
investment opportunity?

 

            Good documentaries are an especially
good investment opportunity, since the costs of making documentaries are much
lower than for feature films.  They can
be done with a much smaller crew – even two or three people in the field – one
for the camera, one to handle sound and lighting, and another to coordinate
arrangements and ask good questions in the field.  Post-production can be easier too, with fewer
takes and less film to edit for the final cut. Many documentaries are done with
a budget of $10,000-50,000, which can easily be recouped 5 to 20 times over
with DVD, TV, and foreign sales.

 

5.       Are there
any legal or regulatory restrictions preventing individual investors to
participate in film investment opportunities?

 

            Generally, if you’ve got the money
to invest, the filmmakers will find a way for you to legally to give them the
money.  Various vehicles include
nonprofit corporations, LLCs, private placement memorandums, and loans. A
typical requirement is that the individual have the funds to invest funds that
might be lost in a risky venture and is advised of the risk of the investment.

 

6.        What are
the key risks behind film investments and how do you prevent them?

 

            The key risks behind film
investments is the potential to lose it all if the film doesn’t get completed
or doesn’t find distribution.  The best
way to protect yourself is to assess the potential of the feature film or
documentary going in; assess whether the budget and expected return seems to be
reasonable for the project; and assess whether the producer, director, and
others on the film seem to have the experience to complete and market the film

 

7.       How much
will be the initial investment required to invest in a film production?

 

            An initial investment can range from
a few thousand to several hundred thousand, depending on the film and the way
an investment is structured.  For
example, some indy filmmakers doing low budget films have found creative ways
to get funds by inviting investments of $1000-2000 from those participating in
the film, such as the actors and crew members. 
Others have divided up investment packages into $5000 each for 20
investors to raise $100,000.  Still
others have looked for a few big investors, who can contribute at least
$20,000, $50,000, $100,000 or more. 

 

            Once there is some investment in
place, there can be other sources of funds, such as GAP funding and incentives
from states and cities in the form of rebates after filming is completed.  VC funds are also a possibility, particularly
after there is some initial investment in the film, if the film’s budget will
be at least $1-2 million.

 

8.       With modern technology advancements, what are the opportunities
for independent and emerging film producers; or are
these developments more of a threat due to piracy and competition?

 

            There is a growing opportunity today
for indy and emerging film producers to get distribution in alternate ways,
such as through the Internet, self-distributed streaming downloads or DVD sales,
play on mobile devices, and sales of DVDs or streaming rights to Netflix and
Blockbuster. While piracy has always been a concern, new technological fixes
can help to prevent this, such as locks to prevent duplication or more than one
or two showings of the film.  Other
protections can come through licensing a film for distribution to platforms like
iPhones, which have their own protections against copying.

 

            Certainly, there is more and more
competition, because more and more people can make films today, though the big
studios and distributors still dominate in the theatrical arena and they have
the money to make the big films with big stars and special effects. But the new
technologies for production and distribution offer so many more avenues to
create and market indy films at a much lower costs.  So there are naturally many more films out
there from many thousands of producers.

 

            But with creative promotion,
filmmakers can help their film stand out among the clutter.  They can creatively use the social media,
such as LinkedIn, Facebook, and Twitter to let people know about their film.  They can gain recognition on the film
festival circuit.  They can get
endorsements from well-known people. 
They can mount an e-mail PR campaign to the media.  They can rent theaters to set up showings in
different cities.  They can put on events
with their film as a centerpiece.  And
they can make themselves available to appear on radio and TV shows, as well as for
interviews with reporters for the print media. 
In turn, all of these activities can help to sell their film to
distributors and buyers for TV, DVD, foreign, and other sales, while attracting
a growing audience for the film, making distributors and buyers even more eager
to promote the film.

           

            So, yes, indy films can be a great
investment for certain films.  And
whether you make money or not, an investment can open u p many opportunities
for more involvement in the film industry and for having fun.

 

Copyright ©
Gini Graham Scott 2010.  This article can
be shared with others personally if the whole article is included, along with
the bio at the end of the article. 
Please contact the author directly for republication rights.

 

* * * * * * * *

 

Gini Graham Scott is an indy film producer, screenplay
writer, and PR and marketing specialist. 
She has published over 50 books, including books on PR, writing,
marketing, pop culture, and social trends.  Her most recent books on PR include: DOING
YOUR OWN PR and USING LINKEDIN TO PROMOTE YOUR COMPANY AND YOURSELF.  She hosts a radio show CHANGEMAKERS, with
over 400,000 listeners and has several projects in development and
post-production.  She has recently set up
a nonprofit – Global Visions Entertainment - to produce socially aware films
with a director in L.A.
and the company is currently raising funds to produce two of her scripts: NEW
IDENTITY and THE NEW CHILD, with filming planned to start in the summer 2010.  A trailer for THE NEW CHILD is on her Web
site at www.changemakersproductions.com.  (Go to Trailers).  She also writes scripts for other producers
and has adapted memoirs and novels for several clients into scripts.  She has a service that helps clients connect
with the film industry through the Film and TV Connection (www.filmandtvconnection.com) and
with the media through the PR and Networking Connection (www.prandnetworkingconnection.com).   Using the social media techniques she
recommends to others, she has built up a network of over 5 million connections
on LinkedIn.  Her personal Web site is at
www.ginigrahamscott.com.  She can be contacted via e-mail at changemakersproductions@yahoo.com.

 

 

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