5MythsAbout Film Investment

Introduction

Let's begin with the five most common film myths.

The object of this report is to explain to you how placing funds into film can be one of the soundest investments available in today's financial market place. Film is a greatly misunderstood asset class and this article is designed to open your eyes and help you understand grey areas surrounding film investment. The Media Development Lounge focuses on investments within documentaries and we use the noun film to encompass all genres from Horror, Drama to Documentaries.

One very important thing that we have noticed is that the mythology of film making often gets in the way of smart investment choices and confuses people

to just how profitable savvy film investing can be. I am aware that there are various film promotion companies offering investments in $100M budget movies that allegedly have half of Hollywood's A list actors in their cast. I hope that I can dispel some of the myths that are circulated regarding film investment in such huge productions.

Once I have injected some clarity into film investment, I am then going to drill deeper into the different genres of film and show you in no uncertain terms why investing in documentaries can be the safest and most profitable type of film investment.

Box Office Performanceis All Important.

A healthy run in the cinema does not mean that the film will show a return to its investors. Hypothetically, if a film cost $100M to make and grosses $200M in the box office, this does not result in a $100M profit. Cinemas can take between 50% to 75% of box office receipts, and if the distributor has spent a sizeable sum of $50M promoting the film globally then it could in fact be running at a loss.

The media's attention on box office figures creates the illusion that a film needs to be greeted with huge box office numbers in order to do well financially, when in reality theatrical releases are expensive. Big box office receipts are not necessarily essential for a film to make a profit. A majority of the takings are absorbed by the cinema. On top of this, distribution fees can be huge, and the large print and advertising costs involved for generating a packed opening weekend can eat up most, if not all of the profit from boxoffice revenues.

The theatre is just one of the platforms that a film will recoup money from. Other platforms such as DVD, VOD (Video on Demand) Digital Transmission, Ancillary, and TV are less expensive and traditionally more profitable. I will explain later how these types of platforms can quickly recoup the small budget of a feature film quality documentary and place its investors in a position of profit more safely and quickly than in a movie.

The bottom line here is that

the box office is not where you need

to focus in order to get an feel for

how profitable a movie is going to

be. Cinema is not essential for a film

to make money for its investors,

intact it can work

against recoupment.

1

Audience and Critics'Opinions Matter

This is another myth that becomes dubious once you understand how films are sold. Some films and most documentaries can be in profit long before the viewing audience and critics have had time to view them. In fact, in some circumstances a film or documentary can move into profit from the minimum guarantee alone. I will explain what minimum guarantees are and how the sales process of a documentary takes place.

Once a film is made it needs to be shown to audiences around the world in order to make money. We have already explained why the box office audiences are not important. Other cheaper and more profitable platforms that films and documentaries can be sold to are:

• Free Television - BBC, ITV, Channel 4

(All countries have their equivalents)

• Pay TV - Sky Atlantic, HBO, Showtime

• Digital Transmission - Netflix,

iTunes, Amazon

• DVD Sales

In order for this to happen a film needs to be sold to distributors. This leads us to the question…..

How are films sold?

For a film to reach its global audience, the producer engages a sales agent, who then sells the film rights* to distributers and broadcasters around the world. This is the most important element to a profitable film. The problem is that virtually every country has its own group of distributors and knowing who to deal with and how to negotiate the best price is an art in itself. Due to this, it is imperative that a producer employs a sales agent to sell the rights of their film for them.

A film sales agent is a person or company that will sell and promote the rights to a film

to distributors around the world. Whenever you are entertaining the idea of investing in a film it is very important to ensure that the company has a strong sales agent and distribution process in place. (For example, The Media Development Lounge represents a director that has his own powerful sales agency and has also utilised one of the biggest sales agents - BBC Worldwide).

The Sales Agent will often help package a film in the development stage, providing opinions on attached actors and other talent to make the valuation of the film more attractive to distributors. Once the sales agent is in place, they will approach distributors at film festivals, TV Markets, and also approach TV companies directly. This is where negotiations and sales take place.

Distributors will purchase the broadcasting rights for their territory (country). When you hear that a film was sold at Cannes, the rights were licences for a minimum guarantee. Essentially a distributor may offer a £100,000 to secure the rights to a show documentary exclusively in Japan. This is given as an advance to the producer once the film or documentary has been made. In some circumstances a studio may have their entire budget covered by MGs and pre-sales, but they will still need to raise their budget as funds will not arrive until the film is made. If a film has a sturdy sales agent and a percentage of sales and MGs are in place, then this will substantially de-risk the film as a potential investment.

If the Director making the documentary is well known and has a robust track record of making profitable and intelligent documentaries then there is a much higher chance of the film being licensed.

The bottom line here is that

distributors are the real audience

and the sales agents tell them what

movies to check out. When investing

in a movie one of the most

important things to qualify is that

there is a solid sales agent in place.

2

Big Stars AttractBig Profits

This is one of the biggest myths in the film industry. Big actors do not mean more profit. Leonardo Di Caprio may attract big audiences but it does not mean he will attract big profits. You have to remember how much it costs to make the film. Once again, if a big budget film costs $150M to make, it will need to gross that much before itbreaks even.

Big actors can help in the beginning of a film's life. They help attract good co-stars, directors, and other behind the camera talent. They may also help secure a good sales agent.

Big stars attract good distributors and high sales prices but you must always remember how much it costs to make the film. Big stars usually mean big budgets and a film must sell astronomically well in order to break even and make a profit.

The bottom line here is that big

stars usually come with big price

tags. One benefit of documentaries

is that they can have a lineup of 30

of the world's biggest household

names without breaking into a huge

budget. When a star is interviewed

for a documentary it can happen in

their hotel room, or in between

takes on their latest movie, it is easy

to fit dozens of stars into a

documentary if you have access to

these types of celebrities.

The Media Development Lounge

currently represents Jon Brewer, one

of the worlds leading documentary

directors who recently made a film

called BB King: The Life of Riley.

Featuring BB King, Barack Obama,

Mick Jagger, Bruce Willis, Bono, Eric

Clapton, George Benson (to name

but a few) and on top of this it was

narrated by Morgan Freeman.

Documentaries enable well connect

producers that create films on highly

appealing subjects that enables

them to pack their films with a star

studded cast of contributors who

donate their services for nothing,

thus keeping budgets low and

ROI high.

3

Film accountingis shady4

This is a commonly mentioned point, and it's understandable as the media loves to focus on disputes between studios, actors and film companies. Film accounting may appear shady to some individuals but what we have found is that shady accounting means lack of understanding of the sales process. For example; if a film you’ve recently invested in shows sizeable box office figures, you should expect to see a big check in the mail. What people don’t understand is that box office sales have big expenses. Theatres take their cut and studios must recoup their

advertising expenses. This usually leaves minimal funds available for investors.

On top of this, the bigger the film, the more people, companies, lawyers and agents will be involved. This can lead to complex profit distribution and mammoth advertising expenses that often leave investors disappointed.

The bottom line here is that film

accounting can be clearly outlined in

transparent financial reporting and

auditing rights for investors.

The bigger the budget,the bigger the profit.

This is not true, big studio films have large expenses and and even larger budgets. As we have already mentioned, the bigger the budget, the bigger the amount needs to be recouped in order for the film just to break even. A studio film has to do exceptionally well across all platforms to generate a good return.

The average Hollywood studio movie costs $70M with another $40m in marketing. These types of big budgets mean that a film needs to see astronomical returns in order for investors to receive a profit on their investment.

Finally, it is almost impossible for the private investor to invest in a Hollywood

movie that has a range of A list actors in its cast. These types of movies are not open to the general public.

I hope that we were able to shed some light onto the film investment arena and show you that big budget movies with huge box office takings are not as appealing as the advertising makes out.

The bottom line is that it is a lot

easier to break even and make a

profit with small independent film.

With this in mind the most

profitable genre within film is

documentaries (see graph below).

5

In Summary

“As we mentioned in the beginning

of this report. The mythology of

film making often gets in the way of

smart investment choices and

confuses people to just how

profitable savvy film investing

can be.”

The Media Development Lounge exclusively represents Jon Brewer and his company Emperor Media. Jon is in his 17th year of making documentaries and he has a 100% unblemished record of recouping on everyone.

He works with established sales agents (who have all sold his work) such as BBC Worldwide and Cardinal Releasing. Cardinal is headed up by Laura Royko who is responsible for media deals on a worldwide basis, with BBC, SKY, MTV (USA), FOX, SBS, ABC, Channel 4 (UK), Channel 5 (UK), Biography and Universal.

We have a whole range of information on why the documentaries that we represent will offer you a safer and more lucrative, non-indexed linked investment.

It is clear that documentaries can be easier to recoup on if they have the correct sales and distribution agents to complement a well know director, viable and sellable subject matter wrapped up in a star studded cast.

Contact us on the details below for a relaxed

and informative overview on how this arena

could work for you.

Telephone 0203 282 7605

Email info@tmdlounge.com

This article is property of The Media Development LoungeFor more reports on film investment visit our downloads

section at www.tmdlounge.com