Tuesday, December 28, 2010
It was a busy run-up to the holiday season and we’ve been a bit remiss in keeping the news flowing from Movie Beach. We haven’t exactly been lazy, just a little diverted by a few projects that sprang to life in the last couple of months. We’re in the process of tying these up now so rather than the usual post-Christmas belt-loosening and stretching out in front of the fire we’ve been focused on getting some great business done before the year end. But with everyone else around the world in a soporific state that can be hard to do . . .
There are all sorts of year-in-review stories around at present and this isn’t one of them. But we do like to reflect a little at this time of year and 2010 has presented a few challenges as well as bringing great opportunity. While Movie Beach isn’t exactly eye-witness-reporting, we do like to focus occasionally on ground-breaking events in our niche of movie financing. Most positive of those for us this year has been the opening up of the Pandora’s box that is “studio accounting”, whereby several producers have won landmark cases in order to gain their rightful shares of earnings on movies and TV shows. We say this again and again but if you make an agreement to do something in any business you’re generally going to be held to that agreement. It’s taken a long time but the movie business is finally getting that sort of scrutiny where contracts will begin to reliably reflect what should happen in practice, and then if that doesn’t happen those contracts will be relied upon to get a judgment in court.
From our perspective the spin-off from all of this is that producers now recognise even more acutely that if they’re going to get investors to participate in their movies, they have to make meaningful agreements to reward them for taking the risk. For too long investors have been shrugged off as movies get made and rarely make a profit. Yours doesn’t have to be the most profitable movie ever made but there has to be something in it that the investor wants and if you can determine what that is and deliver it, then you’ll be in business.
Relax over the holidays, and we wish you a happy, peaceful and prosperous new year.
The Out Of Obscurity team.
Monday, December 06, 2010
This week Movie Beach is pleased to present another piece by a Guest Blogger, Steve Jasmine of Causation Creation. Steve has a unique perspective on the business of movie-making and movie finance, so please feel free to post your comments.
In 2008 I was fortunate enough to be working with a private equity movie financier in Los Angeles. He engaged me in the process of assessing movie projects based on their creative content. At that time I was in the middle of developing a movie profitability model for box office success based on the creative elements of a movie. This developed into a 3-year analysis of billion dollar grossing movies. My movie financier contact, let’s call him Mr. X, had told me that he had access to $15m of other people’s money to invest in movie projects and wanted a winner. During a 13-month period I assessed 40 movie projects, many with A-List actors attached. During this time I dealt with many movie producers and gained an understanding into what they want. Generally what they wanted was money to make movies without consideration as to whether it would ever be returned to the investor, let alone whether their movies would make a profit. I give some of my experiences from that time as a source of advice and a warning to potential movie investors.
Having perceived access to movie money, I discovered that I became a target of great interest in Hollywood. I set up a website so that producers could find me and Mr. X showed me many projects that he was sent. All of these projects were analyzed by my system hoping to find a winning movie project. Not one passed the test even slightly. Giving producers the news that their movie was not suitable was the cause of real anger.
One such producer had written a movie about a girl escaping a small town cult group with a hero fighting desperately to save her. When I informed him that I would not recommend financing his movie he threatened me, claimed I knew nothing about movies and then urged me to reconsider. A colleague of his contacted me and asked me to look past the threats and finance the movie. They did not seem to understand that direct threats against me were a huge issue to me: and of course the fact that the movie was of no interest to a wider audience.
Another producer sent me a comedy script by a writer for a national TV personality. It was clearly a 90 minute version of a TV show with laugh-a-minute comedy. That type of comedy is not conducive to big screen box office success. I tried to rewrite the script to get it in a form that would work according to my model, and invested two weeks of my time doing this. The producer kept calling to ask if I would be financing the picture. The issue of the movie not being commercial in its original format was of no interest to him, so I arranged to speak to the writer who was also going to direct the movie to see what his opinion of the changes was. He said “I don’t care, whatever,” and handed the phone back to the producer. That was all he wanted to discuss about the project. The movie needed $5.6m in financing and the producer said they had already raised 10%. For some movie investors an initial amount of capital is important for them to invest. For us it was not. When I looked into the budget I saw that the production company was taking a $250m fee off the top and the producers and director were taking $625k in total. In actual fact the 10% they claimed they had already raised was just their fees that they were going to defer until the movie made money.
From the same producer I was shown a $6 million movie with an A-List actor, which needed $4 million as the A-Lister had put in $2m of his own money. From my analysis work I gave them a review of the first 44 pages of the movie indicating all the reasons why we would not invest. The producer was so impressed he asked me to do a review of the whole movie - for free of course. I declined. The movie was made with another investor and managed to make about $6m at the box office. With Prints & Advertising costs of say $2m and a $6m budget that movie has to make about $16m. in revenue to return its investors one cent. I didn’t see the movie but from what I have seen of the trailer I believe that none of the changes I suggested were made. What mattered was that it got made and the producer got paid his fee. The investor was not on his mind. Up-front fees were all this producer cared about.
I received a movie from a writer-producer who claimed his project was going to be the next Crocodile Dundee. As an Australian who saw Crocodile Dundee as an exchange student in the USA I know that movie well. His movie was about an African American living in NYC who plays roller blade hockey really well. He is transported to Canada where he plays ice hockey and initially fails at it then finds his rhythm and succeeds. What has that got to do with Crocodile Dundee? The producer could see the similarities because this meant he could say that his $6m movie was going to make $300m in the box office. He also mentioned the actor David Spade in the proposal and indicated that movies with David Spade have grossed almost a billion dollars in box office revenue. He did not say that David Spade had actually agreed to be in the movie, just that he was someone they would want to have in the movie. He was shocked when I passed on his project, explaining that it was like a TV show episode and not a box office story.
I dealt with one producer that had written a movie he felt was the next Pulp Fiction. I am a big fan of that movie and I know about the subtle mystical elements of Pulp Fiction and what they stand for. He told me that he had been offered $100k for his script but he felt that he should hold out as it would be worth millions when Hollywood got their hands on it. I read the script and it was terrible. I explained to him some key factors in the first 30 pages that made it terrible. He said “You have to read the rest, the movie really gets going after the first 30 pages.” I explained to him that a movie has to get the audience interested in the first 3 pages otherwise they will hate the movie. He said the mistakes I saw were minor and could be changed. I explained that they were built into the structure of the story and to change them was to change the whole story. He then said “Well it’s never going to be as great as Pulp Fiction.” At least he had the balls to admit it when confronted by it. Mind you that was after about 20 emails back and forth discussing the story, most of which involved him arguing with me about how great his movie was.
I once heard George Clooney say that when he became an A-List actor he was excited as he would be able to read the truly great screenplays that he had been denied access to. He then discovered that there were none. I felt the same. After a year of reviewing projects I gave up. I had not seen one movie project that would appeal to any audience. I saw projects with some really big talent attached, sometimes for a small fee and a big piece of the box office gross. I saw contracts with the inclusion of their assistants and their housekeeping and their hotel rooms. Some with their food requirements. I even saw two movies written by big Hollywood stars with careers spanning over 20 years and they were two of the worst movies I reviewed. One had managed to get some other A-List actors to sign letters of intent to be in the movie to help it get funding. I asked Mr. X why these stars would sign up for such terrible movies. He told me that most actors will sign anything that has dollars attached. The great movies go on to the box office and advance their career, the bad movies go straight to DVD and no one remembers them. All the while the producers, actors and agents get paid. The only one that does not get paid is the investor. I went to my local DVD store and flipped through those “Ex Rental” DVD’s for sale cheap. I saw so many titles with A-List actors in movies I have never heard of. Then it became clear to me. I was being asked by these producers to help finance those DVD’s. For every one was an investor who had hoped, but failed, to find the next Pulp Fiction or Crocodile Dundee. At least the producer and his director friend got paid. And the A-list actors of course.
When a movie fails the investor gets told the standard Hollywood lie “No one knows what makes a movie make money. Sorry.” The old story that Hollywood is a gamble. Having invested over 3 years in scientifically studying movie profitability and creative factors of billion dollar grossing movies I know this is a lie. If only the producers I spoke to were more interested in making their movies have great stories instead of hiding their extra fees in the production budget we might all enjoy going to the cinemas more than we do.
The Out Of Obscurity team.
Wednesday, November 03, 2010
We were invited to speak at the inaugural IIFF film financing conference in Phoenix, Arizona last week. We're always happy to hit the road and spread the word, so we took off to the desert for a couple of days. It was held at a graduate media school attached to Arizona State University, so there was an eclectic crowd of both established movie folks and enthusiastic up-and-coming filmmakers.
The overwhelming impression was that “where film meets finance” – as the IIFF guys bill it – is a vital area for movie-makers. Most are consumed with the creative process of getting their movies made, as they should be, but there’s often a disconnect regarding how they’re going to firstly get their movies funded, and then make the business part of the process a success for their investors.
One key point that came out of the discussion was that it’s not just about raising money to get movies made, which most film-makers eventually accomplish. The real silver bullet is that if you can show your investors a return on their money they’ll come back and finance your next movies. If they don’t make a profit, as is usually the case, you’ve burned a good relationship and source of finance. Just as important as making a profit, we also heard, is protecting your investor’s capital. If you can use any viable structure to ensure that your investor won’t lose his money, then even if he doesn’t make much from the first couple of deals he’ll still appreciate your creative work and desire to protect his interest and, again, may come back and finance your next movies. Make money, or at least don’t lose money . . .
We launched the Pitch Page section on our website just a couple of months back and we’ve had an overwhelming response. There are now more than 70 projects up on our page with more coming in every day. We’ve had several expressions of interest with a couple of potential deals being talked about. We’ve also been approached by a group interested in financing a slate of projects from our site. It’s hard to tell exactly what level of audience we have in the industry but it’s clear that people are taking note and that movie insiders are always looking for good new projects. For now we’re just happy to give filmmakers some additional visibility as they strive to get their voices heard.
The Out Of Obscurity team.
Sunday, October 03, 2010
Bialystock: You're an accountant! You're in a noble profession! The word "count" is part of your title!
Bloom: I'm a nothing. I spend my life counting other people's money. People I'm smarter than. Better than! I want... I want... I want everything I've ever seen in the movies!
How many producers does it take to change a lightbulb? A whole lot it seems, and they’re all in the same room fighting it out over The Hobbit – which has cost almost $50 million so far without a frame being shot, en route to an estimated $500 million production pricetag. Sounds to us like there’s a whole lot of trouble a-brewing down under where Peter Jackson’s just about to begin shooting the movie. Not only has Guillermo del Toro recently stepped down as director after two years and moving his family to New Zealand, but one of Jackson’s studios burned down last week, no doubt adding to the cost.
But, the thing that caught our eye was the mire they’re in with financing the picture. Not only have Warner and New Line just swept up the legal debris of The Lord Of The Rings, including settling with Jackson himself and the Tolkein estate, but they’re waiting on the almost-bankrupt MGM to come up with its half of the production budget. MGM’s creditors, and potential future owners, will surely find the money for the Hobbit and also the next James Bond movie, as a safe bet to generate future income if the studio is to survive. But the funny part is that when the two Hobbit movies eventually get released, in 2012 and 2013, there’s a whole line-up of parties waiting to share in the gross revenue. It’s hilariously reminiscent of Mel Brooks’ formidable classic The Producers, in which Zero Mostel rounds up an army of little old ladies who each believe they own a large slice of their Broadway show and a share of the profit when it becomes a surprise hit.
Just like The Producers, we can see the court cases cranking up if The Hobbit ever takes a dime at the box office . . . . The LA Times reported last week that New Line, Warners and MGM will be joined by the Tolkein estate, Peter Jackson, Saul Zaentz (who previously owned the Tolkein rights), Walt Disney Studios and Bob and Harvey Weinstein (who developed the Lord Of The Rings movies at Miramax) in sharing gross revenues from The Hobbit. How a movie with so many gross participants can ever hope to generate a profit is beyond us. So heaven help anyone else who believes they’ve got a share of profit coming to them. But of course, just like Bialystock and Bloom intended in The Producers, many big Hollywood movies never actually make a profit, at least not on paper.
You may know from some of our recent posts that we like to see the truth win out – at least as close as Hollywood can get to the truth where money’s concerned. It’s notoriously hard to enforce film financing agreements, and several artists have sued recently for participation that they were promised under contract. It’s great to see court victories for some – Don Johnson even had his Nash Bridges verdict increased from $23 million to $50 million to allow for interest on his share of the profit. More cases are going to court: this week Matt Dillon sued producers for a share he claims he was denied from the movie Crash. In most cases we’d bet the production companies probably don’t have the cash sitting around on the off chance that they might have to pay out. And no doubt some companies or maybe even studios would be in extreme difficulty if they lost such judgements to actors or producer partners claiming an unpaid share of historical revenues.
So, it seems to us the bigger message is that perhaps, now that the spectre of enforcing old contracts has become a reality, just maybe Hollywood studios and producers will start to do the right thing and honour contracts, smarten up their accounting and pay participants fairly. Sleight of hand exists at the margins of many businesses but usually it’s bordering on the criminal and gets found out and fixed. It’s only in Hollywood that so-called “studio accounting” is a mainstream practice which the establishment is fighting in court to try and protect. We’ve all heard stories about someone getting short-changed on a movie deal, it’s not just a figment. But the growing trickle of cases seeking to apply fairness will inevitably change the accepted practice, and the movie financing playing field will get a bit more level as a result.
The Out Of Obscurity team.
Tuesday, August 24, 2010
Another victory for profit participants in Hollywood the other week, when veteran actor Jack Klugman won a “multi-million dollar” settlement from NBC Universal over unpaid royalties from the TV series Quincy, M.E. He was entitled to a quarter of the show’s net profits, but sued NBC when they didn't provide him with accounting statements. Amazingly, NBC’s lawyers had earlier refused him access to the accounts which he subsequently filed suit to get. Last month Don Johnson won a $23 million settlement for unpaid profits from his Nash Bridges series, and other cases are in the pipeline. If more such cases get to court it could spell big trouble for the studios and lift the lid on their accepted business practices.
For some in Hollywood whose mantra is “So sue me”, the idea of adhering to contract terms and paying partners an equitable share would be a new business concept. For many years the concept of “studio accounting” has been prevalent and accepted as just the way things are done. Producers and other participants had to accept that their movie or TV show might never be declared to have made a “profit” even though it’s been cranking in the bucks for years, and that the only way to really get what’s owed in the end is to commission regular audits on studio receipts and hold rights-holders to account under their contracts.
Sure, there may always be some grey areas but there’s really no reason why movie and media accounting should be any less specific than in any other business, where fairly clear determinations get made every day. So, can the movie business decide that adopting clean and transparent accounting practices might be a good thing to do?
There are a bunch of similar cases in the pipeline. We know a company specialising in the management of legacy media rights – the trail of revenues owed to producers and other participants on historic movies, shows and media assets – that’s gearing up a number of cases against studios and TV companies to recover unpaid revenues on properties they manage. Examples include simple non-observance of agreements and the usual non-provision of accounts, as in the Klugman case, to the interpretation of revenues owed on movies that are sold as part of a packaged rights deal.
One favourite is the transfer-pricing fix where a studio or holding company sells a property to a subsidiary company – a TV network, for example - at a less than market price, thereby creating a loss-making show which then has no “profit” left over to pay the show’s creators or producers. That was one of the main factors in the $270 million verdict against Disney/ABC in the recent “Who Wants To Be A Millionaire” case. That's elementary financial window-dressing and we’d like to think that the room for this sort of thing is squeezing tighter and tighter as it all bubbles up to the surface.
Juries don’t like to see people getting ripped off, which is one reason why it seems imperative for the studios to try and settle these cases before they get that far. But they can’t stop the tide, and we’re cheering for the little guys on this one.
It’s something we like to talk about because we firmly believe that if you construct a transparent platform for investors to participate in then people on all sides of the deal can make money fairly or, at the worst, get a fair accounting of where the money went. And we also think that the movie business is one of the best opportunities for investors to get into a real alternative investment with terrific potential to make them money regardless of what’s happening on Wall St.
The Out Of Obscurity team.
Monday, August 09, 2010
So, you’ve put your heart and soul into getting your movie made. You’ve called in favours and run out of friends and family members to rope into your venture. Finally you’ve cracked it: after hundreds of mostly dead-end calls, meetings and follow-ups you’ve got the money. It’s not yet time to relax but closing on important investment capital is a great achievement.
You’ve got a commitment of the financing you need to make your movie, that’s great. However you’d better tie that commitment down and convert it to cash as fast as you can because things have an unfortunate habit of unravelling in the movie business. Nowhere is this more painful than when the money falls out.
We’ve all seen it: we’ve had promises, commitments, sure things, cheques in the mail and proof of funds that somehow didn’t quite make it to cash in the bank as promised. Investors have a habit of getting cold feet in any walk of life, but maybe more so in the movie business where the lure is so seductive but the financial reality can be stark. If there’s any part of the process where we all need to do our jobs like superstars it’s in absolutely securing the money we need to make our movies.
There are many ways of getting investors comfortable with the prospect of investing in your movies. It’s not always profitable but we all know that’s not why most investors come to the movie business in the first place. We actually heard a speaker at a conference last week say that you should let your potential investors know that indeed movies don’t make money but they’re a great way to write off tax liabilities! A bold suggestion and maybe a touch risky. Otherwise, there are lots of ways to get people comfortable enough to make the pledge and stick with it including the U.S. government’s Section 181 tax incentive, and structuring preferred repayment out of revenue, not “profit”. Finally, aligning your investor’s interests clearly with your project’s will ensure that he achieves his goal along with yours. This could be for him to become a recognized media investor, get close to celebrities, gain visibility for his other business interests or any number of things. You need to be very aware of what’s going to float the boat of every investor you’re approaching and try to help them get there. Once they can see they’re investing in something that benefits them in some way, regardless of pure financial performance of your movie, they’re likely to stick with you.
Here’s a few real-world few examples from our own experience of how things sometimes don’t quite hit the deck as planned:
- A $250,000 investment into our movie fund from a Middle Eastern investor was confirmed not only by his broker but his bank confirmed it had been “sent”. Sadly, and suspiciously, something went wrong and the funds never arrived.
- After multiple term sheets a European investor confirmed his offer of a significant investment into our company. Despite signed contracts the investor then hid behind the “I pushed as hard as I could but my committee wouldn’t approve my suggestion” ruse, maybe you’ve heard that one before.
- We had two separate letters confirming a $5 million investment for a movie production. Solid, written commitments helped us to put together significant project elements and were looking forward to getting the production rolling. However in both cases the investors melted away, one through business reasons and the other, we think, because he was a lying fraudster in the first place . . . All the more galling because the starlet we had lined up for her breakthrough role as our lead loved the script and is now a superstar.
- And, we’ve come across a whole bunch of big-talkers promising everything from movie investment money to business partnerships which didn’t happen. Sometimes there’s a hint of innocence about the over-promisers and bigger-uppers, but they generally fall into the category of people who put more effort into talking themselves up than they spend getting things done.
Undoubtedly, episodes like these will be no surprise to those of you going about financing your movies and perhaps the business does attract more than its fair share of people making big claims. So it’s even more important to try to qualify your potential investors, just as you would with anyone you’re getting into business with.
Simple values always hold true: is this a good deal; is this person an honest partner we can trust; and do we want to be in business with these people if things get tough? Of course it can be hard to tell and raising money is tough, and we all kiss a lot of frogs along the way.
So what’s in a commitment? – you’ll know as soon as the money hits the bank.
The Out Of Obscurity team.
Sunday, August 01, 2010
This week we’re pleased to present our first Guest Blogger on Movie Beach, please feel free to post your comments. We’re always interested to hear suggestions for topics you’d like to see covered in the areas of movie finance, investment and film-making in general, so let us know what's on your mind.
The film industry is in an interesting state right now. With studios leaning more towards known material such as sequels, remakes and books we are seeing a trend that is opening doors for independent filmmakers to make their mark and join in the race. It was just a few years ago that independent films started to become more than just a straight-to-DVD commodity that was lucky to get any attention. It became an important necessity for an industry that could no longer afford to risk making films that weren’t guaranteed blockbuster status.
Hollywood’s overall box office numbers may have be down a smidge earlier in the year, but studios are bringing in nearly the same amount of revenue on higher ticket prices and half the number of movies that were being made ten years ago. In other words studios want a guarantee that a movie is going to make money or the project will die. There are a few exceptions though. Sometimes movies get made with questionable scripts, but it’s the star power that gets attached that green lights the movie and guarantees a big opening weekend and profit. A perfect example would be a movie that premiered last Valentine’s Day (I can’t seem to remember the name of it). It was the perfect example of a movie that had an All-Star cast, a proven director, a perfect release date, and was guaranteed to be a money maker. It’s too bad the film was terrible. It’s movies like these that prove that independent film-making can continue to blossom and prove they belong by creating telling works of art with actors who will give their right arm to start their career.
While everyone seemingly has a script in Hollywood, this is the time for action. Studios are constantly looking for independent films that show great story, production value, and are entertaining. Independent movies that show potential for box office success have studios clamoring and bidding to get their hands on them and shove them in theatres. In today’s market studios don’t want to take the risk of financing a project with a new film-maker, but they are willing to buy a final product if it is filmed properly and acted well. Some of these movies’ budgets are less than the cost of a new car, have actors working for free, and DP’s running around with standard light bulbs and cardboard reflectors. While this may not be the most attractive way to create a film it’s a win-win situation for new film-makers who just want to create and studios who are only looking to buy.
Before running into the forest at night to shoot the next big horror movie, film-makers should seriously consider the many resources online that can help prepare for an independent movie. Sites like Outofobscurity.com can help find financing, and Zoetrope.com and Massify.com can help in getting feedback and reviews on your script. Screenplay competitions like the Nicholl Fellowships in Screenwriting and BlueCat are two of the most well known, but be leery of others and do your research. Use sites like Actorsaccess.com for casting, and if you don’t want to pay for the account fee then go old school and start posting auditions on Craiglist.com. The resources are out there, they’re just not the big budget ones. Besides, nothing is more liberating than being your own boss: that’s why it’s called independent.
As an independent film-maker you can write your script, cast your actors, guerrilla shoot it on a beggar’s budget and find the success you are looking for. In order to do it though there are sacrifices to be made (most of them financial), and absolutely no guarantees. If you believe in your script, your actors, and most importantly yourself, your chances are a lot greater than if you gave up and didn’t make your movie at all. Creating an independent movie can end up being one of the most satisfying things you do in life. Success itself is dependent on preparation, quality and a little bit of luck. So while the rat race may be a clogged maze of big budget films, the independent film-maker can think outside of the box and still finish with a movie in theatres.
Christopher Ray Allison
The Out Of Obscurity team
Thursday, July 22, 2010
When deciding what movies to finance and produce, you’d think it would be useful for studios and producers to have a clearly structured way of assessing how they might perform at the box office. On the other hand you might think it’s a complete lottery and that movie-goers are just a fickle lot. However it would be the holy grail if a film-maker had a real formula to determine accurately the true revenue potential of his movie, and more importantly how best to tailor his work towards success during production.
One aspiring guru has come up with just such a formula and is hell-bent on applying his ground-up approach to identify success factors and weed out known mistakes in movie production. His revolutionary approach factors in certain features that he believes lead to a movie’s success such as character types and development, genres and storylines that resonate with audiences, it determines specific camera shots and angles and a myriad of other factors which together, he claims, can reliably generate profitable movies.
Would Hollywood listen to such a revolutionary concept that could potentially force it to change how it does business? Our friend Steve arrived in Hollywood last year to introduce his concepts but he found that few doors opened to allow him to get his message across. Many of you reading this won’t be surprised at the reluctance of insiders in any industry to be told what to do by a relative newcomer, and the thought of questioning the established beliefs in the movie business is certainly too much for many of its fragile egos. No producer wants to be told “you’ve got a pretty good concept there but step aside and let me rewrite your script and change a bunch of other stuff”. And, the thought of applying a scientific process with a checklist of criteria that need to be fulfilled probably sounds too much like regular corporate business practice, not something most Hollywood creative types are best at.
However, it’s a topical issue every weekend as the box-office numbers are pored over. This week, for example, the trades are focusing on the differing performances of Inception and The Sorcerer’s Apprentice. Inception, a thoughtful, high concept “thinking adult” kind of film they don’t really make any more, could have stumbled amid the summer popcorn audiences, but took in almost $63 million. And although The Sorcerer’s Apprentice looked like a slam-dunk for the summer crowd it stumbled at only $17 million. From a review of movies currently on release our friend Steve feels there are several obvious mistakes in some of the big movies out there which, by applying techniques determined by his model, would have been corrected as those movies were being made. And, although the studios’ current favourite survey partner CinemaScore does a remarkable job of predicting the performance and longevity of movies at the box office, their results are based purely on exit polls taken during the movies’ first-run weekend. Those movies aren’t going to get any better once they’ve been released, but Steve believes the studios ought to listen to him because his model will help them to make better movies and get them right before they’re released.
Many companies and consultants have tried to solve the problem of “how much will my movie make” with decidedly mixed results. Others have looked at the more oblique issue of “how can we present the best movie, with the right mix of talent, genre and time of release in the calendar, to ensure our best shot at a good result”? That’s daily business for the studios and some elevate it to a science. But they’re generally dealing with known elements: scripts rewritten to an existing formula and tailored to the whims of directors and stars, marketing departments doing what they know has worked before, and churning out genre fare to suit the perceived demands of the public. Maybe best known of the current number crunchers is Ryan Kavanaugh, whose Relativity group runs mind-numbing models to determine where to put its money. But is he beating the average, as you might expect with such an appliance of science? Quite possibly he is. But it’s going to take a strong will or a spectacular result to get a major studio to fundamentally change how they do things and apply Steve’s new techniques to their movie slate.
Steve believes that by applying real analytical techniques to movies at every stage of their creation he can ensure an absolute success rate. Of course this sounds fantastic and if he can prove his model’s capability he’ll see a rowdy line of Hollywood producers and studio exec’s develop outside his office. He has discussed his model with the few producers and studio exec’s who would agree to meet him, with similar results: they like his concept but aren't sufficiently convinced to put their money behind it, at least until it’s proven. He’s in a Catch-22 situation where he needs to prove his model but Hollywood isn’t listening to him or lining up to fund his efforts. He comments about a current studio blockbuster:
“It is clear they have no idea why "The Sorcerer's Apprentice" lost money. It is crystal clear to me. That means on the face of it I am better placed then Jerry Bruckheimer and Disney to understand what the movie-going audience is looking for. That is a sobering thought. What do I do with that?”
What he’s looking for is someone who can understand his modeling approach and the idea of a breakthrough concept, who’s prepared to back him to go make a movie that, in Steve's words, will "break the gut-feel mould of Hollywood movie selection and add some science to the process". We're watching eagerly.
The Out Of Obscurity team.
Tuesday, July 13, 2010
The other day we read a great piece in the Los Angeles Times about an uncle advising his nephew on the route he might take to drive across the USA from the East Coast to Los Angeles to attend the American Film Institute. We’ve spoken at one or two events at the film school here in LA and it’s certainly a venerable institution for an aspiring young film-maker to go to. Rather than zip across country on the Interstates the uncle, a noted film director himself, felt his nephew would be better off taking the slow roads where there’s more chance of discovery. Take your time he urged, meander through small towns along the way – heck, even take a couple of years to let the whole thing brew and soak up all the different experiences along the way. Don’t just go to film school in LA and learn how to copy other filmmakers but find your own voice and your own techniques borne of your own experiences. His underlying message: be an original voice, and find yourself through travel.
Funnily enough, that’s how Out Of Obscurity got started in the movie business, and I guess why that piece hit home. A few years back after living in various parts of the world, we bought a red Mustang rag-top and set off from New York to take the slow roads and drive right around the US. We covered just over 10,000 miles in 6 months and found ourselves in many small towns and byways along the way. We made some great friends and finished up playing music and watching the world go by for a month or so in the French Quarter in New Orleans. From there we hopped over to the Bahamas where we wrote our first screenplay, drawing heavily on our experiences from the road. It was picked up by a producer straight away, a minor miracle in itself, and we began working with agents and producers in LA.
And here we are: travelling has always been a part of our lives and we can’t imagine things otherwise. Travel always.
The Out Of Obscurity team.
Friday, July 09, 2010
We were with a professional colleague the other day who’s raising money for a forthcoming marquee franchise property that’s being produced outside the studio system and is fully financed by equity capital from private investors. An intriguing combination as it seems to be every producer’s goal these days to have his movie 100% equity financed by a bunch of old ladies: however, few manage to pull it off. Our guys have raised $30 million so far and are on target to top $100 million to cover production and P&A on two movies in the franchise. It’s a powerful position, providing of course the distribution trail works out and the movie sells. But there’s a lot of confidence in their camp as the production and talent teams are second to none and the movie continues the legend of one of the all-time classics.
They have a revolutionary capital structure too, with investors guaranteed to be repaid capital plus profit first. In first position before any other entity, even the studio which eventually picks it up for distribution. That’s unheard-of in Hollywood and has been scrutinised to death by various parties to check whether it’s true or not. Not only that, but investors get provided with transparent financial statements and can - and do - visit the production any time to check on their investment. It’s a great concept to give investors exactly what you say they’ll get, and unusual only in that it seems so unusual to anyone familiar with Hollywood business practices. In most businesses you invest in some sort of promise and get to see how that pans out in practice and on paper. In Hollywood through the ages, however, investors have been surprised time and again on deals where they were promised some sort of “profit participation” only to be told “Sorry, your movie didn’t make a profit”. Examples are legion of blockbuster movies which have broken box-office records but never made a dime for their investors.
During the conversation our guy, who’s relatively new to Hollywood, asked in passing “Does anyone do a square deal in the movie business?”. As it happens the verdicts had just come down on two high-profile cases illustrating that very point, so-called “Hollywood Accounting”. The first featured the creators of the TV game show “Who Wants To Be A Millionaire” who sued Disney and ABC TV for unpaid profit on the long-running hit show: the jury awarded them $270 million. In the second case the actor Don Johnson sued the producers of his TV show Nash Bridges for unpaid participation and was awarded $23 million. Nobody knows whether these verdicts will stick on appeal, but they’re seen as the thin end of the wedge as there’s a steady stream of such cases coming through and no shortage of investors and producers feeling short-changed. They’re often settled out of court and in the wake of two such high-profile jury verdicts the studios will be seeking any way they can not to get back into court on subsequent cases. If things do take a turn towards business transparency this week’s verdicts could change the Hollywood landscape.
This is nothing new, of course, there are many ways for investors to lose money and a bad movie deal is only one of them. However it’s not simply that Hollywood is the bad guy, but it does seem somehow easier for investors to be seduced by the glamour of the movie business and scrutinise the terms of movie deals less thoroughly than they would on other investment opportunities. So we’re sure that there are indeed fair deals to be done in Hollywood and we’ve always believed in the merits of investing into quality movies in the right structure. We like to maintain a level playing field with our Movie Portfolio Fund, a feature we agreed on wholeheartedly with our producer friend. Give investors a fair deal and then sure, the movie business will still be highly lucrative if a little risky, but we’ll all share in the fun without feeling cheated out of the profit.
The Out Of Obscurity team.
Wednesday, July 07, 2010
Over at our websites for Out Of Obscurity and the Movie Portfolio Fund we receive a regular stream of submissions from people all over the world looking to make things happen with their movie projects. We’re never sure what we’re going to see in our inbox: as you’d expect missives can range from the fantastic to the forgettable. But there’s usually some sort of spark that, in the right hands and with the right backing, might just ignite into a flame of inspiration. Some projects come ready packaged with directors, crew and talent, some with a little or a lot of money, and some are just the germ of an idea. We respond to them all and we’d like to be able to help them all.
We also get a fair bit of traffic from people interested in investing in the movie sector, whether they’re industry insiders, money managers or just individuals looking for a smarter way to invest their money. As we’re fond of saying in this journal the movie business is a classic alternative investment sector, which can out-perform traditional investments whether conventional indices are going up or down.
So, we like to help out whenever we can by introducing film-makers to potential contacts that might help them in getting their movies made. But of course we can’t help everyone with a project, and some investors may be looking for something beyond our investment fund: that oddball movie project that nobody’s picked up on yet. Which is why we’re thrilled to introduce The Pitch Page, a dedicated forum where we post details on a bunch of project submissions that we receive. We’re aiming to give film-makers much-needed exposure to the community of movie business executives, producers and investors watching our site. It’s true that there are always more projects doing the rounds than ever get made into movies, but we believe there’s a great chance for movie business insiders to uncover some hidden gems from the world of creative talent we hear from every day, and we’re excited to see the Pitch Page take flight. Go on, take a look at The Pitch Page.
The Out Of Obscurity team.
Monday, July 05, 2010
Greetings again and a happy 4th of July to everyone out there, wherever you are. We’re a hybrid mix ourselves of International roots and travel along with a whole bunch of American influence in our lives and work, and we have our own reasons for joining in the celebrations on Independence Day. This year we took in a party down at Marina del Rey among the pretty yachts and quaysides, with a big fireworks celebration in the evening, it was quite a sight. It reminded us of other great nights around the world: fireworks at the foot of the Edinburgh castle in Scotland; crazy fiesta explosions of everything in sight in Valencia, Spain; Chinese New Year pyrotechnics in Hong Kong harbour; and nice things going pop the world over on countless nights in the company of good friends.
It’s good to be right here in the heart of the movie business and you never know who you’re going to bump into. The other day a friend arranged for us to meet up with a group to discuss raising finance for a great movie project of theirs and it turned out that we had real synergies in our work through some mutual friends in the Bahamas. Regular visitors to Movie Beach, if indeed there are any, will know by now that we’ll use any excuse to mention the Bahamas and our plans for global domination centred on our cozy little offshore HQ down in the islands. Out of Obscurity and the Movie Portfolio Fund are based offshore currently so it’s not such a stretch and we’re working on it, oh yes we are.
Anyway, at the time of writing we’re following up with our new friends to see what we may have in common to work on together. We believe there are real opportunities to match their proven ability to raise movie finance from domestic onshore investors and our offshore fund for international investors. It’s hard enough to finance movies at the best of times and investors are rarely faced with a level playing field when looking at different movie investment opportunities. We like to present investors with a transparent, flexible and tax-neutral opportunity to share in the upside of investing into movies as an alternative asset class. And if we can do that in partnership with our friends then so much the better.
We firmly believe in the merits of investing in movies as excellent alternative assets, and we surely believe in synergies involving our favourite island chain.
The Out Of Obscurity team.
Friday, May 14, 2010
So Cannes is upon us again and we’re not there. And not because of the volcanic ash or the mini-tsunami that hit the Med last week, but we generally don’t do a lot of hob-nobbing at festivals. We’re always working with investors and we do get along from time to time to support movies we have a particular interest in. However, we do have plans to take a particular feature of ours to Cannes next year.
Last year at Cannes we had the pleasure of sponsoring the launch of a partner company, Studio Beyond, with a big party at the Majestic Barriere, right on the Croisette. The Movie Portfolio Fund logo was emblazoned electronically across the building into the night and it was a grand Cannes occasion. Nice to meet a few good old friends and some new ones as well, and we believe strongly in the partnership going forward.
Walking the dogs around Marina del Rey is normally an altogether more peaceful affair than the Croisette at Cannes, but this morning we discovered that the quiet little park we like to amble around had been taken over for a movie shoot. It turns out that Ashton Kutcher and Natalie Portman are shooting their new movie around here, just one of what seems like hundreds of movies going on around town at present. Things are still buzzing in the production business and the word is that Cannes is going to be a much busier forum this year as mainstream buyers are hungry for new product again after a few years of over-supply. Great news for movie makers.
We always like to maintain an international perspective and lately it’s been disturbing to read about the anti-government protests going on in Bangkok right now. Regardless of politics, which can be a little nutty, Thailand is a beautiful country with wonderful people and it’s sad to see things get out of hand again. Previously we had an office in the heart of the Silom district, right where the Red camp is, and we experienced enough strange goings-on then, including tanks in the street. But it’s very sad to see people dying and we wish them a peaceful resolution. Ironically, right now we’re working on financing a couple of movies being shot in Thailand, co-produced by producer friends of ours here in Hollywood, and we’re looking forward to getting back out to Asia before too long. We also have a couple of intriguing fundraising opportunities in the works at the moment out of Thailand, so perhaps the stars are aligning that way once more.
The Out Of Obscurity team.
Wednesday, April 28, 2010
You notice a lot when you’re out walking the dogs every day, and lately we’ve been noticing quite a few movie shoots springing up around our neighbourhood, and all over LA. We even had the paparazzi camping out in our street the other week while Adam Sandler and Jennifer Aniston took over the lovely Casa Del Mar Hotel to film their new movie Just Go With It. It’s a good sign that activity is picking up in the movie production business, which is always good to see. We never tire of talking about the opportunities of investing in the movie business, there’s a lot of money to be made by investing into the right portfolios of movie assets.
It’s been an exceptional period for movie revenues: global movie income has continued to grow in 2009 and 2010, aided substantially recently by the behemoth that is Avatar. The DVD market is currently getting the sort of boost that the box office received a few months back, and this will have a ripple effect throughout the revenue chain and indeed throughout the world wherever people watch movies and buy any movie-related merchandising. It has been said that the DVD sales bubble is over but in our opinion it’s just the initial rush that’s now settled down, and DVD's will always bring in substantial steady movie revenues. It’s all good for business: movie revenues continue to outperform conventional market investments, and we believe that movie assets continue to be one of the best alternative investment propositions for profit and asset growth.
The movie sector is one of the most clearly defined non-correlated asset groups, as movies generally make money in good times and bad and whether conventional markets are up or down. There have been a few murmurs in the press recently that global markets may be recovering, but issues like turning around the US housing market, or the Eurozone coping with the troubles of Greece and Portugal are tough to engineer and will take years to happen. That’s why we’re bullish on movie assets as a part of any portfolio. It’s always been a great alternative asset class that was hard to get into, these days there are a few good ways to invest sensibly into movie assets. One of them is of course our own Movie Portfolio Fund, it does just the job.
The Out Of Obscurity team.
Monday, April 05, 2010
We’ve mentioned before the various funding methods that we see or hear about in the business of financing movies. There are probably more people out there peddling “structures” than there are movies made every year, and almost every conversation about movie finance at some point turns to some structure or other. It’s becoming more common for producers to get hold of Standby Letters of Credit issued by an investor’s bank, which can then be used as asset-based finance for movies. SBLC’s are highly legitimate instruments issued by banks traditionally to finance international trading transactions, and can be creatively incorporated into movie finance. We know a couple of groups who make a “bread and butter” business out of helping people monetise these instruments to get the cash needed to make movies.
Of course a lot of transactions get proposed which aren’t as legitimate, some promising great returns along the way via so-called trading programs around the underlying assets. Whether or not these programs actually work is another matter, but a lot of talk goes into the subject among layers of people, and rarely do the actual deal principals come to the table. Rightly so, many people are wary of dealing with intermediaries and groups that don’t make their identity known. However, it’s a tough job getting movies financed and producers are always eager to explore all likely options.
We’ve seen as many dead ends as most folks. Just this week, for example, we were introduced to one deal where, for 5% down we could finance 100% of a slate of movies. And another proposal where a $10 million investment would realise $300 million within two years . . . Maybe so, but in general we like to work with just a few people we know and trust. We can help arrange finance for well presented movie projects that can bring around 20%-30% of their budget to the table in cash or equivalent. With that sort of leverage we can source the remainder of the budget and give the producers a great back-end that’s fair to all parties. Things are flexible but the first slice does need to be there, and that’s the rub. Everything changes but plus ca change: you always need some initial equity in place to get a real deal done, so producers still need to get out there and raise some faith capital to get their ball rolling. But the good news is that there are deals available for those who do.
On the other side of the deal there’s a great opportunity for investors to participate in movies, or slates of movies, with a sensible and transparent financial structure to give both parties some protection and reward. Many people would like to invest into the movie sector but are wary of the risks: we agree entirely, but we believe that the more transparent you can make the deal, the better the outcome for all concerned.
The Out Of Obscurity team.
Monday, March 22, 2010
The LA Marathon was run this past weekend, and for the first time it finished down by the beach here in Santa Monica. It’s always inspiring to see so many people achieving their goal, this year more than 25,000 ran 26.2 miles and there was a great atmosphere at the finish line. It’s always especially great to see so many people from all over the world congregating in one great big event together. There’s been quite a bit of filming in our neighbourhood lately, with a few movies and TV shows using the beach as their backdrop, and we wondered how many sources of international money it’s taking to finance these various projects on the ground right now.
We’ve been going on for ages about international partnerships and movie production & funding solutions around the world. We’re currently discussing funding partnerships in China – a long-term discussion, that one - Japan, Singapore and Australia, as well as feeling out options in the Middle East. We have committed funding partners in Europe and there’s certainly a great deal of interest awakening in various markets about the opportunities available to investors into the film business. Many “Hollywood” movies have been financed over the years by funding structures around the world and while it’s commonplace these days to see producers take advantage of tax breaks and incentives on offer in the various US states, Canada and some other countries, there’s always some new stone being turned.
Last week it was reported following the Berlin festival that US producers had suddenly woken up to the potential of financing their movies from Europe. Producers are seeking not only co-financing money but also the opportunity to qualify for European content quotas – meaning that if a certain portion of their filming is done on location, they may qualify as “local” content and have more favourable distribution opportunities than typical Hollywood movies. As well as seeking additional opportunities in Europe, producers are also finding it tougher to close finance domestically in the US but conveniently it seems that European distributors are buying more English-language titles at present.
A nice combination of circumstances if you’re looking to finance your international movie, but it’s somehow surprising to us that the concept of international financing seems so novel. There are definitely great opportunities all over the world – we were recently invited to work with the producers of a new Hollywood movie being shot on location in Singapore and financed out of the US, the Middle East and Asia – but in our opinion your producer needs to be looking at all possible sources of finance to get that movie made, wherever the money’s available. We always think that the best place to find what you need is out in the world.
The Out Of Obscurity team.
Wednesday, March 10, 2010
Here at Movie Beach we’ve always felt that, whatever the question, “it’s out in the world” was a pretty good answer. There’s no substitute for travelling, living and working in different countries, making friends and interacting with people all over the world. Some people have an urge to travel and do new things and some don’t, but we think it’s just a simple necessity.
Our business has humble origins but throw in a couple of lifetimes of travelling the world, a company base in Singapore and significant time spent working out of mobile HQ’s in Asia, the Bahamas, Los Angeles and Europe and we like to think the world is our oyster. We’re not suggesting that we’ve got all the answers or a finger on every pulse, but in our daily business we do like to think “how would people in, say, Korea, see that” and “where is the best place in the world for us to be doing this job”. There’s never a simple answer and these days when you can do many jobs from almost anywhere you need to evaluate whether you actually need a physical community around you to achieve your goals. Of course it’s much more pleasant working with friends and colleagues around but you can build new teams around your efforts and sometimes you can make the most impact by being right out on the edge seeing things for yourself.
We’re currently looking at a couple of new fund projects in China and South-East Asia, as well as a potential new regional Asia fund and a couple of movie deals in Thailand and Japan. Our China discussions are proceeding well with our keystone investor still on board to kick things off. We may get to Beijing to shake hands on that one, which would be a blast. Another regional Asia fund deal has come back to life when we thought it at best dormant, and that may give us the chance to combine both the Singapore and Hollywood ends of our business. It seems as if Asia’s always calling us.
Today it was reported that global box-office revenues increased 7.6% to $29.9Bn in 2009, another record year in the international movie sector. Europe still dominates international revenue but the biggest increase, of 12.3%, was in the Asia Pacific region where new technologies and screens are busily rolling out. The movie sector still presents the great investment opportunity we keep going on about.
The Out Of Obscurity team.
Monday, March 08, 2010
Quite a few of the celebrities appearing at the Oscars this year were staying down by the beach before the show, and we watched a few heading off in limos from their hotel during the afternoon. So it was nice to watch the Oscars show and recognise a few of our “neighbours” on the red carpet looking just as they had appeared a few hours earlier.
The biggest winner of the night featured one of the biggest Oscar schmucks, The Hurt Locker’s producer Nicholas Chartier, who had managed to get himself banned from the event after lobbying members of the Academy by email to vote for his movie above others, in particular Avatar. Ironically, although he wasn’t able to be there his wish came true with Avatar receiving only three technical awards. He may have been over-zealous in pitching his movie, but we were thrilled to hear Kathryn Bigelow underscore how crucial he was to the process. Chartier had believed in the movie enough to bet big on it by assembling the finance from mainly overseas sources when domestic money couldn’t be found. It was nice to hear a film financier mentioned so glowingly in dispatches.
It was also thrilling to hear Bigelow herself repeat her mantra to “never give up on your dream” after the show. Of course such personal advice can sound trite in sound-bite form but how many people actually do follow their dream day after day, year after year, with dogged determination and sometimes with blind faith until they achieve their goals? Not too many that we know, and it’s all too easy for many folks to find excuses to give up or turn to something else when the going gets tough. We believe firmly that if you put in the hard yards then you will achieve rewards, but it’s probably fair to say you have to put in a whole lot more yards than you could ever have anticipated before you begin to see the finish line. Be prepared, do as much as you can, and then get ready to do a little more. Nothing real comes easily.
The Out Of Obscurity team
Monday, March 01, 2010
Apologies for being a little tardy on our posts of late, we’ve been distracted by a few projects and time has flown by. It’s been a busy time for us, and it seems that things are picking up in general in the movie business.
We met up with a few friends at the beach yesterday, along with a big crowd of dogs. We were all talking about what we do and of course a lot of folks around here are in the movie business. The feedback at the production level is that there’s a little more going on right now. A couple of friends are working more regularly and our mad hairdresser buddy has been working almost exclusively on movie shoots for the last year or so. He’s doing great contracting to be on set for a couple of weeks at a time and even travels internationally as crew. There’s quite a lot brewing at the Movie Beach right now so we thought we’d jot down a few snippets of the sort of stuff we work on every day:
We’re currently advising a maverick genius who has defined a completely new method of creating movies in order to ensure they gross $1 billion or more. Sounds fanciful, for sure, but there’s a lot of precise methodology behind it, including several years of analysis and non-conventional modeling. We’re encouraging gently as he aims to secure financing for a prototype movie, then slate, then movie company, to become a beacon for this new approach to the science of making movies.
We’re moving ahead with our China fund plans, cautiously optimistic and taking things step by step. We’re now discussing a proposed business plan, and the next step may be to meet the partners and their official backers in China in the near future. We had been expecting things to progress reasonably slowly, but they’re actually moving fairly rapidly for now. This is an exciting prospect.
We’re working on a couple of new film funding structures which will enable us to offer a capital guarantee to institutional investors looking to profit from the movie sector but uncomfortable with the risk profile. The holy grail in film finance is to offer investors a way to benefit from this great investment sector while still protecting their capital. No risk and great profit potential? – that’s the plan.
One interesting deal we’re working on is to secure 70% of a budget for a friend who’s got 30% pledged to his movie. It’s a formula that can work well, but usually in practice we find that most producers who say, or believe, that they’ve got their 30% funding in place, actually don’t. This is usually because they quantify their project funding extremely optimistically – it’s the producer’s job – and they tell us they’ve got 5% here, 10% there, or even 30% in place, when most of the time it’s in some form of soft money. This can run the gamut from simple pledges of talent or crew working on deferred payment, to P&A services pledged to the production at cost back-end, to tax credits from some state or country. In short, it’s not money. If our producer has 30% in real money, then they can get their movie made.
Most days of the week we’re patiently tracking down some investment commitment or other. Somehow there are always plenty of folks out there who really want to say “yes” to becoming a part of the movie business, but when it comes to writing a cheque they’re a little less committed. That’s the story with one particular participant of ours: we’re already contracted to make movies together, bring in investors, introduce partners and basically all live happily ever after. But getting this much-loved partner to pull the trigger and transfer the money has proved trying, to say the least. We’re still optimistic that he really means what he says but we can’t figure out what makes him continue to be so elusive. That’s usually not a good sign.
We had an approach the other week from an East Coast capital management group with a diverse range of media interests. They have a goal to invest into movies and are seeking to partner with a group which has access not only to Hollywood projects but also a solid financing structure to work within, so we’re evaluating where we might combine some of our efforts there. It could be a nice fit and enable us to look at a wider range of projects.
Stay tuned for more from Movie Beach.
The Out Of Obscurity team.
Friday, February 19, 2010
Walking the dogs by the beach this morning, we strolled by a mini-European village being set up: streetlights, sidewalk cafes, French flags flying and a fleet of classic European cars. It’s always refreshing and inspiring to see movies shooting on location. So much seems to happen in a short space of time – they’re usually set up in the morning and gone by evening – and yet you see mostly a lot of inaction, with bunches of crew hanging around the mess wagons. But although it’s mostly a lot of waiting around for the right light or combination of director, crew and talent getting things exactly right, scenes get shot and movies get made.
We recently worked on the financing package for a movie shooting on location in New Mexico, where most of the drama occurred in the month or so before the shoot. We were arranging for the final gap finance to drop into place before the production could begin, and the producers had their two major stars on hold in a window that was closing fast. The financing deal for the final $1.5 million was set to close but the producers weren’t able to get comfortable with the terms. Although the money was to be delivered via an escrow account at a law firm, somehow it wasn’t working for them. To complicate matters the producers’ hands were tied by the presence of a couple of dominant private equity investors in their movie who were looking out for an opportunity to play a more active role, which the producers were trying to avoid. As in any business it’s good to get your investors’ money but it can become a pain in the neck when the investors want to start looking over your shoulder. In our case, when the deadline arrived the producers had to bite the bullet and get over their discomfort, but they got their movie made.
It’s been Chinese New Year around the world this week, with much of Asia just drifting back to work now. So we were pleasantly surprised to receive a call yesterday from the Chinese partner on our prospective new China film fund. It’s a great opportunity to break in at ground level in the domestic film business in China which has been so far impossible even for the Studios to do. Hollywood and all other international movies are limited to 20 titles a year in the fastest-growing country in the world, and although China is obliged by the WTO to open up its markets over time to foreign movies, domestic Chinese film producers are currently being given all sorts of incentives to step up and make more and better movies that will compete with the expected influx. However, with Chinese consumers preferring to watch homegrown movies and the sheer numbers involved, we believe the opportunity in China is boundless for many years to come.
The idea of a film fund as an investment opportunity is unprecedented in China, and from the producers’ point of view commercial third-party finance is also fairly novel, with most of the regional production groups being government-owned up to this point. So we’ll be seeing many new doors open and our keystone is solid investment from a few market leaders. We have commitments from a couple of institutions which we believe will create a snowball effect and the fund will take wings when these are tied up. So it’s all go for now as we complete our initial preparation work and get agreements in place.
It’s quite an adventure and on the phone this morning one of our dearest friends said “ I do wish I could go back to live in Asia again, that’s where it’s all happening in the world now”. The future is Asia.
The Out Of Obscurity team.
Monday, February 15, 2010
Chinese New Year fell on February 14th this year, so Valentine’s Day was a double celebration across much of Asia. Most of this week will be quiet in Asia as families enjoy their major holiday of the year, so Gong Xi Fa Cai to anyone celebrating.
Asia’s looming large at the moment, both in our own little world and in the bigger picture of where the movie business is heading. We noticed that the Singapore MDA has just financed its first picture in a recent co-production deal with Australia, a shark thriller to be filmed in 3D. With the success of Avatar it seems that all of the studios’ tentpole properties are going to get the 3D treatment: Spider-Man, Twilight et al are all being re-booted for 3D, and not just because it seems like a fad, but because 3D commands a higher price at the box office, at least for now.
They’re building new movie screens all over China now and we’re hoping to participate in the boom. For a while now we’ve been in discussion with a Chinese investment group planning to launch a new domestic film fund in the next six months. Even putting a timeframe on the project has been a challenge, and we’re well aware that in China things take time. Our partners have a few other investment funds in the market and were seeking Hollywood knowledge and film fund expertise to complement their base. With investment commited from one of the state-run film bodies the opportunity augurs well, but there’s a long way to go. Ideally, it kicks off with seed capital in place and an audience eager to take part in the magic of the movies. Chinese movies will dominate theatres and audience appetite for the foreseeable future and the pipeline of projects is locked in. We’re bound to face a few hurdles along the way but we’re optimistic right now.
This weekend’s Presidents Day holiday in the US brought yet another revenue record at the box office, with theatres generating the highest-grossing Presidents Day on record, and the movie Valentine’s Day having the biggest opening of any movie in this weekend, even after adjusting for ticket price inflation. So the trend of rising movie revenues is very definitely continuing, and with a shift to 3D production profitability will increase further. Just another pointer towards movie investment as a compelling alternative asset strategy, one that we never tire of highlighting.
In addition to the rapid expansion in 3D screens and movie production other shifts in movie economics are taking place, as exemplified by last week’s announcement that Tom Cruise will return to his role in Mission: Impossible IV. This time he is producing again, as he did last time out, but he’s no longer getting 22.5% of gross revenue: - yes, 22.5%, really. It’s no wonder that Paramount was miffed after its big hit movie Mission: Impossible III was left barely breaking even, with Cruise taking home at least $80 million for his efforts. This time out he’ll still earn $25 million, $20m of that up-front, but he won’t participate so generously in profit. The studios these days are much less inclined to pay top-dollar for stars’ basic salaries, preferring to structure profit deals where they limit basic costs and share some of the potential profits. This is undoubtedly good business sense and also cleans up the table for investors like ourselves. As a co-financier on a major project, the last thing you want to see is the bulk of the revenue being swept away by first-dollar participants before any costs are paid. Much better to cover costs and share profits at a reasonable level, with all stakeholders sharing the benefit, including investors and talent. That’s becoming a much more common model and is most welcome at the investor level.
The Out Of Obscurity team
Monday, February 08, 2010
Walking with the dogs today we noticed they’re beginning to set up the big tent down by the beach for the annual Independent Spirit Awards later this month. It’s always quite a raucous event with a bunch of genuine people who are really passionate about their movies. There are so many great indie movies around every year and we began to wonder just how many of them might actually make a profit for their investors.
It’s got a lot to do the intent of the producers when they go into the process, whether they’ve thought about their film making money or are they just trying to get it made. Of course most producers believe they have a compelling story that needs to be told and they’ll do whatever it takes to get their movie funded and shown to the world. But some savvy producers will develop a plan that demonstrates just how their investors will make money within a couple of different distribution strategies, and some bottom line option that gives investors a fair crack of the whip. The Section 181 tax write-off which we mentioned a few weeks back is a good place to start, as it assures your investor that he cannot lose all of his money with a 100% tax credit. Offering equity investors an early share of revenues until their capital is covered is a standard strategy and if there are any distribution deals in place up-front then investors can feel more comfortable that there is a revenue stream that will at least cover costs. Then of course, when your movie has paid for itself in whatever territories you’ve sold it, or the DVD and TV deals have kicked in and revenue comes in, the investors will be happy to share profits in some equitable manner with the producers, and everyone’s happy.
Well that’s how we’d like to think it happens but of course we all hear about the many people – producers as well as investors – who lose money on movie projects, whether it’s because of non-commercial movies that don’t get sold, skewed investment deals, bad management of the process or any number of reasons why things go wrong. Investors don’t always invest into movies simply to make money, and there’s always a host of folks who have made their money lining up to become the next big-time producers. But we like to think of this as a business in which our principal goal is to make money for our investors and partners, and in the process make a lot of movies that people will actually see. An investment fund doesn’t have the luxury of funding art for art’s sake.
We believe the movie sector is still one of best investment choices and even though we know that some movies in our slate won’t do well, we structure our positions so that we won’t lose too much on any losing picture, and stand to gain a lot on the profitable ones. Taking a portfolio approach is something that individual investors don’t always have the ability to do but it’s one of the only ways of giving yourself the best possible chance of making a lot of money in the movie business.
The Out Of Obscurity team.
Wednesday, February 03, 2010
Ever topical here at Movie Beach, we thought it worth mentioning that February 2nd is Groundhog Day, when Punxsutawney Phil – a Pennsylvania rodent - pops his head up out of the ground and forecasts the weather. This year he saw his shadow, meaning six more weeks of winter, at least in Pennsylvania. You may know the movie Groundhog Day, it’s one of our favourites as Bill Murray battles for his mental freedom while he’s trapped living the same day over and over again. Sometimes it feels like we’re waking up to the same day as yesterday but a brisk walk down by the beach with the pups usually takes care of all that.
Not on quite the same scale as Groundhog Day, we have noticed quite a number of film fund issues coming to the fore lately. We’re always interested in what’s going on around the world, and in the UAE the Imagenation group we mentioned a while back is releasing its movie My Name Is Khan as a co-production with Bollywood group Fox Star. Imagenation has co-financing deals in Hollywood, India and Singapore, among them a $250 million venture with the truly global Ashok Amritraj’s Hyde Park Entertainment, based in Singapore. Out Of Obscurity was founded in Singapore but we do most of our work internationally. However, we still consider Singapore our home base, it’s a fantastic place to work and travel from. We’re currently looking at movie and film fund opportunities in Thailand and China, as well as Europe and the US, and a spell back at the ranch may be just the ticket.
The government in Spain just announced a 5-year $800 million film fund to develop independent Spanish movies, which may cheer movie theatre owners in Catalonia, the independently-minded province dominated by Barcelona. Most of the region’s screens went blank on February 1st in a strike by owners at a directive that at least 50% of foreign movies must be dubbed into the minority Catalan language rather than Spanish. They fear a big drop in attendances if the proposed law goes into effect, and fewer movies from international distributors. We can only agree that imposing minority politics on the majority is never a good thing anywhere in the world, and movie-goers will inevitably vote with their feet.
It’s been interesting to read about the potential fate of Miramax, which was unfortunately run down and then closed down by Disney last week. Naturally, the Weinsteins would like to have their name back and potentially the library which they built up. But there are other bidders and a vigorous discussion going on about what those assets may be worth. It’s highly relevant for any film investor or fund manager like ourselves, as Disney is said to be asking $700 million for the assets which may earn anything from $50 million to $300 million annually. That’s a big range with the majority feeling it’s nearer the $50-100 million level, making it a tough payback at the asking price. The value of film libraries has declined a lot recently as the DVD sales part of the equation has stabilized. We don’t share the “doom and gloom” view of the DVD issue which some feel has spiraled down from a peak, never to return. Sure, early sales rates were astronomical but things always settle down, and sales in other channels will in time take up the slack. Movie revenues are steadily on the up and that’s good for movie investors. In our view it’s still a great time to invest into quality movie assets, and someone’s going to get a good deal on the Miramax library if they pay the right price.
The Out Of Obscurity team.
Tuesday, January 26, 2010
We commented recently about the introduction of filming incentives in California. Despite being the home of Hollywood and modern movie-making, California has been losing productions year on year to other locales offering advantageous tax or rebate deals, and film-makers had long been calling for the state to introduce some kind of incentive scheme to level the playing field and allow them to continue making movies in California.
So, last year's announcement that California would indeed provide incentives for producers not to join the “Runaway Production” bandwagon was greeted warmly by all involved in the industry. Of course there were a few gripes that the big studios were better positioned to take advantage right away, and some hoops had to be jumped through to get to the money, but in general it looked like a good thing to keep film and TV production in California. Well, today the LA Times announced that the “state of California’s much ballyhooed film incentive program has run out of cash – at least for the next six months.” The program had set aside $500 million in tax credits over five years but it has so far allocated $200 million to 60 projects, effectively eating up the first two years' worth of money. There was no shortage of demand for the 20%-25% tax credits but there won’t be any new allocations granted until before June. We don’t think anyone expected the money to go all that far but the fact that California stepped up to the plate was enough for a lot of participants to look into maintaining productions in and around Hollywood.
Meanwhile in Beijing, Variety tells us that China has announced a 5-year plan to encourage a Great Leap Forward in its domestic film business. With financial and regulatory assistance to encourage locally-made movies the plan seeks to ensure that Chinese cinemas devote at least two thirds of screening time to Chinese films. While not exactly encouraging to foreign film-makers trying to overcome the existing barrier of only 20 permitted foreign films a year, there may be some light in the tunnel as the overall cinema pie grows in China. And, just as the WTO has ruled that China must open its doors to foreign content, this plan is intended to allay domestic fears by encouraging Chinese film-makers to compete with established international studios on what might not be exactly a level playing field, but perhaps a less skewed one.
You never know quite what the business landscape’s going to look like next in China, but we’re still excited about getting back over there to have a look and see for ourselves.
The Out Of Obscurity team.
Monday, January 25, 2010
We always like to keep an eye on what’s going on in the movie business around the world and lately there’s been a lot. Over the course of 2009 movie revenues have continued to rise in almost every country, continuing a now long-established trend. And some places are expanding faster than others, in particular China, where they’re in the process of building thousands of new movie screens around the country. More than half of all box office revenue is earned by Chinese-made movies, and income is growing by more than 40% annually, according to the Wall Street Journal.
However all is not as it seems, since new screens doesn’t mean increased access for Hollywood movies and the state-controlled China Film Group is the sole arbiter of which foreign movies are allowed to play in the country. For years Hollywood has complained that China limits the access of foreign movies – currently only 20 titles a year, up from the previous 10 – and just last week Chinese cinemas were ordered to stop showing 2-D versions of Avatar, the runaway global box-office behemoth. Avatar, apparently, was doing too well in the lead up to the Chinese New Year holiday and was replaced by a local language biopic of Confucius.
A December ruling by the WTO stipulates that China must open up its market to foreign films within a year. Going back a decade or more China was concerned that flooding the market with foreign movies could hinder the local movie sector, but the demand for locally produced movies is now strong and the quality has risen considerably. China is on target this year to overtake Korea as Asia’s largest movie market and will surpass Japan within five years. This exponential rise in movie-going and the likely opening up of the market to international films means the opportunities are too exciting to ignore.
One key factor to doing business in China has always been having the right local partner. Recently, we were approached by a well-connected Chinese group seeking to co-produce 3-D films for the fast-expanding 3-D and IMAX sector, as well as to co-manage a new film fund targeting the Chinese market. We’re well aware of the challenges of accomplishing such goals – the right partners, administrative red-tape, differing expectations and cultural idiosyncrasies – along with the time it can take to get things done in a country where they definitely take the long view. Our Movie Portfolio Fund is an international vehicle with its roots in Asia, so we’re comfortable doing business in the region and the challenge of getting something new done right in China is too great to pass up.
We were invited to work on a China fund a few years back and all in all we spent more than a year in planning, discussing, and structuring the right sort of investment vehicle, and in making presentations back and forward with a different government-linked group. The fund didn’t fly, our partner changed their priorities as time passed, and the opportunity was missed. However we’re optimistic this time that we can get something done. Gong Xi Fa Cai!
The Out Of Obscurity team.
Thursday, January 21, 2010
We’re always reading that some crisis or other is about to engulf the movie business. Whether it’s the withdrawal of the latest round of easy money from hedge funds, banks or German tax funds, the decline in DVD sales or piracy in developing markets, something’s always just about ready to eat the studios’ lunch. However with the movie business posting the biggest year ever in international revenue for 2009 and the prospects going forward looking very strong, we believe that there’s never been a better time to be making money in the movie business.
Not all investors do make money or get the right access to movie assets. The structure of your deal, or investment into the business, has to be right. There’s no point sitting on a “profit” participation deal on a one-picture slate when we all know movies rarely make what the real world of business calls “profit”. Investors need to be sure that they’re invested across a slate of movies over time with reputable producers, on which they’ll be sharing all revenues (a different beast from profits) on an equal basis with the producers. In this way everybody benefits from the capital that gets the movies made in the first place.
However, people always want to be a part of the movie business, and when one source of money dries up Hollywood always finds another. The wave of hedge fund slate finance deals with the studios has receded lately but we’re now seeing new deals from motivated investors using sophisticated structures, and cleverer equity investments ensuring that that participation by a principal financier actually means something. Movie investors haven’t always made smart investment decisions, and even the best and brightest had the wool pulled over their eyes by the studios as the majority of their slam-dunk blockbuster movies such as Spider-Man and Harry Potter were held back from third-party financier deals.
There’s always a smart way to make an investment and with a little less money on the table now there’s surely even better opportunity for investors to strike advantageous deals. Film-makers just want to get their movies made and they’re generally amenable to working with financiers to get the job done. Studios have a little more luxury since they have much deeper corporate pockets and some have walked away from what they felt were less than favourable investment and banking deals recently. But the experience of the recent wave of slate deals was that it helps the studios a lot to have co-financing partners, not only to lay off the basic risks of making big movies, but to help them focus their businesses on the part they actually make the most money from, distribution. So we’re going to continue to see different co-financing arrangements with some or all of the studios maintaining slate deals with financing groups.
In today’s Los Angeles Times, James Cameron commented that Hollywood exec’s will always claim some crisis or another, but historically that’s always been the way. In the 1950’s the scare was that TV would replace movies, in the 1980’s it was VCR’s, but now there are more movie theatres around the world than ever. So some sources of money dry up like the German funds, and others will take their place. In the last week alone we’ve seen a new $100 million film fund set up in Europe, and the announcement of a couple of $1 billion funds in the US. The opportunities for smart movie investors are too good to be ignored.
The Out Of Obscurity team.