Movie Beach

Optimism In The Air

2012-01-23T11:23:00.000-08:00

Optimism is running high at the Sundance Festival, according to the L.A. Times, where the pick of the year’s indie movies are competing for distribution deals this week. Insiders believe this year’s movies are more commercial than before. And with a number of new buyers on the scene exhibitors are expecting a wild time – says one: “People need movies, there’s a really strong slate”.

This is good news for movie-makers looking to sell their projects at Sundance and we think it’s also good news for anyone looking to get their movie financed and produced. The appetite for movies continues to expand worldwide, despite a rocky year at the US box office. The pie is getting bigger in terms of markets with China and others expanding rapidly, and digital distribution options multiplying. Finance is a challenge for film-makers but that’s always been the case. We just sense a feeling in the air that things are looking up.

We’re feeling very positive at the moment ourselves with a few ventures coming along well. We recently had an inquiry from a finance and production house which wanted to take a closer look at a number of projects on our Pitch Page. There are currently over 120 projects on our site and we regularly connect producers with potential funders. So we’re now working with those financiers to see which out of the 8 chosen projects they’ll take up to finance and produce, and we’ll post all progress here and on our site. The Pitch Page is a nice shop window for projects and traffic is steadily rising.

We’re also engaged right now in helping a producer friend fund a slate of movies with an innovative financial structure which has taken some time and a lot of head-scratching to devise. We’ll see results soon and the first movies should go into production this year. And we’re currently finalizing a commitment of finance for one of our own beloved movie projects, which we’re ramping up to put into production this year. Lots in store, and we’ll be posting all the news on that as we go.

We continue to receive a stream of great movie projects through our website, and it was especially nice recently when a friend sent us a warm and funny Woody Allen-esque caper to be shot in beautiful Glasgow, Scotland, with an all-star cast. Good luck guys!

It may be winter but the sun is out as far as we’re concerned, so polish up your project package and find that finance, things are definitely looking up!

The Out Of Obscurity team.

Still No Thanks To . . .

2011-08-04T13:55:00.001-07:00

Firstly, thanks for all your kind and funny comments on our last post about movie fundraising. It’s great to hear from so many people not only sharing the same experiences but having a laugh at them too! So, we hope you enjoy our concluding part this week. Please keep reading Movie Beach, and keep the comments coming.

We received an enticing invitation to visit Cairo to meet a handful of willing movie investors. It would also be an amazing chance to experience Egypt and catch up with an old friend, but we quickly found out that our contact, Ms. H, had somewhat exaggerated her assurances of “millionaires” waiting to write us cheques, and we spent a week driving all over Cairo to no avail. There’s nothing quite so sobering as making a presentation to a handful of people politely trying to smile and appreciate your presence, but who have absolutely no idea why you’re there. Some even applauded graciously as they left the room, wishing us well in a quizzical sort of way. One particularly memorable wild goose chase involved three of us squeezed into the back seat of a rickety and hot old Egyptian taxi as we drove a hundred miles into the desert to visit a mad millionaire who had built a golf course and mega-resort. He “just couldn’t wait to meet us”, we had been told, and he couldn’t have been more hospitable. But we were a little misled: he obviously had never heard of us and thought that perhaps we had turned up to buy one of his yet-to-be-built condos! One more notch on the saddle, then, and we did see the Pyramids. But sadly no thanks to Ms. H.

Next up Mr. D, a seasoned start-up investor and hi-tech financier. We had spend a couple of months in negotiation with him and he had agreed not only to invest but also help us develop our investment fund, which we were then in the process of launching with a major bank in Luxembourg, where Mr. D had business interests. He was also a fellow marathon runner, music fan and all-round good guy, so we flew to New York to close the deal. However, we knew when he greeted us with “Hope you didn’t come all the way just to see me” that things might not be going quite the way we had hoped, but we soldiered on bravely. Although he loved everything about us - enough in fact to offer to invest before we got there – well, he just hadn’t really meant it quite that way, after all. No thanks to Mr. D, then.

We were optimistic as we flew into Dubai on a trip arranged by N, a good friend of ours. His local contact Mr. M assured us that investors and banks were waiting to see us, on the say-so of one of his royal connections. We weren’t complete fools and we already knew how many mugs had spun their wheels in the desert sand waiting on so-called “royal” deals to close. But we took it on faith, especially since N was doing business there himself. The first meeting set the tone as we drove to the first bank we’d been told would surely invest into our projects. But instead of heading to the glittering downtown skyscrapers we dropped in on a local branch manager who simply looked confused. Getting back into the car Mr. M said it had been a simple misunderstanding but, sadly, it went on. One out-of-town bank after another, a gala dinner attended by a so-called influential financier – which we were pressed into paying for, belly dancers and all! – culminating in lunch at the home of one the Sheikhs. As we fled from our hotel room to the lunch date, with N shrieking hysterically down the phone “The Sheikh’s waiting for you!” we reflected on his assurance that we would surely now “close the deal” . . . but, we didn’t. You get the picture? - lots of time-wasting, meaningless meetings, dinners and lunches and not a word about business. In fact it was all going so well, said Mr. M, that we should stay on another couple of weeks. We thought about it, pinched ourselves just to be sure, and cut our losses. Lesson learned and no thanks to Mr. M. Until . . .

Until, that was, we got a call a few months later from Mr. H, who we had met in Dubai. He said he had a client who had already committed to invest, and could we please help him arrange the deal? In the space of just a few days we exchanged papers and received a bank confirmation that a substantial sum was on its way. This would be the start of a stream of business and we envisioned slates of movies unfolding before us. But, and oh yes there’s a but, despite receiving a bank confirmation the funds somehow never did arrive. We don’t know if the investor changed his mind or if Mr. H had been just a little keen to earn his commission but it had flickered brightly and only briefly, with no thanks to Mr. H.

We got a call from Mr. B while we were developing our movie fund, to say that he wanted to invest $1 million and work with us to build up the fund. He loved our concept so much that he had formed a company to work with his private bank to raise funds for us and develop our own slate of movies. However it quickly became apparent that Mr. B and his two partners each wanted to be the boss, and moreover they each wanted to be our boss. They believed that if they raised any money for us then they would run our fund. That was to be only the first of many warning flags. But we never did get as far as having to clarify our ownership issues because, despite having a great concept and the contacts to make it happen, Mr. B and his partners ended up raising nothing, and fighting over control of their unproductive entity. They quite literally sued themselves out of business, leaving us disappointed but relieved that they had shown themselves the door. So, no thanks to Mr. B.

By the time we met Mr. P we already were in business together. He ran one of the largest private industrial conglomerates in the UK and was seeking to elevate his fledgling film distribution company by accessing our Hollywood partner’s contacts and experience. After several conference calls we had a signed contract in place for Mr. P to contribute substantial funding. He had arranged to meet our partners in Los Angeles, and committed to put in place the first $25 million of our joint film fund before meeting them face-to-face. All sounded well and, sitting in his London office he repeated his assurances of funding and business success. But during the entire meeting his gaze was fixed on two TV screens on the wall behind us, and when we shook hands to cement the deal, he contrived to look in some other direction altogether. You may have spotted a pattern here: in last week’s post we mentioned a couple of shysters with shifty eyes. Well, we judged Mr. P by the deep insincerity of his over-the-shoulder gaze and so it proved. After a half-hearted attempt to latch on to our L.A. partners without honouring his own commitment, Mr. P drifted off the scene. Another big-promising talker and we were better off without him of course. But for wasting all of our time, no thanks to Mr. P.

So, we have been around the world a bit in our search for the right movie investors. From the feedback we’ve received this last week it’s obvious that we’ve all kissed our share of frogs on the way to meeting the one or two business partners who really matter. We firmly believe that to find opportunity you need to go looking for it – and that results often come from unexpected places. Someone commented last week that maybe we should have saved our (miniscule!) travel budget and made a micro-budget movie instead. Fortunately someone else then pointed out how important it is to make every effort and meet your prospects face-to-face. We couldn’t agree more, as you can only really get the measure of someone when you meet them yourself, and preferably in their own back yard. Unless you demonstrate that you’re committed to doing whatever it takes to get your job done, and your movie made, well you might as well stay at home.

It’s also just one of the most important things in the world to travel, and you owe it to yourself to take every opportunity to travel, whatever the circumstances. In our case, as an accidental side-effect of our catastrophic Cairo comedy tour, we actually raised quite a lot of money later on through contacts we would never have met otherwise. And, if we hadn’t gone out on a limb and relocated last year, we wouldn’t have met our friend Captain R., who introduced us to Mr. M, who’s just pledged to fully finance our next movie. Coincidence, maybe, but a lifetime of dedication to the cause got us there. As George Clooney’s character in “Up In The Air” says: “Moving is living”. And if you can do business at the same time as travelling, well that makes it all worthwhile.

The Out Of Obscurity team.

No Thanks To . . .

2011-07-22T11:00:00.000-07:00

We happened to see a little-known movie on TV the other day called Made In Romania, a comedy about the making of an indie film. It was a light-hearted little thing with plenty of inside-the-movie-business chuckles and the central premise of the producer being ripped off by the financier, who insisted the movie be shot on location in Romania. But the funniest thing about the whole movie was the final credit, which read:

NO THANKS TO . . . all the miserable buggers out there who said no.

If you’ve ever been involved in raising money for movies – or any other entrepreneurial venture for that matter – you’ll recognise the sentiment in that one line.

Having been up the sharp end ourselves we were reminded of a few times we had been told “yes” by prospective investors, only to find that the money never arrived, the cheque bounced, or they never again answered their phone. And rather than dwell on the mind-numbing questions of why people do that sort of thing and how much pain you need to go through to get something worthwhile done, we thought we might share a few episodes we’ve encountered along the way. Miserable buggers, all of them!

Shortly after we started our company we were raising funds to look after our early business plan goals when we met Mr. G through one of our start-up investors. Over coffee in Singapore Mr. G regaled us with tales of his formidable investment company and uttered the magic line “Is $5 million enough?” Well that was that, we thought, we’re off to the races - as he promised to get back to us to discuss his company’s investment. But we should have paid more attention to his shifty eyes and crooked teeth, as we never received a dime from this guy. No thanks to Mr. G then, and we were off and running on the fundraising roller-coaster.

We were introduced to Mr. M by a mutual friend who said “He’ll take care of all your needs” which indeed seemed to be the case when we flew to London to meet him. After dinner in his Mayfair townhouse and being welcomed into his family, we heard the magic words “You won’t have to go anywhere else, I have all the contacts”. A genuine billionaire, Mr. M also had an actor son who wanted a supporting role in our debut movie, which we were happy to accommodate. OK then, and all’s well. However in the following weeks and months it became obvious that Mr. M liked the sound of his own voice more than he was prepared to do something about it. He retreated gently from our “main man”, through “camp follower” until he became a thin voice on the horizon uttering platitudes about “considering the situation” in a couple of years’ time. Funny and sad, especially as his rich-boy son never did develop a movie career for himself. No thanks to Mr. M.

We met Dave, a relative of our good friend S, in a bar in Singapore. As the beers went down, and as David began to glaze fondly at my beautiful business partner, he offered to finance a new venture between ourselves and S, which would finance our company’s future success. We would have loved to work directly with S, however the conversation lasted another couple of beers before David’s commitment became a little fluid, and it didn’t take long until he’d forgotten it altogether. We remain firm friends with S, but Dave? – never heard from him again. Beer money wasted and no thanks to him.

We were by now close to launching our movie investment fund. So when we were introduced to Mr. A and his large Japanese financial conglomerate – which coincidentally was getting into financing films and wanted to set up a film fund – it seemed like a perfect match. And so it seemed when we flew in to Tokyo to greet our new partner and Mr. I, its venerable founder. Our plan was agreed by the firm’s board, and we arranged to host a premier of our fund’s first film at the upcoming Singapore Film Festival. On their part Mr. I’s group promised to seed the fund with its first $2-3 million and sell it widely among its client base, the largest in Japan. We would be in charge of international distribution and Hollywood connections for the stream of movies we would make together. It all sounded too good to be true and sadly it was. The movie premiere was a success, but our partners had neglected to arrange distribution for its crucial Tokyo launch which scuppered our chance of making any money on it. And, they somehow forgot to contribute the all-important first $2 million in capital, and their legions of thousands of investors never quite got to hear about investing into our fund. To be completely fair our Mr. A had tried manfully throughout the whole episode to turn our agreement into reality but found himself swimming against the tide of his board. So, no thanks to Mr. I.

Mr. K, ahh, Mr. K saw himself as a bit of a dandy. When we flew to Hong Kong to meet him he had just published a book about himself and bought a football club in England. Of course he wanted to get into the movie business but, we should have known . . . Things went well over dinner with my beautiful business partner again the focus of the conversation. Mr. K offered to send his car to pick us up in the morning and assured us that his people would be in touch to close the deal the following week. But in the morning there was no car, and next week no deal. At this point we began to conclude that perhaps it’s easier for some folks to hear themselves say “Yes” then slither out the back door, than be honest and say “No” and move on. Definitely no thanks to Mr. K, who perhaps loved himself a little too much.

Mr. P was an interesting case, a solid international businessman with existing movie business experience. He met us on one of his trips to Singapore and, after smiling and nodding over breakfast, he committed to investing a decent amount into our business. However he did shift a little in his chair and look slightly askew as he shook hands . . . Maybe we should have picked up on that little bit of body language but, hey, we’re trusting folks. We next met him in London where he presented us with a signed formal offer of financing, as agreed. But then the trail began to go cold, he became harder to reach and eventually citied the flimsy excuse that he was prevented by his executive committee from investing his own money, hmmm. No more Mr. P and it was becoming clear to us that although we didn’t get any money or help from this cavalcade of charlatans, we’d be better off without them in the long run. No thanks to Mr. P.
-One healthy postscript to our dealings with Mr. P was that we had committed to ourselves, as you do, that if we got his offer of finance we would run the Singapore Marathon. So on our return from London, offer in hand, we signed up and ran the world’s hardest and most humid road race, enjoying every sweaty mile of it in the “knowledge” that our money was on the way. Oh yes, innocence can be sweet.

Next time we'll be back to conclude with a few more tales from our own personal front line. Meanwhile feel free to share your own experiences with us, good or bad and hopefully funny.

The Out Of Obscurity team.

What Does It Take?

2011-07-07T09:15:00.001-07:00

For one reason and another we’ve been musing a lot lately on the question “What does it take to get your movie made?”

The Los Angeles Times reported yesterday that a well-known producer recently failed to get a movie greenlit by a studio because he wasn’t able to reduce his budget from $60 million to $50 million. Times have changed and DVD sales are slumping so studios are looking to lower their exposure and spend less on movies such as comedies, which don’t necessarily play well everywhere. However, what caught our eye was the producer’s comment that although he believed he had a potential hit movie with two big stars, he couldn’t lower the budget “because of the talent involved”. Basically that means that two highly-paid A-listers weren’t prepared to work within a budget to get a movie made and would rather – or their agents would rather – they didn’t take a project for a lower payday. It was also reported this week that Cameron Diaz took a substantial pay-cut for her role in Bad Teacher, no doubt in exchange for a profit share should the movie succeed. In any other business that’s common sense – working within limitations especially when times are lean. In truth most movies these days have this kind of buy-in from the creative talent and if that helps get more movies made then it’s got to be a good thing. But you have to shake your head when you see nonsense written in black and white such as projects getting shelved because of an egocentric lack of will to get a movie made.

Obviously there’s a lot of hard work, dedication and blind faith at various points along the way to making your movie. But on top of having a great script and the will to put it all together, there’s often an element of craziness that creeps in around the edges. It’s like holding your hand over a flame, or wondering how long can you keep going into the dark before you see the light appear at the tunnel’s end. You find yourself working crazy hours, doing everything that needs to be done . . .OK, that’s par for the course. You don’t get paid while you’re in development . . . OK, par for the course again. You find yourself missing out on important events with family and friends . . . OK again, sometimes sacrifice is necessary, and who needs a life anyway? These are all everyday symptoms of a writer/director/producer’s life, I hear you say, and of course that’s true.

But, If you’ve ever found yourself asking the question “Am I really going down the right road?” or “What more would I sacrifice/sell/give up to get this done?” then you’ll recognise that things can get a whole lot crazier. We see a lot of projects from lots of producers and some of them have made great sacrifices to get their movies made. And in some cases they’re still sacrificing in the hope of getting their movies made. Where you draw the line is definitely a personal thing as to how much you’re prepared to beg, steal and borrow to achieve your goal. If you’re burning with a passion for your movie, and it’s your life’s mission to get it made no matter what crappy job you have to take or how long you have to wait, then go for it. There’s no substitute for sheer passion and belief. But if you’re not absolutely sure, either about the merits of your project or about your own life-or-death devotion to the cause, then take a long look in the mirror . . .

Most entrepreneurial ventures are challenging, but it seems that making movies is a quirky bit harder than the rest, since you’ve got to raise money from sceptical people to enable you to make something artistic and financially very risky in order to have a chance of succeeding in getting your product out in the marketplace . . . and that’s all before you run the remote risk of making money for yourself and your backers. In some cases the best you can hope for is that your investors respect your artistic vision and enjoy the movie as contributing pioneers to your voyage into the unknown. Of course if you make a great movie and get yourself a proper distribution deal then you’ll gain respect both for your artistic vision and your financial acumen, and you’ll be set up for your next bunch of movies.

As well as running our fund and assisting film-makers find finance for their projects in other ways, we recently received a firm offer of finance on a movie project of our own. It has taken many sacrifices and leaps of faith to get this far, but things are falling into place and we can only hope they continue to do so. More on this anon.

Lately we’ve been helping out a friend, an experienced producer who’s packaging a great movie for a $5 million budget, and he’s aiming to bring in an Oscar-winning A-list star to headline and direct. A tall order, surely, when big stars get millions per movie from the studios. Mr D., our friend, believes he can get Mr. W, the star, because he loves the material and wants to do the movie. But D’s trying frantically to keep the project out of the hands of W’s agents, who will inevitably talk up the budget, Mr. W’s fee (and their 10%), and scupper Mr. D’s project by taking it to a studio where it will be endlessly rewritten into a pulp. Right now it’s finely balanced and if Mr. W says yes, then D can make his movie his way. We’re hoping Mr. W shares our belief and decides to participate in a great movie that won’t keep him out of the studios’ clutches for too long.

What it takes to get your movie made only you will discover. How much are you prepared to give to realise your dreams?

The Out Of Obscurity team.

Cannes Shows The Way Up

2011-05-16T17:06:00.000-07:00

It’s Cannes time again and things seem to be looking pretty rosy. When we last visited the festival the mood was decidedly sombre, and at the press conference for the new business we were helping to launch the questions were almost universally about when the gloom would end. There were fewer film-makers on show and buyers weren’t buying. This year, however, it looks like there’s a lot of good movies generating buzz, and a reinvigorated appetite from buyers all over the world. That can only be good for business, and we’re hoping to take advantage of the sentiment ourselves as we’re taking a few initial steps with one of our own projects that’s being repped by a colleague at Cannes. More on that later, but the “development” hat is definitely getting dusted off this season.

Good news that the buzz is back among film-makers and we’re looking for evidence that the money is coming back also. We’re currently helping a couple of friends package their projects and there might just be more funding sources to go to than for some time. Producers are always looking for new, reliable sources of finance and we’re being told that there actually is a lot of new money out there these days looking to invest into films. It sounds obvious, but it’s now more important than ever for a movie project to be presented with a credible budget and a top-notch business plan. The most important elements by far are the investment structure and distribution strategy. If you can show your investors that they are taking part in a legitimate business venture with a credible and likely payout then you’ve got a great chance of getting the money for your movie.

Movies rarely get greenlit or rake in investment dollars these days simply on content, but if you’ve got a convincing business case and can demonstrate how and when the investors will see their money back, then you’ll be taken seriously by the money. Emphasise the return to equity investors – those guys that take the most risk and are likely to be getting paid out last – and if you can convince them you have a great deal then other elements will fall into place. There are many ways to offer incentives to investors: compensating them from tax credits or distribution deals as they get done, or guaranteeing repayments of funds in stages as revenues begin to flow can all help lower the investor’s total exposure to loss.

Helping investors make money is the ultimate goal, but in the movie world if you can show your investors a way that will ensure they don’t lose their money, then you’re ahead of the pack. Structure your presentation properly, focus on achievable returns, and you will cultivate loyal investors for your next movie as well.

The Out Of Obscurity team.

In A Perfect World

2011-03-10T18:04:00.000-08:00

A new guest piece on Movie Beach, this time from our friend and film finance guru Jeffrey Taylor.

He recently published a great piece on film finance trends and strategies which he has kindly allowed us to mash-up here:

In a perfect world, a winning movie transaction would look like this: equity investors receive a multiple of their initial investment within a prescribed time frame; mezzanine investors get all their interest and principle paid; senior debt is fully serviced—and possibly re-cycled for another favorable round of financing. Deals like this have been done for years, frequently involving hedge fund managers, investment bankers and private equity fund managers.

Like cinematic movements, film financing seems to come in waves. 30 years ago Japanese money was prevalent; 20 years ago, insurance companies; 10 years ago, German film funds with tax reasons for investing in films; and this last decade major US hedge funds. Each wave has its own characteristics:

In the early 1980s, much of the investment was tax driven: investors could purchase films as they were being completed and effectively lease them back to distributors. They could accelerate the depreciation and amortization of the asset to defer income and other taxes. In the 1990s insurance companies offered to insure gap loans on films. Banks would provide gap financing to producers, then insure the loans in case sales targets were missed and producers couldn’t make good. Emboldened by their insurance policies, banks increased the gap loans to as much as 50% of film budgets. Many films failed to reach their sales targets, many insurance companies were called in to repay loans, and litigation ensued.
Past cycles have also included periods of public underwriting, such as those in Australia, the UK and the German government’s development of a public market in tax-shelter vehicles - the Neuer Market - to raise money from wealthy investors. German film funds invested hundreds of millions of dollars in independent production companies like Newmarket and New Line Cinema. Then in 2001 the Neuer Market melted down, a victim of bankruptcies and insider-trading scandals, and with it went the money. This collapse left major studios and large independents looking for new sources of production financing.
Most recently, between 2004 and 2008, an estimated $15 billion was invested in so-called “slate funding deals”. Players like Merrill Lynch, Credit Suisse, Deutsche Bank, Goldman Sachs, Citigroup and JP Morgan Chase all arranged co-financing deals with Hollywood studios, raising money from U.S. hedge funds and private equity firms.

Through all financing cycles, one group of investors can always be counted on. These people invest for emotional reasons, such as, "my daughter is in the film, my son has always wanted to be a film producer, my son wrote the script, my wife wants to be a movie star." Such investors tend to lose their entire investment.

Producers have a number of ways of financing their films

First, and most basic, is equity: this is the early-stage financing that turns a script into a film in progress. As with much venture capital, angel and other seed capital seeking high returns against high risk, most equity investors in independent movies fail to see returns on their money. On the bright side, most equity investors in independent movies don’t expect their money back - they’re the ever-dependable investors mentioned above, frequently the family and friends of the filmmaker.
Next is senior debt, which accounts for a significant portion of the film’s total financing. Traditional providers of senior debt (banks like JP Morgan Chase) require a security interest in the film and all revenue streams associated with it in priority to equity. So, before a film is completed, a producer might sell the distribution rights (including theatrical, home video/DVD, pay TV, free TV and other rights) for various countries. The producer can then use the value of these contracts as collateral against a production loan from a bank.
Another form of financing, which is an important part of the funding for independent films, is ‘soft dollars’ or tax credits for shooting a film in a certain state or country. Since 2005, according to BusinessWeek, US states have granted $3.5 billion in incentives to makers of films, TV shows and commercials, but many of these programs are currently under assault as states struggle to balance budgets.
Still another component of film financing is print and advertising financing—prints need to be made for theatrical distribution, but the main part of the tab is advertising. The typical P&A budget today is equal to or greater than the film budget. An insider gives the example of a $16 million film with a $20 million P&A budget. The financiers offered to provide $8 million senior debt at 20%, which, he says, is a very common interest rate range for P&A financing.
Producers can also earn money from product placement (think ET and Reese’s Pieces, think George Clooney’s character in “Up in the Air” flying American Airlines).

Whatever the structure of the film-financing deal, everyone hopes for a Hollywood ending by producing a smash hit with everyone getting fabulously wealthy. The odds, however, are stacked pretty steeply against this. A large-scale, independent studio making 12 films a year will probably get eight losses, two break-evens, one pretty good film and one hit. Smaller-scale institutions with the wherewithal to make only four films could find themselves with four losers and end up closing shop. As a business proposition, it’s better to spread the risk over a larger number of films. That’s an ability the studios have always had—releasing 20 or more films in a season. A slate of films may not assure investors of great wealth but it prevents them from losing their shirts.

Who Invests in Film?

Film financing is a complex business that requires good information, strong experience and a balanced approach that avoids emotion about being in the business. It is not for the faint of heart. According to a hedge fund manager, film investors fall into three main categories:

First, there are angel investors—family and friends of the filmmaker who invest for other than strictly financial reasons.
Second there are those who think they can beat the house. “Everyone else has been burned, many people in Hollywood are charlatans, but they think they can beat the house anyway—they’ll pick better films, they’ve met a very trustworthy guy who has a slate of films that can’t lose—and the hallmark of those people is they claim very outsize rates of return.”
The third category of investor is able, by virtue of scale of investment or some other means, to truly diversify across a number of different investment opportunities. This investor looks at films the way others look at real estate—knowing many things could go wrong, but that if he’s truly diversified and invests on a significant scale, and is very diligent, then over a reasonable period of time, he’ll reap a “very handsome return.” Which is basically what the studios do—although even the studios get it wrong.

Another answer to the question, ‘Who invests?’ might be, ‘People who see an opportunity.’ Box office demand is currently strong, but the number of films being made with U.S. distribution is down significantly.

How to Succeed in Film Financing

First, you must take the time to truly understand the many elements of film production finance and distribution, in particular, the legal components and how the rights are created, distributed and paid for.
Second, you have to have some kind of connection to the industry at a fairly high level, meaning, you need to have access to trustworthy people and have a good mechanism for filtering out people who are not reliable business partners.
The third piece of advice to would-be film financiers is “remain vigilant.”

Hollywood likes to fleece people, but if you follow steps one and two, you are more likely to enter good deals with good people.

To order your own personal copy of "Film Finance For Beginners" please visit: Books by Jeffrey Taylor

The Out Of Obscurity team.

Pitch Page On A Roll

2011-01-29T15:43:00.001-08:00

With Sundance going on right now we’re reflecting a little on the hustle of actually getting your movie made which inevitably begins with finding the money to get it going in the first place. We get a lot of traffic through our website from aspiring film-makers of all sorts, from film students at college putting together their first short to experienced mainstream producers seeking partners on studio slate finance deals. The one common ingredient? – they’re all looking for money. So we’ve always felt there must be a way of connecting good movie projects with the investors they need.

That’s why we launched the Pitch Page on our site a few months back, and we’ve had a really enthusiastic response so far. There are currently over 80 active projects up on the site and we’ve had a number of inquiries from financing groups and producers looking for good new material. We get all sorts of project submissions from a tiny documentary about Tibetan llamas to all kinds of indie dramas, from no-budget shorts to major star-driven features. One of the first visible successes was a political drama with an all-star cast and Oscar-winning lead which was picked up for a mainstream box-office release. We weren’t directly involved in the sale but it was released recently to critical acclaim after being seen first on the Pitch Page. However we have had direct inquiries for a number of the projects on our site which are in discussion right now. One writer is closing on a verbal offer to sell his script and a production studio which inquired about a slate of 6 Pitch Page movies took a close look at two of them and is now negotiating on a $12 million investment into a movie project featured on the site.

The Pitch Page listings continue to grow and we’re extending our reach among potential movie investors. We’ll be posting some of the concrete success stories of movies from the Pitch Page on our site in the coming months. So look out for the occasional credit and maybe we’ll be popping up at Sundance next time around.

The Out Of Obscurity team.

Busy At The Beach

2010-12-28T10:44:00.000-08:00

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.

Trust Me, I'm A Producer

2010-12-06T10:56:00.000-08:00

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.

Desert Days

2010-11-03T16:17:00.001-07:00

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.

Just Like "The Producers"?

2010-10-03T16:28:00.001-07:00

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.

Sun Setting On Studio Accounting?

2010-08-24T17:33:00.000-07:00

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.

What's In A Commitment?

2010-08-09T18:25:00.000-07:00

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.

Independent Film In The Rat Race

2010-08-01T15:53:00.000-07:00

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

Movie Finance's Holy Grail?

2010-07-22T14:22:00.001-07:00

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.

Travel Always

2010-07-13T19:59:00.000-07:00

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.

A Square Deal In The Movie Business?

2010-07-09T15:42:00.001-07:00

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.

Introducing The Pitch Page

2010-07-07T17:48:00.000-07:00

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.

Onshore: Offshore Synergies

2010-07-05T15:07:00.000-07:00

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.

Movies In The World

2010-05-14T17:57:00.001-07:00

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.

Still Big On Movies

2010-04-28T13:42:00.001-07:00

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.

Exotic Movie Financing

2010-04-05T18:19:00.000-07:00

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.

Global Opportunities

2010-03-22T15:18:00.000-07:00

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.

All Over The World

2010-03-10T17:43:00.000-08:00

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.

Oscar Watching

2010-03-08T15:05:00.000-08:00

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

What We Do

2010-03-01T15:26:00.000-08:00

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.

Springtime in Europe, China Calling

2010-02-19T22:29:00.001-08:00

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.

Happy New Year

2010-02-15T18:27:00.000-08:00

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

Movies Making Money

2010-02-08T18:13:00.000-08:00

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.

Groundhog Day Again

2010-02-03T17:51:00.000-08:00

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.

Film Incentives West & East

2010-01-26T14:57:00.000-08:00

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.

China Opportunities?

2010-01-25T17:28:00.000-08:00

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.

What Crisis?

2010-01-21T17:50:00.001-08:00

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.

Section 181 Revisited

2010-01-20T15:08:00.000-08:00

Film producers are always looking for ways to raise money to close the gap in their production budgets, so they seek to utilise any and all incentives, credits and allowances they can get their hands on to get their movies made. In recent years you can’t get a movie financed without making maximum use of these incentives which can form quite a significant portion of a movie’s budget. Producers will go to any reasonable lengths including relocating their production to Eastern Europe, Australia, New Mexico, Louisiana or Canada to take advantage of such schemes.

One incentive that hasn’t had as much press is Section 181 of the Internal Revenue Code, a nifty little scheme originally approved in 2004 allowing investors to claim 100% of their investment into film or TV productions (the first $15 million on any film, $20m in deprived areas, or the first 44 episodes of a TV series) against income tax in the same year. Now, we know from experience that the hardest question to overcome when dealing with a potential investor is “Will I lose my money?” And of course it’s a fair question as most investors will consider first not “How much will I make?” but “Can I lose this money?” By showing your investor that he can immediately deduct the full cost of his investment from his taxable income you’re giving him a significant reason to write that cheque. He immediately saves a chunk of cash on his tax bill and maintains the same potential to gain from your movies, so his upside multiple has just increased significantly.

Section 181 was originally set to expire in 2008 but was extended as part of the Federal Bail-out Plan for one more year until the end of 2009. However, we hear it on good authority from a senior source at the IRS in Washington that not only do they expect the provision to be extended further, as it has been passed in the House and is awaiting Senate approval, but that it will be retroactive when finalised. And, our source tells us that they recognise how beneficial this provision is and they wish more people knew about it. Another source tells us they think that perhaps the major studios and TV companies have been monopolising the provision – as well they should – but that mainstream producers should intensify their efforts to get 100% deductions for their investors too. Sounds like a no-brainer to us.

The Out Of Obscurity team.

Distribution Is Key

2010-01-18T14:07:00.001-08:00

Things always seem to take a while to get going in January, so we’re doing as much as we can to get the ball rolling on a few movie projects right now. It’s also a good time of the year to clean house and get the PC in order, unfortunately our computer took it upon itself to crash for most of the festive period and it’s only now coming up for air with, we think, everything back in order.

Among the Christmas and New Year messages we received over the last couple of weeks was this sweet comment from a dear friend in the Bahamas: “movies are the best news - where else can one make a fortune nowadays?”. If you’ve read any of our comments over the last few months you’ll know that we couldn’t agree more. It’s one of our main hobby-horses that investing into movies - a portfolio of movie assets - is just about the best thing you can do with your investment dollars. Movie assets continue to make money in perpetuity and the opportunities to sell movies via multiple formats and territories are continuing to expand, creating lots more opportunities for movie investors to profit. Thanks a lot Minnie!

We’re working with a couple of projects shooting in and around Thailand and Japan, and aiming to close some financing on those from Asian investor groups. There’s a keen interest in movies all around Asia with not only some ground-breaking films being made in Japan, Korea and Thailand, but also some of the highest per capita movie-going in the world happening in places like Singapore and elsewhere. People just love going to the movies and that feeds the growth that we’ve seen in international revenue opportunities for movie investors to profit from.

Different investors have different outlooks: we’re talking to some private investors looking to profit from successful movies as well as some industry experts whose interest is more in securing the rights to distribute the movies in a few countries around Asia. They know that this will cover any investment they make and generate healthy profits. Distributor relationships in particular are important because good distribution is the make-or-break factor for the success of a movie and the success for our investors. Happy investors will invest again, so we’ll be happy to keep good distributors on side if they can bring results across key territories.

A few years back we co-financed a promising Japanese manga movie, an adaptation of a successful comic-book series and a movie which appeared to have real breakout promise. The animation studio and director were extremely hot, there was excellent awareness and anticipation of the story in Japan, and we had brought in a production partner in the US with a major studio deal to take on the movie internationally for theatrical and DVD sales. Our Japanese partner had engaged one of the top Japanese distributors so our hopes were high. We held a launch party at an Asian film festival and anticipated the grand release. However the release came and went with something of a whimper, it fell completely flat for a variety of reasons, none of which made much sense to us at the time. It could have been the wrong time to release the film, they might have allocated some not-so favourable screens for our movie, or our local partners might just have done a less-than optimal deal with the distributor. The truth was probably somewhere in the middle but we felt that the groundwork hadn’t really been done properly in advance. When it came to seeking the US release we found to our dismay that virtually no thought had gone into creating a suitable package for the DVD, leaving us little opportunity to hit the market properly. The whole experience taught us some big lessons, most importantly that it’s vital to know and trust your partners well and to rely on their work as if it were your own. No doubt one reason why so many folks find it difficult to delegate, but in the movie business it has to happen.

The Out Of Obscurity team.

Investment Gold

2010-01-11T17:46:00.001-08:00

It’s been a quieter couple of weeks observing what’s going on in the movie world and waiting for people to get back in business mode. It’s encouraging to see that it’s not only Avatar that’s eating up the box-offices around the world but that revenues are up in most territories, with healthy gains in Europe and a 44% increase in China. This is of course on the back of a healthy expansion in screens as new theatres are built, but great news nonetheless.

In recent days new investment deals have been announced, with groups in India and elsewhere making big-ticket commitments to making movies. As we’re fond of saying in this column we strongly believe in the profit potential of movies and the movie business in general as it expands into new formats and territories. Investors into movie content, with the right structure and revenue sharing arrangements, stand to do very well indeed on their investment. In fact with Avatar raising the bar in so many ways we’d suggest that potential investor returns have never been better, even amid the continuing economic turmoil in other sectors.

We run into all sorts of discussions with prospective investors interested in our fund. If you’ve ever been involved in sales it may come as no surprise to you that sometimes potential investors don’t actually do what they say they would do, and in some cases weren’t really telling the truth in the first place. We recently had an inquiry from a North American group of private investors interested in partnering with our fund. All went well till they came back with a few questions, which we discussed, and then finally gave us their considered “no”. It wasn’t their decision that surprised us but the excuse they gave: they said they had done some research into the movie business and come across an occasion where a private investor was disadvantaged in an investment deal with a studio and its star producer. They were shocked to discover that the studio had taken out is distribution fees and participation first, then the producer got paid her share, all before the investor had a look at the profit pie. To their surprise the investor made no money and they claimed this story was enough to put them off investing. Of course nothing about this story is at all surprising and in the movie world you need to be sure you’re getting into the right deal with the right people at the right level. However, investors sometimes look for an easy out on something they don’t have a full understanding of, or when they aren’t prepared to give you their honest reasons for not participating.

The right investors with the right structures recognise the merits of investing in movie assets: sometimes you just have to dig a little deeper to find those gold nuggets.

The Out Of Obscurity Team

New Horizons

2009-12-30T14:06:00.000-08:00

We run an international movie investment fund, so we’re not always focused merely on Hollywood. Of course from a long-term investment point of view we are strongly focused on Hollywood assets but we’re always excited to look at new developments and opportunities around the world. As Hollywood has grown over the past few decades its international reach has become even greater, and from being a smaller piece of the overall pie some years back international revenue now outstrips domestic US revenue for Hollywood movies. That’s great news not just for movie-goers worldwide but also for potential investors in movie assets since the reach of the business continues to expand, and so does the variety of revenue and profit opportunities in the movie business.

We receive many inquiries from movie-makers all over the world looking for help with their films of all shapes and sizes. We’ve also been approached regularly in recent years to talk about helping to run movie funds in various parts of the world like South Africa, Europe, India – several potential Bollywood movie funds just haven’t seemed to get off the ground – the Middle East and in particular China. It’s a compelling idea to utilise our fund concept and apply it to a new setting using local expertise and real market potential. We have a lengthy history in Asia and our main office in Singapore and, although we don’t focus on Asian movies per se, it would be great to be involved in financing all sorts of movies from an Asian context. We recently looked at packaging a movie project in Japan and we’re currently reviewing projects to be shot in Thailand. However China is a tough place as there’s probably more growth opportunity there than anyplace in the world these days, and yet it’s notoriously difficult to do business there and to succeed. The government keeps a tight lid on what content people may watch, and to do business there you need local partners, which usually means working with government-sponsored companies.

A while back we were involved in lengthy discussions about managing a fund in China which seemed like quite an exciting project. We were assured that our partners had cast-iron Chinese government connections that would ensure our success. Well, suffice it to say that things didn’t quite work out as planned. We were particularly interested in using Hong Kong as a quasi-offshore financial centre for managing Chinese investors’ funds, enabling them to make international investments without their money physically leaving China. Usually that’s a break point when local investors are unable to invest into international managed funds, effectively ruling out an international Hollywood fund option.

However a new potential fund was presented to us recently with a China-based group seeking to make movies in China – Hollywood as well as local content – for the international market. This may be a good first step from our fund’s perspective as the money could be raised and invested in China. A host of other issues such as offshore revenues, profits and repatriation of Hollywood participants’ shares inevitably raise their heads, but most issues can be worked out if there’s a will to get the actual structure in place. So, that’s one that we’ll be watching carefully in the New Year. People everywhere want to watch movies, just look at the bumper revenues Hollywood has earned in 2009, and we strongly believe there’s also a great appetite from investors everywhere to share in the profit that the movie sector generates.

The Out Of Obscurity team.

Seasons Greetings!

2009-12-24T14:41:00.000-08:00

By now we’ve all read that Hollywood has had a bumper year in 2009, raking up over $10 billion in US box-office revenue for the first time with corresponding record increases in revenue internationally. Revenue is up on admissions as well as ticket sales, so more people actually went out to see movies this year which augurs well for the strength of the business. And, even though DVD sales are notably down after the runaway sales when that format was introduced, they will stabilise and other channels such as VoD and other Internet sales will balance and help grow the overall revenue pool.

Despite the global recession movie-going continues to grow and of course we believe that investing in movie content is a smart thing to do for investors seeking great returns and some shelter from the storms of stocks, commodities, property and other investment fluctuations. Movie financing has traditionally come from a small pool of generally wealthy sources including studios, banks and recently wealth funds but this year it’s been encouraging to see major funding initiatives come out of new international sources, particularly in Abu Dhabi, Bahrain and Dubai, as well as India, Singapore and others. It’s great to see international financiers look to slates of Hollywood movies as a way to establish their own brand in the international market, rather than financing strictly local, specialty movies as has traditionally been the case.

We have been invited by institutions in Europe, Malaysia, Australia, China and elsewhere to discuss partnering on new film funds with investment raised in local markets being directed towards international movies. There’s real potential for fundraising in newly-expanded European markets – we recently met a young film-maker from Eastern Europe who was confident he could raise $30-50 million for a feature from contacts in his country – and around Asia, where wealthy private investors have not had exposure to movie assets. With our base in Singapore we’re always excited to see new international initiatives and we hope to see a lot more international expansion in 2010.

For now, however, we’re kicking back just a little to enjoy the slower pace over the holidays. Thanks for being with us on Movie Beach, and we’ll see you again in 2010.

The Out Of Obscurity team.

No Recession At The Movies

2009-12-15T17:59:00.001-08:00

It’s looking like movie revenues will be up around 10% in the US this year to a record $10.5 billion and also by significant amounts internationally, so thanks to the LA Times for our headline which was too good not to pinch. It’s a fitting snapshot of not just the social effect that movie-going has on people in good times and in bad, but it also sums up neatly the investment proposition that we constantly hammer home when talking about the movie sector to potential investors .

Aside from the fun, excitement and glamour associated with movies themselves and the visibility of your investment product up on the screen, on TV or on a DVD box, the investment potential of the movie sector is unrivalled. It’s a classic alternative investment, with the potential to perform extremely well whether the stock market or any other market is going up or down. Investing in a sensible movie portfolio can build great returns and balance investors’ exposure to things like stocks, property and virtually everything else. It just makes sense, the movie sector is expanding in revenues and importantly in the number of ways people choose to watch movies.

Part of our pitch has always been that the movie business makes a lot of money for a few people, and a lot of folks who invest into movies do it the wrong way and have lost a lot of their money by getting sucked in to the wrong sort of investments. We maintain that if you can line up a good slate of projects with the right sort of financial access for investors and share the burden with responsible producers then, over time, you will make a lot of money for your investors. That’s how our movie fund operates. We’ve all heard many scary stories about the Hollywood blockbusters which took hundreds of millions in revenue but never made a buck for investors because the studios managed to claim that they never made a “profit”. Well, we know the difference between revenue and profit, and whose overheads get to water down the cut, and if you can show your investors a way to split revenues with responsible producers on a formula that’s fair to all then investors will profit and return to finance your next slate.

In today’s LA Times Patrick Goldstein argues that not only is going to the movies a cheap night out for recession-hit families but there has been a greater number of mid-range movies doing well this year, with studios giving younger directors more creative leeway on movies like The Hangover. There will always be monsters like Avatar, which everyone in Hollywood is hoping like crazy actually delivers, but a bigger batch of movies doing well is great for everyone. The more opportunity we can offer investors to profit from the business then the better we’re able to finance more movies and keep the ball rolling. It’s great when making money makes everyone happy.

The Out Of Obscurity team.

Big Plans, Short-Term Decisions

2009-12-11T17:57:00.001-08:00

We’re all familiar with the fate of most corporate business plans – they look great in theory but when practice takes over it’s a whole new ball game. Sometimes things work out but other times something nasty comes out of the woodwork to scupper the best-laid plans. So it is in Dubai at present, whose economy and stock market are reeling from last month’s Dubai World debt announcement, and where the government has just shelved indefinitely its plans to offer subsidies to filmmakers. Too bad they’d already scheduled their annual film festival this week or that too might have been postponed to sunnier times. With regional powers Abu Dhabi and Qatar stepping up with cash funding for Hollywood projects recently Dubai is looking out in the cold with a less than friendly movie-making environment, having refused access to a couple of high-profile Hollywood productions on content grounds. It’s not just Dubai skyscrapers and theme park plans are biting the dust these days, but it looks like its fledgling film hub is stuttering as well. Excellent long-term plans sacrificed to short-term financial concerns, which is a shame. You can’t argue with global economic conditions but producers do have a lot of international options, including welcoming State incentives in the US, so it’s going to take a lot of push next time around to float the dream.

We spoke a few weeks back about a friend who’s planning a slate of micro-budget movies, and it seems everyone’s been talking about this for the past couple of months. The lure of shooting fast, cheap and good, not to mention the faint hope of winning the lottery with a breakout hit like Paranormal Activity is a strong one. Well now the studios are jumping aboard the bandwagon, perhaps inevitably, with Paramount planning to start a division to produce up to 20 micro-budget movies at around $100k each. Great idea, especially if they can pull it off without costs spiraling upwards to the studio level. But their plans aren’t quite as spartan as your average indie director who aims to get a release wherever he can and spread the word among Internet networks to hopefully make a buck on his movie. Paramount plans to use the division to develop projects and make “calling card” movies for new talent, and perhaps some of the films may even get a release. All in all it sounds like smart thinking and let’s face it, for such a relatively small investment how can they lose? OK, it’s hard for divisions of big companies ever to behave like small, entrepreneurial ventures and too much money will be spent, and of course Paramount may lose interest when the current fashion passes and the economy improves. However, good on them, we hope it sees the light of day and doesn’t go the way the specialty divisions already have.

Talking of corporate budgets and decision-making – which we didn’t sign up to do, really – isn’t it a shame how many good business discussions fall apart because of miscommunication or just plain bad management? Failure to follow up is the single most corrosive behavior that winds us up, but that’s just the tip of the iceberg. This week a project we were keeping an eye on came within a whisker of raising its final chunk of finance only to fall apart with both principals feeling that the other guy didn’t follow up on their final discussion points. Oh well, it happens all the time and we shouldn’t be surprised, but it is disappointing and always avoidable. Professionalism in the movie business, now that would be a nice long-term goal.

The Out Of Obscurity team.

Trust and Deals

2009-12-07T18:34:00.000-08:00

Last week we were at the LA Film School, addressing a town hall meeting of the IIFF on film financing. It was an erudite panel featuring some truly impressive speakers, with senior figures from legal, production, agency, talent management and casting circles as well as a bona fide rocket scientist and ex-Google pioneer. It was attended by a lively group of film-makers with projects at various stages of production, looking for up-to-date advice on financing their movies.

One of the more unusual questions was how a producer might trust the banks not to go bust and lose his money before he completes his movie – not something you’d normally anticipate coming up in a film finance discussion, but a sign of the times nonetheless. There were some great comments and projects, including an eastern European director seeking to transform his 30-minute short into a full-scale $50 million blockbuster. He was studying at the LA Film School to brush up on technique but he told us he’d already had $30 million pledged by investors in his home country! Several discussion points touched on how to find the first money for movies and how to follow through to complete those all-important early deals, and the bottom line is trusting the people you go to for key finance.

We’ve all seen cases of funders pulling out leaving productions in jeopardy, and it’s vitally important to know who you can rely on. It’s not much different in the movie business from life in general, and the lessons are the same: people always tend to promise big and deliver small. So when you know that you can count on your investor making that crucial deposit when he says he’s going to, then you’ve really got a partner you can trust. You also have to trust where the money’s coming from in order to be comfortable with your own deal.

Lately we’ve been working with a group of enthusiastic producers on a decent-sized movie with a couple of big movie stars all ready to go. It’s been held up by a shortage of funds and a little internal confusion about who’s sitting where in the money pile. Last week we had them all set to conclude a deal to provide their missing money and start shooting but at the last minute they decided they couldn’t close the deal. It seemed that everything added up, they had signed agreements to proceed but they couldn’t get across the finishing line in their own minds. At very short notice we had helped them raise the money they needed but at such short notice their level of trust just wasn’t where it needed to be to seal the deal. They may raise their missing $2 million without us and maybe not, and we’ll be happy to assist them next time around, by which time hopefully they’ve crossed that bridge by themselves.

Meanwhile we’re looking forward to seeing what might result from some of the interesting projects we met at the LA Film School.

The Out Of Obscurity team.

Movie Revenues Rising

2009-12-02T19:38:00.000-08:00

Variety this week is forecasting that the domestic US Box Office revenues look like being 8-10% up on 2008 and over $10 billion for the first time. And it was in 2008, as quoted in Variety, when Hollywood prospered while the economy sunk, so the current year looks like being a bumper one. It’s good news not just for theatre chains and studios but for everyone involved in the business. People are going to movies the world over and the demand for movie content is growing whether it’s at the box office, on video and DVD, or on the many new channels like Video on Demand and Internet streaming. Long may it continue.

Despite lingering gloom in the economy, movies are commodities that people want to buy in ever greater quantities and in ever-expanding territories and formats. From an investment fund standpoint we’ve always banged the gong for the movie sector as an intelligent investment. It’s a great non-correlated asset and an excellent hedge for investors to give themselves some balance in their portfolios. Of course on a simple level we like being a part of the movie business and being able to provide the opportunity for folks to make money from it as well.

Yesterday we were speaking at the IIFF film finance seminar at the LA Film School in Hollywood, where there was a lively discussion on current movie funding strategies. Producers and directors are always seeking new strategies to finance and distribute their movies so it was interesting to hear so many different angles on this ever-changing issue. Distribution is now more vital than ever and with the demise of most of the Hollywood “mini-majors” there are fewer go-to companies for indie distribution. A well thought out distribution strategy now needs to be built in from day 1 with an absolute focus on the target audience and how to reach it. It sounds obvious and sensible business practice, but it’s all about mitigating as much risk as you can throughout the life of your project. If you can show an investor a watertight plan for how, when and where your movie is going to play, you’ll surely have a much better chance of having him or her write that cheque.

The Out Of Obscurity team

Back To Business

2009-11-29T16:55:00.000-08:00

It’s been a quieter week on Movie Beach as things slowed down over the Thanksgiving holiday, so we put our feet up just a little. However we did see some encouraging progress on one of the projects we mentioned last time. Although we had been talking about the vagaries of movie financing and the reliability or otherwise of some investment partners we come across, we’re optimistic folks who generally hope for the best. So it was nice to receive a bank confirmation last thing on Friday showing that our friends’ production had indeed received its promised funding. Interestingly this time they raised $2.5 million instead of $2 million, just a little number dance that happens all the time in movie financing, but we’re now hoping to be able to help them raise the final gap for their movie if the playing field stays level for long enough.

Getting back to business this week we’re going to be at the film financing seminar in Hollywood put on by the guys at the IIFF, they always have a good attendance and lively discussion. It’ll be good to meet some friends and pick up on what’s new in the business, for one thing it seems that everyone in the indie sector these days is looking to put together a slate of micro-budgeted films. The technology’s certainly there to get movies made quickly and cheaply and we’ve seen plenty of articles lately about newer and cleverer marketing strategies to get your movie noticed even from before the first frame is shot. It’s all good and film-makers these days need to be aware of all aspects of their craft. It’s ironic that the sales process has come around to be one of the first things to be considered, but if it helps you to become a better business-person out of the process then that’s surely a benefit. However the simple challenges always remain, making quality movies that people will want to see, and finding the money to meet even those micro-budgets. In our opinion quality content will guide you, so get the script right and that should help focus the sales process. Whether you’re selling brushes door-to-door or pitching movies the same truth applies: if you’re selling something good, people will buy it.

Just one final follow-up from our last posting, the long-lost investor we mentioned finally called our producer friend to reaffirm his commitment with business to follow shortly. It’s an encouraging sign and he did seem genuine but we’re not betting the farm on it yet. However, watch this space and we’ll bring you the latest as this one unfolds.

The Out Of Obscurity team.

All About Commitment

2009-11-23T17:42:00.000-08:00

It’s a beautiful Monday in Movie Beach, a nice time of the year when the boardwalks are quiet and the sun’s still shining bright. Great weather for early morning walks and contemplation . . . So, isn’t it annoying that just when you’re enjoying the blissful feel of the sun coming up and the dogs running free in front of you, a little thought crops into your head: will that money be in today? We’ve all seen it somewhere along the line, that all-important promise of investment waiting to close any day now. Sometimes it’s just timing and paperwork, sometimes genuine investors are depending on other events and other times there are real doubts about an investor’s integrity. Of course there’s every kind of excuse under the sun along the scale from genuine delay to scam-artist but the last thing we all want to see is the grinding inertia of waiting for the money to close.

We’re working with a production right now with big-name talent on board that’s had to postpone shooting for a few weeks awaiting funds from a “name” investor. Those funds will then trigger the opportunity for us to help close the final $2 million gap so we’re waiting on the people who’re waiting. It’s only been a week since we were told “the money’s in today” so we’re not even near the stage of starting to question the package, this is par for the course. We passed the “proof of funds” stage a while back, when we were shown a letter from a bank to the effect that Investor X does indeed have money in the bank and has said that he’s interested in the movie production. Joining the dots, we could see that this was just a stretch away from a meaningful commitment of money. Oh well, back to the bank. Meanwhile the producer presented his own “proof of funds”, saying that his bank statements would show the production had $2 million in the bank, a requirement for us to bring the final $2 mil. However the statements showed that, while they had indeed spent $2 million in pre-production so far, they were sitting on a total of $345 in the bank: not quite what the situation required. Ever optimistic, we continue to jot this one down to just a timing difference and they’ll get the job done.

A good friend is producing a movie waiting on an altogether more sizeable commitment to hit the decks for around $50 million. This will fund the construction of a major real estate location for a big-budget sports movie with full production budget already in place. They’re waiting to go and have been told that the funds were closing “next week” for quite a while now. Our guy subsequently ascertained that the investor is himself depending on receiving proceeds from the sale of a bond that’s still going through a tortuous booking process on Wall St and, while he’s completely genuine in his commitment to the movie, there’s not a lot he can do to hurry up the money: it could be days or months away.

And, at what just might be the wrong end of the scale, a producer friend has come to an agreement with an investor after several months of negotiation to finance a slate of movies. It’s a nice deal with the partners raising the funds together and co-financing movies they’re both passionate about. However a couple of deadlines have come and gone and despite endless discussion and repeated commitments the phone is ringing less and less and the investor hasn’t answered his phone in the last week or so. No doubt he’s been busy and hey, maybe he's had the swine flu: he says he’s as committed as ever. But things just aren’t getting done and that is the big worry. Never wishing to think the worst of people or situations we continue to fly the flag on this one, but with one eye on the next real deal. Lose the ones you don't need.

The Out Of Obscurity team.

Creative Movie Money

2009-11-20T18:19:00.000-08:00

It’s been an interesting week in the movie financing business. Mega-financier Ryan Kavanaugh has been all over the news this week with a profile in Esquire and blanket coverage in Variety following his Producer Of The Year award at the Hollywood Film Festival. For a guy with a chequered past and an unclear reputation still, he’s been incredibly successful and we are in awe of his ability to get deals done. He has blown Hollywood convention away by almost single-handedly creating the wave of investment into movies by hedge funds and banks via his Legendary Pictures and he has opened wide the discussion on film finance. He’s also helping to change the structure of movie funding deals by ensuring that key talent and directors share in the project’s revenues rather than take excessive up-front salaries. This is classic indie moviemaking and frankly it’s good business sense in a business not known for sensible financial structures. There’s obviously a mix of skill and delivery and Kavanaugh has got it.

We had a call today with a director and his partner who are putting together a business plan for a low-budget slate, aiming to have a stream of content ready within a year. It’s a noble venture and something that can be readily done now with digital technology and the new economics of movie-making, and the readiness of cast and crew to work more flexibly than ever before. And, with advance marketing – even designing Internet slots before the movies are shot – to build up audience awareness from ground level, they believe they can create a viable and lucrative business. Forecasts say there will be a shortage of movie content within the next year, a direct effect of the drastic cutback in production during the past couple of years, and so they’re hoping to be ready with a pipeline of projects to work with by then. It’s a neat plan and our next challenge will be to find the $20 million required, so we’re now putting on our thinking caps.

Another director friend we’re working with to finance a small slate passed on an amusing comment he’d received from a funding source he’d been talking to. After several months of discussion the broker finally came to the table to say that his investor was now ready to look seriously at financing the movie slate. Great news – except that the first investor would require a $25k fee for him to visit our guy and carry out due diligence on his projects. “Don’t worry”, said the broker, “the guy has already financed a couple of property deals we’re doing and it’s a good sign that he’s interested in your project”. It’s pretty certain that you’ve heard this one before, haven’t we all, but the number one rule in raising money is never to pay anyone in advance for doing it. In any field of business if fundraisers can perform they will, but they rarely do once they’ve been paid and of course most fees of this sort are scams. It’s tough to find them but it’s important to work with trustworthy partners and if they can raise money for your ventures then they’ll share in the rewards. Of course we all consider every possible option on the way to getting movies made but some are just not worth the headache.

The Out Of Obscurity team

New Outlook for Film Financing?

2009-11-18T17:09:00.000-08:00

International film finance is what Movie Beach is all about and it’s always positive to see the movie financing world expanding. It looks like more international investors are now recognising the merits of investing into Hollywood. During the recent AFM, a financing conference heard that film funding will come increasingly from emerging markets in the coming years, following on from India’s Reliance Group’s $800 million investment in Steven Spielberg’s new Dreamworks. Reliance is leading the charge, and they have also struck development deals with a number of high-profile Hollywood players to acquire a number of movie projects that may end up being co-produced with Hollywood studios. But a number of other government and private funds are emerging in Asia and the Middle East as investors grow more aware and interested in Hollywood assets.

New international investment is now flowing from groups like Abu Dhabi’s Imagenation fund which has done a number of deals with mainstream Hollywood talent recently, and is just one of a number of groups vying for attention. Qatar just wrapped up its inaugural film festival which boasted major attendees like Robert de Niro and the announcement of its own strategic investment fund. Foreign investors are likely to be choosy in the companies they work with based on capability and track record. Also important is attitude, as underlined by Ashok Amritraj of Singapore-based Hyde Park Entertainment, which is the beneficiary of substantial backing from both Imagenation and Singapore’s MDA. He observed that Hollywood has been seen as not taking care of its investors, who need to see not only positive returns but also a little respect in order to become long-term partners.

It looks unlikely that hedge fund money will return to Hollywood any time soon, and not just because of the perception of under-performing studio slate deals done by eager funds and banks in recent years. In the final analysis the institutional investors who have the time to stick with their positions will see decent profits over the lives of those assets. But the recent wave was fuelled in part by excess liquidity in the markets looking for new investment opportunities, liquidity which has long since dried up. So Hollywood, ever hungry for cash, has had to look to new sources.

Among new international deals to come out of the AFM was the announcement of a 3-year development deal for major filmmaker Chris Columbus with South Korean group CJ Entertainment. Columbus already has a shot at Reliance’s development pot and this deal gives him a funding partner after a four-year search. It’s interesting that, while the headlines were dominated by studio slate deals in the last few years we’ve seen a number of producers enter negotiations with potential investors to finance their own companies and slates, with mixed results. Some have succeeded and others continue on a seemingly never-ending round of investor discussions. There are real deals to be had but also, it seems, a lot of false dawns where even the most successful producers frequently fail to close funding deals. This is true of every industry but in our observation the movie business seems to turn up more potential investors who never deliver on that potential. We continue to believe that if the deal is the right one, it’ll get done.

The Out Of Obscurity team

Riding To The Rescue

2009-11-16T13:05:00.000-08:00

Movie business financing has been a recurring theme in a lot of conversations we’ve had over the last week or so. Currently in the news is the plight of the venerable studio MGM, the subject of a leveraged buy-out a few years back which weighed it down with a debt load of over $3 billion. MGM has found it impossible to trade out of that position - a tough job under any circumstances – and it hasn’t helped that the studio has hardly released any movies in recent years, the ones it has released have done poorly and the high-profile relaunch of United Artists under Tom Cruise has been a dud. A vicious cycle if ever there was one, and the press is now talking about the studio selling for something like $1.5 billion. Interestingly some are saying that the James Bond franchise alone is worth around $1.5 billion, but that’s a very big question mark. There is a library of over 4,000 movie titles but even that’s seen better days. So the prospects don’t look great but we hope a positive deal gets done to restructure the studio around a more sensible financial structure.

CNN reported earlier this year that some of the banks who got into the wave of slate deals with Hollywood studios over the past few years have been trying to offload their positions and were seeking potential buyers of their Hollywood interests. In familiar style, investment banks had hired teams of executives to get them into movie deals but got cold feet when the long-term film finance structures didn’t look like hits right away. Now, post-crash and with those high-powered teams of executives long gone, the banks find themselves with deals on their books which don’t fit their new reality. As we discussed with Euromoney magazine a while back, we believe that the banks weren’t really interested in the movie business long-term but they saw an opportunity to create complicated fee-based transactions and package up the residual debt to sell on to other buyers. However, that’s not how things panned out for them and the banks were left holding paper they couldn’t sell on assets which they didn’t understand. Great deals for some of the media assets buyers we know in Hollywood who are now picking up some very attractive asset pools from Wall St. and who know how to manage them over the true life of the assets. We always believe that movie investing over time and over a sensible portfolio of assets makes great sense, and that’s exactly how our Movie Portfolio Fund operates.

Over the past week we’ve all read goggle-eyed the reports about Nicolas Cage’s finances and, specifically, his amazing ability to spend his money on Bahamian islands and other exotic trinkets. We admire Nicky Cage a whole lot and as far as we can tell he’s a great actor who can spend his money on whatever he wants. He may be in a spot but it was nice to read over the weekend that Johnny Depp may be about to step in and help his old friend out. Big stars or not, it’s the simple gesture of helping out a friend that struck us most. Sure, Nic can go out and make a few more National Treasure movies and he’ll be back on the level again, but whatever your situation might be we all need a little friendly help from time to time. We’d all like to know we can count on a white knight to help us out in a pinch. On the road to Movie Beach there have been a few twists in the road and once in a while a friend or two has helped us stay on track, so we salute you Johnny Depp, and good friends in general. Cheers!

The Out Of Obscurity team

Focusing On Movies

2009-11-11T19:13:00.000-08:00

It’s been fairly busy at the AFM this week considering we’re not buying or selling films. However we’ve been firmly focusing on making movies and we have advanced a number of discussions with potential investors into our film fund and partners with whom we’re planning to shoot some movies. We have good access to Canadian and US state subsidies but we still seem to be getting steered in the direction of The Bahamas. Now we know as well as most folks that there have been Bahamas productions that have gone $1 million over budget in transportation costs alone, and for sure there are resourcing issues. But Pirates Of The Caribbean 2 & 3 were shot in the islands and we have inside access to facilities and a partner who’s refined his model of making movies there which reduces the headaches and keeps his quality high, so we have good options.

Although the traffic at the AFM wasn’t overwhelming it was busier than last year and the whole shebang seemed relatively successful this time around. Best giveaways walking the floor were the cocktail savoury peas all the way from Fiji, and of course the Bahamian rum cake, thanks again guys! Actually sometimes we pop into the AFM just to hang out with our friends from the Bahamas so it was doubly handy this year that they had teamed up with those friendly folks from Fiji.

Film finance has been a hot topic as usual. Low budget and ultra-low budget movies are in vogue with producers seeing opportunities in niches that weren’t available previously, and the means to make such movies with advanced technology and willing talent more plentiful now than ever. Whether we’re going to see a real wave of big hits along the lines of Paranormal Activity or Blair Witch is debatable, but there certainly is a stream of these digital movies being made looking for new, different and sometimes tightly focused audiences. Simplifying the financing picture by getting one investor to put up $100k to get the whole movie done surely makes for a cleaner slate for producers, and if cleverer routes to revenue can be established then the whole structure can be much more efficient and effective than the traditional movie release process.

Today we bumped into a producer who was asked to help with a movie which was days away from shooting when a chunk of the budget fell out. In good faith he introduced a colleague who brought the investor, and all went well until the call was made for the investor to put up the funds, which didn’t happen. Now, several months later, the movie’s producers are suing the investor not only for non-performance of their obligation but also they’re questioning how $1 million came to be withdrawn from the escrow account that was set up specifically to fund the movie, and exactly where the money went. Perhaps it’s not the first time in film finance history this sort of thing has occurred but it’s still a little chilling and yet somehow unsurprising that it still goes on. To cap it all, our friend could be on the end of a lawsuit for “procuring” the investor who didn’t finance the movie but may have made off with the money . . . Not what you expect for doing a friendly favour.

The Out Of Obscurity team

Shifting Sands

2009-11-09T17:10:00.000-08:00

Movie Beach has been a little more erratic than we intended this last week as we’ve been in and out at the AFM meeting some old friends and new, and catching up on changing trends in the business. We’re aiming to update every other day or so, so stick with us as we get into the groove.

Following on from our last post, a couple of friends this week echoed our sentiments about adjusting the focus back towards making movies and less on the slog of raising money. One friend, who recently placed highly in a prestigious national screenwriting competition, is craving the time to devote to his next work but he’s been distracted by his day job of consulting on projects for other producers. Helping to raise debt finance for other movies pays the bills to some degree but it doesn’t satisfy the creative urge. Another producer friend, tired of constantly adjusting the business plans on his projects, is currently seeking better structures for his equity investors who have been shifted further down the totem pole by debt financing. Better ways to get to the sharp end of making movies are on everyone’s mind this season.

There’s a lot of talk around the AFM this week about the changing film financing equation. In general producers are revising budgets down and not just because of the state of the economy, but because advances in technology and self-distribution are driving rapid changes in the formula. So, the concept of doing more for less really is a buzz out there and it doesn’t necessarily mean lowering quality standards. A director who spent most of the last five years trying to raise $3.5 million for one low-budget feature is now aiming to raise $1 million for a slate of four high-quality digital movies, including a little P&A spend on each feature. The economics of digital shooting mean he can put quality content on the screen at vastly lower cost than before, and he’s pretty sure he has an investor who will stump up the first $100k to kick things off. And, recent innovations in distribution strategies mean that niche audiences can be found to replace the dwindling pre-sales market and still make decent profits for producers and investors alike. It really is a whole new landscape.

Film financing changes but some things stay the same . . . While waiting on a friend today at the Lowes we overheard a conversation from another table, where a sharp-talking money man was pitching his financing package to two attentive, patient producers. They smiled and nodded as he explained how his bank would issue a Standby Letter of Credit (SBLC), then a guarantee on a loan to their production company backed by the SBLC, with which they would make their two movies. He explained to them that, after they pony up the fees to set the ball rolling, they would have the use of the SBLC for a whole year and could repeat the sweet deal themselves to generate another guarantee. The too-good-to-be-true moment came when he told them that, since the SBLC lapsed after a year and was covered by the guarantee anyway, they wouldn’t have to repay the loan. You can see how this tale unfolds from here: the mark pays up the money, the bank then unfortunately has some "difficulties" issuing the SBLC, the guarantee never arrives, the movies don't get made and the producers are left feeling like idiots and short of a few hundred k. And it all sounded so easy . . . It’s a great trick which we’ve all seen played out just so far, but we have a feeling the guy didn’t go home with a deal.

The Out Of Obscurity team

Just Begin

2009-11-05T17:17:00.001-08:00

At the risk of Movie Beach sliding off into the realm of self-help wacko’s, we’re in reflective mood today. So, if new age mumbo-jumbo’s not your cup of green tea then please bookmark us and come back tomorrow. But please read on . . .

You probably know the great quote from Goethe which goes: "Until there is commitment, there is hesitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative (and creation), there is one elementary truth the ignorance of which kills countless ideas and splendid plans: That the moment one definitely commits oneself then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues forth from the decision, raising in one's favour all manner of unforeseen incidents, meetings, and material assistance which no man could have dreamed would come his way. Whatever you do, or dream you can, begin it. Boldness has genius, power and magic in it. Begin it now."

We bumped into a friend at the AFM today and started chatting about getting movie projects moving. Of course the usual subjects like finding the money came up. I guess finding and retaining credible and consistent financing partners is just about the hottest topic in movieland. If you’ve got the money you get to make your movie, and until you do you’re doing a job that you didn’t sign up for – chasing down as many leads as you can on the trail of elusive investors/lenders/backers who’ll get your project funded. Most of us aren’t really salespeople although we all have to be, and until we get right into the mix of it we don’t consider that a whole slice of our lives will be given over to the money-hunt. But movies do get made, people want to finance them, and there are lots of successful partnerships between energetic film-makers and savvy investors. You need to find the niche that suits your project and, most importantly, your personality. You may find some old friends of friends who’d love to help out, or cold-call a swathe of dentists in the Midwest, sign up to go to venture capitalists’ conferences in San Jose or use your contacts in the Middle East to tap up some oil money. You do whatever you have to do, so get up and do it and you may surprise yourself.

We’re all in this business for our own reasons but most of us because we love movies and believe passionately in our projects, or our talent, or our partners and their talent, and it takes a special type of unflinching determination to pull it all together. This can be confounding to friends and family: sometimes we grow closer through the process and sometimes we lose the odd friend along the way, as happened to us just recently. As a film-maker you need a whole lot of sheer belief and grit to get to the finish line and in this business the finish line can be just the start of production, distribution and everything else. That’s why we were charmed to read about Andy Garcia’s newly-announced Hemingway biopic in today’s Variety, and not just because he’s corralled Anthony Hopkins and Annette Benning to star. The tale of the last 20 years of Hemingway’s life spent in Cuba has been a labour of love for Garcia, and it’s now finally taking shape after 30 years of development. For now his project is just off the ground with his main talent on board and he’s shopping for financing, beginning at the AFM. The coolest thing for us, though, is Garcia’s nugget from Francis Ford Coppola, who told him while making The Godfather that “the way you begin a movie is, you begin”. It’s a little trite, for sure, but it’s often easier to see the obstacles than the path and we’re all a little guilty of that from time to time. Today we’re reflecting on what we all got into this for in the first place, not a bad thing to do.

The Out Of Obscurity team

Back To The Creative Future

2009-11-03T17:41:00.000-08:00

Walking the dogs this morning we got chatting about the creative process. What does it take to pull all of the elements together to create a successful movie? Finance is only a part of it, and the distribution deals can be generated if you find the money, but it all boils down to the script. A great story, compellingly-written, with an original voice is what actors and directors crave. But do studios and audiences have the same desires and outlook? You’d think perhaps not, given that many recent big hit movies have been remakes, sequels and adaptations of recognized properties like comic books. Heaven help us when the studios come out with their upcoming new wave of movies based on things like Lego, Asteroids, GI Joe and Barbie. Even Steven Spielberg’s latest announced project is a remake of the classic movie Harvey, featuring a 6 ft tall and loveable invisible rabbit. Whatever next, the Corn Flakes box movie? - please do post and let us know if that one’s already been done.

Audiences have been flocking to see tentpole movies in greater numbers than before, as underscored last week’s report that the studios’ big-budget spectaculars really are the movies that make the most money. And conversely they’ve been staying away from such high-minded fare as Duplicity and State Of Play. We hear regularly that adult – as in grown-up – movies featuring intelligent dialogue, excellent acting and real dramatic tension just don’t play any more. Maybe so, and maybe there are more young adults these days who’d prefer to watch Transformers. But come on, maybe there just need to be a few better grown up movies to drag people in off the streets. Sure, there’s a different demographic from the 1970’s when folks went to the cinema to be challenged and educated, but there has to be a market for quality, original work.

Writing in today’s LA Times, Patrick Goldstein reports that the studios’ current wave of cost-cutting in an effort to rely less on name talent and feed their pipelines with cheaper movies along the lines of The Hangover or episodes of Star Trek, is a throwback to earlier events. Goldstein tells us that uber-agent Ari Emanuel of WME recently reminded his team of a Life Magazine feature from 1970, when Paramount tried to jettison it array of expensive talent in favour of lower-budget movies and remakes: history repeats itself. But of course studios don’t always make the best decisions and trying to rely on formulas, or remaking past hits in the hope of recreating similar success, just doesn’t work. Epics, westerns and musicals have all been the tentpoles of their day, mirrored these days by sci-fi spectaculars, comic-book adaptations and the vampire bandwagon. Success does come in waves but it’s when the factory tries to just keep churning out facsimiles from the same formula that the train hits the buffers. The early 1970’s saw a rush of adventurous, creative and original film-makers making great movies like MASH and The Godfather that set the train off in a different direction of creative success. There’s always room for innovation, creativity and raw talent. And just as surely as 40 years ago the creative inertia will be broken by original, creative movies that audiences will want to see. We think it can't come soon enough: unless you’re on the edge of your seat waiting on the View-Master movie.

The Out Of Obscurity team.

New Money, New Values

2009-11-02T17:33:00.000-08:00

Variety reports today that although the Hollywood studios aren’t acquiring projects right now, international development funding is coming to the aid of some big-name producers. India’s Reliance Big Entertainment Group, Steven Spielberg’s new backers, have financed their fifth property pickup for Julia Roberts’ production company, and they have similar deals in place with other major stars including George Clooney, Brad Pitt and Jim Carrey. Reliance is confident that for the relatively modest outlay of $20m they’ll turn up enough solid prospects to co-produce some hit movies with their star partners. Good value for their stake.

Institutions around the world are coming to the table with new film financing deals. In recent weeks the Abu Dhabi Imagenation group has announced funding deals for established producers and groups in Singapore, China and Europe are all busy. It’s good to see investors actively looking at film finance as an attractive investment sector, it underscores our own investment philosophy. A diverse portfolio of movie assets over time is a non-correlated asset pool with long-tail multiple revenue streams. That’s hard to beat compared with conventional asset classes and we figure that’s why investors are turning to the movie sector. Of course the cliché of naïve investors being hoodwinked out of their money by fast-talking producers on the promise of a share of a movie’s “profit” is a fading image. In practice most investors these days are very savvy and know what they’re looking at.

Prospective movie investors are looking for the same thing as anyone else: an investment story that holds water in a transparent structure with a good chance of upside. Clear terms on deals and some equality among the participants. It’s not enough any more to offer the “money” the last seat on the bus and the promise of some excitement along the way. Shakespeare In Love was fantastic on many levels and right on the money about attitudes to investors: “Who are you” Mr Fennyman is asked, replying “I’m the money”. So he’s told “Then you may remain as long as you remain silent”!

New waves of capital from Asia, the Middle East or anywhere else are all great for business. The inaugural Qatar Film Festival closed at the weekend with the announcement that the first project under the island state’s new film fund will be a big-screen spectacular about the life of the prophet Mohammed, to be produced by Barrie Osborne of Lord Of The Rings fame. It’s a project not without its challenges, including the likelihood that the prophet himself cannot actually be depicted . . . However we hope that the investors make great money and that they keep on coming back and inspiring others from around the world. The right movie investments can make great profits and as long as investors see value in your movie proposition they’ll feel like they’re a part of the process. Smart producers are packaging projects to show investors real value, partnership and exit strategies that work for them.

The World Bets On Hollywood

2009-10-30T17:21:00.000-07:00

Signs are going up around Santa Monica for the forthcoming American Film Market (AFM) in early November. It’s always a time to rev up the juices and think of the great big world out there. Whether you’re talking foreign movies or not a great big part of our business is international these days and we’re well aware of it. We’re currently talking to potential fund partners in Japan, China and SouthEast Asia as well as Europe, aiming to co-manage money from investor sources close to home for them. They’re all seeking international exposure to the Hollywood movie machine, not just for the chance to own distribution rights in their territories, which some traditionally are, but to take the chance to make real money from investing into a bunch of assets that play all over the world.

There may not be another asset class in the investment world quite like the movie sector, which is currently expanding rapidly, selling more product to more people in more different places each year, and expanding exponentially the formats that enable consumers to watch movies. In a portfolio management sense the movie sector is non-correlated, meaning it doesn’t suffer from fluctuations in conventional investment markets, as has been proven lately. It’s certainly a great investment prospect, but we also like to think that participants all over the world are keen to tap into the excitement and glamour of an investment that they can not only make great money from but also enjoy on a simple level with their families.

Institutions around the world are now looking seriously at investing into movies not just for vanity reasons or to kick-start a local media business but as a serious way to build up a portfolio of money-making assets. Although some mainly US-based banks and hedge funds have pulled out of film financing deals in the last year, whether because of the financial crisis or simply bad decision making in getting into movie deals, we’ve always believed in the merits of long-term movie investing. So, it’s refreshing to see a shift in the way movie assets are now being seen as a serious investment category. Just this week another Middle Eastern state fund has been announced, the $200m Alnoor Fund from Qatar. It’s aiming squarely at Hollywood projects where the fund can make good commercial returns. Normally sovereign funds invest with a larger mission to expand their local film industry or artistic footprint, and Qatar is certainly doing that by launching the fund at its inaugural Film Festival. However it’s interesting that they chose to underscore their desire to invest in Hollywood, rather than regional or European movies, based on the simple belief that Hollywood offers the best potential investment proposition. We’ve been banging on for ages about the great opportunities in a smart portfolio of movie investments, it’s good to see this philosophy permeating investment decisions worldwide.

The Out Of Obscurity Team.

Shooting In Paradise

2009-10-28T15:14:00.001-07:00

We love The Bahamas. We’ve had friends there for a number of years and whenever the AFM rolls around we always make a point of dropping in on the Bahamas Film Commission booth over at Lowes Hotel. As a social visit it’s better than most but we’re also working on good business reasons for spending time in the beautiful Bahamas.

We were invited a couple of years back to attend the Bahamas Film Festival, which is now in its sixth year, and intend to do so again when it opens in Nassau on December 10th. Our production arm is currently developing our feature The Diamond Runners, which zooms between Los Angeles, Las Vegas and back again. However, our subsequent project The Promise is a treasure-hunting caper set on the East coast, Florida Keys and The Bahamas. We’re already planning to base the production down in the islands, where we have access to the under-utilised Bahamas Film Studios (best known for the Pirates Of The Caribbean series) and some friends in the Film Commission.

There are logistical issues, of course, and it’s not an ideal location for every type of shoot, but for us it’s perfect for a pair of veteran treasure hunters on the trail of the “big one”, followed by a flotilla of tiny boats, narco-trafficer hoods, a CEO-kingpin in a shiny speedboat with twin babe lieutenants, a couple of hapless cops in the floating equivalent of a jalopy, and a budding romance formed by the accidental explosion of a vintage Mustang. We can’t wait to get down there again. Our Movie Portfolio Fund operates as an international offshore investment vehicle, and Nassau is an ideal financial services hub with most of the international banks represented there and a good fund management sector. It’s only a hop to Florida and a few hours to LA: it’s practically Hollywood adjacent.

It was reported this week in a Kagan report that bigger-budget movies make the most profit, with movies costing around $100 million earning about $118 million in profit, on average. Allowing for anyone and his dog’s definition of “profit” in the movie business, the headlines would suggest that you’d have to come up with $100 mil to stand a chance of making any money. Of course, a sensibly-budgeted high-quality movie with a proper distribution strategy will have good profit potential at any budget level but you never can tell. Our focus is on giving investors access to a portfolio of movie assets that will make them great returns by exposing them to various levels of risk and reward over time. Cross-collateralisation and diversification are obvious fund management tools which we believe work in films as in other asset classes.

The Out Of Obscurity Team.

Runaway Productions Returning?

2009-10-27T15:37:00.008-07:00

Walking our dogs the other morning we met a friend in the production business. Down by the beach was a large production base camp working on a week-long location shoot, and she had phoned a friend on the shoot to say hi and chat about the scarcity of on-set jobs. She’s been in and out of work a lot lately and was bemoaning the decline in overall movie production, particularly in California. She was hoping California’s just-announced package of benefits to film-makers might help reverse the trend of productions taking the bait of subsidies and tax breaks from other states and countries like Australia and, of course, Canada. Unlike many other US states California has never before offered production subsidies to movie-makers, hoping that just being around Hollywood is cachet enough for producers.

There has certainly been a regular flow of productions hitting the highway including some high-profile ones like the Ugly Betty TV series. However there have also been some glitches such as states running out of subsidy dollars too quickly to make their plans sustainable, on-location resources not matching up to film-makers’ needs and more societal feedback from some places where it’s felt that giving money to highly-paid Hollywood types may not be the most politic thing to do. Some far-flung states have begun to show signs of “film finance fatigue” as it dawns on them that perhaps it isn’t going to be the boon they thought it might, with the economic benefit from inviting movies to town hard to quantify and, more importantly, to justify.

Most producers don’t set out looking for reasons not to film in California: in fact most who end up on location elsewhere for purely fiscal reasons would probably be quite happy filming closer to home. However money always talks and there are usually compelling reasons why productions relocate. Big subsidies do talk big. A major element in movie budgets these days regularly comes from subsidies and tax breaks so there’s no ignoring the obvious.

So, it was refreshing to see the announcement a few weeks back and yesterday’s hurrah from the Governor that already dozens of productions have remained in California that may have skipped town but for his recent package of measures. California has stepped up and the package does help, especially emotionally, but there’s always more than just getting the tax back. Hollywood is here, after all, and it’s got to be good for the business for studios and streets to be busy with moviemaking. We strongly believe that there are always new and innovative ways to finance movies, and getting the most for your money - subsidies and all - is only good sense. The formula morphs endlessly, we're all working on it.

The Out Of Obscurity Team.

Movie Finance - Guaranteed

2009-10-26T17:28:00.004-07:00

We had a meeting in the Casa Del Mar the other day, one of the coolest places in town to sit down with friends or business colleagues. We’re developing an innovative new movie investment structure together with a company specialising in asset-backed bonds. It’s an exciting topic, perhaps the holy grail of film finance. If you can remove all elements of risk from the business of investing into movies then investors have a no-lose scenario. By combining a backstop guarantee on capital together with potentially unlimited upside from movie profits, investors can get access to the movies without any of the traditional downsides.

In the movie business a guarantee needs to remove not only the investor’s financial risk but also take out risks associated with producing movies, ranging from the production running out of money or the movie not getting a release, to releasing a stinker of a movie that earns no money and loses all of the investor’s capital. Investors all over the world turn to the movie business for many different reasons but they all have one thing in common: they realise they’re putting their money at significant risk. A properly structured guarantee protects their money and shifts the odds significantly in their favour.

We’ve seen many types of guarantees being offered in the film finance world over the past few years. Typically they’re backed by some sort of collateral like a property portfolio or government bonds. These structures looked alright and were offered up by legitimate banks but the crunch came when some of the offering banks themselves collapsed or the underlying securities proved to be less cast-iron than they had seemed. Our own Movie Portfolio Fund was actually discussing such a bond backed by Lehman Brothers with investor groups but mercifully hadn’t concluded a deal on it before the crash. Now, however, we’re working with an asset class that will provide a fail-safe guarantee to pay back investors’ capital, via an exchange-listed financial instrument, and give them a piece of the profits from a portfolio of mainstream movies.

In this way we’ll be able to do two main things: protect investor capital and channel sufficient funds into movie production to provide significant upside for investors and producers alike. The goal is always movie money, the solution is to give investors what they currently don’t have: absolute security for their money. See you at the Casa . . .

The Out Of Obscurity team.

Recsssion-Resistant Revenues

2009-10-23T17:39:00.004-07:00

We’ve been banging on for ages about the recession-resistant nature of movie revenues. The movie business is one of those that does well in both good times and bad – quite simply people will still go out to the movies no matter what else is going on in their lives. Thankfully our theory has been proved in practice, with global movie revenues continuing to grow year-on-year. Our website quotes Variety’s observation that 2008 “would be remembered for prospering as the economy collapsed”. Now, a new report out this week has confirmed that 2009 movie revenues are currently 5% up on 2008, continuing the upward trend in revenue and international expansion.

With our financial hats on, the movie sector is a great proposition for investors because it’s classified as a non-correlated alternative asset class, meaning that its performance doesn’t generally fluctuate in line with the stock market, the economy, property or pretty much anything else. In fact that’s why investors should invest into assets like the movie sector, to be sure they continue to benefit even if other investments are falling.

So, we’ve been banging on about the movie sector because not only is it a classic alternative asset but it’s also got great potential to keep on growing and returning profit for investors. Of course the business is changing rapidly, and the challenge is to ensure movies make money across all of the various distribution platforms emerging today, including video-on-demand, Internet streaming, mobile content and who knows what else. That’s all happening right now, with monetizing of digital content one of the main themes at Variety’s Santa Monica conference this week. No doubt there will be opportunities missed as well as taken, but it seems to us that the movie business has been a lot smarter about this than the music industry a decade ago which tried in vain to combat rather than embrace digital distribution and has suffered greatly as a result.

There’s been quite a bit of coverage in the last year about banks and hedge funds pulling out of film funding. Our take on that is that they probably got into the wrong deals and couldn’t make it work for them. There are always good opportunities and smart investors know this. Just this week consortium of banks put up a further $300 million for an established studio slate on top of multiple previous commitments: they know that good movie deals pay off in spades. We believe the opportunity for investors to profit is as great as ever.

The Out Of Obscurity Team

Creative Financing Structures

2009-10-22T17:57:00.005-07:00

We received an email this morning from a producer friend about a new financing structure he’d been presented with. For an up-front contribution of 2% he was told he can get his movie financed. So, for $100k down he gets to make a $5 million movie and choose to either pay back the $5m from his film’s profits, or treat it as an equity investment and give up 50% of his movie to the investor with no additional fees. Sounds like a good deal, possibly too good to be true.

There are a lot of creative financing structures being proposed around the film world these days. In days gone by it could be enough to pitch a good script to a producer or studio, and these guys had the resources to make the movie. Now, however, studios are in the risk-sharing business, regularly laying off chunks of major blockbusters to other studios to lessen their potential downside, while still allowing them to be in the big-ticket business without putting up all the “coin” required to seek big glory. In addition studios now regularly act merely as distributors for externally-financed movies. Producers need to bring money to the table to increase the chances of making their movie and many have lined up financing with external parties keen on both the glamour and high potential returns of the movies. This allows producers to keep greater control over the creative elements of their work and also to own some or all of their movie in perpetuity, making money year on year that the studio would otherwise own. The studios collect risk-free distribution fees without disturbing their corporate balance sheets, but there’s always a great demand for external money, hence some of the “creative” schemes we see.

OOO partners with a major studio production group to provide equity financing and to co-finance their movie slate. Our fund earns long-term revenues from movie assets, and it also has access to valid financing structures that can help raise production money on the back of 20%-30% initial capital, often with investors and producers sharing the profits 50:50. There are probably a lot more people out there talking about some 70:30 or 80:20 structure or other than guys who can really make it happen, and everyone has a tale to tell about the oddballs they encounter trying to raise money. Producers will always track down every lead in the search for production dollars and unfortunately there are some unscrupulous characters out there asking for up-front fees for services that don’t really occur, and making promises that don’t materialise.

With 25% or 30% up-front capital and a reputable partner there’s some logic and the potential to get your movie made, but 2% down sounds a little like a dream. We’re waiting to see the details on the 2% deal, if it’s real it could be a gold mine.

The Out Of Obscurity team.

International Movie Money

2009-10-21T14:57:00.002-07:00

Hollywood has a knack of finding new sources of money just as others are drying up. There have been several waves of external finance in recent decades: in the last few years the hedge funds put their analytical nous on the line, following on from the generous German film funds who had bankrolled the studios for their own domestic tax reasons. Although no group of investors has ever really hit it big, and inevitably have retreated for some reason or another – changes in tax codes, the collapse of the banking sector – there has been no shortage of investors keen on Hollywood.

When we started OOO in Singapore we were recognized as a new kind of venture – we were accredited “Technopreneur” status as a new and innovative sort of company. We aimed to energise movie expertise in the region and manage investment money from our base. Subsequently movie companies like Lucas Films, Hyde Park Entertainment and many others have relocated to Singapore and the investment management industry has also focused on Singapore as a base from which to manage international money.

In the news this week is a slew of investments by the Abu Dhabi government’s Imagenation group, handing out deals to major producers like Jerry Bruckheimer and other studio stalwarts, as well as $250 million in funding to Participant Media and $75 million on top of last year’s $250 million to Ashok Amritraj’s Hyde Park Group. This in addition to kick-starting the $500 million fund it announced in 2007 in partnership with Warner Bros which has so far financed only one movie, Roberto Rodriguez’s Shorts. The Singapore government’s MDA is also a part of the Hyde Park deal, calling it a “never-before-seen combination of Hollywood, India, the Middle East and Asia. It’s like a belt around the world”.

Greater international co-operation can only be good and with real funding now beginning to flow from such partnerships we believe that bodes well for all parties in the movie finance world. We’re currently talking to investor groups in Tokyo, China, Europe and elsewhere, and aiming to get closer to all our partners at the upcoming American Film Market in November. Globalisation of fundraising and movie-making, it’s all good.

The Out Of Obscurity team.

Change is Good

2009-10-20T16:11:00.008-07:00

Out Of Obscurity was set up as a community of partners in the movie business, focused on producing great movies, accessing finance for good projects and providing an innovative opportunity for investors around the world. That was before any of it was possible via online collaboration and the democratisation of film financing. So then social networking came along, all manner of financial institutions became involved in movie financing and our friends at Studio Beyond are now doing a great job of rolling out their international film-makers’ community featuring many of the elements we originally built into OOO. Practice catches up with inspiration. Our original vision of an online community is out there building itself and we’re happy to be part of it all. We’re now a movie company with an innovative funding structure that can work with people all over the world, and that’s where we want to be.

Nowadays right from the top down movies are being financed with many or all of the stakeholders taking a share of the risk and reward. Studios are using the opportunity to lower their talent costs, probably quite rightly so, and the whole playing field of film finance is constantly changing. Indie producers have always been the most creative in devising new ways to get their movies made, and now innovation and collaboration are the watch-words right across the board. We designed the Movie Portfolio Fund as a diversified financial structure to co-finance slates of movies, giving investors risk-reduced access to a novel asset class. We also saw it as a gateway to financing and producing our own movies. Partnering with a group of major Hollywood producers put us on the right track and we’ve helped to form a forthcoming Studio production company, with whom we will produce our own movies – starting with our first feature, The Diamond Runners.

The whole playing field of movie revenue opportunities is also changing, viz Variety’s conference on changing opportunities via technology. We’ve seen a recent wave of movie financing coming out of the Middle East and elsewhere: we like the advent of international financing input. OOO itself is currently in discussions to co-manage a film fund in China, as well as working with new fund partners in Europe the Middle East, Asia and Australia to tap into people’s desire to be a part of the lucrative Hollywood dream. It’s all changing for the good.

The Out Of Obscurity team

Out Of Obscurity in Hollywood

2009-10-19T17:59:00.006-07:00

So here we are in Santa Monica running a film company, Out Of Obscurity Inc. and international film fund, the Movie Portfolio Fund. Movie Beach is an occasional look at what’s going on in our world as we put our movie projects into production and manage the ever-evolving landscape of film finance with our movie fund.

Since we’re originally European with a company based in Singapore and partners in Asia, Europe and the Middle East as well as Hollywood, we have a fairly international viewpoint on things. So Movie Beach will feature a wide range of discussion on matters to do with the movie business and the world in general.

Santa Monica is a pretty active hub for the movie business. A lot of movie folks live here and a bunch of film and movie-related companies are based here too. The annual Indie Spirit Awards are held in a big-top tent down at the beach and the American Film Market happens right here as well. Everyone likes Santa Monica so it’s a convenient place to get together with friends and colleagues whether in the movie business or not. So, we're able to have most of our meetings here with the occasional foray up to Beverly Hills and beyond.

The main thing we know from building up our business around the world is that there are innovative movie projects and talent all over the world, they’re not just all hanging around in Hollywood waiting to be discovered. So, stick with us as we develop our take on what it’s like to be a part of the movie business from a global perspective. We’ll be glad to meet you on Movie Beach.

The Out Of Obscurity team.