Wednesday, December 30, 2009

New Horizons

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.

Thursday, December 24, 2009

Seasons Greetings!

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.

Tuesday, December 15, 2009

No Recession At The Movies

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.

Friday, December 11, 2009

Big Plans, Short-Term Decisions

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.

Monday, December 07, 2009

Trust and Deals

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.

Wednesday, December 02, 2009

Movie Revenues Rising

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