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
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