Back To Business

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

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

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?

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

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

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

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

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

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

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

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

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?

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

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

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

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

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

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

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.