| Alright, so you woke up one day, checked your | | | | and more liquid than holding direct equity positions |
| Swiss Bank Account, called your family office | | | | in most public entertainment and other public |
| planner, had breakfast with your private client | | | | companies, real estate investments, and other |
| service wealth manager, got your tax accountant | | | | alternative investments. |
| on the phone, and between three of you, you | | | | *There is a huge demand, audience, and growing |
| decided to invest your proceeds from your latest | | | | distribution structure for specialty independent, |
| company's Merger or Acquisition not into some | | | | ,crime, horror, and other low budget films as |
| dubious hedge fund or start-up biotech venture, | | | | exemplified by the success of such films as |
| but into financing Hollywood films because you | | | | "Brokeback Mountain", "Sideways", "Capote", |
| figure you need the State tax Credits, the | | | | "Garden State", "Napolean Dynamite", "Y Tu |
| Federal tax write-offs, as well as a nice hedge of | | | | Mama Tambien", "My Big Fat Greek Wedding", |
| revenues from a few movies. | | | | "Memento", "Crash" , "Saw 1 &2", Friday The |
| Now, this may not ring too well initially with your | | | | 13th", "Halloween", "Texas Chain Saw Massacre", |
| hedge fund manager neighbors in Connecticut or | | | | "Hostel" and "WOLF CREEK", which was made for |
| your oil and gas investor friends in Bahrain or | | | | $800,000, bought for nearly 4 million dollars prior |
| Dubai, but aren't these the same guys who are | | | | to its release by Dimension, as well as "Hustle and |
| financing Hollywood blockbusters? And the only | | | | Flow" which was made for $2 million dollars and |
| question for you, how do you get in the game | | | | bought for $16 million by Paramount Pictures. |
| without feeling like the Uncle of the film school | | | | *Apart from large blockbusters such as "King |
| student who wrote his nephew a $1,000,000 | | | | Kong", "Harry Potter", and other large scale studio |
| check for a film that starred his theater | | | | films, the majority of studio-produced films have |
| department classmates and ended up as a free | | | | been under performing at the box office. The |
| download on | | | | films that have been successful for studios were |
| So after doing your share of homework, here's | | | | all externally financed and or co-financed with |
| what you discover may be the opportunity to | | | | studios, sold for 2-3 x their costs, and a majority |
| spice up your wealthy but boring life: | | | | of them retained foreign sales rights to maximize |
| *Sergey Brin And Larry Page Of Google, Fred | | | | revenues. |
| Smith, the CEO of Federal Express, Norman | | | | So after looking at all the great benefits, how do |
| Waitt, the Co-Founder of Gateway Computers, | | | | you actually go about finding a deal or movie |
| Jeff Skoll Of Ebay, Todd Wagner and Marc Cuban | | | | project where you are certain that half your |
| (formerly of broadcast.com), Max Levchin and | | | | money isn't going to be used by a Hollywood |
| David Grodnick Of PAYPAL, Marc Turtletaub of | | | | producer as a down payment on a new mansion |
| The Money Store, Roger Marino Of EMC Corp, | | | | in Pacific Palisades? |
| former Chicago bulls co-owner Jim Stern, Sidney | | | | The key that separates the successful film |
| Kimmel Of Jones Apparel Group, Minnesota Twins | | | | financiers vs. the newbie Oil magnates who come |
| owner Bill Pohlad; Real Estate Developers Tom | | | | to Los Angeles with a pocketful of money and |
| Rosenberg, Bob Yari; and, financiers Robert | | | | end up leaving with half a pocketful of money is |
| Sturm, Sheikh Waleed Al Ibrahim, Zeid Masri of | | | | called several things: structured finance, leverage, |
| SilverHaze Partners, Michael Singer, Mark Esses, | | | | risk minimization, multiple exit strategies, tax |
| David Larcher, Michael Goguen, Richard Landry, | | | | credits, and the ethical consciousness of the |
| Michael Reilly, Rafael Fogel, and Philip Anschutz are | | | | filmmaker/producer. |
| just a handful of high net worth entrepreneurs | | | | What does that translate to you in a real world |
| who entered the motion picture finance and | | | | scenario. Lets say you want to finance 100% of |
| production business with successful results. | | | | a $1.5 million dollar low budget genre film whose |
| *There are various tradable state, federal, and | | | | worst case scenario is a DVD release and profits |
| international tax credit incentives that would offer | | | | from international sales and perhaps some other |
| a premium based on an equity position. Assuming | | | | equity sweeteners in the conversion of the |
| there is a 10 million dollar budget film, where 50% | | | | securities that you subscribe for as part of the |
| of it is in equity, and 50% is through international | | | | deal. Well, if you write a check for $1.5 million, and |
| distribution guarantees prior to release. Now | | | | the film is shot in a state that has 30% in tax |
| assume there is a 20-25% tax credit on the | | | | credits, you get back $450,000 in tax credits + |
| entire amount of $10 million dollars, which will | | | | under Section 181, you are able to write off that |
| immediately translate into $2-2.5 million tax credit | | | | amount under Federal. So you are already making |
| to an investor. | | | | a nice return before the profits kick in. Then you |
| *Numerous hedge funds such as Reed, Conner | | | | figure you sell the film to 50 countries, and if you |
| & Birdwell (DISNEY), Legendary Fund | | | | are really lucky, you sell the film for 3-4 times it |
| (Warner Brothers), Melrose Fund (Paramount | | | | cost to a studio at a swanky festival like |
| Pictures), Ingenious Media’s 700 Million dollar | | | | Sundance, Toronto, Cannes, etc. Do this over |
| Float on London’s AIM, Benjamin Waisbren | | | | 5-10 films and you can make a very profitable |
| Investments, and a host of other funds and fund | | | | name for yourself among the Hollywood elite. |
| managers are entering the film finance arena. | | | | But lets really take this a step further and see |
| *The explosion of international DVD, | | | | how the bigger boys leverage film investing |
| pay-per-view, home video, cable, megaplex | | | | because they can get a bigger star which can |
| theaters, the future of multi-lingual Internet video | | | | translate in larger overseas sales. Lets say a |
| on demand downloads, and cross-market digital | | | | filmmaker/producer has a $10 million film and you |
| distribution including low-cost theatrical digital | | | | want in on the action. You would park $5 million in |
| projection, the movie industry is accelerating at an | | | | equity, receive an 20-30% tax credit on $10 |
| unprecedented growth rate. | | | | million which will be $2-$3 million, the producer will |
| *The American Jobs Creation Act of 2004, which | | | | get the biggest star he can, get a studio to kick in |
| amends the Internal Revenue Code of 1986, was | | | | the other $5 million dollars, you wont worry about |
| signed into law . The Act creates three tax | | | | ever seeing a penny from the theatrical release |
| incentives expressly applicable to motion pictures, | | | | because you know your DVD profits and |
| one of which – § 181 of the Internal | | | | international sales will cover your equity position. |
| Revenue Code – is especially significant to | | | | Make sense? |
| independent film producers and their passive | | | | Now leverage this with different budgets, genres, |
| investors on qualifying films with budgets under | | | | stars, distribution, places where you can get high |
| $20 million dollars. | | | | tax credits (Ie Puerto Rico is 40%), other exit |
| *The filmed and other entertainment sectors are | | | | strategies where you can find your shares on the |
| constantly outperforming and beating analyst | | | | London AIM, and you are on your new career |
| expectations with regards to growth, and are the | | | | path as a sophisticated and educated film financier. |
| only industries resistant to untimely global events | | | | Off course, if you want to go even further and |
| and adverse economic conditions. | | | | guarantee 100% of your capital, there are tricks |
| *Movie Investor returns may be more favorable | | | | to that as well. |