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