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