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