Thursday, 17 February 2011

Hollywood Babble On & On #680: Foreign Cash Domestic Problems

Welcome to the show folks...

Imagenation the Abu Dhabi based film finance fund is undergoing a major shake-up, one of the major causes of this shake up is the company's poor financial performance. It seems that in the fund's short life it dropped more bombs than Curtis LeMay on a Saturday night bender.

But how could have these trials and tribulations been avoided?

Hollywood is a tempting place for investors.
It's ripe with the dazzling effects of glamor, and the possibilities of huge financial rewards for success. If you're a relative newbie to the world of high finance with oil money gushing out of your wazoo, and some slick talker in an expensive suit tells you that he can make you even more money, and get you a chance to chase starlets, you're going to dive in head first.

Of course there are risks, big risks, risks those same guys in the slick suits don't really like to tell you about. For every hit film there are dozens, if not hundreds, that fail to break even, let alone make a profit. The real rub is that even if the film makes money, a foreign investor's Hollywood partners have literally boatloads of methods to avoid paying said foreign investor one thin dime.

So how does a foreign investor avoid getting skinned alive.

Let's play a little thought experiment where you inherited a tiny but wealthy kingdom after your father, the king, died of 9 mm lead poisoning. You have billions in oil money sitting around, and you need to get it off its duff and doing something, because when it comes to money at that level you have to use it, or you could lose it.

You could invest in widgets, but they're dull, and aren't going to help you get into the painted on pants of a starlet. You decide to invest in making movies for fun and profit. But how do you avoid losing your investment?

Follow these steps.

1. Learn everything you can. Study every facet of the business. I'm talking about how movies are made. How much they cost. How are they distributed and marketed. Then learn everything about the flow of money from box office and home video to studio coffers. Look at how previous investors have performed, and learn from their mistakes.

2. Gather intelligence. This is different than just learning the mechanics of the business, this is all about learning who is who, and what's what. Hire private investigators, recruit informants, and analyze the data they bring you about who you should do business with, and who you should avoid.

3. Pick your own partners... carefully. The most common method of recruiting foreign investment is for someone from Hollywood to get on a plane and make sales pitches to deep pocketed plutocrats like yourself. Forget that. When you have how to do business, and who to do business down pat, you approach the people you want to approach for a partnership. No one in the movie business will say no to outside cash, because it mitigates their own risk.

A key factor is to have a partner who can't just bulldoze over you. You need to be powerful enough within this partnership to toss your weight around when you have too.

4. Avoid "importance." Hollywood filmmakers have these little pet projects that they don't want to pay for themselves, because they know these films won't make money. These films are designed to make the sort of political/artistic/social statements that will get them nominations and prizes and pats on the back at some of the fancier restaurants in Malibu and Beverly Hills. So they go to foreign investors and beguile them with talk of Academy Awards and other stuff. When they talk about awards, watch your money, because you're probably not getting your money back.

You have to weigh risks with rewards. If you deem a slim chance of getting an award a fit enough risk, then invest away. If you're looking for a cash return for your cash investment, then look for something more commercial.

There will always be an element of risk when investing in movies. Sometimes the best made, widest appealing films tank, while relative niche film prosper. But at least you can avoid being treated like an idiot.

1 comment:

  1. Sounds like good advice for anyone wanting to invest in any type of industry.

    As for "important" films, if you are going to make some award whoring social statement film. DO IT CHEAP as most movie goers do not want to spent 90+ minutes being lectured and bored to death by some half-brained hollywood nitwit.

    I find when the labels "important" or "socially conscious" are put on films it means, this will be some dull, slow pet project of some celeb who will beat you over the head with his half-baked personal views and beliefs.