Investing in film is said to be a risky venture, especially if you are an outsider. Managing production costs, finding the right distributor, and hiring the right talent are some of the decisions that investors share as the production moves toward the actual making of the movie.
However, investors should also note that movies provide a lot of opportunities for continuous profit. As an asset class, movie investment doesn’t seem to be related to other types of investments. It is also recession-proof as people will still want to watch movies no matter what the condition of the economy might be.
Before Making an Investment in Movies
Due diligence is required when investing in movies. One of the most popular methods for direct investment in movies is through a hedge fund vehicle. However, the risks of such investment can be substantial, and it is recommended for the family office or pension client. Potential investors should look into the reputation of the producer, one’s experience, and track record. Investors should seek the help of an industry insider to find out what are the best movies to invest into.
Profits from Movies
Once the movie makes money, the producer often repays the investors first of all their investments. One will also pay off debts incurred during the production. The process is similar to a return of investment.
Then profit sharing will be made. Often the profit is divided between the investors and the producer. The director, writers, and the stars get their share from the profit of the producer. As such, it is important that investment proposals are made into writing, and has an arbitration clause that will be useful in resolving disputes.
Tax Relief as Profits
Another source of profits for movies is through tax relief schemes. According to the EIS, investors can invest a maximum of £1 million each year. However, the minimum investment depends on the vehicle you utilised. Even if the movie doesn’t make profit, EIS projects can reduce the losses through tax relief.
If you manage to keep an investment for three years, you will be able to offset 30 percent of the amount you have invested against your income tax liability in the first year. Profits you have made will be free of any capital gains tax.
For continuous profit from investment in movies, you should consider using slate financing. With this approach, you invest in a portfolio of movies, instead of just a single production. Diversifying your investment will provide you with a good balance of risk and return.
Today is the best time to invest in movies. It is much easier to access movies today, with the thaseatre still on top of the distribution channel chain. It is followed by cable TV, internet, and rental outlets. While the availability from different distribution channels ate up some revenues from the movie theatres, it also led to new revenue streams. And that led to better profitability of your movie investments.