An interesting email recently appeared in the TraderLife inbox. We were invited to invest in “Epstein – The Movie”, a film retelling of the story of Brian Epstein, the discoverer and manager of the Beatles. The project, said the email, would provide an estimated 128% return to backers over two years.
Did we rush to our piggy bank? We did not. No offence to the great Brian Epstein or to this particular production company, but UK film investments have not always been the best place to put your money in recent years.
Criticisms of UK film investments range from extremely low targeted returns, to complicated financing structures, to excessive fees. In 2015 UK tax authorities clamped down on film investment rules in response to suspicions that some were little more than cover-ups for tax avoidance.
Then there is the simple fact that, because there is no scientific formula for producing a commercially successful cultural product, many films lose money. Recent flops that probably looked good in development include Tom Stoppard-scripted historical drama Tulip Fever and latest Marvel installment Dark Phoenix starring Game of Thrones’ Sophie Turner.
But on the other hand, there is a long history of wealthy individual backers supporting movie-making. So, while film is an extremely complex and risky area to invest in, it is an established asset class that has delivered excellent returns to some.
For instance investors in last year’s Freddie Mercury biopic Bohemian Rhapsody must be truly delighted. This film saw box office returns of nearly $1bn from a production budget of just $52m.
No business like show business
Now is arguably an excellent time for the UK film industry. UK box office receipts rose by 5.2% in 2018 on 2017 and are forecasted to rise by 4.3% on average every year until 2023, according to PwC. A record £1.6bn was spent on film production in 2017, reports the Financial Times.
Meanwhile, the evolution of video streaming platforms is providing filmmakers with new distribution options. Then there are developments in technology such as ever-improving virtual reality options and the coming of 5G that look set to keep viewers hooked on consuming films.
While UK tax breaks for film investments have run into problems in recent years, as described above, film projects can still be a tax-efficient place to put your money.
Using the UK government’s Enterprise Investment Scheme (EIS), film investors can potentially take advantage of an income tax break of up to 30% when they invest in a developing film project.
Another big advantage of investing in a film are the opportunities to access film-specific perks. These could include set visits, chances to buy props and film-related artwork, and invitations to premiers. Investors in “Epstein”, for instance, can look forward to a private screening of the finished film.
For some film investors, however, simply the knowledge that they will be supporting a team of creative people make what they regard as a worthwhile artistic product is enough to get them over the line.
As with all investments, and especially those at the riskier end of the financial spectrum, it is crucial that you do thorough research before investing in a film project.
Unless you are convinced you have spotted the next Coppola or Spielberg before everyone else (unlikely), it is best to back a film-making team with a solid track record of commercial success.
Losing the plot
Film might initially seem like a glamorous area, but it may lose some of its shine once you start reading through a film investment agreement. These are notoriously dense and can be very tricky for non-experts to navigate.
If you are not convinced you are up to speed on film finance-specific call options or the relative pros and cons of debt or equity, consult a good finance lawyer or investment adviser before writing a cheque.
It is worth pointing out once again that investing in film is generally very risky. If you are not ready to back a single project, you could consider going for a film fund that invests in several different ones. The British Film Institute (BFI) launched a vehicle of this type earlier this year.
It is generally unwise to invest more in film than you can afford to lose or to rely on film as your sole source of investment income. Some films have happy endings and some have sad ones – and exactly the same can be said of film investments.