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Investing in Hollywood: Exposing your portfolio to Tinseltown … FORBES

By TANYA BENEDICTO

Whether it’s for financial return or a vanity play, some wealth investors may find the lure of investing in show business irresistible. Before you envision yourself on location for a major motion picture, consider this quadrant financial plan: 1) tax subsidies 2) sales projections 3) debt 4) equity and how a cast, budget and marketing will impact your gains.

Show business usually catches a bad rap but Judy Cairo of Informant Media, which operates as both a film production company and a film finance fund, told a group of wealthy investors that there are indeed opportunities for A-list returns due to three concurrent forces.

First, the major studios have been too focused on chasing high-profile commercial films. Entertainment Weekly reports that “a number of would-be blockbusters have underperformed and overall revenues have been down,” citing The Green Hornet and Gulliver’s Travels. Therefore the studios, according to Cairo, have overlooked a profitable space: the moderately budgeted, high-quality film for the adult demo.

Cairo used the recent box-office hit The Fighter to make her case in point. Paramount was originally supposed to produce the film with a budget of $77 million. Instead, independent film producers reigned in with a budget of $17 million. To date, the movie starring Mark Wahlberg and Christian Bale has grossed over $74 million, and that’s just in domestic sales. The Black Swan and The King’s Speech also exemplify that the indie, non-commercial route can still garner all the glory: critics’ praise, awards galore and tickets sales.

Second, foreign countries, especially in Europe, are granting substantial tax subsidies to entice film production within their borders. Cairo’s next project, Hysteria, a romantic comedy situated around the development of the women’s electronic vibrator, (try mentioning that in a presentation to a room full of serious investors!) starring Maggie Gyllenhaal, was shot in Great Britain and Luxembourg, which raked in a combined $2.8 million. France, Italy and Poland are also film-friendly nations.

And last, investors are getting creative with diversification. Besides ticket sales, Cairo points to an endless stream of revenue from multiple sources, including foreign sales, cable networks, pay-per-view, hotels and airlines. However, accounting rules only recognize all this revenue when tickets are officially sold or when a license agreement is officially signed. Until then, the investor is staring at a sheet of projections and estimates.

Investors can either invest in film funds, where you could spread risk over several projects, or invest in one individual film. Either way, financiers of “The Industry” should think of each film as a business startup. If it fails, it’s usually because it has an ill-conceived business model, be it due to overspending on production or poor marketing strategy.

(excerpted from Forbes’ article dated Jan. 28 2011)

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