You don't need the last name Murdoch, Spielberg or Warner to be a movie investor. The question, though, is whether you want to be one.
Most investors are comfortable with stocks and bonds in their portfolios, with perhaps a dose of options or commodities for the more adventurous. But now, thanks in part to disillusionment with traditional investments, some investors are itching for a piece of the red carpet and a helping of Hollywood glitz.
Even though stock and credit markets have roared back from what seemed like a near-death experience, the crash inflicted emotional scars and losses, leading some investors to wonder if there might be other places to put their money that might be more fulfilling.
Big box-office hits such as Avatar, coupled with the introduction of new ways to bet on or invest in movies, is making the idea of financing the big screen more appealing to some mainstream investors who wouldn't have considered it before.
"It's a lot more fun" than other investments, says John Case, 61, who invested nearly $50,000 making a movie called Raul about a 75-year-old man who competed in an international athletic competition. "You can make money," he says, though that hasn't happened for him yet.
New ways for regular investors to bet on movies are evolving. A market that lets individuals speculate on movies' success is scheduled to launch next week, pending regulatory approval.
Additionally, small movie makers are discovering new ways to connect with investors and sell and promote their films online, giving them more of a chance of actually making some money from what is a highly speculative investment.
But before you go shopping for a director's chair and house in the Hollywood Hills, know that industry insiders say movies in general have historically been lousy investments.
Investors have long had ways to invest in movies, but their hit-it-big-or-miss-by-a-mile nature means that, by definition, most films lose money. Even studios with successful films or known brand names have failed or are struggling.
And some of the "Hollywood accounting" used to record the costs of producing films has left investors outside the industry's in-crowd holding the losses but sharing little of the upside from films. " 'Perilous' might be understating what's suicidal risk" of investing in movies, says Edward Jay Epstein, author of books about financing entertainment, including The Big Picture.
While tens of thousands of movies are made each year, only about 650 get any form of distribution to theaters or other places in the U.S. where money could be made, Epstein says. And of those, no more than 100 make money, he says. Those aren't great odds.
Still, if the glitz of Hollywood proves too alluring to resist, there are several key ways to do it.
Betting on the future
If regulators sign off, starting Tuesday, movie box office receipts will have something in common with hog bellies and corn: Investors can bet on them using financial tools called futures.
The futures market allows investors to bet on what prices of items, usually a commodity such as steel or wheat, will be at a set date in the future.
Futures began as a way for farmers to lock in prices for crops but have expanded to other commodities and for use by speculators.
A new futures market would let people bet, with a minimum of $50, against other participants on whether certain movies will do better or worse than expected.
The futures exchange is to be operated by Cantor Futures Exchange and use box office data from Rentrak Theatrical and Nielsen EDI. The exchange plans to open Tuesday and conduct the first trades on April 22.
The exchange's appeal is that people would be able to bet on information that's readily understandable and followed by the masses, namely, box office receipts.
However, this futures market is more akin to speculating than investing. The money you put up doesn't help pay for movies.
Instead, the futures market is a way to bet with other bettors, just as in an office NCAA-basketball pool.
The exchange, though, requires the approval of the U.S. Commodity Futures Trading Commission. The CFTC has delayed the approval of a similar movie futures market designed for professional investors, called The Trend Exchange, operated by a company called Veriana, as it reviews the idea. The commission is expected to make a decision by today. The Motion Picture Association of America has expressed objections to such trading.
Playing the studios
The parent companies of major film studios are publicly traded, including Sony, Time Warner, Disney and NewsCorp.
These four studios dominate the industry, generating roughly 95% of the revenue, Epstein says. They have the clout to get past the top hurdle that films face to make money: distribution.
Distribution is the industry term for the process of getting a movie physically in front of viewers willing to pay to see it.
And the distribution that really matters isn't just the movie theaters, which account for only about 20% of the money movies make, Epstein says. Where movies haul in the dough is from deals with pay-TV channels such as HBO and Starz. Few other studios outside the big four are able to muscle into this critical pathway, he says.
Investing in these four movie studios' stocks, though, isn't many investors' idea of movie financing. These companies are media giants with interests in everything from electronics to books and newspapers. Their movie units are small portions of their total revenue.
That's why some investors prefer taking a look at the handful of smaller studios that are publicly traded. But here, the risks are even greater. Many smaller studios list on lightly regulated marketplaces, which are rife with speculation.
Even studios that trade on major U.S. exchanges have been mixed investments. Shares of Lionsgate are down more than 30% in the past five years, trailing the roughly 5% gain by the Standard & Poor's 500, while DreamWorks Animation is roughly dead-even with the S&P.
"The investment history of the movie studios has been very mixed, at best," says Matt Harrigan, analyst at investment research firm Wunderlich. "It's a very difficult business."
Investing directly
Someone who knows of a movie director with a good idea or who has film skills themselves can bankroll a movie directly.
Consider One Too Many Mornings, a comedy about several young adults growing up. During the early stages of filming, several of the people working on the project approached the uncle of a team member, to finance the project, says Anthony Deptula, one of the film's producers. The uncle, Robert Young, became the executive producer.
The movie, which played at the Sundance film festival, cost just $50,000 to make, and the producers are working in their spare time to sign up screenings at theaters and sell the DVD and downloads online. They've earned back about a third of the $50,000, Deptula says. "We're confident we'll make our investors' money back," he says.
Direct investment such as this might make sense for parents and relatives, who, instead of paying for film school, might help finance their child's film. If the film is good, and gets notice, that might lead to a job in the industry, Epstein says.
Another approach is to team up with a company such as IndieVest, which allows investors to put money into movie projects already in the works. IndieVest's big advantage is that is has connections with theaters to make sure the movies it makes are seen, says CEO Wade Bradley. The company also produces quarterly financial reports so you know where your money is going. The minimum investment is $50,000, and you must be an accredited investor, meaning have a net worth of at least $1 million to participate.
IndieVest's first movie, St. John of Las Vegas, cost $3.8 million to make and has generated about $100,000 from the box office so far. That's why Bradley says you must spread your risk by investing in several films. "You can't look at a movie and say, 'This one will be a winner,' " he says. "You just don't know."
Tagging along
A number of studios raise money from third-party investment vehicles that lend money to studios that want to spread their own financial risk from movie projects.
But these investment groups have had mixed success and aren't really open to the public. Epstein says studios are more likely to share financial risk with movies they're less confident on. And these deals can be very complicated, requiring investors to consult legal help to make sure they're getting what they think they're getting, Epstein says.
Not knowing the details of what you're investing in is dangerous with any kind of investment. But it's potentially disastrous with movies, since the type of investment can range broadly, and many deals are specific to a certain project. Last month, New Orleans Saints head coach Sean Payton, for instance, sued a former Saints player over $144,000 lost in a movie-studio-related investment.
That's not to say there's no money to be made in movies. There are intangible benefits, including knowing you're part of creating art. Unlike losing money in stocks, a movie leaves you with a product "that doesn't just disappear," Deptula says.
Still, individuals should remember movie investing is almost always best left to the professionals, says Robert Swagger, CEO of Veriana who previously was a financial planner. "The core of (individuals') portfolios should be good stocks, bonds and mutual funds," he says. "I wouldn't put widows and orphans in this."
