When defense contractor Honeywell invested nearly $600 million dollars in a film fund a few years ago, it was the beginning for many pension funds, private banks, hedge fund managers, private equity groups, and high net worth investors and family offices to enter the movie business.
And in today's economy of crashing public equity markets and non-existent real estate plays, one structured media finance company believes investing in film slates offers a high yield alternative investment.
"As an asset class, films have outperformed most industries in the world", states Yuri Rutman, head of media finance and consulting firm Noci Pictures.. "If you look at the more than $6 billion dollars poured into motion picture finance deals in the last 3 years, the IRR across the spectrum for both studios and independents are resilient to global economic declines in other industries."
Many Angel investors including billionaires,family offices from Wall Street such as Dune Capital and Elliot Associates to Silicon Valley to the Middle East to Russia have been parking their money into Hollywood.
Anil Ambani, Larry Ellison Of Oracle, Paul Allen Of Microsoft, Steven Rales, Fred Smith of Federal Express, Norman Waitt, the Co-Founder of Gateway Computers, Jeff Skoll Of Ebay, Marc Turtletaub of The Money Store, Roger Marino Of EMC Corp, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg and Bob Yari, and, financiers Sheikh Waleed Al Ibrahim, Michel Litvak, and Philip Anschutz are all behind the finance of a lot of films that range from box office hits to Academy Award winners.
Rutman is more optimistic about film as a superior growth oriented long term investment because its not based on regional factors and has a global base. "When educated about properly structuring leveraged film finance which may also include U.S. and international tax incentives to minimize the risk", states Rutman, "many private bankers, sovereign wealth funds, high net worth investors, family offices, and pension plans understand that they are not gambling on one film hoping to win a film festival. When a company is looking to finance 40,50, 75 films there is more than just upside on revenues from each one but a final exit strategy after 5-7 years that can bring 300-400% returns on capital invested".
"Film, Entertainment, Media, And Hollywood in general seems to be thriving and immune from economic woes", states Rutman. "If you look at the theatrical box office receipts and DVD growth of recent films, including 'Slumdog Millionaire' or "Twilight" which had zero movie stars, the ROI on these and numerous other films exceed the ROI and revenues of auto manufacturers, real estate, stocks, mutual funds, etc. Primarily because a well made film is not a local commodity that is just bough and sold once but a global one that has revenue potential from more than 50 countries and medias including theatrical, cable, TV, satellite, airline, DVD, and the huge explosion of Video on Demand".
While some private equity outfits may balk at the notion that Hollywood is safe, Rutman adds "this country was built based on blue chip industries and for the retail investors, Wall Street and Real Estate was the path to go. Well, when retail investors as well as institutional investors are transitioning from brick and mortar investments to the film business, the underlying factor is 'why'?"
Rutman's Noci Pictures Entertainment is currently advising on several structured film slates as well launching their own in house deal which also has a new U.S. theatrical distribution entity which will be headed by the former Chairman and President of a major movie studio.
"From prospective clients inquiring if IRS Section 181 benefits can be transferred to foreign investors to family offices and wealth managers wondering how an investment in film slate deals can offer their clients an absolute return based on monetizing state and international tax incentives as part of revenue streams, I am amazed by the stratification in investment needs from $1 million to $20 million", Rutman adds.
"Some U.S. investors and C corporations are looking for a strict 100% deduction of their investment under IRS Section 181. Overseas investors simply want a high yield asset class that has long term appreciation such as our hybrid film slate and 100% control over U.S. theatrical distribution".
Rutman's model offers in some cases a 40-70% ROI on equity prior to revenues. "I don't know any business that you can start today where you know exactly what your ROI will be exclusive of proformas and risk analysis. Its like owning a piece of 50 fast food franchises where the total return from each and the final sale of all will net you a nice premium".