The rise of on-demand video is creating a fertile new investment opportunity for traditional film makers
Investing in film is no longer just about bankrolling box office cinema hits, the industry is looking at the returns to be made in the new markets of on-demand platforms and the big players like Netflix and Amazon Prime.
Consumers’ love of video content will continue to dominate their spending habits over the next five years, according to PwC’s 2017 UK entertainment and media outlook report. It predicts the UK consumer market will be worth £33.5 billion by 2021 and individuals will spend more on video content than cinema admissions.
The rise of binge-watching TV series via on-demand services and the trend to ‘Netflix and chill’ are shaping viewing habits. This change in viewing habits is combined with a population that is more technologically enabled than ever before.
PwC predicts that mobile internet access will overtake fixed broadband access in 2019 and consumers will spend £1.39 billion on on-demand video in 2021 versus £1.33 billion on cinema admissions.
This creates a fertile investment ground for the film industry, which can no longer assume investors only want to invest in blockbuster movies for the big screen.
Ben White, Co-Founder of Ober Private Clients, says when looking for film EIS to invest in they have to assess whether there is demand not only to show the film in cinemas and achieve sales on DVD but also to list on platforms such as Netflix and Amazon.
“We are finding now, when we are considering a film to invest into, and with our focus on mitigating risk, one of the key questions is whether or not a deal has been struck in key markets including the major screening on ondemand platforms like Netflix and Amazon” he says.
White adds that revenues from ondemand and streaming platforms recently overtook the revenues generated by film in cinema.
“Now these platforms are arguably more important as a revenue stream than cinema/ theatrical, so it is extremely important for us to assess a film’s prospects on these platforms.”
Raimund Berens, Producer at Iron Box Films, says that there is a “higher demand for product” from Netflix and Amazon Prime, adding that even Facebook is believed to be looking at an ondemand platform.
He says the investment deal works differently for on-demand platforms and the “pre-sales is a two-tier plan, a minimum guarantee for all rights but you can buy back the digital rights or Netflix can buy them”.
Understanding the opportunities
The complexity around rights and deals is something that advisers and investors are not aware of when it comes to investing in film, but it is something that they need to start to comprehend as the rise of on-demand platforms means there will be more investment opportunities ahead.
Independent financial adviser Brian Hamilton, says investors should be wary of film investment sales agents who “will promise you the world and turn on you at the last minute”.
“It is essential that IFAs know the key aspects of this industry and it is key that HMRC is trying to do something to help,” he says.
“But there are people with lots of money who don’t even know a good thing when they see it.”
Berens is currently moving Iron Box’s most successful collaboration from movie into TV, a film called Wolf Night. It follows a little boy called Miles with a vivid imagination who is convinced there is a werewolf in his room, but while his parents dismiss his nightmares the truth behind them is more disturbing.
“[It is] our most successful collaborative project which made £66 million at a cost of £12 million,” says Berens.
“Wolf Night is a film maker-driven project by Guillem Morales and we are also working with the screenwriter David Freeman and a Japanese film maker. We currently have a story called Astronaut [in production] and around 50 films in development.”
Ober Private Clients currently has one or two film EIS projects in development. White singles out Fairytale of New York, which is based on the backstory to the famous Christmas song of the same name.
“This film has been worked on for a number of years by an A-list actor as well as an awardwinning producer and an awardwinning director,” he says.
White says the team working on the project are also participating “mainly for equity so the production costs are a fraction of what they would be normally”.
“In terms of risk and reward, these people, in front of and behind the camera, are all committed to make this film a success and deliver a return to the investors,” he says.
“When structuring for the film we also make sure that, within the [recoupment] waterfall, investors sit in first position, even ahead of the actors and film makers, whom are sacrificing their fees for equity or profit share”
He says sitting in that position in the waterfall means “the investor receives the first part of any revenues, as well as an uncapped share of all the further revenue”.
As the film is seasonal, Ober Private Clients is hoping it will be produced and released in time for Christmas 2018.
The EIS has a small amount of capacity available but fast approaching closure on a raise of £3.6 million.
Passion versus returns
It goes without saying that investors in film EIS and SEIS want to make money but for some investors the returns can be overshadowed by their ‘passion’ for a project, which White says dangerous territory to be in from an investment perspective.
“We encourage investors to invest in the financial metrics of the EIS and not to invest primarily for their ‘passion’ but ultimately it’s their choice and some people invest more with their hearts than their heads,” he says.
David Lovell, Operations Director at EIS and SEIS platform GrowthInvest, says some investors do invest for passion and the age of the investor also determines what type of film they want to invest in.
“There are definitely ‘passion’ projects but most of our investors are over 40 so they will be naturally drawn to certain types of film,” he says.
“For our more dedicated investors…it is recognised that horror is a popular an profitable genre. You can also draw people into a film by the names attached to it. You can see that people are drawn to a certain type of film, even if they still analyse risk on an individual basis.”
As with all types of investment, being successful in film investment requires investors to maintain a diversified portfolio. This means investing in a number of different types of EIS and if investors only want to invest in film EIS, then ensuring there is a mix of films within that portfolio.
“What is key here is they have to know that if they go for a single film investment, the risk is that much higher than a diversified portfolio,” says Lovell.
“As with any other investment types, in EIS there is a high risk and one way to offset the risk is not to put all your EIS money in EIS film but, if you do, diversify in different movies and different managers.”
While IFAs know the importance of diversification, Berens points out that it may not always be possible for an adviser to diversify their clients’ portfolios as much as they would like.
“One issue that remains to be resolved is that most IFA networks, because of their internal controls or because of their PI insurance, can only invest in certain things,” he says.