Films are said to be recession resistant. In 2009, amid an economic downturn, box office ticket sales in the United States were up 17.5%, at $1.7 billion. Attendance soared nearly 16% higher than in the past year. It may come down to their appeal during hard times as a more affordable alternative. What’s a few tens of dollars compared to a Disneyland trip for a family with two kids?
But box office films also do not always work, making them a high-risk investment. You need to have reached a level of sophistication to bet on the movie industry and understand its nuances. There are blockbuster productions that have great success in global markets. There are also ones that flop in box office local theaters, but they even out through foreign market demands and other distribution channels.
So, how do you find yourself in the company of those who back box office films? You have to ask yourself how much do you actually know about the industry. It is also important to work side by side with an experienced professional or group. When you are ready for this asset class, choose your means for direct investment. The private equity or hedge fund is the most common for big screen investors. Mitigate risks through slate financing, which involves a portfolio of films.
Warren Buffett: If You Own A Good Business, Keep It
The Financial Times advises: “Professional investors would also be wise to spread their risks by backing a slate of several films rather than betting everything on a single title that may flop.”
Other funds and investors take a stake in box office films that have signed pre-sales deals and consequently turn to debt financing. In this case, they secure investment returns against income from pre-sales.
Use due diligence at all times
Film production has a lot of moving parts. You should find out as much as you can during pre-production, such as the reputation of the producer, the genre, and the potential market. According to Statista, action, adventure, comedy, and drama movie genres generated the most box office revenue between 1995 and 2017. Foreign films and documentaries, as well as black and white and silent films, tend to appeal to smaller audiences.
Although the tastes of mainstream moviegoers now may differ in the next decade, you need not rely on your intuition alone when deciding which projects have box-office potential. This game has its rules. For instance, you have to know the caliber of the director, the quality of the script, and the track record of the box office actors and actresses.
Buy into the director’s vision
Overall, filmmaking is a form of storytelling. It is about putting together different elements, including plot, cinematography, cast, and soundtrack, to convey a message to the viewers. So, it is important that you also attempt to understand the vision of the director. Majority of the output relies on his or her ability to deliver a cohesive and compelling, not to mention, marketable and palatable, story to the target audience.
Investopedia says to make sure that all interests are aligned from the director to the distributor and investors.
The standard rule applies
There is a standard rule in the world of investing: never invest more than you can afford to lose. That goes double for when you are considering to invest in movies, according to Hal Vogel, an economist who teaches at Columbia University and founder of Vogel Capital Management. He says that no matter what type of commodity you are investing in, it pays to know where the shortage is. His words may convince you to place your money on something else, or it can do the reverse: Does the world need another movie?
Box office investments - Key takeaways
After taking a look at the whos and whats of your prospects, it is for you to decide whether to go for a risky investment in which the return goes either way. In some cases, you will get the amount you invested but not gain a handsome return.
Generally, the returns are unpredictable because a combination of feted actors/actresses and directors does not always guarantee a box office hit. There are instances when movies with a relatively unknown cast and crew make it huge, as in Hollywood-level huge, such as Slumdog Millionaire. Certainly, due diligence is key to ensure accountability and transparency across all stages of production. Plus, it really does help to have expert and experienced people around.