The value of a movie is typically based on a forecast of revenues, usually over ten years from the initial theatrical release and including DVD sales and merchandising. This is something a financial planner can help you to understand. Investors in this field traditionally get their money back from generated cash flows; a long term process.
Movie makers usually have five key options when it comes to securing film finance, which are government grants, debt finance, equity finance, private equity and hedge funds, as well as tax incentives and shelters. Some states provide a subsidy or tax credit on the condition that all or part of the filming takes place in that state.
Several countries have introduced legislation that allows enhanced tax deductions for producers and film owners, effectively selling the right to these to wealthy investors with large tax liabilities, allowing them to become the legal owner of the film. This is a great incentive for wealthy people seriously thinking about movie investment.
How Hedge Fund Investors Work In The Film Industry
Hedge fund investors are growing source of film finance. Usually only available to more affluent investors, they tend to use strategies described as long-short, and these invest in some short positions and some long positions. Many hedge funds also use an investment technique called leverage – in simple terms, this just means investing in borrowed money.
The popularity of hedge funds, first established in 1949, has changed over the years; and as a result of the global financial crisis in 2007/8 many closed. Following this difficult period, they are now subject to increasing due diligence. Despite such challenges hedge funds continue to offer investors a solid alternative to the traditional investment company and are therefore likely to continue, at least for the immediate future.
One of the benefits for investors who are considering branching out into film is that it gives them the opportunity to take advantage of tax incentives. They are encouraged to loan their cash to a production that has already started, acting as a bank for the film and charging high interest rates. The money is then paid back at the start of filming and is therefore a faster way to make money from movies. As particularly notable examples of how these have worked over recent years, box office hits such as The Hunger Games, The Hobbit and 21 Jump Street rewarded hedge fund investors with billions in profits, making movies an increasingly attractive option to those involved.