For many an investor, entertainment investing is intriguing because of the enormous uncapped upside potential. Looking for ways to diversify, the windfalls of entertainment products can be extremely alluring. You didn't intend to, but you came across a few film pitches and looked at a few pitch decks and then you found one that you liked.
It seemed like a great project; a movie you could see yourself enjoying. And the creative team were extremely talented.
Yet something went majorly wrong.
And now you're burnt. Forever.
You're not alone. The process to failure is very common, but the outcomes of a failed investment can be varied.
Sometimes the project is never even completed because the production team was clearly talented, and had all the best intentions, yet they simply didn't have the experience to pull off such a large undertaking.
Other times, the project gets made and investors see the completed film but are then hit with the realization that, not only was there no strategy to find a buyer but, no-one even factored in the cost of getting the film to market.
Then there are the rare times when an investor hits a winner. The film successfully goes to theatrical release and does really well. But then, right at the the finish line, even though you were the first money in on the project, the majority of reported returns go elsewhere. Legally!
Of course there are many possible reasons for these failures - more than I can put into a 600 word article. But after more than 20 years in the entertainment business, I believe that I can summarize them into one common reason most of these failures occur.
The investor dealt directly with creatives.
I'm not beating down on creatives. Most people in the entertainment business are in some way 'creatives', which is where the pitfalls lie. I have written and directed many productions over my career. I too, am a creative. But there is a common misconception about the role of a film maker within the business of the entertainment. It is so common for unsuspecting investors to put all their trust in the creatives vision for a project and simply don't realize that in the film business the creatives are responsible for making the product, not getting a return for an investor.
It may seem obvious, but it is an extremely common mistake. I'll try to put it into real-estate terms. The investor commonly fails because they entrusted their money to the brick layer, rather than the property developer.
The production company is the builder, not the property developer!
So before we even contemplate putting a project into production we need to look at it as a developer. We need to look at the whole picture, right up to the end consumer.
As an example of the considerations a development team makes on behalf of the studio and its investors; a project must be completed within the scope of what the market tells us it is worth before we give it the green light. We find ways to increase the projects value if the budget is too high; by changing the cast, or attaching a known name, or else, we cut the budget to size; by changing locations, scratching scenes, or cutting production design costs in a way that does not reduce the value of the end product. Just like every property is different and requires considerations of location, cost of materials, and market forces, so too a film project. Unless we find a financial equilibrium on a project, we do not invest.
Yes, entertainment has huge investment potential. There is a lot of money to be made investing in entertainment. But entertainment is a very complicated business, with many pitfalls not unlike property development. It is the role of a studios development team to develop high potential products that will generate uncapped ROI for investors - not the role of the creative team.
For more information about the realities of entertainment investing reach out to our team via our contact page.
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