With the global movie box office revenue reaching nearly $42 billion in 2019, investing in movies seems like a lucrative business. However, movie investment is a high-risk, high-reward venture that requires careful analysis before committing capital. This article examines the pros and cons of investing in movies and the different ways to invest in the movie industry.
The potential upside of investing in movies
The main allure of movie investment is the potential for huge financial returns. Blockbuster movies like Avengers: Endgame have grossed over $2.5 billion worldwide, delivering massive profits to investors. Even smaller indie films can generate substantial returns if they gain popularity. The global rise of streaming platforms like Netflix and Amazon Prime has also expanded distribution channels and revenue opportunities for investors. Furthermore, investing early in a film production company or studio can lead to equity growth if the company becomes successful down the road. With the right project, savvy timing and effective marketing, movie investments can produce outsized returns compared to other asset classes.
The risks involved with financing films
However, the movie business is inherently risky. The majority of films fail to break even, let alone make a profit. Movie budgets can spiral out of control during production. Release schedules can face delays. Even completed films may fall flat with audiences and lose money. Investors have little control once they commit financing to a project. Securing distribution deals with major studios is critical but difficult for independent productions. Plus, profits from successful films are often reinvested into future projects rather than paid out to investors. The hit-driven and volatile nature of Hollywood means investors must be comfortable with the high probability of losing money on film financing deals.
Different ways to invest in the movie industry
For accredited investors, one route is investing equity directly into a production company’s upcoming film slate. This gives investors potential upside for box office and distribution revenues. However, it requires deep industry connections to access private capital raises. Investing in movie-focused private equity funds is an alternative. These pooled investment vehicles provide exposure to a portfolio of film projects. But minimum investments are often high. Investing in public entertainment company stocks provides more liquidity. Major studios like Disney, Netflix, Sony and Lionsgate trade publicly. However, broader business factors affect their stock prices. Investing in mini-majors like Lionsgate and indie studios in growth mode might offer more direct movie exposure. Overall, movie investments should be a small portion of a diversified portfolio due to the risks involved.
In summary, movie investments offer the possibility of high returns but also significant downside risks. Careful due diligence of projects, studios and market conditions is essential. Diversification across multiple films helps mitigate risks. For most individual investors, gaining exposure through entertainment company stocks offers a safer balance of risk versus reward.