Tax-Advantaged Investing in the Film Industry

Film and television EIS investments have never been more popular. Out of the whole universe of tax-advantaged EIS products reviewed by Allenbridge, media accounts for 28% of the total. But some investors remain wary, put off by not understanding the journey each pound they invest goes on before it comes back as a return to them. In a new research report released by Allenbridge on the 7th of August, the authors break down how a film gets made, the financing jigsaw that needs to be put together before a film is “greenlit” in the first place, and provides an investor checklist to separate out “the Good, the Bad, and the Ugly” of tax-advantaged film products. In a separate release for panel clients of Allenbridge, the authors pull out the facts and figures of the tax-advantaged sector, looking at everything from fees, performance targets, and business models. In our view, the report serves as the most complete overview of the U.K. tax-advantaged film and television world to date.

While it might seem complicated from the outside, the authors maintain that investors should be optimistic about the prospects for British film. In Allenbridge’s comprehensive sector overview piece on the film and television industry, we make clear that British film should be considered a great success story. With the help of tax advantages available to both producers and investors, film and television have become one of Britain’s main exports: a source of foreign earnings, domestic employment, and a great driver of tourism and British soft power overseas.

However, challenges remain for investors looking to secure returns by investing in this area: there is a large variety of producers and fund managers operating in the area, each with a different approach to the type of film they invest in, what stage of a film’s life-cycle they target, and how they structure their deals. In the Allenbridge sector piece, written by Allenbridge Associate, Dr. Simon Radford, and Analyst, and former Film Producer, Jack Fishburn, the authors examine the wide world of film investment and how to avoid its pitfalls. Below you can find the three main opportunities and three common mistakes for investors that the authors have identified in a preview of their longer investor checklist. It’s only by knowing what to look for in both categories that investors can seek to manage their risk and maximise the possibility of a healthy return on top of the tax advantages for investing in an EIS fund.

Three Opportunities to Look For

Experienced Managers

Those with experience in this space are far less likely to make the common mistakes that a newer fund might make. They will often have a greater ability to structure deals correctly, assess the credit-worthiness of counter-parties, and raise the funds for a large and diverse pipeline.

Connections to Big Players

Working with top sales agents, production companies, and distributors makes it far more likely that the manager will produce a return on your investment. Connections to the top tier of film businesses are crucial in an industry where relationships are a key currency.

Good Pipeline

Those who are able to mitigate concentration risk and cash drag by investing repeatedly in a wide variety of high quality films are far more likely to make good returns for the investor.

Three Mistakes to Avoid

Judging a Film

Relying on your qualitative judgement of what will make a ‘good’ film is seldom a good idea, not only as tastes differ, but also because the film-making process is long and complex and many things can go wrong along the way: few set out to make a bad film. It is also worth bearing in mind that what is generally recognised as being a ‘good’ film is not necessarily the type of film that makes money. The Wolf of Wall Street (five Oscar nominations) made almost $20M less at the US box office in 2013 than Grown Ups 2 (7% on review aggregation website Rotten Tomatoes).

Last Position

The funding, creation, and release of a film requires many different parties. Each of these will have a stake in the revenue of a film at which is distributed via the ‘recoupment waterfall’ (as explained in more detail in the report). Sitting in last position for a film at the end of the waterfall, regardless of your equity stake, is trickle-down economics at its worst.

Ignoring the Structure

Insufficiently understanding the structure, business model, and risk/return profile of the product can lead to disappointment for investors. Investors must ask what rights their investment is secured against, how likely they are to provide a return, and when. For example, being secured against UK government-sponsored tax credits is a far safer position than waiting for the box office takings to come in from Helsinki or DVD sales in Harare.

In the full report, Allenbridge examines the world of U.K film and television financing and what the future may hold, compares the different models currently employed in the tax-advantaged space, and recommends further steps an investor can make to safeguard and enjoy their investment. The Film and Television Sector Overview can be downloaded here.

This report kicks off a new Allenbridge series covering subjects useful to investors from key sectors in the tax-advantaged space to the wider world of issues affecting all investments. Keep an eye out for the next update.

USEFUL GUIDES

Tax-Advantaged Investing in the Film Industry Research Report

The full report examines the world of U.K film and television financing and its future, compares the different models, and recommends further steps an investor can make to safeguard and enjoy their investment.

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