It's all about the risk...

Over the past 30 or so years, my legal practice has given me the opportunity to participate in hundreds of entertainment financing transactions.  As a lawyer, I get to see everything that can go right or wrong in the course of creating and distributing films and other properties.  

Much of my practice these days involves helping investors figure out whether to put their money into this project or that project.  Smart investors recognize that the entertainment industry presents some really outstanding opportunities to make enormous returns.  But they also know that there are potential landmines everywhere and it is very easy to lose money if you are not fully  informed.  Unless you're actively involved in the business every day, it's very hard to know a good deal from a bad one.  That's why they come to me and people like me to help them figure it out.

So what do I tell them?  Here are the basic points I always start with:

• You can't count on picking a winning horse.  A film can have great actors, a great director, a great story - everything is great.  And it still doesn't do well at the box office.  It might be the marketing campaign or some other film that comes out at the same time, or sometimes no reason at all.  But don't make an investment counting on the fact that the film will be a hit -- it might not.
• Don't invest in any film unless the filmmakers can identify exactly who they're making it for.  It's not good enough to make a good movie - you have to make a movie that people will actually pay to see.  If the film doesn't have elements with proven audience appeal, then you should proceed with extreme caution.
• It's all about managing risk.  No investment is risk-free, but you need to understand what happens if things don't go as well as planned.  Filmmakers spend a lot of time talking about how great their film will be.  I want to hear about their plans to protect the investment if everything doesn't go perfectly - because it won't.  

I start every new assignment hoping my client is able to make the investment.  No one makes money on the deals that don't happen.  But I know that no project is perfect - there is always a chance that money will be lost.  It's up to me to figure out how to best protect against those losses, and to make sure there is enough potential profit to justify the risk.