Investing in Films - Part I - The Material

This is the first installment in a multi-part series on evaluating and choosing film investments.

Feature films can be an attractive alternative investment vehicle if approached intelligently and carefully. A dispassionate and disciplined approach can help to control the risks, and the upside potential is extremely attractive. Of course, film investments will always be riskier than more predictable industries, but few industries provide the returns that can be achieved from a hit film. And there is the added benefit of using your money to bring important stories into our culture and thus impact the world in a small but significant way.

The first rule of film investing is to understand that it is all about controlling risk. It is tempting to think that you can predict whether a particular movie will be a hit, but you can't. None of us can. A film can have a great story, great director, great actors and good distributor, and audiences still might ignore it. All of those great elements might help to mitigate the risk of losing money, but they don't guarantee that you will make any. So when looking at a potential investment, always ask yourself "How do I reduce my chances of losing money?" If you do that, the profits will come.

When I am presented with a potential film investment, my initial focus is always on the material. Where did the story come from? Is it based on a book or other source material? Or a true story? If it's a true story, are the people in the story still alive? Are there any contracts for rights to the underlying story, either option-purchase agreements or life rights agreements? Does the producer who is presenting the opportunity actually have the rights to the underlying material and the screenplay? If you are being asked to invest in something that isn't really owned by the party seeking the money, then it will be a very short conversation.

Once ownership and/or control is established, then the focus turns to the story itself. A couple of key questions: What is it about? Who is the audience for this film? If the producer cannot tell you specifically for whom the film is being made, then the chances of losing money increase significantly. If the producer tells you that "everyone will love this movie" (or uses the term "four-quadrant film"), this means there is no clear audience focus.

There are very few films (if any) that everyone likes. In the independent film business (i.e., films financed by people like you rather than by studios), no one can afford to market a film to everyone. The key to success is to make a film for a very specific group and market directly to them. If the film expands to other audiences, that's great. But in the meantime, marketing money is not wasted trying to sell the film to people who don't want to see it. That is the easiest way to lose money on a film investment because marketing is expensive and it all has to be paid back before the investors ever see a dime.

If the audience focus is clear and the story sounds like something that audience would watch (based on the success of similar past films aimed at the same audience), then someone needs to read the screenplay. Most of the screenplays being marketed to investors are not good. It is not terribly hard to write a screenplay, but it is extremely hard to write a good screenplay. And it is impossible to make a good film from a bad screenplay. If the story, characters and dialogue are not good on the page, then they won't get better on the screen. A great actor saying dumb things still sounds dumb.

If you don't have the time or inclination to read the screenplay yourself, then have someone you trust read it for you. They don't have to be an experienced film maker, but they should have seen enough films and read enough stories to recognize if the screenplay has the potential to become an engaging film. And if your reader is a part of the target audience, that's even better.

If you have a good screenplay that the producer actually controls, and it is aimed at a viable targeted audience, then the investment has cleared the first hurdle. We'll pick it up from here next time.

​Roger Goff