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Speaker 1: Welcome to the Fear in Grade summer series. I'm Michael

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Speaker 1: Thompson today investing in films well, obviously love watching them.

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Speaker 1: Australia's got a pretty strong film industry as well, but

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Speaker 1: there are also ways to invest in movies. As always,

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Speaker 1: this is general information only and you need to get

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Speaker 1: advice tailored to you before making investment decisions. Stefan von

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Speaker 1: Imoff is the co founder of alternative investing community fund

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Speaker 1: Alts Dot cost Fun. Welcome back to Fear and Great.

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Speaker 2: Good to be here, Michael.

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Speaker 1: We'll get to the way you do it shortly, but first,

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Speaker 1: the traditional way of investing in movies taking an equity

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Speaker 1: stake essentially in it. How does that work?

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Speaker 2: Yeah, you're exactly right. The traditional way to invest in

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Speaker 2: films is by taking equity stakes in the films themselves.

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Speaker 2: And it's sexy, it's a cool business in many ways.

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Speaker 2: The problem is it's very risky.

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Speaker 1: Right.

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Speaker 2: Films have a about the same success rate as it's

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Speaker 2: like investing in startups. Right, most of them don't really

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Speaker 2: do well. Even the ones that do do fairly well

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Speaker 2: thanks to Hollywood accounting, do a lot wet, a lot

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Speaker 2: less well than you'd think they would it's just really

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Speaker 2: difficult to have breakout winners. It certainly can happen. Some

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Speaker 2: genres are better than others. Horror, for example, is a

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Speaker 2: great genre to invest in all things considered, But even

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Speaker 2: within horror, film equity investing is just very risky. You're

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Speaker 2: gonna lose a lot before you hit a home run,

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Speaker 2: and you may never hit a home run.

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Speaker 1: You mentioned horror there. Why is it that that is

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Speaker 1: one that is more profitable generally speaking than other genres?

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Speaker 1: Is it just because they are typically cheaper to make

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Speaker 1: and the low budget ones can still actually be kind

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Speaker 1: of cool.

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Speaker 2: Let's bang on. That's spot on man. You know, they

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Speaker 2: don't require a high production budget or even high production

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Speaker 2: values to succeed. In fact, some of the best horror

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Speaker 2: movies have shockingly low production values. And yeah, it's definitely

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Speaker 2: it doesn't cost a lot to fundamentally scare people, you know. So, yeah,

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Speaker 2: horror has been a good genre as far as like

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Speaker 2: film investing goes. There have been some huge home runs,

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Speaker 2: but there are better ways to invest besides film equity.

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Speaker 1: The other thing that you mentioned that I just want

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Speaker 1: to pick up on Hollywood accounting and this idea of

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Speaker 1: essentially the way that the accounts for the film are

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Speaker 1: done afterwards. That there have been some very famous examples

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Speaker 1: where a movie hasn't made much money on paper because

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Speaker 1: and a Return of the Jedi I think it was,

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Speaker 1: or Empire Strikes Back, one of the Star Wars movies.

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Speaker 1: I think it didn't cost a lot to make, took

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Speaker 1: something like half a billion dollars at the box office,

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Speaker 1: but on paper it was not profitable because of the

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Speaker 1: way the accounting is done, which suddenly makes it very

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Speaker 1: hard if you're taking in equity stake in a movie

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Speaker 1: to go hang on, I thought we made money. Look

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Speaker 1: at all the people coming through the doors of the cinema.

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Speaker 2: There's a shockingly huge delta between how popular a movie

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Speaker 2: is or feels and how much bottom line revenue it makes,

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Speaker 2: not top line revenue to your point, but bottom line revenue.

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Speaker 2: For example, if you look at the Golden Globe nominees

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Speaker 2: that just came out a few days ago, these are

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Speaker 2: very popular movies, and congratulations to all the nominees and

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Speaker 2: all the actors and all the filmmakers. But none of

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Speaker 2: these movies made any money. I mean, you can look

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Speaker 2: it up. It's shocking, right, So that yeah, that is

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Speaker 2: definitely an aspect of film investing that we don't like.

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Speaker 1: Yeah, and little one to then that we're also seeing

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Speaker 1: such consolidation within the within Hollywood and particularly with Netflix

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Speaker 1: and Paramount and the battle kind of for the future

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Speaker 1: of Hollywood because it can be quite lean some of

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Speaker 1: the margins on these films. Gap financing this is where

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Speaker 1: you operate, this is what you do. How does that

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Speaker 1: work compared to the equity stake model.

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Speaker 2: Sure? Well. The first thing you have to understand about

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Speaker 2: gap financing is tax credits. So people don't really realize this,

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Speaker 2: but a huge, huge part of filmmaking is tax credits.

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Speaker 2: These are credits that are basically given by governments around

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Speaker 2: the world as incentives to have you film your movie there. Right,

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Speaker 2: So actually Australia, guess gives some very generous tax credits,

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Speaker 2: Iceland gives some extremely good ones, Croatia. There's all sorts

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Speaker 2: of countries now that are competing for filmmaking dollars.

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Speaker 1: All you need to do is look at the credits

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Speaker 1: at the end of the movie and you just and

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Speaker 1: you see them roll through. It is with support from

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Speaker 1: the Australian government, with support from Iceland, and you can

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Speaker 1: tell they are shot there. They are allured there obviously

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Speaker 1: by those very very enticing tax incentives.

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Speaker 2: They're extremely lucrative. And so the way gap financing works

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Speaker 2: is there's a there's a window of time, usually about

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Speaker 2: two to four months after a film gets greenlit for production,

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Speaker 2: but before the tax credits kick in. Right, So these

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Speaker 2: tax credits don't kick in right away. They kick in

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Speaker 2: after you've begun filming, or after certain milestones are hit,

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Speaker 2: or in some cases, after the film is complete. But

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Speaker 2: there's always this window. There's two to four month window

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Speaker 2: of time, and the studios basically need financing to cover

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Speaker 2: that window of time, cover that gap because the costs

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Speaker 2: are still building up even before shooting begins, right. There's

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Speaker 2: administrative cost there's sourcing, there's all sorts of admin type costs.

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Speaker 2: So what we do is we provide financing for that

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Speaker 2: two to four month window. And it's basically these are

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Speaker 2: you know, twelve to sixteen week loans that we step

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Speaker 2: in and we provide. So it's basically bridge financing for

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Speaker 2: films is the one of the businesses we're in.

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Speaker 1: Now, Okay, And I mean every investment carries risk, but

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Speaker 1: compared to inequity, stike theory is a relatively lower level.

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Speaker 2: It's I mean, think of it this way. These these

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Speaker 2: are basically private credit loans backed by governments. I mean

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Speaker 2: this is these are backed by government tax credits. Right,

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Speaker 2: so it's like all of the downside protection of like

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Speaker 2: a government almost like a like a bond and some ways,

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Speaker 2: but with much bigger, you know, upside potential. So it

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Speaker 2: is you know, there is risks and everything, but man, yeah,

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Speaker 2: I mean it's the best of both the world as

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Speaker 2: far as I'm concerned.

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Speaker 1: The biggest question of all though, is do you get

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Speaker 1: your name in the credits?

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Speaker 2: Yes, you can, you get well, you can definitely get

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Speaker 2: an IMDb page. That is for sure happening, and it's

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Speaker 2: funny that is one of the biggest draws. And we

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Speaker 2: talk to our investors. Yeah, the biggest reasons they want

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Speaker 2: to investors they want to get an IMDb page. So

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Speaker 2: it is possible.

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Speaker 1: Yes, all right, good to know, Stefan. Thank you for

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Speaker 1: talking to Fear in great summer series.

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Speaker 2: Thanks Michael.

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Speaker 1: That was to find von imoff from alts dot Co.

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Speaker 1: Don't forget to hit follow on the podcast and remember

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Speaker 1: to seek individual advice tailor to your circumstances before making

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Speaker 1: investment decisions. New episodes every day during our summer series

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Speaker 1: and regular shows are back from January twelve. I'm Michael

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Speaker 1: Thompson and this is fear and great