If you are dazzled by the bright lights of Hollywood and would like to get involved in a movie production, film investments are available and could add some action-packed diversity to your portfolio.
It should really go without saying that film investments are highly speculative and should be considered as a high-risk venture where you only commit a small percentage of your available capital into a chosen project.
Hollywood is virtually littered with the carcasses of scripts that either never managed to get into production at all or proved to be a big flop at the box office when it was released. A straight-to-DVD production is unlikely to get you the returns your were initially expecting.
We do not wish to be unduly negative about film investments as there have been notable successes and some ventures give you the chance to meet some stars or even take a small cameo role in the film, which might have some value to you in itself.
In terms of the cash you are investing, there is the possibility that if the film venture turns out to be a disaster on and off the screen, you might be able to get tax relief on your loss.
Schemes like the Enterprise Investment Scheme (EIS) are regularly used to fund film projects and in the UK, you can offset 30% of the amount invested against your income tax liability and any profit made is exempt from capital gains tax.
We cannot advise on your own tax situation so you should check the tax position with your accountant or adviser if you are considering a film investment where there are potential tax benefits and relief if things go wrong.
How it works
It is important to understand how film investment works and whether you are investing through a third-party financier or investing directly into the production house itself.
The film industry is set up in the form of common shares which become available to private investors and you need to ask the question and clarify where in the chain of production the company you are investing in sits.
Money generated from a film production will firstly be used to repay any debts incurred during the production phase and next in line after that are investors, who will be looking to get back their initial investment.
Once these aspects are dealt with the profits get shared around and you should find that the split is normally fairly even between investor and producer.
Another important point to look out for when looking at film investments, is to clarify that the producer has secured a completion bond. Having this bond in place will ensure that investors are not asked to shoulder the extra financial burden if costs overrun.
Film investments are attractive to investors because they have hint of Hollywood about them, but it should always be remembered that many of the opportunities available are a classic risk and reward gamble and stakes should be a minimal part of your total investment cash available.