Tue, 02/02/2010 - 14:12
Noci Pictures Entertainment, a recently launched Chicago-based alternative investment firm, is in discussions with hedge fund investors about investing in the film industry.
Yuri Rutman, head of Noci Pictures Entertainment, says investing in 30 to 50 films over five years is no different than investing in 30 to 50 companies.
"Each film takes a life of its own," Rutman says. "Some make a little money; some make hundreds of millions of dollars. The key is to ensure distribution across all platforms including theatrical, video on demand, DVD, and branding and merchandising."
Noci Pictures has a business model that aims to minimize investor risk by allocating a 20 to 40 per cent return on investment through the use of monetizing US and Canadian tax credits and rebates where dividends start to be paid six to eight weeks after each films is produced.
"We have a structure where can also co-finance films with the regional and federal governments of many countries such as Germany, New Zealand, South Africa, Brazil, etc as well as controlling 100 per cent of the revenue stream through in-house theatrical distribution," adds Rutman. "The studios have consolidated to the point where they are distribution machines for tentpole films, the finance is non-existent, yet global exhibitors need new product. And with the evolution of video on demand, a key factor will be to have access to hundreds of millions of movie fans online that don't always have an immediate access to theatres."
Before the markets tanked many institutional investors such as Columbus Nova, Elliot Associates, Stark, Bain, Texas Pacific, Bank Of America, Arbry Partners, and others poured billions of dollars into studio slate film deals.
"The challenge of a lot of studio slate deals was an excess of senior and mezzanine debt, unrealistic Monte Carlo simulation models, and uneven revenue streams," says Rutman. "Yet even with positive returns, as a non-correlated asset these returns were still premium to any other asset class or industry in the world. Our model simply adds an additional layer of revenues through in-house theatrical distribution. You take a look at a company like Summit Entertainment, Overture, Lions Gate which are all independent. Or look at the box office revenues of The Passion, My Big Fat Greek Wedding and The Illusionist. These were all non-studio releases. Now imagine if you are invested in 50 of these over the next five years."
Rutman is optimistic about film as a superior growth oriented long term investment because it is not based on regional factors and has a global base.
"When educated about properly structuring leveraged film finance which may also include US and international tax incentives to minimise the risk, many private bankers, sovereign wealth funds, high net worth investors, family offices, and pensions, endowments, fund of funds, etc understand that they are not gambling on one film hoping to win a film festival. When a company is looking to finance, produce, and distribute ten, 20, 40, 50 films there is more than just upside on revenues from each one but a final exit strategy after five to seven years that can bring 300 to 400 per cent returns on capital invested."
Rutman says he is attracting not only large institutional capital, but smaller retail investors as an alternative to oil and gas, real estate, stocks and commodities.
"The minimum participation used to be USD10,000,000 to get into deals, but we are scaling our strategies to accommodate the smaller retail investors as well," he adds. "The great thing is everyone still gets a piece of all the films we end up producing and releasing, not just prorated on what an investment size is."
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