August 2, 2011 by Opalesque A SQUARE
Film Financing – The ARA MovieArb Equity Strategy
After the boom years of film financing (2004 – 2007) ended, many investors took huge losses and turned away from film making. But Richard Furlin, managing partner of film industry consultancy MovieArb and CFO of the U.S. Sports Film Festival, says that there are many opportunities for film financiers right now due to tough conditions on the credit markets and a lack of interest of private investors, concluding that Hollywood is very open to investors’ demands right now. Like investment in other industries, however, generating profit with film financing requires a sophisticated strategy and a high degree of expertise in many fields.
MovieArb and hedge fund firm ARA last month launched the ARA MovieArb Equity Strategy, a private equity-style vehicle investing in slates of 10 movies. ARA and MovieArb combined their financial expertise with the film-making expertise of [well-established production companies]. The fund uses a domestic box office forecasting tool developed by Epagogix LTD
The fund looks to raise $275m, which will be invested in slates of 10 widely-distributed films with an investment limit of $7.5m per film (or 30% of the production budget if less), resulting in a risk / return profile comparable to private equity, with a shorter holding period of approximately 30 months. According to MovieArb, profits can be quite accurately forecast within 3 weeks of a film’s release date.
The main project selection criteria are:
- Existence of a domestic distribution contract (with a minimum of 2,000 screens)
- Foreign distributors agree to buy rights (with a down payment of about 20%)
- P&A commitment: $20m – $40m spent on print and advertising / marketing
- A $10m – $60m production budget
- Epagogix minimum domain box office forecast must be $30m