Film & theatre investing - January 2012

Published by FTAdviser | Jan 30, 2012

Following post-Lehman plunges, investors have regained a modicum of security before plumbing the depths of despair once more. The situation increasingly resembles a neverending cliffhanger.

But for investors who would rather invest in thrillers than watch them in the financial markets, there are plenty of opportunities that will have them screaming “show me the money”.

Film investment is not an area most of us think we can buy into. In the midst of everyday life, images of glitz and glamour, red carpets, Hollywood stars and international fame are mere daydreams before reality sets in and the need to provide for a retirement, pay bills and buy weekly groceries takes over.

However, there are cases where this type of investment can bring in mega-bucks.

Take, for example, the recent box-office hit Avatar. This was backed, in part, by Ingenious Media, which contributed an estimated $180m (£116m) towards the film’s production budget of $300m.

According to IMDB, Avatar has grossed $2.7bn worldwide, making it the top-selling film in history so far.

However, not all profitable films need to have such high costs. 127 Hours, which had a budget of just $18m, has grossed $60.7m worldwide to date. Theatre productions are no different. Judy Craymer, the producer of the West End musical Mamma Mia!, remortgaged her house to finance the idea of a show based around Abba’s hits. She is now worth £62m and ranks 38th on the Sunday Times Rich List.

Alternative investments such as film also exhibit low correlation to other asset classes under most conditions. The success or failure of a production is not influenced by the ebb and flow of the stockmarket, a prized characteristic since they theoretically help to balance one’s portfolio.

However, for every one success story, there is an abundance of failures. To go it alone and invest would require a hefty stake, but there are products in which investors can gain access to films, theatre and other entertainments such as festivals and TV drama, which are a little more accessible for the person on the street.

The available products are typically enterprise investment scheme (EIS) funds or venture capital trusts, which both offer investors attractive tax benefits. Moreover, in his budget last year, chancellor George Osborne announced that the government would reform the EIS and VCTs, increasing these advantages further.

Under the new changes, EIS funds and VCTs will be able to invest in businesses with gross assets of up to £15m, instead of the current £7m. They will also increase the annual investment limit to £10m. The rate of EIS tax relief increased to 30 per cent from 20 per cent from April 2011 and from April 2012, the government will increase the annual EIS investment limit for individuals to £1m and increase the qualifying company limits to 250 employees. The government is hoping the move will help small businesses flourish.

However, as always, the tax tail shouldn’t wag the investment dog, and the risks should be carefully analysed.

Jenny Lowe is features editor at Investment Adviser