From Special Report: Film and Entertainment Investing - May 2012
A growing and dynamic investment opportunity
The creative economy is proving to be profitable and resilient to the general economic climate
The creative economy is currently being driven by ongoing changes in consumer media consumption, regulation and technology, all of which have created a growing and dynamic investment environment.
New platforms such as Kindle, iPad and Connected TV are stimulating growth in the sector, as consumers are enabled to purchase content quickly and conveniently.
At the same time, more traditional areas, such as theatre, live events and film admissions are showing themselves to be resilient to the general economic climate.
David Glick, manager of the Edge Performance venture capital trusts (VCTs), says: “Entertainment and media really is a growth sector with internet and mobile creating major new opportunities. When you’re dealing with a growth sector like this, depth of sector knowledge, your network and experience really count.”
As VCTs have evolved over the past decade the industry has consolidated. There are now fewer management groups, but they are larger and better resourced.
Last year’s ‘Enterprise’ budget paved the way for increased investment in the UK’s smaller unlisted companies. The higher bank lending targets agreed under Project Merlin along with a relaxation of the rules governing VCTs promised greater flexibility for funding.
VCT managers surveyed by the Association of Investment Companies (AIC) have seen a surge in demand for funding from companies in the past year and they are currently seeing good investment opportunities in a range of sectors, including media.
There is no vehicle specifically for broadcasting but products like the Media Opportunities fund and the Shelley Media fund invest in film, television, video game content, e-commerce, marketing services, mobile, gaming, music, live entertainment, digital publishing and fashion & design.
In January 2010, Edge Group also launched two entertainment-based investment products and broadened its interests in the sports business.
“There’s a long history of City investors dabbling in entertainment,” says Mr Glick. “And they have invariably come unstuck.
“[Last year] sport was a new sector for us to invest in, but we are doing the same as we have done in the music industry, coupling insider industry knowledge with tax-efficient investment vehicles to bring new working capital to the industry.
“In the lead-up to London hosting the 2012 Olympics we believe there are numerous opportunities for sport and sport’s entrepreneurs to benefit from our investment and industry expertise.”
Similarly, in January this year, Jazz FM, Neapolitan Music and The Ingenious Entertainment VCTs announced the completion of a £2m investment into the UK’s first three day, outdoor camping jazz festival, Love Supreme Jazz Festival, to take place in Brighton in the summer of 2013. The festival aims to champion the eclectic music scene found in the neighbourhood, and is expected to attract thousands of music lovers in its first year.
Paul Bedford, investment director at Ingenious commented: “At a time when sales of recorded music are in decline, the UK festival market continues to buck the trend and expand, making this sector of the entertainment business an excellent investment opportunity.”
The Ingenious Entertainment VCTs are well known as investors in live events, and at the end of last year agreed terms to exit from their respective investments in the Creamfields dance festival – providing investors with a very strong return.
Aside from Creamfields, other investments include Rewind Festival, a hugely popular 1980s-music festival which attracts more than 40,000 people across two days, and Taste of Christmas, an interactive food exhibition featuring celebrity chefs including Jamie Oliver, Heston Blumenthal and Hugh Fearnley-Whittingstall.
Patrick Reeve, managing partner at Albion Ventures, concludes: “The advantage of investing at a time of subdued economic growth, verging on recession, is that opportunities are many, finance is scarce, and so pricing is highly attractive.
“This is proven by the BVCA [the industry body for the private equity and venture capital industry] performance figures, which show that funds raised in an economic downturn greatly outperform those raised in a boom.
“Therefore, funds raised in the run up to the dotcom boom in 1999 averaged only 8.6 per cent a year across the private equity industry, while funds raised at the end of the resulting recession in 2004 returned a massive 32 per cent a year.
“We believe that this is the case now, where many sectors of the economy seem to have reached a nadir, from which one can only see recovery, and investment can be made on the back of conservative forecasts without the pricing pressures of competition.”
Jenny Lowe is features editor at Investment Adviser