A historical perspective: The development of Media Industry financial products

Together with…

Introduction

Since film has become such an important part of society and culture, it makes sense that it has been (and still is) a major investment opportunity for private and public investors alike.

The mainstream film industry, as a source of investment returns and income, is risky. For this reason, Hollywood movie investing is usually reserved only for institutional investors: the capital required to cover all production costs of a big-budget movie is usually higher than what the average investor can afford to risk.

However, the film industry doesn’t include only big-budget movies (such as Hollywood movies), but also independent movies that are a great investment opportunity for individual investors.

From a historical point of view, the movie industry has always had a positive reputation for the stability of its market;  indeed, the demand for movies remained stable even during periods of financial crisis and world wars, this is why movies have frequently outperformed other investment options.

Let’s take a step back in time and go through the major stages that led to the development of a financial framework for the movie industry, attracting more and more investments through an increasingly diverse range of financing methods, until the entertainment industry became the global giant we know it as today. 

The beginning of investments in the Film Industry

The concept of investment in the modern-day movie industry can be traced back to the very beginnings of the film industry in the late 19th and early 20th centuries. The earliest known instances of investment in the movie industry were when Thomas Edison and the Lumière brothers, pioneers in early cinema, were seeking financing for their motion picture inventions and the production of their short films. In 1895, the Lumière brothers showcased their first films to a paying audience in Paris. The success of this event and the high revenues obtained drew the attention of potential investors. Similarly, in the late 19th century Thomas Edison established the world’s first ever motion picture production studio in New Jersey, seeing the potential for profit in this emerging medium.

While these early investments may not resemble modern film financing models, they marked the very beginning of what would become the modern movie industry, where investors recognized the potential of cinema as a popular and profitable form of entertainment. Over the years, the development of investments in this field has undergone significant changes before reaching its current shape. 

In the early 20th century, the film industry was dominated by a handful of major film studios controlling the entire production process and were primarily responsible for financing their own films. They raised capital through a combination of studio-backed investment, bank loans, and profits from previous productions.

In the 1970s and 1980s, a large number of independent movies were produced with smaller budgets, which sought financing from various sources, including private investors, grants, and film funds. Such independent movies were, and still are, one of the most effective ways for individual investors to participate in the global film industry, and they contributed to making films an attractive asset class. This period also marked the emergence of a more diversified and creative range of films.

Alternative investing in independent films has grown in popularity due to their limited downside risk and the strong upside potential of their returns: this is because independent films typically require lower budgets making it easier for investors to receive outsized returns when they do well.

Film Industry investments in the 21th centrury

Since the turn of the millennium we have seen the rise of high-budget films that have high production values and require high marketing budgets, but which typically always post strong box office revenue. 

In the 2000s the involvement of hedge funds and private equity money in movie financing increased, due to the potential for both profit and portfolio diversification for investors. Such firms invested in either individual films or portfolios of films, generating returns through a variety of income streams, including domestic box office, home video, and international distribution.

Also in the last two decades, new ways of financing films have been created, such as crowdfunding platforms that allow filmmakers to raise funds directly from the public. This has led to a democratisation of the investment process which has made possible the realisation of more smaller independent projects, including those on micro-budgets.

Since the 2010s, the birth and rapid growth of streaming services have transformed the investment landscape in the movie industry unlike ever before. These new platforms finance and produce their own content, often with high budgets to attract A-list actors, causing the financial model to shift from box office performance to subscription and advertising revenue.

Globalisation and Technology influence

Globalisation has been a force of economic growth for many decades leading to the development of truly global marketplaces that make the creation of global partnerships, and the exchange of goods, services, knowledge, and money easier than ever before between different countries. As with every other industry, in the movie industry also international collaborations in the form of co-productions have become very important, allowing filmmakers to obtain investments from different countries and to spread their movies’ financial risk while targeting a far broader audience. 

Further changes have occurred within the last few years as a consequence of more recent technological developments, including virtual reality (VR) and augmented reality (AR) which have opened up additional opportunities for investment in the entertainment industry. These technologies offer immersive experiences and have the potential both to improve the quality of films and to create new income flows for those who invest in content embracing these new technologies.

Nowadays, the main investment methods are becoming an equity, mezzanine, or debt investor into an independent movie, or, for those with access, co-investing into a studio slate. Like all asset classes, the higher the risk you are willing to take, the higher the return you can expect.

Conclusion

In conclusion, the movie industry has evolved considerably over the years and continues to bring innovations with new investment opportunities. Traditional studio financing, independent film projects, streaming services, and emerging technologies all play an important role in this ever-changing investment landscape. This means that profitable investment opportunities and related risks in the movie industry are also changing frequently. The key to success in movie investing lies in understanding the latest trends in the constantly evolving market, staying adaptable, and identifying those unique projects with strong creative and financial potential.

Join ThePlatform to have full access to all analysis and content: https://www.theplatform.finance/registration/

Disclaimer: https://www.theplatform.finance/website-disclaimer/

You may also like...

Investment Opportunities in the film industry

Together with... Introduction The film industry, a dynamic field of content creation and distribution, is experiencing a profound transformation. The convergence of digitalization and new technologies has not only revolutionized film production techniques but also transformed the manner in which…...