Investing

Why Invest in Film?

What makes a film investment so special?  Well, a film doesn’t need to be a large success at the box office in order for an investor to receive a return on their investment, that’s the benefit of investing in independent film.  The global marketplace for film and TV programmes is growing rapidly as a result of the increasing amount of platforms and media by which they can be shown.

The benefits of investing in film stretch far beyond the sales of box office tickets, DVD/BIu-Ray sales, Television airings, Video on Demand (VOD) subscriptions and the sale of merchandise all count towards the profit a film makes and can continue to generate a profit for many years after a film’s initial release.

In 2013, the total video entertainment market grew to an estimated £22 billion in consumer spending; 143 million DVDs were sold in the UK and UK consumers made 56 million digital rentals (The British Film Institute Yearbook 2014).

As well as simply making a return on your investment, there are a number of extra benefits which are attached to investing in film such as:

*  Having your name in the credits at the end of the film

*  Get involved with the production of the film, become an extra

*  Meet the cast and crew and visit the film set

*  Attend Red Carpet events including the Film Premiere

*  Attend special events as a VIP, such as The Cannes Film Festival

*  Be the first to sample merchandise

*  Receive generous tax rewards

A film investment allows you to be part of something much bigger than just an investment; a film investment offers you the opportunity to be part of the next big success story and as well as high returns and a life time of earnings investing in the British film industry can also offer you a great deal of tax relief benefits.

In 2012 the extension of the film tax relief for UK filmmakers was announced, creating a range of incentives for film investors when they chose to invest in an ElS/SEIS film investment scheme.

Tax Benefits of Investing in Film

In the UK there are two kinds of government sponsored investment schemes, offering generous tax benefits to investors, The Enterprise Investment Scheme (EIS) and The Seed Enterprise Investment Scheme (SEIS).  These were set up by the government to make it easier for investors to invest in small high risk businesses which are not listed on the stock exchange.

EIS (See also next Tab)

The EIS scheme was introduced by the government in 1994 with a main objective to help small UK companies raise capital from private investors.  Whilst investing in EIS is not without risks, the incentives for investors looking at tax planning opportunities are attractive, these benefits include:

Income Tax Relief

You can claim a tax rebate (30% of the amount in which you have invested) on the income you have paid in the last year or on tax which you still owe in the current tax year.  Relief can be claimed up to a maximum of £1,000,000 invested in such shares, giving a maximum tax reduction in any one year of £300,000 providing you have sufficient Income Tax liability to cover it.

Capital Gains Tax

If the investment is a success and you make a profit on the sale of your shares you will be exempt from Capital Gains Tax on the amount of profit you have made.  If you have any Capital Gains Tax or Inheritance Tax liability to pay in the current or next tax year or if you have paid either of these in the last 2/3 years you can claw back or defer tax I equivalent to 28% of the capital you have invested in the EIS film.

Capital Gains Tax Deferral

The payment of tax on a capital gain can be deferred where the gain is invested in shares of an EIS qualifying company.  The gain can arise from the disposal of any kind of asset, but the investment must be made within the period one year before or three years after the gain arose.  There are no minimum or maximum amounts for deferral.  There is no minimum period for which the shares must be held; the deferred capital gain is brought back into charge whenever the shares are disposed of, or are deemed to have been disposed of under the EIS legislation.

Loss Relief

If your shares are disposed of at a loss, you can elect that the amount of loss, less any Income Tax relief given, can be set against income of the year in which they were disposed of, or any income of the previous year, instead of against any capital gains.

An EIS Investment is Suitable for you if you are Looking to:

*  Take advantage of income Tax Relief

*  Defer a payment of Capital Gains Tax

*  Shelter investments from inheritance Tax

  • Harness the potential for significant tax free capital growth in today’s financial markets
  • Diversify your existing investment portfolio
  • Find a complementary solution to a pension

Who is Eligible to Invest?

Any UK taxpayer is eligible for the tax breaks however, the initial tax relief is limited to the amount of tax you pay.

Where can I sell?

You should be prepared to retain an EIS investment for at least three years or you will lose any initial reliefs claimed.  Once the company in which you are investing has been trading for at least three years after your investment dates, the following options may become available to you to realise your investment at a later date.

  • Disposal of your shares to a third party or back to the company
  • Management buyout
  • Trade sale

WHY INVEST IN MARGERY IN PARTICULAR??

As already stated, investment in film is a risk.  If you are still attracted to this medium then you now need to consider ways of reducing this by considering those types of films which have the lowest risk and Margery is safely within a solid proven genre, offering particular advantages.

Screenplay

It is well known that there are three essentials for a successful film.  Script, Script and Script!

Our script has received so many accolades that this isn’t just our opinion:

“Oh Franz – what a wonderful script, what an utterly compelling story.  I had to keep checking various sources to see that it really was true!  Simply amazing.  Wonderfully told and a part to murder for for any actress!  Many congratulations on shepherding this wonderful piece of work into the light and I do hope you have success in making it… by all means include my name… I’m happy to be associated with such a great project.  Much love – S” – Stephen Fry

“A beautiful story,” – Carice van Houten.

“Do you have a part for me?” – Britt Ekland.

“…just read your script.  It is an excellent story written wonderfully, I must say.  I like it that it has least directions, (spec script) which Hollywood prefers.  I should congratulate you, for I think your screenplay should be given as an example of how one should be written.” – Christopher S Douglas, Executive Chairman, Wiki Projects inc

“Script is fantastic.  🙂 Very powerful.” – Louis Frost – Executive Producer, Silver Lining Pictures

“I have just finished reading your Script which I devoured, as I was unable to put it down until the end!  I was drowned into the story, characters, my mind full of the most extraordinary, vivid moments, textures and images!  Congratulations for such a wondrous piece of art, revealing this astounding and brave woman to the world, together with so many more ‘obscure heroes’” – Canelle Hoppé – Actress

An absolutely unique story:  I happily admit that I’ve never heard about Margery Booth but like all those other comments I totally agree: amazing!” – Bernie Stampfer, International Film Partners

This is not only the strength of the story itself but the almost instantaneous positive response received from all those who have been in contact with the project.

Thus our enthusiasm is based upon the screenplay, the accolades it has received and the opportunity it offers for a prominent, highly promotable central heroic female lead plus the strong visual element and the opportunity for action and adventure.

Other Benefits of investing in Margery

We believe that this film has a very strong worldwide potential, especially in the US and that the opportunity for significant foreign pre-sales is excellent.

Another positive factor is the acknowledged strength of book adaptations which are on the top of the list of film successes.  Whilst Margery is not an exact adaptation, it is still based upon meticulous research including books by participants and a book is also planned to be released alongside.

This is a story about a real person.  A woman who, due to wartime circumstances, found herself in a world of violence and political drama which she could have ignored securely behind her glamorous profession and kept a low profile but chose not.

Another great advantage is that Margery has what we call “more than one level of sell”, that is, it has many different factors which attract a broader audience profile and not just the typical demograph of a 25yo woman for this female driven story.

1.  Espionage.  This is a major proven genre.

2.  WWII.  Most topical at this time of many anniversaries.

3.  Opera.  Although not a leading interest but nevertheless can attract opera buffs.  This is enhanced by having Lesley Garrett together with
the London Philharmonic Orchestra.

4.  It satisfies the feminist demand for more representation not only by     having a female lead but it also passes the ‘Bechtel Test’ (ie it
features two women talking to each other about something other than men) which is becoming even more important especially in the US.

5.  Once available as DVDs etc is not only collectible but generates sales over a considerable period – long after theatrical release.

6.  Sales to television channels also provide future income as between now and 2018.  WWII is much in the news with very many
programmes covering this historic period so Margery becomes an ideal feature for future TV screening.

7.  Names.  Although our faith is in the story, when this is strengthened by well known names it can add to the box office attraction,
although there are also advantages in having relatively unknowns so that the audience can focus on the well known character (e.g. Hitler
or Goering) without the distraction of knowing the star behind the face.

A Comparable Film – “The Book Thief”

Whilst it is not possible to produce a perfect profit forecast it makes sense to look at a comparable film where both Margery and “The Book Thief” share a similar budget c.$19,000,000 and genre, a WWII European drama.

Sales were (as per the-numbers.com):

Box Office – US Only $ 21,488,481 (c.28%)
Rest of World $54,598,230 (c.72%)
Totalling $ 76,086,711
Plus
DVD Sales – US only $ 12,225,364
Blu-ray- US Only $   2,193,233
Totalling $ 14,418,597
(RoW DVD figs not known)
BUT applying pro rata:
RoW DVDs would be: c.$ 36,634,970
Total DVDs etc $ 51,053,567
Thus total sales over 2 years $127,140,27 

                                                

 AND this excludes all TV sales!!

TV rights are often pre-sold which although providing known funds upfront also has the drawback of not receiving any more if the film is a runaway success, hence the importance of knowing how to pre-sell.  The famous example here is in the case of Gandhi where the TV rights didn’t sell as the company wanted $8m and only one TV station considered this price.  After Gandhi received 8 Oscars the TV stations were clamouring for it and it was finally sold for $20m!

What is also interesting is that like Margery, The Book Thief had no American interest, i.e. no American location but set entirely in Europe with NO American characters, cast or crew and YET nearly 30% of all sales were in America!

What the Investor MAY receive:

Whilst nothing is guaranteed, here is a typical template showing how the Box Office Takings are gradually reduced to provide a possible profit for the producer.  These are shown as percentages and then applied to the figures above.  It is assumed for this purpose that DVD sales bear similar deductions.

The cost of prints today have largely been replaced by digital costs which are lower (a 35mm print costs over £3,000) so the below, if anything, is on the conservative side.  As these are estimates the actuals have been rounded.

Box Office Takings 127,000,000 100%
Exhibitors’ Share 69,850,000 55%
Rental 57,150,000 45%
Distribution fee 11,000,000
Prints and advertising 10,000,000
Revenue returned 36,150,000
Cost of the film (say) 20,000,000
Interest and other expenses 2,000,000
Total DVDs etc 51,053,567
Net Producer’s share 14,150,000

 

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So if an investor has put in £1m, i.e. 5% of the budget and therefore gets 5% of the net available, i.e. £707,500

PLUS

The original £ 1,000,000 investment he put in, thus receiving a total of:

£ 1,707,500 which only cost him £ 550,000 assuming tax borne of 45%.

Making a profit of £ 1,157,500 representing a return of over 210%

Final result is that the investor receives £ 1,000,000
Plus pro rata Share of the Net £ 707,500
After also having received Tax Refund of £ 450,000
Receiving a Grand Total £ 1,520,750                 

of which the £ 707,500 MAY be liable to Capital Gains Tax – so do consult your tax adviser on this point.

NB The above is only an illustration of what MAY be received using projected figures from a comparable film.