Wade Bradley
CEO, Media Society

Film finance is considered a risky, speculative investment vehicle with a hit-or-miss quality that many investors shy away from. The problem is that it’s difficult to tell which projects will do well. Even films with compelling storylines can find themselves languishing in distribution limbo or doing poorly in theaters, making positive returns impossible. Even projects that perform decently at the box office can suffer from cost overruns that can decrease investor’s profits.

However, projects that do well often possess some key characteristics that mitigate much of the risk involved in film and other entertainment financing. The following four factors can significantly increase your chances of seeing big returns on your investment in cinema.

1. Strong Theatrical Distribution Strategy

One of the biggest problems with traditional film production methods is that so much focus is placed on securing funds for creating projects that the funds needed for distribution aren’t pursued until the film has already begun filming. This lack of preparation is a large part of why only 4 to 6 percent of films produced each year-end up in domestic theaters. However, once they get there, this small percentage of films makes over $10 billion a year at the box office and more than $17 billion in the overall domestic home entertainment market.

It’s clear that domestic theatrical distribution is one of the most significant elements in a successful film investment venture. Producers on the project must take a disciplined approach to raising funds for both production and distribution at the same time to ensure the necessary capital is available when the film is ready. They should also have a solid distribution strategy in place—one that includes a plan for domestic release, as well as foreign distribution.

2. Location-Based Incentives

Decreasing cost is one of the best ways to minimize risk. After all, the fewer costs the project accrues, the better chance you have of recouping and capitalizing on your investment. The rebates and tax credits that many countries, states and cities offer to film in their locales can lower the costs of a project significantly. For example, Canada’s filming incentives can cover up to 15 percent of a production’s costs. These kinds of incentives are why many hit movies, such as the Twilight series, are filmed in Canada.

3. Top-Tier Talent

High-quality teams often create successful projects, and you can mitigate a lot of the risk involved in this type of investment by putting your money into projects that have assembled the right talent. Producers with reputations for high-quality films are the basis for realizing healthy gains. Projects should be staffed with first-class writers and directors can add another layer of protection for investors. Finally, having prominent actors attached to the film can give your potential ROI a huge boost.

4. A Diverse Slate of Projects

Similar to other bundled-asset investments, putting your funds into a diversified portfolio of projects not only spreads your risk; it also provides multiple streams of revenue—increasing your chances of considerable returns. A collection of three to five projects spanning, film, Broadway and other forms of entertainment media can protect your total investment, even if individual projects under perform.

Investing in movies can provide healthy returns, but they’re not guaranteed. The best way to protect your bottom line by seeking out investment opportunities that follow a disciplined approach to film finance. By minimizing risks, you can take your film investments from rocky to reliable.

— Wade Bradley is the Founder and CEO of Media Society, a provider of end-to-end managed-risk investment strategies for the entertainment industry, serving high-net-worth individuals, wealth managers and institutions.