Why Investors Don't Fund More Movies

The question of why investors are not funding more movies has sparked much discussion in the entertainment industry. Ebetuel Pallares provides a compelling answer, but there are several additional factors that contribute to this phenomenon.

Strategic Investment in Movie Studios vs. Individual Films

One possible reason is that an entertainment industry-focused venture capital firm might invest in a movie studio rather than individual films. A movie studio that can manage and execute multiple projects simultaneously, leveraging innovative technology to enhance immersion, is more likely to generate a higher return on investment compared to a single film.

The Rise of VR Technology and Micro-VCs

With the increasing prominence of virtual reality (VR) technology, movies designed for VR are becoming more appealing to investors. However, these ventures may be better suited for micro-VCs rather than larger funds of $250M. The venture economics may not add up for larger funds, making it less attractive for them to invest.

Crowdfunding and New Financing Models

Recently, crowdfunding platforms like Kickstarter and Indiegogo have provided independent filmmakers with greater access to capital. Instead of relying solely on traditional funding, filmmakers can now raise funds directly from their audience, reducing the risk and increasing their creative freedom.

Complex Financing and Returns on Investment

When I looked into a fund structured to invest in movies, I found a number of complex issues. For instance, the distribution and revenue models from ticket sales or streaming were not well-defined, making it difficult to predict returns. Additionally, the cost allocation and timelines were heavily skewed in favor of the investors, who would bear most of the risk upfront while the opportunity to capture value post-release was minimal.

The duration it takes to recoup their investment is often shorter than the timeframe over which the movie generates revenue, adding to the challenges. This is a common finding in the movie industry, where the business models often fail to align with the realities of film production and release.

Learning from Due Diligence

Through my due diligence process, I engaged with entertainment lawyers, talent agents, actors, and bankers. This helped me understand the complex nature of movie making, which is often cut-throat and fraught with challenges. These interactions provided insights into the intricacies of the business, including the legal and financial aspects of production and distribution.

Investing in movies is not for the faint of heart. The need for thorough research, careful risk assessment, and creative business models is paramount. As technology continues to evolve, the landscape of movie funding will likely transform, offering new opportunities and challenges for both investors and filmmakers.

Understanding the dynamics of movie investment is crucial for anyone involved in the entertainment industry. By staying informed and adaptive, the industry can overcome the barriers to investment and continue to thrive in the face of technological advancements and shifting market demands.