Dresdner Kleinwort, an investment bank based in New York, sent the head of their media and entertainment business Laura Fazio, to host a group of European hedge fund and private equity executives at the London offices of the bank. The purpose was to help them to understand what the opportunities are if they were to invest in films.
Fazio was also talking with some privately to set up co-financing of video games and TV shows as well.
"There's a huge amount of interest ... but they know absolutely nothing about the business," Fazio said. "I think they haven't pursued it because it isn't in their backyards."
Dresdner is one of the key players in film financing as they accounted for almost half of the $5 billion raised last year for private investment in film. Fazio says that expectations are that 2007 will exceed last years total.
Two things are driving these particular deals. The first is that those that own the studios are looking for ways to decrease their risk. Too much risk in any one film can hit the bottom line of a company strongly. It's happened more than once in the past.
The second is that there is just a ton of money that hedge funds and private equity are sitting on, and they are having a hard time finding something to invest in at the returns they want.
Fazio said it right as far as I'm concerned in that they haven't invested because they don't know anything about the business. It is at that point that they should have taken their money and run. Having someone come to talk to you in a meeting that is put together to serve their own interests isn't the time to decide to invest simply because you have money sitting around.
I would think that part of the reason this is happening is the investment that had to go into the slate of movies coming out this summer; the costs had to be extraordinary. Maybe they're running out of big investers in the U.S., and so are going to Europe to tap that market.
As far as how it works with investing in film is that funds will invest in a slate of a minimum of a dozen movies over a number of years so that thay can also protect themselves from the extremely volatile film market, which is fickle and impossible to predict what will emerge as big hits. Usually the comglomerates that own the studios will finance what they consider will be sure hits themselves ... films like Spider-Man 3, as an example.
So investors are left with the more difficult job of trying to figure out what the best medium-financed films will be, which they can't, so they invest in the equivalent of a film mutual fund to ensure that they will make money over the long haul.
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