How to invest in movies
Why investors buy these risky assets, how the deals work, and how you make your money back
In the past year I’ve pitched a lot of people on investing in film (specifically this film). I get a nerdy sense of enjoyment from explaining how the finances work - budgets, financial contracts, return structures, interest rates. But I also enjoy these conversations because they’re important. Movies don’t get made without money. And I have a deep appreciation for the people who put their wallets on the line to fund this work.
I’ve been really fortunate to have smart investors who want to support filmmaking, and they do so for different reasons. I have to design a financial structure that suits all of their interests. Some investors are new to this and don’t understand how the financing process works. In fact, I’ve found that most people working in the film industry don’t understand how this system works, even though it’s the very system funding their paychecks.
So I wanted to write a brief explainer about film financing (at least for independent films - studio films are their own thing). I’m doing this because (a) a lot of non-investors seem to find it interesting, and (b) you might someday be interested in supporting films as an investor/producer, and this article may help you feel more comfortable with that. The film industry always needs more of you.
Why invest in a movie?
This is far from an exhaustive list, but these are the main reasons I’ve seen:
Making a return. For some investors this is the only reason they invest. A successful film can make back double its budget within ~3 years of production (sometimes much more). And when you invest in a film you are buying a slice of that profit, and making a hefty return (more on how that works below). Investors who care about making a return are generally looking at (a) getting the largest possible movie sales, while (b) keeping the budget reasonably tight.
Social good. Many investors expect zero financial return but believe in the impact of (for example) a documentary about climate change, a drama that platforms LGBTQ+ characters, or a political satire of whichever presidential candidate you hate most.
Making something unique (and winning awards). An investor may want to put money into a film that tries something new. Maybe it’s a new director with a unique voice, an experimental cinematographer, or a script that is like nothing else before. Even major studios pour massive amounts of money into experimental films, often in order to win awards, which bring recognition, help attract better talent, and make the next, even better, movie.
Movie credits. Investors generally get credited as Associate Producer, Co-Producer, or Executive Producer depending on how much money they are putting in (or raising from other sources). These credits can be useful if you want to work in the film industry, want to network in the film industry, or simply want your name out there.
Portfolio. Anyone who has enough money to invest in a movie should already be invested in other things (e.g. stocks, bonds, beanie babies). Films are very risky investments, so I would never recommend that someone have more than 5-10% of their total total portfolio in movies. It should be an amount you’re comfortable losing. But some investors like films because the upside potential is very high, and film investments are generally uncorrelated with other investments - that is, if your stock portfolio crashes during a recession, your film investments may not get hit as hard.
Career. You might be interested in working in film, becoming a producer, or otherwise learning more about audio/video production for your work.
And a million other reasons: tax benefits, supporting the economy where the film is shot, liking the actor or director, wanting to learn how the industry works, the list goes on…
The risk of losing your money
Most films don’t make a profit. If you’re investing in movies, you have to be comfortable with that risk. Most film investors invest in a lot of films, expecting most of them to fail. But if one of them pays off, and pays off big, then it compensates for the losers. Film studios rely on this. Roughly 80% of studio films lose money. Warner Bros and A24 are making all of their profits on the other 20%. Investors shouldn’t expect to beat this.
Of course, your money is going to creative people who are sharpening their craft and making something together. For some investors that’s enough of a reason to take the risk. There are worse toilets to flush your money down.
However, if making a return is your main goal, then you have to be comfortable with taking losses. Expect to invest in a few films before you see some real profit. That risk scares most people off. Of course, films are still less risky than venture capital, angel investing, most cryptocurrencies, and beanie babies.
Investors and studios justify these financial risks because (again) a successful film can make back double or triple its budget. That successful film pays for the losers. Some wild successes even earn 10x or 20x their budget, but you should never expect this, and any producer who promises that kind of crazy profit is full of s***.
So go in with a level head, and assess each film based on (a) its cost, and (b) its ability to make money. With any project there will be at three possible outcomes:
A flop: you get very little to no return - again this is common
A success: you make back a moderate return, recouping your investment, hopefully with a healthy little profit
A hit: you score big and it’s a great hit
Remember that scenario 1 is statistically most likely. So I would focus on scenario 2, and testing the producer’s strategy to achieve that scenario. Never bet on scenario 3. If it happens, buy a bottle of champagne and celebrate - you got lucky.
So how do investors make money?
Investors sign a (somewhat complicated) contract with the Producer. Here are some terms that a standard contract should have in it:
The investor agrees to put in a certain amount of money. There’s a deadline to submit the money, and there might be some conditions that the Producer has to meet (e.g. hiring star cast, raising a certain amount of funds from other investors, sharing the final script for the investor’s approval, or otherwise guaranteeing that the production is ready to go and consistent with what the Producer pitched).
The investor is promised a % share of the film’s earnings. Usually these earnings get split among the different investors and other stakeholders, and the earnings are paid out in waves based on an “investment waterfall” structure. This means your % return on the film’s earnings can be different depending on how much money the film has made. This can get a bit complicated, and the details vary by movie. But the Producer should be able to explain it all in plain English. If the Producer can’t explain it, or if it doesn’t make sense to you, don’t invest.
The Producer has to send the investor regular reports clearly showing how much money the film is earning, and how much money the investor is making based on their % share.
The investor has a right to audit the Producer’s financial records to confirm everything is being paid correctly.
The investor can also get a handful of perks - getting credited as an “associate producer” on IMDB, getting invites to film festivals, an invitation to come to set, meet stars, and maybe even the right to influence creative aspects of the film (usually this is only for major investors and Executive Producers).
So basically, when the movie makes money (from theaters, Netflix, distribution licenses, etc.) the investor is always making a cut of that money…forever. Your grandkids could be getting checks in the mail 100 years from now if they inherit your film rights from you.
Quick note: those five bullets are far from an exhaustive list of contract terms in an investor contract. These contracts can easily be 20-30 pages long. You should familiarize yourself with the legal terms or else have a lawyer review your contract before signing - ideally both.
Importantly, this contract will also clearly outline the Producer’s job: to monetize the movie and generate returns for the investor. So…
How do movies make money?
This is more complicated than a lot of people realize, and the movie market changes every year. The producer’s job is to have a strategy for how the movie will make money and how the investors will recoup their investment. If the producer can’t explain the strategy to you in a way that makes sense, don’t invest (unless of course you’re not in it for the money).
The most common way for a producer to monetize a film is to license the film to a distributor or a sales agent. These are companies and individuals who then take the film to theaters, streaming companies, TV broadcasts, and websites all around the world, making a series of smaller deals that hopefully add up to something profitable.
This is a complicated job. The distributor/agent needs to understand local laws, accounting practices, the required file formats for video and audio (which is more complicated than you’d think). They also need to handle marketing. So this distributor/agent will take a cut of the film’s earnings (20-30%) to pay for their expertise and labor. They’ll pass the rest on to the producer…or they should. Make sure your producer knows how to avoid getting taken advantage of here.
The producer can skip the formal distributor/sales agent step and try to sell the movie directly to consumers, upload it to Amazon and Tubi and other places, or otherwise strike small deals to make back a profit on the film. This is really only possible for very low budget films (<$500k, depending on how good your connections are). But this isn’t common.
If the producer does secure a distribution deal, it usually looks something like this: you get a chunk of money up front called a “minimum guarantee” (or “MG”), and then you get a cut of royalties on all future sales. The distributor will deduct marketing expenses and their own cut from those royalties (and again, the producer needs to know how not to get scammed here). The deal usually lasts for a certain number of years, during which the producer can’t monetize the movie any other way, but after that deadline expires, you can strike another deal and make more money.
With a deal like this, the investors should expect to get some nice chunk of cash up front, and then a trickle of future earnings for years to come. Of course, the amount really depends on the film’s success. Are people watching it?
The producer can also sell the movie outright for just one lump sum of money. That means all future earnings get sold off for a big cash payment. The advance gets split among the producers and investors according to their % share. You all cash out and never get a royalty payment. But a lot of people prefer this because it’s simple and you know what you’re getting regardless of the film’s success.
Movies can also make money through merchandise (t-shirts, toys), licensing sequels, making a TV adaptation, a video game, or anything else that uses IP associated with the film. Investors may be entitled to a chunk of this money as well, depending on their contracts.
So the producer needs to give the investor a strategic plan (ideally with one or two backup plans) for how the movie will make money and return a healthy profit to the investor. These plans might involve selling to certain distributors at specific film festivals, merchandising, involving a specific influencer who is connected to your star actor, or marketing to a specific niche audience that reliably pays for content. And these strategies can be surprising - a friend of mine recently struck a screening deal with the AARP for a short film he made about the experience of retirement, and it paid well!
In summary: the producer should be able to explain to the investors: (a) how the investor’s contract is structured, (b) how much money the movie is reasonably expected to make, (c) how much money the investor will make if that target is hit, and (d) the Producer’s strategic plan(s) to make that money.
How do you approach a producer and negotiate an investment deal for yourself?
This is the easiest part. Most producers are happy to bring on new investors. Let the producer lead the conversation. They know the project, and your job is really to ask questions and get the information you need.
They will probably have a minimum investment required - it’s not worth it to accept a $500 investment because that won’t even pay for the accounting and legal fees to set up the account. Plus every investor is a potential liability to a producer. The producer doesn’t know who’s going to be a headache or potentially sue over nothing.
If you meet the minimum investment required, then you’ll probably schedule some sort of pitch conversation. The pitch should include basics about the film’s story, budget, cast, director, target market, marketing strategy, target returns, etc. It should be enough information for you to queue up a few questions and then decide whether you’re interested in investing.
If you’re interested, the Producer should offer a few tiers to invest at - i.e. depending on how much you invest, you will slot into a different tier. The more you invest, the higher the tier. Higher tiers might offer higher return rates, better film credits, or other perks.
Now do the math yourself: if the producer is saying you can get a 1.2% revenue share in the film in exchange for your $10,000 investment, that means you won’t start recouping any profit until after the film has made more than a million dollars. Remember, the distributor, sales agent, and other stakeholders are taking cuts out of that money as well.
Do you think the movie will make over a million dollars? Does the producer’s pitch and strategy make sense? Maybe you need 4% revenue share for this deal to make financial sense to you. Maybe the producer needs to cut the budget to make that possible. Maybe the producer will say no, and you’ll move on to the next project. Or maybe you think the strategy is reasonable, and 1.2% is a good deal.
With all that information, you decide how much you want to invest, the Producer sends you a contract, you review it (with a lawyer if it’s a large amount), and then you sign. Congrats! You’re a film investor!
If you have any questions about this, put your questions in the comments or reach out ot me personally! I always love to talk about this stuff.
And a disclaimer: this is a brief explainer on the process, but it isn’t financial advice. Movies are risky investments, and most financial advisors would likely tell you to avoid them, for good reason. Some crazy and wonderful people out there have defied such advice and are the reason this whole creative industry survives and makes the stories we all enjoy. You get to decide whether you’re one of those people or not.