Film aficionados will soon be able to share in a film’s success, or even profit from a flop, as a new investment market is about to let investors speculate on future box office takings.
Cantor Fitzgerald, the US broker, is launching a film futures market through which investors will be able to take long or short positions on expected cinema sales for a number of Hollywood movies. The broker already offers a similar virtual exchange, which it says has proved popular. It now wants to give people the chance to place real bets and make an actual return.
Around 300 upcoming films will be traded on the exchange. The virtual index is offering prices on films such as Watchmen, the superhero film based on a 1970 comic book series, Harry Potter and the Half-Blood Prince, the latest instalment of the JK Rowling books due out in the summer, and Terminator Salvation starring Christian Bale.
The futures price ‘spreads’ reflect the amount the film is expected to take at cinemas in its first four weeks of release. Cantor sets the spread and investors can then take a long or a short position, depending on whether they think the film will fare better or worse than expected.
For example, the spread for Watchmen is currently 181.00-184.00. This means Cantor expects box office takings in the first four weeks to be $181m-$184m. If investors think the takings will exceed this, they can “buy” at 184. If they think it will not do as well, they can “sell” at 181.
Richard Jaycobs at Cantor Exchange says this market provides a simple way for investors to gain access to films. “They are investing strictly in the performance at the box office,” he says.
Advisers say other investments that offer access to the film industry can be more opaque and may rely on other factors, such as the ability to raise finance.
Jaycobs adds that the Cantor exchange could also be used as a hedging tool for film producers and financiers. Companies that are putting up money for a film could place a short bet on the box office takings – so if the film failed at the box office they would still see a return.
“People can hedge off their interest so the success of the film is taken out of the equation,” he explains.
Advisers say investors who plan to use the index purely to speculate on a film’s success should be aware that trading futures is a complex and niche area in which one wrong decision can result in large losses.
Adrian Lowcock at Bestinvest, for example, says this area is specialist and risky. “Successful investment in films can depend on one runaway success, but behind each success are numerous failures,” he says.
Investing in film has become less popular in recent years as the valuable tax breaks previously offered by film partnership schemes have been watered down. These schemes still exist but investors are generally required to make an active contribution to the production of the film to qualify for the tax breaks.
Other options include a number of offshore funds, which raise finance from private investors to fund film production. There are also Aim-listed companies such as The Indian Film Company, as well as tax-efficient venture capital trusts and enterprise investment schemes that focus on film.
One fund, the Aramid Entertainment Fund, is active in financing films, television programmes and theatrical productions. It was involved in W, the George W Bush biopic, and The Edge of Love, starring Keira Knightley, for example.
Sean Flanagan, who co-founded the fund, says there is now more opportunity for small, specialist providers of film finance as big banks and private equity companies have stopped lending. Also, as fewer projects are obtaining finance, only the best can go ahead – so there is a greater chance of success.
Flanagan believes the film industry will weather the downturn as people will spend on cheaper entertainment. Nevertheless, the fund missed its 15 per cent target return last year, generating a net return of 11.6 per cent after fees. The barriers to entry are also high – the minimum investment is £40,000.
