MOVIE INVESTING

Investing in movies is the more exciting and enticing investing there is. Hey, it's a chance for investors to rub elbows with the stars!

It can also be the most financially unrewarding. Hollywood is infamous for creating 'net movie deals'. This is like any other net deal, where expenses are taken off the top, and a specified percentage of the net is given to investors and sometimes the stars of the movie.

Unfortunately Hollywood, the land of creative movies, is also famous for being the land of creative accounting. Several examples illustrate the danger of net movie investing.

Account to Hollywood legend, accountants are still 'proving' that Gone With the Wind hasn't shown a net profit. Movie stars who have accepted a percentage of the 'net', such as James Garner, have also spent decades embroiled in lawsuits with studios. If Hollywood has no trouble manipulating net payouts to major movie stars, how much trouble do you think they'll have doing it to you or me?

The point is clear, if you are going to invest in a movie, it has to be for a percentage of the gross, not a percentage of the net. Another factor to take into account is that the movie has to have a distribution contract before it's filmed.

Without that there is a 90% chance the movie will stay in the 'can', unreleased. To drive home the point, how many movies mentioned in the IDE qualifications listing, has anyone actually seen in a theater, or rented at Blockbuster?

To cap it off for us, in four years we have yet to talk to anyone who has received his or her money back on a movie investment. Much less shown a profit. (If you're out there, call us. We're never afraid to admit we're wrong.)

However, one of out members who had a conversation with the head of the legal department of Orion Pictures. He was told that no net movie every makes money for investors.

In addition, Small Business Investment Corporations, are venture capital firms funded through cheap loans from the Small Business Administration (SBA). With the loans these SBIC's have to accept the SBA rulebook. The only two investments that are forbidden by category to SBIC's are investments in real estate companies, and, you guessed it....movies.

So, in our opinion, if you like the action and absolutely can't help yourself and if you're willing to invest for the privilege of attending the cast party, that's ok.

May 2000. Effective these date IDE will no longer review movie investments for its members, unless the movie, or TV, or other entertainment investment conforms to two criteria.

1. The investor has to get a percentage of the gross. Gross is defined as the investor being paid before anyone else is. (We have actually seen movie memorandum where the promised this. But the fine print defined 'Gross' as profits, less expenses. That looks a lot like net to us)

2. The movie has to have a distribution contract. That is someone has to have already agreed to show the movie in theaters (or anywhere else they're showing movies these days). And they have to provide proof of the distribution contract.