If it’s entertainment, or even escapism, you want, cinemas can offer a welcome distraction from the economic gloom. American cinemas, for example, just enjoyed their first billion-dollar January, with takings up 19% to $1.03bn. Meanwhile, in Britain, takings rose 5% to £949.5m in 2008. Indeed, box-office takings have increased in five of the last seven downturns, including the 1970s oil crisis and the popping of the dotcom bubble earlier this decade. “Times are tough, life is very serious. People want to go to the movies and check in their brains at the door for a little while,” says Gitesh Pandya, editor of BoxOfficeGuru in The Guardian. And several funds are looking to take advantage of the trend.
The Caymans-based Aramid Entertainment fund is a prime example. It lends money to distributors and producers at 5% above Libor. Port Funds’ Movie And TV Opportunities fund, on the other hand, invests in low-budget Asian productions. Costs are lower there than in Hollywood and the rest of the West. The Aramid fund rose 14.3% year on year, while figures have yet to be released for the Port fund. However, don’t be drawn in by their encouraging performance. Making money from the movie business is not as easy as it once was, no matter how badly the economy is faring.
That’s because up to 70% of film revenues come from DVD sales, says PricewaterhouseCoopers. These are sliding rapidly – North American DVD sales fell 32% in the fourth quarter to 453.6 million units, according to Los Angeles-based Digital Entertainment Group, with sales of follow on technology (such as Blu-ray discs) failing to pick up the slack. And the cost of making films has rocketed in recent years. The average cost of making a film increased 35% to $106.6m in 2007 from $78.7m in 2001, according to the Motion Picture Association of America.
So, unless they have $200m to hand (the cost of making the box office hit I Am Legend), funds may be forced to invest in risky, small-budget flicks. And watch out for charges. The Port Funds’ Movie And TV Opportunities fund has a 1.75% annual management charge, and a 20% performance fee. For the $275m Aramid fund, which has backed films such as Dorian Gray and The Edge Of Love, you’ll pay a 3% annual management charge and a 30% performance fee. So we’d stick to watching films rather than investing in them.