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Hollywood, investment and earnings


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Hollywood, investment and earnings


Traveling around America by car will allow you to see how Americans live in Hollywood, who and how much they earn from making a movie, and whether investments in modern cinema will bring a lot of money.

From a distance, the movie industry can look pretty glamorous: celebrities and producers go down the red carpet, get Oscars and relax in St. Barth. It seems that Hollywood, the capital of the world of cinema, offers all the opportunities for making money: according to the report on the film market of the American Cinematographic Association (MPAA) for 2019, the box office of the United States and Canada amounted to 11.4 billion dollars. Worldwide box office films in 2019 reached 42.2 billion dollars. But you need to understand that investments in cinema bring a lot of money only to those who have studied this business well.

When planning to invest in American cinema, you will realize that almost any film is an extremely risky investment, even Stephen Spielberg’s films. So, “Indiana Jones and the Kingdom of the Crystal Skull” Spielberg critics and the public considered an absolute failure, this film was the end of the famous series. Of the 150 films, only three fall into the box office category, while others fall into the self-supporting category. If the budget of the picture is 20 million, and the fees are 40 million, this is a good movie. But there are failures when the budget is 40 million, and the fees are 1 million. And such work also had an investor, but rather, it was a consolidated investment of several investors. They invested in a failed film, but at the same time invested in the production of Planet 51 with Dwayne Johnson, a project that did not make a big profit, but was not a failure. And they also invested, for example, in “Wolf from Wall Street” with Leonardo di Caprio, whose profit amounted to 392 million with a budget of 100 million.

Investing in the production of many films is ultimately profitable. The working principle of Hollywood investors is reminiscent of the work of venture capital funds in Silicon Valley: investing in dozens of start-ups, they return investments and profit from 1-2 “take-off” projects, and unsuccessful investments are a normal percentage of risks for the industry. An important point: the principle of diversification of investments requires a lot of money.

What are the earnings in Hollywood

How did old Hollywood work? When the film industry was experiencing its first heyday, the film went to theaters, received the vast majority of revenue through the sale of tickets, then disappeared from sight. But once in Hollywood, someone thought this wasn’t enough, and, starting with George Lucas' Star Wars, merchandising makes up a noticeable, and sometimes most of the film’s revenue. But the cost structure has changed: they necessarily include the cost of printing, advertising (P&A). The history of cinema knows examples where a 15 million $ film - low budget by the standards of Los Angeles - has an advertising budget that exceeds the production budget.

An important part of the income of modern film production is merchandising. The Star Wars franchise earned billions in toy production revenue, not to mention licensed revenue from other third-party companies. Star Wars: The Force Awakens brought 700 million $ in retail sales in 2015. This strategy successfully works with comic-film films for children and youth series (the story of Harry Potter, The Lord of the Rings, Toy Story). Merchandising brings big profits to high-budget films that children and Comic-Con fans love.

Large studios and independent filmmakers are looking for new sources of income because ticket sales are no longer the primary and final goal. And the closure of most cinemas in early 2020 makes other sources of income more important than ever. Ticket sales are being replaced by the sale of television rights, rights for video hosting, and streaming platforms.

Who is investing in the Hollywood movie today?

Interesting facts: in 2015, China first surpassed the United States in monthly collection of film screenings. The series “Mission Impossible” was successfully “swept” across China (some scenes of the third part were even filmed in China). Another Paramount franchise, Terminator 5: Genesis, raised 45.5 million $ in China in just three days. True, in advance (Schwarzenegger arrived in the Middle Kingdom as part of a promotional tour and became a participant in a vocal show.

Now the quota of foreign cinema on Chinese screens is 34 films per year, but, according to insider information, further the number of imported films will increase significantly.

Over the past 3 years, several Chinese companies have invested hundreds of millions of dollars in Hollywood studios, but Paramount Pictures-level giants are not listed. Above all, China's Hunan TV jumped, which spent 375 million $ on the production of films by Lionsgate (known for the films "Carrier 3", "The Expendables", "Cabin in the Forest").

Are there Russians in America investing in movies? The list of Hollywood investors of Russian origin is not large: Rodnyansky, T. Bekmambetov and Lebedev have been in this business for several years. Rodnyansky Production Foundation participated in the filming of the films “Machete Kills”, “Goats”, “Cloud Atlas”, “Jane Mansfield Machine”. Code Red Production, where Julia Lebedev’s daughter works, managed to film Orlando Bloom in the movie The Good Doctor and release the picture Dear White People. Timur Bekmambetov seriously settled in the Hollywood hills: after the successful directing of “Especially Dangerous” with Angelina Jolie, he, together with Tim Burton, became the producer of high-profile, profitable Hollywood films - the cartoon “Nine”, the films “Abraham Lincoln: The Vampire Hunt”, “Phantom”.

Newcomer - Enjoy Movies, in Russia known for cheap, but cash products with the participation of the heroes of Comedy Club. One of the most commercially successful film companies in Russia is counting on global success. “These films should become an order of magnitude more profitable than all our Russian projects,” says Producer of Enjoy Movies Georgy Malkov. Moreover, the company made a decision to enter the American market despite the fact that it has access to the irrevocable funds of the Cinema Fund.

How to finance a movie in Hollywood

In the West, investment in cinema is considered a developed investment industry. This area allows investors not only to earn, but also to diversify the portfolio. In particular, in the USA and Europe, some films are shot entirely at the expense of investment funds. A similar format is not yet available for Russian cinema, but Los Angeles is completely open for private investment, and investments are made not only by Western companies, but also by Russians in the United States.

Banks and other financial institutions provide filmmakers with deferred financing: the producer finishes filming with a loan secured by future profits from the sale of film rights. Banks are carefully studying the security of the film, because this type of lending is a risky form of investment, and the fees and interest charged reflect the level of risk.

Another source of funding is international trading companies that will facilitate the financing and distribution of the film for a fee. The charge depends on the level of involvement of the sales company at various stages of development, financing, production, distribution. The more they are involved, the larger a piece of cake they will require. These companies sell films at many film markets and festivals around the world, and charge marketing fees. Thus, they charge a commission for financing, a commission for the sale, and a commission for the marketing services. These factors must be considered by the manufacturer when using international sales, because they will greatly affect the return on investment.

One of the reasons why investing in American cinema is in high demand is the opportunity to save on taxes. Many states have long since abolished taxes on profits earned from investing in the film industry. As for investment risks, in the USA they are very low. Already at the initial stage, when rights are sold to distributors, investors receive the lion's share of the income (about 60%). Another important point is the receipt of film rental obligations in the United States: in this case, investors are also guaranteed to receive income.

Investing in the US film business is beneficial in that you can get a tax return on the amount of money you invested. The amount varies from state to state, but in general is up to 30% - investor risks do not exceed 25%. Any movie is creativity: sometimes it will require a lot of money, but it will not pay off, or it will be very budgetary, but it will bring good profit.

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