Those outside the film industry may say, with some justification, that filmmaking is high risk. They will site movies not being finished or going over budget, that even the Big film studios, with all their experience and wisdom, still produce loss-makers. They will say the glitz and glamour blinds naïve investors from making rational decisions. They may scoff that it’s not realistically possible to make money from making movies, or that filmmaking is not even a proper business. Yet people do make money from filmmaking … often, consistently and very successfully! I therefore thought I’d write this article as one whose has friends that are successful film producers in Hollywood and who has experienced the business of film funding, from the inside.

Like any investment market, each film venture is very different from the next. Commercially, there are those that pay back in multiples, and there are those that never even get to completion. Add to that the unique financial mechanisms deployed in financing a movie and you have an investment environment that historically is navigable only by movie industry insiders. Typically, those insiders have three key steps to investing in the movie business, namely: Identify a winning film, structure the financial mechanisms to reduce risk and be at the front of the queue when profits are returned. But how do you do this if you’re not one of those insiders.

Well, the first step is to choose your sector. My view is that British Independent Film sector is one segment to watch. What is an independent film? It is a film that is not made by one of the major “Big-6”: Warner, 20th Century Fox, Paramount, Universal, Sony and Disney. Independent film studios typically, though not always, make films with a lower budget and intended to appeal to a specific audience. Why British? Well, British filmmaking has a unique place in the world, largely because of the sector’s strong cultural and audience impact. As well as consistently wining global recognition for both artistic quality and popularity with audiences. In 2015, 15 of the top 20 global films featured significant writers, directors or leading cast members who came from British independent film. Think of filmmakers like Guy Richie (Lock, Stock and Two Smoking Barrels), Steve McQueen (12 Years a Slave), Danny Boyle (Trainspotting, Shallow Grave), and actors like Daniel Craig (Layer Cake, the James Bond franchise) and Tom Hardy (Bronson, The Revenant).

Why invest. The glamour, mingling with VIPs and seeing your name on a film’s credits are undeniably exciting. But your investment still has to meet the critical goal: to make money. Independent film is comparable with venture capital when it comes to investment and when a film succeeds it does so substantially.

As to the myth that most films lose money, it’s pretty rare for a film to not break even, especially on the smaller projects that don’t require massive box-office receipts. Whereas big-budget productions are funded by major studios, independent movies are usually financed at a more micro level. This means sales don’t need to be huge to make a profit. In fact, an independent film can pay its investors back within months and then go on to make revenues from global sales, TV, streaming, merchandising and a host of other channels.

We have established that film widely recognised as a lucrative investment industry. However, many newcomers imagine massive financial rewards are only realised by blockbusters like Harry Potter or Star Wars, or lavish Oscar-winning dramas like The King’s Speech. While each of these is certainly a big earner, all required enormous budgets to make in the first place. The most profitable films of all time include such low-budget independent productions as: Mad Max, which cost $300,000 to make, Napoleon Dynamite which cost $400,000 to make, The Blair Witch Project which cost $60,000 and Paranormal Activity which had a budget of only $15,000. Of course, runaway success stories like those films are rarities, which is what makes them so outstanding. But even without taking such examples into account, lower-budgeted films are often better capable of delivering greater returns on investment than mid-budget movies or big-studio movies that need budgets of $100M or more.

Part of the reason film can be so commercially appealing is that, while in many cases a failed investment is simply a dead loss, a finished film is a tangible product. It will always exist and continue selling. After the box office, films go on to make post-theatrical sales to home video and video-on- demand such as Amazon and Netflix., it’s sold to television channels and in-house entertainment such as hotels and airlines. A film is constantly generating returns and, in many cases, gathering momentum in terms of reputation.

One of the prime advantages to investors in British independent films comes from the UK Government’s tax rebate. This is one of the key areas where risk is often reduced considerably and profits enhanced. Introduced in 2007, The Film Tax Relief (FTR) is available for qualifying British films that pass the cultural test of being produced in the UK or as an official co-production in the UK. One of the more common uses of FTR is to structure a fixed-term, fixed-interest, loan agreement for those film productions. Here the investor is typically exposed to less risk than investing into the equity of a movie and receives a fixed and guaranteed return, usually within a year, paid by the British Government. However, if you are looking to increase your financial return, then you’ll probably need to invest in equity. Unlike FTR structured loans, with equity you share in the long term rewards, rather than getting that Government secured fixed return no matter how the film preforms.

For the investor the overall key lies in securing the right arrangement at the outset. An investment could look something like: A fixed return loan of 13% secured against the UK Government’s FTR payment or it could be an equity investment, with a guarantee that once the film begins generating revenue, the investor is paid their principle back, with a share of the total returns thereafter. On a typical small production, with a budget under £3 million, the FTR interest and principal investment is typically set to be paid back within nine months to a year.

If you are looking for that higher return through equity investment you have to identify a suitable project. What then makes a movie project a winner? Looking at a few key areas early on should give you an idea of the viability of a project. Check the talent and track record. The film industry runs on reputation. Although a track record doesn’t guarantee the success of a project, having accomplished production professionals on board may give an indication that a film will not only be made and finished, but be high-quality to impress critics and attract large audiences. In an arena where around one out of ten producers have only made one film, always ask what the producer has done before. Who makes up the cast of the film? Who’s the cinematographer? What’s the director’s intention and vision for the film? What previous films have they made that were financial successes? What awards have they won in the past and does the studio have a solid background?. The investment opportunities portal www.aurum-wealth.com is a good start to see what’s out there.

For many newcomers, it’s easy to get dazzled into investing in a movie just because there is an actor you like starring in it. However, star appeal is only part of the equation. Although certain actors have a track record of bankability, it’s important to remember that no star is a guarantee of success, or the quality of a film. Acting is a job, like any other, and actors will often take a project just for the pay check. In some cases, an actor’s standard fee may be more than the entire budget of the production. Notwithstanding, when a film has a recognised actor or two in the cast it generally indicates they believe in the strength of the project, which naturally adds value to the production and increases its commercial prospects.

As with any investment, it’s wise to understand where your position is in the “financial waterfall”. Are you a priority lender secured against the UK Government’s FTR payment so get paid first on a fixed return, no matter how well the film does, or are you prepared to take equity in the film and benefit from the upside and the risk. Both can be achieved for a relatively modest investment, usually starting at £10,000. For those interested visit www.aurum-wealth.com, a portal listing alternative asset backed investments.

The bragging rights of being a film investor are hard to beat. Studios offer a range of perks, such as the opportunity to attend exclusive red-carpet events and premieres or set visits during filming. Here you get to meet the cast and watch your investment shape up before your eyes. Larger investors get their names credited as Co-Producers, get to meet big-name actors and directors and rub shoulders with movers and shakers at the BAFTAs. I know an investor that consistently invested as a Co-Producer, on FTR terms, in a number of films. He got guaranteed fixed returns, his name on all the film credits, attended all the events and, from that experience, now has his own production company. A great way to start a career in the movie business! I must admit that nothing compares to knowing you are part of a celebrated cinematic achievement.