Alt Investments

GUEST OPINION: Investing In Film - Time For Another Take?

Kirsty Bell Nyman Libson Paul Partner London 17 December 2013

GUEST OPINION: Investing In Film - Time For Another Take?

Kirsty Bell, partner of Nyman Libson Paul, explains how measures like better finance structures will encourage more investors to get involved in film.

accountancy Nyman Libson Paul has specialised in managing the financial affairs
of the entertainment industry for 80 years, and is now using that expertise to
launch a series of film EIS vehicles under the banner of “Goldfinch Pictures
Ltd”. Here, NLP partner – and successful filmmaker – Kirsty Bell explains how
measures like better finance structures will encourage more investors to get
involved in film.

Film investment badly needs an image overhaul – and not just so that the
vibrant film industry can continue to thrive. Most clients and advisors will
know that film investment is strongly supported by government tax incentives.
What they may not know is how far filmmakers are rolling out the red carpet to
attract investors. Innovative finance structures are turning the old ways on
their head, meaning that clients can invest in film with more confidence than
ever before.

As someone who is passionate about UK film as well as being a tax
specialist, it pains me to see how misunderstood film investment is. Some
associate it with tax evasion while others see film projects as mere vanity
investments akin to black holes swallowing up endless capital with precious
little hope of returns.

There’s no denying that film investment has had some pretty poor press
over the years. Tax breaks rolled out in the 1990s were abused by some parties
and just last year certain celebrities hit the headlines over dubious film
investment schemes. But while tax planning and film investment continue to be
mentioned in the same breath, today it is for all the right reasons. To put it
bluntly, pre-2007 some film finance schemes were about “playing the rules” on
tax. In contrast, the EIS, Seed EIS and tax credit incentives taken advantage
of today are entirely legitimate. In fact, HMRC smiles on tax-incentivised film
investment to such an extent it is probably the most supported industry in the UK today.

The tax incentives prompting high net worth investors to invest in EIS
vehicles are certainly very generous. They also go a long way towards mitigating
investors’ fears of losing money. The income tax relief for EISs has been
raised from 20 per cent to 30 per cent, meaning that the government is
essentially funding almost a third of any EIS investment. Furthermore, higher-rate
taxpayers can obtain loss relief of up to 65 pence in the pound, which
effectively gives them a government-backed safety net should investments not

These tax breaks offer a good deal of reassurance, but savvy EIS firms
(and film production companies) are going much further to allay investors’
concerns. They are building investor protection into the finance structure from
the off and making sure that equity investors are first in line to get paid –
not, as has often been the case, at the bottom of the pile.

Equity investors often step in towards the end of a project to save the
day, providing the capital to ensure a film in post-production has a score or
creating a distribution budget which will ensure a finished film is actually
seen by audiences. It is therefore pretty ironic just how poorly investors are
sometimes treated in return – even in the case of angel investors who fund a
big chunk of a project. Their money is swallowed up and they have little notion
of when, or even if, they will see a return. A project may be wildly successful
and yet investors may not see any upside for a long time. This is the
antithesis of our approach, and of the production companies we work with.

Last in, first out

Put simply, the way we structure our film deals ensures that our
investors are “last in, first out”. We put them in first position on the
recoupment schedule and build in mechanisms to make sure they get paid back
straight away. As part of government moves to encourage film production in the UK, production
companies can claim a 25 per cent cash rebate when making films with a budget
under £20 million. Under our EIS these tax credits come straight back to
Goldfinch Pictures, as do the pre-sales contracts up to the amount Goldfinch
has invested in the project. This way we ensure clients’ money is recovered (plus
a premium, hopefully).

It would be easy to assume that production companies begrudge us these
terms, but nothing could be further from the case. They are looking for repeat
investment and know that fostering investor confidence is the only way to
secure it. The fact that the flagship Goldfinch EIS will only be providing gap
funding means that its investors really will be the final link in the chain.
The production companies we work with rightly want to recognise that
contribution by offering investors as much certainty as possible. The £50,000
($816,722) minimum investment EIS vehicles typically ask of investors may be
relatively modest, but it is still a sum one would want to feel secure about
seeing again.

Greater transparency and more intelligent structuring is undoubtedly
where film investment is heading. What the film and finance sectors now need to
do is get the message out there that, while the world of film might be fickle
and unpredictable, investing in it doesn’t have to be. Many investors are drawn
to film EISs because they want to get involved creatively in the industry, and
this certainly happens, but I always counsel clients to think of film assets
and finance structures in the same light as any other. The investment case
needs to stand up in its own right, and to our mind that means prudently
investing in a diversified portfolio of projects which have a reasonable chance
of success – rather than betting the farm on the next runaway hit. Some very
well respected figures in film sit on the board of Goldfinch, but even with
that expertise we remain cautious. 

Realistic return expectations, strict recoupment covenants and sensible
diversification may seem a million miles away from the glitz, glamour and
creative passion associated with the film industry – but this is the only way
film investment will regain its shine for investors. Done well, film EISs can
be incredibly useful investments for HNW individuals. The continued growth of
the UK
film industry depends on more of them knowing that.

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