Marlett & Me: Film Finance III—Offering a Good ROI with a J-Lo

by David Marlett | Published April 16, 2009

Over the past several weeks, we’ve been doing a walk-through of film finance strategies, sorely wearing out the fishing analogy I introduced here and continued here. But, ah well… we press on.

So, in quick review: We’ve talked about who you want to approach and where to try to find them. Now the question is, what will interest them? What should the lure look like?

Before I go further, let’s get one thing clear: Fish are dumb. We trick them into biting a lure so that we can kill them and eat them. By making this analogy to fishing I am not implying that you see investors as something to be tricked, caught and taken from. That is the Madoff route. Not for us. We cool? The analogy is just that—an analogy. Obviously I mean no disrespect to investors. (It’s kinda dumb that I even felt the need to say that, but there it is.)

Types of Lures
So the lure. Whether you fish or not, you’ve surely seen a fishing aisle at a Wal-Mart. Tons of lures. Go to a sports store and you will see multiple aisles, and perhaps even a class on how to tie lures yourself. The key to lures is knowing the facts. What type of fish are you seeking to catch? What are the environmental factors (type of waterway, time of year, etc.) and how will you be fishing (boat, shore, pole, etc.)? Some lures are spinners and some sinkers. Some float on the surface like an insect landing to drink. Some wiggle, some even make sounds. There’s something for every type of fish and fishing environment.

Return on Investment
But for us, we’re creating one offering; one investment package. So it needs to have broad appeal… with “appeal” being the most important word. The key appeal to investors is Return on Investment, or ROI. Note that the second word is “on,” not “of.” Of course they expect a return of their investment. It is an investment after all, not a gift. When you put something in a safe deposit box, it is without question there to be retrieved by the owner. You must see the investors’ money as just that: Something deposited with you. It is effectively theirs all along. Of course they want it back. But if getting a return of their investment was the issue, they would simply use that safe deposit box and you would never get to make your movie.

What they want is a good return on their investment. Now, let’s return to fishing for a second. Let’s assume a worm is what the average fish wants. If you make a fake worm, make it large and tasty looking, but realistic. Fake worms are not tiny and scrawny. Nor do they look like big snakes. In other words, an exorbitant ROI does two things: Makes you look like an idiot at best (or a thief at worst) and it will only attract the very greedy or the very stupid, both of which are not good investors. Also, even if they do “bite,” you will most likely not be able to meet that promised huge ROI, and will be setting yourself up for allegations of fraud, etc. You don’t need that. What you need is optimal realism. Just like the fake worms. Make your offer reasonable, while also being one of the best around.

Offering a J-Lo
Let’s back up. What is the ROI for a film investment? It is money and other-than-money that the investor gets for having invested in the first place. Let’s start with money. Always consider the investor’s NBA, or Next Best Alternative. For most, that means an ROI of about 10 percent on a stock play (hard these days) or alternate investment (other industry, etc.). So you need to find a way to show them that they have at least 12 percent or so (annually) coming back to them plus the opportunity for enormous returns if the film does well. That last part is commonly called “back-end points” and is beyond the scope of this blog. But do know that they will be wanting a big, attractive back end. So, let’s leave it at 12 percent plus a J-Lo. If you can show more than a floor of 12 percent ROI, wonderful. The offering I use has a floor of 15 percent APR with a J-Lo. (A cousin to a money ROI is the tax shelter, or tax savings ROI. It is an inverse ROI, as the investment creates a tax savings for them. Again, beyond the scope here.)

Non-Money Perks
I mentioned “other-than-money” ROI. What is that? It is the set of intangible perks and benefits of investing in the film business, including access to the set and the actors, invitations to the premieres and parties and, often, an opportunity to appear in the film itself. Here is where a lot of young bucks go wrong. They over-emphasize this and come off sounding amateurish. Sure, this intangible ROI is important, but not nearly as much as the monetary ROI. Do offer it though. Remember, investors need to make money with their money. They want to know it is out there working even when they are on the golf course or cruising the Greek Isles. But they also enjoy talking about what they are invested in. And a mutual fund of health industry stocks doesn’t have nearly the sex appeal of talking about your movie, your stars or what they saw or did when they visited the set. Saying they are an executive producer is cool. So be sure and give them that Intangible ROI. Just don’t over-emphasize it.

Light Around the Follow Spot
I have directed 14 plays. One thing I’ve learned is the distraction of too strong a singular follow spot. If you bring the whole stage to black, with a lone spotlight on an actor, then yes, you have the audience’s attention… But they also can be distracted, wondering what is happening in the darkness that they can’t see. But keeping the upstage lights to a low level while spotting a key actor actually relaxes the audience and lets them focus on the lead more intensely. It is an interesting effect.

Of course, you completely black out the background when you intentionally want to hide a scene change, etc. But audiences know that too. So, be careful what messages you are sending. Don’t over-emphasize the non-money benefits of your film. Be sure they know about those benefits, but be sure they simultaneously are aware of how well you understand their need for a monetary ROI and a J-Lo.

Finally
Okay, is your head spinning? Let’s review: You are trying to build a realistic lure for a wide variety of fish. Be sure your investment offer has a strong monetary ROI, that is better than their NBA (Next Best Alternative). It’s very important to include a great back-end participation (a J-Lo). Also, include non-monetary ROIs such as access to the set, etc. But be careful not to make your monetary ROI outrageously large and thus look like a charlatan. Nor should you over-emphasize the non-monetary ROI, thus making them wonder what you are hiding.

if you want more detail, only do realize that I get paid for helping people raise money. I will give you some brief answers and clarifications, but please don’t e-mail me asking me to rep your film on a commission basis. (Yes, I have received many of those types of offers.) I have my own films I’m working on, day and night. Cool? Thought so.

The next entry will be the final in this series and will focus on how to present your pitch (use of the rod… so to speak). Ride on.

David Marlett is a writer and director currently producing and directing the feature film, Of Kings & Cowboys. Marlett’s desire to direct and control his own work led him to create BlueRun Productions in 2007. He’s been acting for most of his life, and is also a non-practicing (“recovering”) attorney and CPA, with 20-plus years experience consulting and managing a wide assortment of companies in industries spanning from healthcare to entertainment. The upcoming Spring 2009 issue features his latest installment of his print column, Marlett & Me, with this sister blog on MovieMaker.com.

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COMMENTS | POST A COMMENT

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Comment by Acai on 6/04/09 at 8:45 am

a 12% ROI sounds pretty sound for the work they do. I think the stats are pretty interesting when you look at them as a whole.

Comment by EasyGoodHealth.com on 6/17/09 at 2:03 pm

I have to agree, at 12% ROI that is very sound. Thanks for the great and interesting read.

Comment by Lose stomach fat fast on 6/23/09 at 3:18 pm

12% isn’t bad, I usually aim for 20+ though.. different businesses change though

Comment by martin on 6/25/09 at 2:57 am

Hi David, like J-Lo their is nobody...she is soooo cute and gorgeous....she will definitely bring the Huge ROI....

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Comment by iva on 8/18/09 at 8:18 am

Very interesting reading. I wonder you are a director and writer and with 20-plus years experience consulting and managing a wide assortment of companies in industries spanning from healthcare to entertainment. While a commentator asked about the mobile phone investment. May you advice for the finance sector as well?

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