Chapter 1928 Platter Investment

For many years, the United States has been very cautious about foreign investment in the film and television production industry. It was precisely because Legend's performance coincided with a downturn that the consortium from country Z got the opportunity to buy it and became the new owner of Legend.

According to Big Laowang's habit, when he bought Legend, he definitely not only wanted to carry out capital operations, but also hoped to bring IP to the Z country market to make money just like acquiring sports companies such as Infront and Ironman.

In particular, Monster Matrix, owned by Legendary Pictures, plays a positive role in this era of blockbusters that promotes big IPs. Without this capital, Big Pharaoh would not have set his sights on Legendary Pictures, which even his grandma did not recognize.

Moreover, the box office market of country Z is still growing, which often drives up the price-earnings ratio of listed production companies and turns IP into income. This is also a method that the capital market likes to see. This is also the price that Big Lao Wang dared to spend tens of billions of soft sister coins to win The foundation of the legend.

Not only that, Legendary Pictures is a company worthy of its name. This company’s history is not as long as Universal, Fox, and Paramount. Maybe not everyone is familiar with it, but it is very special in Hollywood. A film studio, especially how it operates.

First of all, we must know where does all the money for Hollywood movies come from?

These are actually several important turning points in the development of Hollywood.

It goes without saying that it started with its own funds and bank loans. It goes without saying that the film company made money from the box office and then invested it in the reproduction of the movie.

Borrowing from banks has been around since the beginning of Hollywood, which has been borrowing money from Wall Street bankers since the days of Edison and Griffith.

It is also very easy to understand that you take out a loan to make a film and pay back the principal and interest with the money earned.

But there are too many projects launched every year, and banks alone are not enough. Therefore, in addition to banks, Hollywood will also look for other external capital. This practice also has a long history.

Famous cases of external investors include: the newspaper tycoon Hearst family, the famous Kennedy family, including the real-life Iron Man Howard Hughes, and later Microsoft co-founder Paul Allen, etc. They have all invested in Hollywood, but Until the 1970s, outside capital was only a small supplement to Hollywood.

In the 1970s, "Jaws" and "Star Wars" ushered in the era of super blockbusters in Hollywood. Film investment costs rose rapidly, the business risks of the film industry increased sharply, and the demand for financing also greatly increased.

Relying entirely on self-owned funds and bank capital seemed to be a stretch. After all, there was a time when several major traditional film companies were being acquired by comprehensive media groups.

The group company does not pay attention to the film business, thus reducing the investment of its own funds. Moreover, the low-risk tendency of commercial banks can no longer meet the requirements of the Hollywood capital market.

At exactly this time, the federal government introduced a tax discount policy for film investment, which greatly encouraged domestic and even European private investors to enter the film capital market in a large scale.

However, preferential tax policies cannot last a lifetime, so in the mid-1980s, the Reagan administration’s major tax reform abolished preferential policies for investment in movies. In addition, individual investors had inherent deficiencies in the scale of fund raising and risk resistance. Institutional investors quickly replaced these wealthy private individuals and became the main external investment entities in Hollywood. Driven by institutional investors, a large number of insurance funds and retirement funds also entered the field of film investment.

So in Hollywood in the 21st century, a proper term appeared - platter investment.

Of course, before that, we need to clarify a concept: Are Hollywood companies, especially the Big Six, really short of money? Is it really necessary to attract external funding?

In fact, the answer is somewhere in between, but in comparison, making money with other people's money is the essence of investing.

In theory, film companies can of course rely entirely on their own funds to shoot movies, and since the 1990s, the huge profits from secondary recycling channels have been enough to support film companies in shooting super blockbusters with a scale of 100 million yuan. However, without exception, all film companies still rely on Seek investment from outside.

There are many reasons, such as sharing risks, increasing the number of starts, crying poverty to get stars and agents to reduce their salaries, etc., but the main reason is that the cooperation between film companies and external investors is a completely unequal treaty, even if Both parties invest equal amounts of money, say 50/50, but the film company ends up sharing much more profit than the outside investors.

This is because, from the box office receipts of a movie, the distributor must first deduct 10-15% of the total box office as distribution fees and other marketing expenses, and then share them equally with external investors. This certainly seems fair. , but for film companies, collecting distribution fees turns a risky thing into a relatively guaranteed income, coupled with various accounting strategies. In short, introducing external investors is a great thing for Hollywood film companies. Good things to do to make more money and reduce risk.

Why not?

Since the film company hopes to find external capital, and external capital is also looking for investment opportunities, the two parties naturally hit it off.

However, hedge fund managers basically do not have professional knowledge of the film industry, and it is impossible to evaluate the profit prospects of each film project one by one. Wouldn't cooperation be inefficient?

At this time, Paramount took the lead in finding a very clever way.

Since it would be too troublesome to evaluate each one one by one, why not package them together?

So Paramount lobbied securities companies and said this: Paramount’s internal rate of return has been stable at more than 15% over the years. If you look at your hedge funds, the internal rate of return is almost 12-18%. Then ours The rate of return is almost the same, so we can work together.

When hedge funds such as the well-known Merrill Lynch heard that this was really the case, they went for it, so they signed a contract with Paramount and decided to invest in Paramount's 26, which was to be filmed in 2004-2005 through an intermediary. of the popular projects "War of the Worlds" and "Mission: Impossible 3", accounting for 18% of the investment, and correspondingly sharing 18% of the profits.

This agreement guarantees that Paramount will withdraw 10% of the total box office in North America as a distribution fee before settling with Merrill Lynch Investment Group. This is actually the secret of Paramount’s high internal rate of return, so in fact the share received by Merrill Lynch is definitely not that high. More, this fund sponsored by Merrill Lynch raised US$231 million, which finally accounted for 20% of the total equity, 2 percentage points higher than the original plan of 18%.

This is the so-called platter investment, which packages all your projects for a whole year or a period of time, and directly calculates the total income, which not only facilitates Hollywood companies to do accounting, but also facilitates financial companies to recover principal and harvest profits with lower risks.

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