It seems like a sweet payoff to invest in films these days. Take for example the the hit comedy “The Hangover”, which cost $35 million to produce and earned $242 million, or the whopping $200 million the film “Paranormal Activities” brought in, costing only $15,000 to produce. Not all movies are that lucky however, and investing in a movie is risky business, as many Hollywood films — 60 percent or more according to industry experts — are a flop, or more commonly known in the industry as “box office bombs.”
Lebanon’s FFA Private bank, undaunted by stage fright, has recently joined the ranks of Hollywood financial backers by investing in the three-dimensional animated movie “The Prophet” based on Khalil Gibran’s best-selling book.
“It is a risky business, but it is also highly lucrative if you know what you are doing and if you hit the right movie,” says Julien Khabbaz, head of investment banking at FFA.
With a $12 million budget, the Prophet is expected to hit the big screens by the end of the year. It will be produced by Salma Hayek’s production company, Ventanarosa Productions, led by Roger Allers, director of the highest-ever grossing two-dimensional animated movie, “The Lion King”, which took in nearly $1 billion worldwide.
Other investors include Financière Pinault, the holding company owned by Hayek’s husband François Pinault. Brothers Haytham and Naël Nasr of Mygroup Lebanon are also investing in the movie and brought the opportunity to the FFA. Given FFA chairman Jean Riachi’s personal friendship with François Pinault, “the trust was immediate,” says Khabbaz.
By committing 30 percent of the budget entirely with equity, FFA is the largest stakeholder in the movie. The bank sees the movie doubling its investment in the next three years by generating at least $24 million, with a more optimistic scenario forecasting $36 million or more in revenues. With a minimum ticket of $50,000, FFA’s investors expect to receive returns in perpetuity — think DVD sales — with the majority of the profits anticipated in the first 18 months after the movie’s release.
The film, which will be produced in Los Angeles, does not benefit from any tax breaks, and with no distribution deal secured and no pre-sales completed, this is a high-risk investment. When asked if they are hedging against the movie bombing, Khabbaz replies: “there is no real hedge against flops — people will either go watch the movie and like it, or they won’t.” FFA is betting on a renowned script based on a book that sold more than 100 million copies worldwide, and a solid production team.
While it is not FFA’s first venture into the movie industry, it is the highest profile one. Its previous venture came to naught when the bank had to recently pull out of investing in “Mary Mother of Christ” starring Al Pacino, as conditions set forth by FFA to the producers were not fulfilled in a timely manner. Its only other international movie endeavor was for a French movie “Cloclo”, in which it invested 10 percent of the €20 million ($26.5 million) budget. FFA has also invested a small amount in a Lebanese movie called “39 Seconds” by Nibal Arakji, due to be released in a few months.
In the volatile markets today, turning to alternatives such as movie investments is becoming more appetizing. FFA did look at investing in movies through funds in order to mitigate the risk, but in the end found little demand in the region for a movie fund. “When you tell clients ‘lets invest in a fund that is doing several movies’, you lose the excitement, it is very personal as an investment,” says Khabbaz.
When asked whether FFA intends to invest more in the movie industry going forward, he replies “definitely.”
