Low-budget film investing: Real and reel of a 'lucrative' opportunity

With stock markets on fire and fixed income yielding boring returns, many investors are being pitched new and exotic asset classes to diversify risk. One such sales pitch begins with a question: Do you know what is common between B.A. Pass, Style, Gangs of Wasseypur – Part 1 and Dum Laga Ke Haisha? These were films made on ultra-thin budgets but turned out to be big commercial successes. "These are only a fraction of the successful low-budget Hindi movies; there is a huge list of titles in regional cinema that have done the same," the pitch goes on.

While investing in big-budget movies remains out of reach for most of us, the advent of digital platforms that connect filmmakers with investors, and over the top (OTT) players like Netflix, Amazon, and Hotstar have undoubtedly changed the game for low-budget cinema. While successful investments can generate above-market returns over 12-24 months, not all is fairy-tale, say experts. DNA Money brings you the good, the bad and the ugly.

Small ticket- Film financing is an investment space where returns can be good. While big budget movies do not allow an average person to invest, low budget films made by relatively new filmmakers require funds. For amounts ranging from Rs 2 lakh to Rs 15 lakh, investors can bankroll such projects that fully cost Rs 1 crore to Rs 5 crore.

However, low budget movies have big problems. "First of all, such films do not have ticket sales. The satellite or cable rights income source is also non-existent unless it becomes a huge hit. Music rights income is non-existent too. An OTT player can offer them some money, but will it generate profits? You know the answer," says an ad-film and motion picture director Aritra Mukherjee. Without a big star, script and story-telling have to shoulder the responsibility of making it a reasonable commercial success.

Platform power- Some investors have already badly burnt their fingers with 'film fund' investment vehicles, a rage back in 2005-2010. Today, digital platforms like Wishberry and FundMedia etc., have cropped up and they want to connect investors and content producers. While an organized approach to nurturing a financial ecosystem for film financing is good with help of film curation, portfolio approach and having robust legal contracts, making a profit is still the toughest job.

Revenues are the biggest source of worry, and OTT players are not paying much. "One cannot hope to recover your money in a film thinking that an OTT platform will come in handy, unless its a micro-budget film (Rs 25 lakh)," says filmmaker Aditya Kripalani, best known for his movie 'Tikli' and 'Laxmi Bomb'. Instead of dealing with individual producers, digital platforms can help investors demand transparency and accountability through a focussed approach.

Investment protection- Film investments have a significantly shorter liquidity cycle compared to other risky assets like start-up investments or real-estate. The gestation period is about a year for domestic box office run and two years if there is an international launch. With a high profit-share of 60-70% for investors' in low-budget movies, it is a lucrative bet if everything goes right.

While investors are positive on film investments as an asset class, returns do not always match expectations. Benaifer Malandkar, chief investment officer at RAAY, the family office of the Amit Patni Group, says: "We have explored the low-budget cinema space. Our investment in Poorna (a hindi language biographical adventure film directed by Rahul Bose), which got critical acclaim, however, did not deliver on the financial return parameters. While we continue to consider proposals when they come, reality TV content is a much more interesting space at the moment."

Points to ponder upon- It can be stamps, paintings, horses, wines or any other exotic investment arena, but the rules for evaluating them are same. Anil Rego, founder of financial consulting firm Right Horizons, says whether the asset is regulated or not is very important.

"Regulation ensures stability, compliance, and systems. Next, find out how pragmatic are the investment return plans and what are the ways to generate those returns. Figure out the entry and the exit strategy. Legally enforceable documents are important. Lastly, pay attention to the total cost of returns," he said. Now that you armed with all this knowledge, don't get starry-eyed the next time somebody talks about film investments.

BLOCKBUSTER DREAMS

• Film investments have a significantly shorter liquidity cycle
   
• Digital platforms like Amazon, Netflix and Hotstar have changed the game for low-budget cinema
   
• While investors are positive on film investments, returns do not always match expectations