Forbes Magazine: Panning For Silver Screen Gold: How To Invest In Films

Whoopi's Gold: The actress with financier Wade Bradley of Media Society, a company that lets aspiring executive producers invest in movies for a minimum of $150,000 apiece.

By Zack O'Malley Greenburg | Forbes Magazine

On a chilly afternoon last autumn Whoopi Goldberg found herself wandering toward a group of strangers in a tiny Appalachian coal-­mining town, preparing to thank them profusely.

She was in Big Stone Gap, Va. to shoot a film of the same name (based on the novel by her friend Adriana Trigiani) alongside costars Ashley Judd and Patrick Wilson. The unfamiliar faces, perched behind monitors that allowed them to see everything the cameramen saw, belonged to the film’s financial backers. Goldberg introduced herself and expressed her gratitude to the starstruck group for giving her the job.

“I’m always glad when anybody invests in cinema,” says Goldberg a year later, recalling the episode from the lobby of ABC’s Manhattan studios. “It’s not easy, and Adriana waited 12 years to get this made. And I wanted to thank them.”

In the case of Big Stone Gap, the “anybody” is a group called Media Society. Founded in 2012 by venture capitalist Wade Bradley–an early investor in companies like Learning.com, Anvita Health and SnapNames, which invented the back­ordering of Web domains–the company aims to help accredited investors plow money into promising medium ­budget films.

For a minimum investment of $150,000, these fledgling executive producers can become partners in a slate of three to five projects. Bradley, who says he’s raised more than half his goal of $73 million for the first batch, promises he’ll pay back each of his 90 or so current shareholders 115% before taking a penny himself; after that he and his company take 17% of profits. The investors get the rest, as well as a K­1 on tax day.

“What I liked about the entertainment industry is that it’s very, very similar to venture capital, in that everything is a startup,” says Bradley, 53. “From a venture capitalist’s point of view, it’s brilliant. … You bring these 150 people together for maybe six to eight weeks. They build the product, and then they all leave.”

Like the startup world, it’s also very risky. Hollywood is littered with the carcasses of scripts that never got filmed and flicks that flopped at the box office. Bradley knows as well as anyone: His first attempt at this business model, a company called IndieVest, not only produced two duds (Saint John of Las Vegas in 2009 and Knights of Badassdom in 2013), but he also got taken to arbitration by three disappointed investors.

“Sometimes it works, and sometimes it doesn’t,” says Goldberg. “And I think it really is about who’s putting the money in and whether they realize that it’s not a guarantee.”

Still, wealthy entrepreneurs have been swaggering into Hollywood with grand plans for decades, often with great results. Billionaire former eBay president Jeff Skoll launched his own company in 2004 and went on to produce Syriana (2005) and An Inconvenient Truth (2006). Larry Ellison’s children produced the Coen brothers’ True Grit (2010) before they turned 30 and are now both Tinseltown titans in their own right: Megan Ellison’s resume includes Zero Dark Thirty (2012) and American Hustle (2013), while David Ellison has the latest installments of Mission: Impossible (2011) and Star Trek (2013).

Not everyone has access to such vast sums, but there are more ways than ever for non-billionaires to invest in film. Thanks to the advent of crowdfunding, wannabe film producers can back projects for a few dollars instead of a few million–and not just whimsical projects by your neighbor’s teenager. Spike Lee raised over $1.4 million for his latest film on Kickstarter; Zach Braff racked up more than $3 million for his.

In those cases, to be sure, the maximum return on investment leaves much to be desired, at least from a financial standpoint. For Lee’s flick, the entry-level payoff is a thank-­you tweet ($5), while the most expensive is an evening at a Knicks game with Spike himself ($10,000). For Braff’s, rewards begin with video memos ($10) and top out at a one-­line speaking part in the film and tickets to the premier (also $10,000).

For many investors in the space the perks are the payoff–or at least a big part of it. Ivan Williams, a longtime oil and gas executive who invested about $150,000 in Bradley’s slate of films–and was there for Goldberg’s greeting–says his decision was based on both “the opportunity for significant returns on my investments” and “the whole other experiential aspect that I certainly don’t get with my investments in Coca­-Cola and Alcoa.”

Those steady returns aren’t easy to achieve, but they are often accomplished by producers who target films in the vast space between low­-budget indies and nine-­figure Tom Cruise flicks. Bradley’s company seeks out projects that have eliminated a great deal of uncertainty from their bottom lines with the help of tax credits and foreign presales. He says he’ll take a risk on no more than a 15% share of the production costs when backing a larger film.

“We have a determined list of elements that we need to see in place before we’ll actually fund a project,” Bradley explains. “And when we have all these elements in place, then we fund.”

With a brand-­name cast, a budget of less than $10 million and a 37.5% tax rebate from the Commonwealth of Virginia, Big Stone Gap is a reasonably safe bet. The project fell into Bradley’s lap last year after its initial financing fell through. Fortunately, its Oscar­winning producer Donna Gigliotti (Shakespeare in Love, Silver Linings Playbook) had met Bradley eight months earlier and sent him the screenplay. Says Gigliotti: “In the span of two weeks I went from having zero to having the film fully financed.”

For investors desiring a deeper Hollywood experience than the one offered by Bradley, there are many role models of outsiders who’ve made new careers for themselves with medium­-budget films. Relativity Media founder Ryan Kavanaugh went from hedge fund wunderkind managing $200 million to movie mogul billionaire in barely a decade, thanks to films like The Fighter (2010) and Safe Haven(2013).

Veteran producer Jim Stern majored in directing in college and got his start working on Broadway before starting Stern Joint Venture, a fund of funds. His success in those arenas allowed him to move to Los Angeles to pursue his original dream; in 2002 he founded Endgame Entertainment, which  produced and financed smash hits from Hotel Rwanda (2004) to Looper (2012) on moderate budgets.

“The film business, if it’s done the wrong way, is risky,” he says. “If it’s done the right way, it’s not risky. … If I’m making Looper, and it’s a $35 million film, I’m setting it up so that our risk is de minimis because we have foreign sales, because we have tax credits, because we know that with this cast, there’s an underlying value domestically.”

Stern notes that, even on a film with a mid-range budget, there could be room for a well­-connected outsider bringing as little as $500,000 to the table if there is a gap between the budget and guaranteed money from foreign presales and tax credits. He recommends that wannabe film financiers start by testing the waters, investing a sum they’re comfortable losing before diving headlong into the business.

It’s possible, if risky, for Hollywood newcomers to develop and fund films on their own, right off the bat. Gabriel Hammond launched the first-­ever MLP index and sold half his business to Oppenheimer for undisclosed millions in 2010; three years later he teamed with younger brother Dan to launch Broad Green Pictures. They fully funded two films that premiered this year, Break Point and Learning to Drive, and purchased Andrew Garfield’s 99 Homes for $3 million. They plan to hire 30 to 40 more people and make or acquire 7 to 15 films per year.

“There are people who will have one skill set or another honed, but they’re all doing this because they love the business,” says the younger Hammond. “Even people who are just doing the finance, it’s because they really want to be a part of it.”

Of course, that attitude can change quickly if a film flops. Bradley is still contending with claims from investors who lost money on projects funded by IndieVest. But, as one must in Hollywood, he’s forging onward with the rest of his slate and plans to invest more Media Society dollars in a horror film and perhaps a romantic comedy in the coming year.

And then there’s Big Stone Gap, which premiered at the Virginia Film Festival: the story of a thirty-something spinster (Judd) who runs a pharmacy in a Virginia coal-­mining town–until a family secret completely alters the course of her life. It’s still in negotiations with distributors for a large theatrical run, but that doesn’t faze Goldberg, who seems to have already gotten the desired return.

“The people who gave us the money to make the movie allowed us to make not just a great movie but a beautiful movie,” she says. “It looks lush. And when you have the right people, maybe you don’t need a gazillion dollars.” One hopes that for Bradley, that’s enough for his investors. It might have to be.