Independent Films’ Overlooked Place In Alternative Investing

Entertainment financing lacks what other alternative asset classes benefit from, such as public indices, standardized comparable-deal data, and accessible packaged products that advisors can present to clients. Historically, this sector has seen both highs and lows, but recent data suggests a return to more organized growth.

Fortunes have been made and lost in films, and the financial dramas can be as captivating as those on screen. How does this fit into the alternative investment space, and what should investors be aware of?

This article, authored by Michael Gordon Bennett, a seasoned writer, director, and producer with three decades of experience in independent film and television, delves into the business of film financing and associated investment opportunities, including tax incentives. Gordon Bennett also shares insights on film financing and capital formation through his Substack, Capital Meets Story.

The information presented here is courtesy of guest writer Michael Gordon Bennett; typical editorial disclaimers apply.

To engage in discussion, please reach out to Tom Burroughes or Amanda Cheesley.

Michael Gordon Bennett

In my research on how family offices have approached entertainment investments over the years, I encountered two articles published in 2013 and 2014. One discussed tax incentive-driven film investment structures, and the other profiled a fund providing secured debt against film and television productions rather than relying solely on box office performance.

Both articles argued that film investing didn’t have to be a gamble, as structured approaches and government incentives could make this asset class genuinely investable rather than speculative. However, interest in this subject faded, and understanding the reasons behind this is crucial, as they stem from genuine industry complexities rather than overlooking the obvious.

Entertainment financing lacks fundamentals that other alternative asset classes have, such as a public index, standardized comparable-deal data, or a packaged product for advisors to offer clients. Instead, the industry consists of a fragmented community of specialty lenders and sales agents, each with their own underwriting criteria, terms often kept confidential, and rarely benchmarked against any comparables. Access has historically derived more from personal relationships than from an efficient capital allocation toward favorable risk-adjusted opportunities. Crafting a due diligence-driven narrative about an asset class functioning this way is inherently challenging.

Data from film researcher Stephen Follows illustrates this caution; nearly 60 percent of independent films released theatrically from 1999 to 2018 failed to recoup their costs. His analysis excludes straight-to-streaming and television releases, which have increasingly become a significant distribution method for independent films but come with a different economic profile.

On the other side, government production tax incentives offer a contrasting reliability. For instance, California’s Program 4.0 currently provides a 35 percent refundable credit on qualifying expenditures under a $750 million annual cap, while Georgia disbursed $1.08 billion in transferable film tax credits in fiscal year 2024 alone. These incentives are real, statutory, and exist independently of a film’s commercial profitability.

As for returns, standard equity deal structures in independent film typically allow investor recoupment at 110-120 percent of principal before any backend profit split. This modest premium is contingent on the film generating enough revenue. Comparatively, structured notes—financial instruments that offer a guaranteed return floor combined with market-linked upside—typically yield between 0 to mid-teens annualized returns under favorable market conditions, providing an essential benchmark.

The institutional interest in entertainment financing has been notably volatile. Private equity and venture investments in movies collapsed by 73.5 percent from 2022 to 2023, dropping from $10.46 billion to $2.77 billion across 142 deals, as reported by S&P Global Market Intelligence.

Yet, recent movements indicate a shift toward a more structured phase. Robertson Stephens Wealth Management recently highlighted a trend of sophisticated capital entering media through structured equity partnerships, ensuring negotiated downside protections and governance rights. Moreover, FilmHedge has introduced a joint venture film and television fund with a New York asset manager, addressing pre-sales and government tax credits, thus reframing entertainment investing as both a wealth preservation and tax strategy.

However, it is essential to understand what these developments mean. FilmHedge, like most lenders, necessitates real collateral before offering loans, such as secured tax credits or pre-sales. While this approach is a significant improvement over historical financing methods, it is confined to later stages in the financing process. It often overlooks the challenging initial phase—securing funding to reach a point with collateral, like a locked script, attached talent, or a viable budget.

This earlier stage has created an unsolved trust issue within independent film financing for decades, remaining largely untouched by recent institutional interest. Advisors should note that much enthusiasm for entertainment financing is directed at larger studio-scale endeavors, often involving substantial private equity commitments and prominent deals. Because of their size, these projects gain visibility, but there is no correlation between visibility and return on capital.

A low-budget film only needs to recover a fraction of its budget before generating profit and doesn’t compete for the same audience as a nine-figure production. The opportunities in entertainment financing may reside within the smaller market segment, which has been overlooked as capital has failed to structure itself properly for this tier.

In recent years, I have focused on developing a strategy aimed specifically at this earlier stage. This involves treating capital protection and packaging-stage risks as separate challenges rather than a single bet, employing mechanisms independent of any specific film’s outcome. This concept appears to align with the directions indicated by the earlier articles.

I wanted to express this update on the state of independent film financing and extend an invitation to those considering entertainment investments as part of a family office or high-net-worth portfolio, to engage in conversation.