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Reinventing Film Finance
Tue, 02/01/2005 - 02:00
Harvey Avidon from Boston Screen Partners talks about his new finance company that helps investors profit from independent film.By Randy Steinberg
From major corporate giants such as Mark Cuban and Roger Marino to more localized entrepreneurs like Mitchell Robbins, more and more investors traditionally unassociated with the film industry are funding and producing movies. Making motion pictures is no longer Hollywood’s exclusive province. In fact, in 2003 the box office revenue for independently made films checked in at around three billion dollars. These large revenues have attracted an ever-growing group of investors and venture capital firms to consider financing -- and profiting from -- motion pictures.
It is this trend on which Harvey Avidon and Boston Screen Partners hope to capitalize. "Individual investors can’t invest in studio films, and even if they could the profit margins on $50-$100 million films are scant at best," notes Avidon. "Despite the huge revenues derived from films, studios can actually claim net losses when all is said and done. The investor sees nothing. But a film financed by an independent producer stands a real chance of making money, and that’s why I started Boston Screen Partners, to convince investors that making profits in film is not just a movie fantasy. Big firms salivate over IPOs. I like to think of indie films as the IPO for smaller investors."
For 34 years Harvey Avidon’s interest in the movies was confined to the ticket he purchased at the box office. As head of Compliance in BankBoston’s (later Fleet Bank) Asset Management division, he was one of the area’s leading experts in fiduciary compliance and risk management. From investments in individual portfolios to mutual funds to private equity, Avidon oversaw the flow of billions of dollars. In October of 2002, all of that changed. Avidon left the banking world and set his sights on the movies.
Avidon’s leap from the corner office to the box office began when a relative in the movie ‘biz’ approached him and asked if he might want to oversee the production of a film in the Boston area. Avidon, a money man through and through, felt he could better serve his relative by raising funds and organizing the film’s financing. Another seasoned film-maker, Bill Ferguson (and his production company Paia Pictures), later joined the cause and Boston Screen Partners was born.
Incorporated in April of 2003, Boston Screen Partner’s mission is four fold. First, the firm seeks to make films within a budgetary range of $500,000 to $3 Million. "Films in this range," states Avidon, "are in the sweet-spot for investors seeking returns."
Hand in hand with this comes the second goal: Boston Screen Partners wishes to produce probing, artistic, indie-style films that are commercially viable both domestically and abroad. Third, Boston Screen Partners hopes to attract talented actor/directors with name recognition to the director’s chair. "We’re looking for respected Hollywood insiders, actors and directors with considerable episodic television experience, to come on board as directors for our feature films," Avidon says. Finally, and maybe most importantly, Boston Screen Partners seeks -- and already has secured -- meaningful ties to film distribution.
"It’s great to make a film," Avidon says, "but the distribution deal is critical if the production is to profit. Boston Screen Partners, through its producing associates, has strong ties to film distribution, and any film we make has a good chance of being seen."
Whom does Boston Screen Partners wish to court? The answer may seem an odd one. Harvey Avidon is going after venture capitalists and individual investors who have traditionally not looked at the motion picture industry as an investment vehicle. "Our business model, coupled with new, unprecedented tax benefits, is a winning combination," states Avidon confidently.
"What distinguishes Boston Screen Partners from other entities in film production and financing is my 34 years of experience in fiduciary risk management. I want investors to know that their interests come first. I feel it is my duty, as well as a matter of loyalty to put investors, who have given me their trust and funds, at the forefront of any endeavor. I’m energized by the idea of making movies and convinced that, at the end of the day, I can make money for investors on films."
According to Avidon’s business model, investors can expect a generous return on their investments, revenues equal to and perhaps greater than traditional speculation. Avidon stresses that financial markets are far from their heydays -- the late 1990s. Getting 10 times one’s money back on an investment is unrealistic for any venture capital firm or private investor in today’s market, especially in areas such as technology and real estate. Avidon notes that venture capital firms are increasingly looking for niche markets but have traditionally bypassed movies because of their risky history. Avidon wants to convince investors to reassess their assumptions.
"Funds allocated toward entertainment ventures grew 7 percent in 2004," says Avidon, citing a recent Boston Globe article. "In addition to a generous ROI, investors receive between 30 and 50 percent ownership of the project’s profits and residuals for the life of the film (industry averages estimate a 5-7 year span). All of our projects are subject to a private offering memorandum which spells out all the details. And of course, investors are entitled to the unquantifiable benefits of being involved with a film production -- that is, film credit, attendance at screenings, and participation in premieres and award ceremonies. Who wouldn’t want to hob-knob with stars and glitterati?"
Of major importance to investors considering investment in a film, a consideration that is likely to compel them to commit funds toward a movie, is the American Jobs Creation Act of 2004. The Act is a five-year law, which provides generous tax incentives to those investing in film and television productions.
Take a venture capital company investing 20 million dollars over the course of a year; if its 21st million goes toward a qualified film production in the United States and is completed within the calendar year, the VC can write off 100 percent of the investment. Depending on their bracket, they would receive up to a 36 percent deduction against their taxable, passive income (rental income, dividends, interest, etc.) Many firms, as well as individuals, struggle to shelter passive income. Now, it’s possible to invest in a film and write a portion of that expense off. And the best part is, the investor can profit on the film and only be taxed 15 percent on their share of the production’s net profits. Front and back end deductions and profits in the middle. (For a fuller explanation of the law, visit http://www.legalelite.com/Email/e-smoore-tax.htm)
It’s well-known that the United States loses many productions -- that means dollars and jobs --to Canada, Mexico, and other countries where the laws and tax incentives encourage investment in film. Now the tables are turned. Productions can remain here: that would mean more jobs, more revenue for local economies -- in short, more opportunity. And if Avidon’s endeavor is a success, Boston and New England will be among the first places to benefit.
In association with Paia Pictures, Boston Screen Partners has secured a distribution deal with a prominent cable network to air 10 episodes of a television series it has developed. The program, called "Hold the Rice," is the first dramedy to feature Asian-Americans. Once funded, "Hold the Rice" will begin production in June and air in September. Another project Boston Screen Partners seeks to finance is "Brother, Bruins, and Bartsools." This movie chronicles a fictional captain of the Boston Bruins who makes a Bill Buckner-like mistake during the playoffs and must live with the relentless fan and media criticism forever. The scourge passes to his sons (the brothers), who ultimately find the strength to overcome it.
Avidon believes that these projects, as well as others on the slate, will return money for his investors which would turn his local company into a national force. "We don’t want investors to have one good experience and call it quits. We want them returning again and again," Avidon states.
As he convinces investors that movies aren’t just a place to spend a few dollars on two hours of entertainment, Avidon believes that with the right management, a tight business plan and a cooperative tax climate, motion pictures can be a sound, profitable, and prestigious investment.
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