Thursday, February 4, 2016

Risk Disclosure For Investors In Film And Television

A Private Placement Memorandum (“PPM”), also known as an offering memorandum, is a legal document that outlines the objectives, risks and terms of an investment in a private placement of capital.  It provides potential investors with valuable information about the risks associated with the offering, enabling them to make an informed investment decision.  It also serves to protect those making the offering, as full and accurate disclosure can protect them from liability down the road. 

In the film and television industry, risk disclosure is paramount, as very few industries have higher risks and higher rewards.  It truly is the “ultimate alternative.”  Consider the 2002 film “My Big Fat Greek Wedding,” which cost $6 million to produce, and grossed $369 million worldwide.  The film is among the most profitable of all time, yielding a 6,150% return.[1]  At the same time, countless films have been box office bombs, many starring A list actors.  Consider the 1995 film “Cutthroat Island,” starring Geena Davis, which lost approximately $105 million - the biggest financial disaster in movie history.[2]

Trailer: Cutthroat Island (1995) 

With so little predictability in the film and television industry, one can see why it’s in the best interests of both the potential investors and those making the offering to be upfront and clear about the risks of investing.  In addition to the customary risks of investment, film and television has unique risks that can be broadly categorized as follows:

  • Having an A-list cast, producer and/or director is no guarantee of success;
  • Risk mitigation tactics (film slates, for example) can prove ineffective;
  • Audience tastes cannot be predicted;
  • Marketing plans can fail;
  • Equipment can fail and technology can become obsolete;
  • Intellectual technology infringement (piracy) is a serious threat to profitability; and 
  • The unexpected can happen: terrorism, strike, inclement weather, serious injury/death.

In an industry so rife with risk, it’s necessary to seek counsel, whether you are the investor or the one seeking investment, from an attorney who is familiar with both entertainment and securities regulation.

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