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Investors who are film buffs have a number of avenues for investing in movies and the film industry, including buying stock in entertainment companies, crowdfunding individual movie projects, and more. It’s important to keep in mind that while Hollywood is seemingly all glitz and glamour, many films are financial failures, which can hurt an investor’s bottom line.

Investing in film is considered a type of alternative investment — similar to real estate, commodities, collectibles, and such — because these investments fall outside the realm of traditional stock and bond markets. Film investments, like other alts, can offer some portfolio diversification, but also come with specific risk factors.

Note that SoFi does not currently offer film-related investments, but offers alternative funds that provide access to commodities, real estate, hedge funds, venture capital, and more.

Ways to Invest in Movies

There are a few primary methods for investing in movies and the entertainment industry, including buying stocks or equity in production companies, investing via crowdfunding platforms to support specific projects, or investing in film funds that help budding filmmakers gain traction in the industry.

While investing in stocks of public film companies, or companies that produce equipment or technology relating to film production, would fall under the umbrella of traditional investing, crowdfunding and film funds would generally be considered alternative investments.

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Alternative Investments

As noted, alternative investments fall outside traditional markets. Alts include tangible assets like commodities, real estate, art and antiques, as well as other collectibles (e.g. books, toys, comics) and many other types of investments.

While they’re generally high risk, alts can offer potential upsides: e.g., higher returns compared to stocks and bonds, and sometimes the opportunity to earn passive income. That said, alternative strategies are typically illiquid, not well regulated, and lack transparency.

For investors interested in a wider range of opportunities — or seeking diversification — understanding the definition of alternative assets can offer some options.

Film Production Companies

Perhaps the easiest way for many investors to make an initial investment in the movie industry is to buy stocks of film production companies, or those that support the industry. This allows investors to directly own a piece of the companies that are producing movies and TV shows, and more.

Many, if not most large studios are publicly traded. And it may be possible to invest in private companies, although those types of investments require accredited investors.

Further, investors could also consider investing in larger companies that own movie production studios or capabilities — think companies like Disney or Amazon, which are active in the entertainment industry but also have other arms that drive revenue.

It’s also possible to invest in movie theater chains, which can also help investors gain exposure to the industry.

Note, of course, that investing in stocks of any type carries with it numerous risks, and that investing in the entertainment industry, specifically, can have its own risks.

Crowdfunding Platforms

Another relatively low-key way for investors to gain exposure to the filmmaking industry is via one of the crowdfunding platforms, which can allow you to invest in specific film projects. For instance, if there’s a movie you really want to see produced, the producers might solicit investment on a crowdfunding platform to generate the capital to get it made. And investors could, in that hypothetical scenario, invest in the project.

Crowdfunding platforms can be very niche, too, aiming to fund films or projects within specific genres. There are multitudes of crowdfunding platforms out there, each with its own terms. Investors should carefully vet the platform, as well as the project they might invest in, to assess factors such as:

•   How long your money might be locked up

•   Repayment terms

•   Percentage of profits

•   Fees

•   Legal or contractual restrictions

Investors should be aware that crowdfunding projects are typically very risky, and that there’s a good chance you will see little return for your money, if you see any at all. Unless your investment is seeding the next hit film franchise, it’s unlikely that these types of investments will generate a notable rate of return.

Recommended: What Is Portfolio Diversification?

Film Funds and Slates

Another potential avenue for investing in the film industry is through film funds or slate financing.

Slate financing is relatively common in the industry, and involves a studio co-partnering with a third-party entity to get investors to finance multiple films at once — a “slate” of projects. It’s effective for studios, and potentially for investors, as a method of risk diversification, and may help the studio to potentially lower production costs.

But slate financing is typically done through a third-party or private equity fund, which raises money from investors. Investors in that fund are then entitled to a portion of the returns generated by the movies that are produced, assuming there is any cash to divvy up.

In some ways, it’s a type of pooled investment strategy, but the stakes are much higher, retail investors may not qualify for slate investments, and there are more mechanics and risks at play when it comes to private equity and hedge funds.

LIke crowdfunding, there are platforms out there that allow investors to invest in film slates — an internet search will likely lead you to several of them.

Evaluating Potential Movie Investments

As discussed, investing in movies or film projects is different from investing in other sectors, like technology or consumer goods. There are a lot of variables in the mix, and each project is different. Unless investors are buying stocks in film studios, production companies, or other firms involved in the movie industry, there are many factors to evaluate before putting up your money.

When investing in individual film projects, it’s important to do some due diligence and research who is involved. For instance, if you’re thinking of investing in a film project helmed by a certain producer or director, it can be a good idea to consider their past productions, their reputation, and their track record at the box office. Also, if you know what talent or actors are involved, that can help, too. There’s also the writing and script to consider.

Further, does the film have broad appeal? Or could it be too niche to appeal to a broad market, and potentially limit its earnings? Assessing the pros and cons, as well as getting to know industry insiders and experts, can help investors expand their knowledge of this industry.

And remember, just because a film may lack A-list talent or a superstar director doesn’t mean it won’t be successful. There have been numerous small-budget films with no-name actors that have become profitable. But those are very few and far between.

Recommended: A Closer Look at ETFs vs Mutual Funds

Risks and Rewards of Film Investing

As noted, while a film always has a chance of becoming a box office hit — or later in its life cycle, a cult favorite that earns a lot of money through post-box-office sales — there are some significant risks involved in investing in movies. If you plan on investing in studio stocks, the usual stock market risks apply, plus the risks associated with the filmmaking industry specifically.

Risks of Investing in the Film Industry

But when it comes to investing in films, some of the individual risks that may be unique to the industry include box office sales (ticket sales can fall short of projections), production delays and cost overruns, distribution issues, and even risks related to legal or contractual disputes.

Similar to other kinds of alternatives, there are liquidity risks, the potential for volatility, and industry and legal issues that can impact profitability.

Rewards of Investing in the Film Industry

Of course, for some people investing in film can be rewarding. People love movies, and in the last 10 years the industry has seen growth on the heels of big-budget blockbusters and streaming services that produce original movies.

Films also don’t necessarily correlate to the stock market, which means they may serve as a method for diversifying a portfolio. Finally, they may be a sort of passion-investment for some investors, who want a chance to capture some of the magic of Hollywood in their portfolios.

Tax Incentives and Other Considerations

Taxes play a big role in film production, both for the project and for investors who may see a profit from their investments.

Utilizing Tax Breaks

One factor that can help support a film’s revenue strategy is when producers take advantage of tax incentives. Many states in the U.S. offer tax breaks for films in the form of tax credits and rebates and other types of tax credits.

There are numerous rules and restrictions that a film project must adhere to in order to qualify for these tax breaks. Investors who want to commit to a specific project may want to investigate the production’s tax strategy.

How Profits Might Be Taxed

Unlike investing in traditional securities, which typically fall under capital gains tax or ordinary income tax rules, per the IRS, the returns from different types of alts can receive different tax treatment.

This may be the case, even when investing in these alts via a mutual fund or exchange-traded fund (ETF).

When investing in alts, it’s wise to involve a professional to help address the tax-planning side of the equation.

The Takeaway

Investing in movies and the film industry can offer a way for investors to add diversification to their portfolios. There are numerous ways to invest in the film industry, and that includes buying stocks related to studios or production companies, using crowdfunding platforms to support specific film projects, and more. Investors would do well, however, to consider the specific risks involved with filmmaking and the entertainment industry, which may differ from other industries and sectors.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

FAQ

Can I invest in Hollywood movies as an individual?

Yes, it’s possible to invest in the film industry and even specific film projects as an individual. There are crowdfunding platforms that may allow investors to do so, and for private equity investors, slate investing opportunities offered through similar platforms that can allow investors exposure to specific projects.

What’s the average return on investment for movies?

It’s difficult to zero in on an average return on investment for movies, as it would depend on the specific type of investment (stocks versus investing in a specific project, for example), and myriad other factors such as where and when a film was released, and more.

Are there tax benefits to invest in films?

There may be tax benefits and credits associated with film productions, which vary from state to state, and typically benefit production companies and studios, not individual investors.

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