Investing in films ultimate high risk, high reward

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Sean Covel, right, and his partner Chris Wyatt are shown on the set of a movie. Covel was in the Springs last month to raise venture capital for his new production company, GiantKids.

The bright lights of Hollywood can be dazzling, but investors seeking to play the role of movie producers should be aware that it’s a high-risk business.
Independent filmmakers seek private investment on a regular basis, and one such producer was in Colorado Springs last month to entice investment for his production company.
Sean Covel, one of the producers behind the indy hit “Napoleon Dynamite,” is hoping to raise $6 million for his GiantKids production company. But even having a successful movie to your credit doesn’t mean that the dollars will simply roll in.
“Without a funding resource behind us,” Covel said, “Doc (Chris Wyatt, his partner) and I missed the opportunity to be part of the Will Farrell picture ‘Stranger than Fiction,’ just passed up a position in the Julia Robert’s picture ‘Fireflies in the Garden’ and had our butts handed to us like hats at the bidding table on several novels and screenplays, including ‘Time Traveler’s Wife’ and ‘Silent Hall.’”
Michael Pacitto, who wrote the script for locally produced and filmed “Alice in Wasteland,” was amazed that someone like Covel would be in Colorado Springs drumming up cash.
“It’s fascinating that he’s here,” Pacitto said. “That’s like releasing your IPO in Utah. It’s a big deal in Utah, I guess, but the place to do it is New York. Maybe the fields are more fertile here. It’s definitely thinking outside the box.”
Darlene Cypser, president of Inferno Film Productions in Littleton, described investing in films as similar to wild-catting for oil. “You can pour a lot of money into it, and end up with nothing but a dry hole.”
Lorne Lancaster of Core Capital Group said that Colorado isn’t yet a hot-bed for movie investors.
“There is a small group — a handful, really — of people in Colorado who invest in films,” he said. “It’s not a big industry for our state, and people don’t really invest in Hollywood. The biggest problem I’ve seen is in the distribution, getting it out there for people to see it. It makes it sort of a double-jeopardy risk.”
Cypser’s company tries to arrange distribution for many of Colorado’s independent filmmakers. “Alice in Wasteland” is one of the films the company is marketing.
“We’re looking at a couple of deals for ‘Alice,’” she said. “And it looks like it will be distributed internationally soon. Eventually, we think it will be distributed in the United States.”
Pete Schuermann, director of “Alice” and two other feature-length films said that investors are scarce in a city with a conservative attitude toward the arts. But the bigger threat comes from the variety of small filmmakers who cheapen the product and scare off potential investors.
“The best thing is to have a proven track record,” he said. “The other films I’ve made have all made money. But everyone with a camcorder is trying to make a film, based on successes like the ‘Blair Witch’ and ‘Napoleon Dynamite.’ They make promises they can’t keep.”
Amateur filmmakers, without experience or proper equipment, hurt the chances for angel investor financing for local projects more than producers like Covel coming to the city looking for money.
“I wish him luck,” Schuermann said. “I think it’s great that he’s coming here. I’d say he has a challenge ahead of him. This is something very new for this community. His being here doesn’t narrow the pool of investment.”
Both Schuermann and Pacitto said that they didn’t feel threatened by a Hollywood player visiting the Springs.
“It’s two different worlds,” Pacitto said. “It’s like the difference between Godiva and Hershey’s. ‘Napoleon Dynamite’ was an art house festival film that broke. We’re not trying to break into Sundance.”
Cypser said that there are a number of ways for independent filmmakers to get money.
“We finance our own films, our owner has the resources to do it on his own,” she said. “But other people will use their own assets: take out a loan, second mortgage, put in on their credit cards.”
When production costs start hitting seven figures, filmmakers start looking for investors with deep pockets.
“Filmmakers look for people with large chunks of money who don’t mind the risk,” Cypser said. “They look to doctors, lawyers, accountants, people who invest in real estate.”
Schuermann and Monster Creative Zero, the production company behind “Alice in Wasteland,” seek angel investment for their films. But most of the investors are real estate developers, and the downturn in the housing market has made a difference.
“We had someone get spooked when the housing market turned,” he said. “And we had a film ready to go. But he said when the market turns, he’ll be ready to invest again.”
Pacitto said the amount of money he’s made from his films is small, again emphasizing the different “worlds” between films like “Napoleon” and “Alice.”
“We make the movies for direct-to-video, late night cable,” he said. “We make B-list movies to sell to countries who can’t afford to pay $5 million for Transformers, but will pay to get smaller-budget films.”
But guaranteeing a return on investment is difficult in the movie business, Covel said. The usual scenario he gives investors is the potential to earn at least a 75 percent return — but sometimes the ROI is higher.
“The ROI for Napoleon was $46 million for a movie that cost less than $500,000,” he said. “But that’s difficult to keep doing — movie making is a risky business.”
It’s a promise few filmmakers should make, Schuermann said, and one that is hard to keep.
“We’re very careful to tell people that this is a high-risk investment,” he said. “We don’t mislead people. Making films in Colorado Springs means there isn’t a conduit to Hollywood. But there are other options — cable, foreign distribution — and they do make money. Just not millions. Your chances at millions investing in film is rarer than winning the state lottery.”