Is Investing in Movies a Good Investment Strategy?

Enticing investors with invites to glittery film premieres, visits to movie sets, on-screen executive producer credit and anticipation of 30% to 60% ROI, Wade H. Bradley is betting he’s built a better mousetrap for money-making in the risky world of film investing. And some wealth advisors, hedge fund managers and affluent individual investors are finding the bait too juicy to resist.

Never mind that Bradley, 53, ex-venture capitalist and commodities trader, is facing an upcoming Financial Industry Regulatory Authority arbitration panel stemming from the ire of four of his money-losing investors. Further, in 2013 he was cited for “facilitating the release of escrow funds even though the minimum had not been raised,” FINRA’s BrokerCheck reports. Though the case was settled, Bradley’s license was suspended for a month.

But all that involved his first foray into the Hollywood rat race: a brokerage firm called IndieVest Securities, according to FINRA records. His new firm, Media Society, which was founded in 2012 and is not a broker-dealer, is run in a far different manner from that of IndieVest, Bradley insists in an interview with ThinkAdvisor.

The CEO’s so-called “managed-risk strategy” focuses on investing in diversified film slates and an arrangement that, he says, assures all-important theatrical distribution. By the way, at IndieVest he also touted a “managed-risk” approach.

Before his self-reinvention, Bradley started a venture capital firm in which he led 27 initial corporate equity investments. He decided to crack the movie business in 2005 by founding IndieVest for financing, producing and distributing features. It made two films, “Saint John of Las Vegas” (2009) and “Knights of Badassdom” (2013), both of which laid jumbo eggs at the box office.

This Sunday is Oscar night, and in West Hollywood, many members of Media Society — folks must join and pay an annual membership fee to invest in Bradley’s Altar Identity Studios films — will feast on fancy fare at his Academy Awards viewing gala. The day before, they’ll mingle at a cookout on the Hollywood lot of The Jim Henson Co. — originally Charlie Chaplin Studios — where Media Society offices are ensconced in what was a barn used by Chaplin to build sets.

Members of Media Society, which is backed by a group of angel investors, must have a minimum net worth of $1 million, not including their residence. Minimum investment is $150,000 per film slate, each consisting of about three to five small independent movies.

So far, Altar has produced only one film, “Big Stone Gap,” a romance set in a tiny Virginia town, starring Ashley Judd, Patrick Wilson and Whoopi Goldberg. Based on a book series by Adriana Trigiani, who wrote the screenplay and directed, the feature was produced by Donna Gigliotti, winner of two Best Picture Oscars (“Shakespeare in Love”-1998, and “Silver Linings Playbook”- 2012).

Tinseltown gets giddy at Oscartime, but Minnesota-born, farm-reared Bradley says that at his merry gala, he’ll be zeroing in less on the awards and stargazing than on fielding Media Society member questions. ThinkAdvisor posed more than a few of our own in a recent phone conversation. Here are highlights:

Please compare the risk of investing in Media Society movies to investing in other products.

This definitely falls into alternative investments: it has a higher risk and a higher reward. It lacks liquidity. It’s not what people would be putting 70% of their portfolio into. Generally people are putting 15% to 30% into alternatives. But within that, there needs to be diversification, and the portion set aside for entertainment should be diversified as well. We stress: Look at this as doing three to four slates. It’s very much like a venture capital fund.

What’s your “managed risk-investment strategy”?

Working with A-level producers and A-level people who do the budget. Then you start moving into the preproduction phase. So everything is set up prior to production, and every question has an answer.

What about higher budget movies?

The managed risk is also for larger films driving the foreign pre-sales before we ever make the film. Global grosses are important, and we focus on them, especially for a picture that’s larger budget.

How specifically do you focus on them?

If it’s $3 million or above, we’ll be going into that market before we produce the film. For a $20 million picture, prior to starting production, we know we’ll be able to garner at least 85% of that budget through foreign pre-sales and rebates where we’ll be shooting. We’ll only take a 15% risk in North America. We’re willing to make a $20 million film if the net cost is $3 million. And then we apply our print and advertising dollars, if the distributor requires it.

How come you fund print and advertising?

The most pervasive problem in the industry is theatrical distribution: only 4% to 5% of films made each year get theatrical distribution, which is incredibly necessary to building brand awareness for the highly [lucrative] home entertainment market. I figured out a way to solve that problem: When we aggregate production costs for each project, we also aggregate the print and advertising costs — the distribution costs.

That’s odd. Typically, this isn’t done.

Well, it is odd. But it’s the only way I could see fit to do it. If you don’t have your distribution assured by having the print and advertising capital in hand, you’re going to a gun fight with an empty gun. The industry can make 10,000 films a year, but only 400 to 600 will have a distributor put up the capital and take that risk to get a return on investment.

The minimum investment for Media Society members is $150,000 per slate, correct?

Yes, but that’s really based on the appropriate allocation in the investor’s alternative asset strategy, which ranges from $1 million to $10 million to $100 million, depending upon the person.

What return on investment do you tell investors they can realize?

We believe, conservatively, that we have the potential to achieve a 30% to 60% ROI over the first 36 months — a rate of 10% to 20% annualized. That’s the net we target for each slate. It’s return on investment, not of investment. Generally, about 98% of returns occur within the first 36 months; then you have a trailing revenue that stretches out for decades.

Is that the same rate of return you also targeted for people investing in IndieVest, your previous company?

Those were individual projects bearing individual potential returns. When we put together Media Society, we said that not only do we deal with A-level producers but the projects need to be a slate and highly diversified from the get-go.

But you haven’t yet released any films under Media Society and therefore have no returns you can point to. What do you tell potential investors?

We explain detailed comparables [to films already in release]  — similar concept, aimed at the same market, similar talent attached.  Then we drill down to what’s the best, [middling], and worst scenarios we can anticipate.

What’s your film niche?

We’re focused on two: underserved markets, like females [age] 30 and up, which is the largest underserved market in the United States, and the insatiable-appetite market, like horror films. We look for projects with A-level producers already attached. We have partners in every aspect of film bringing us things on a continuous basis.

How many Media Society members do you have?

We don’t disclose our community size. But we anticipate that approximately 10,000 prospective members will be in our database by May of this year.

What’s the profile of your investors, broadly speaking?

They’re literally from all walks of life: hedge fund guys investing on their own, wealth managers investing on their own, real estate moguls, people that own sporting teams, all the way down to highly successful surgeons.

What percentage of members are actually investing in your films?

The vast majority — 99%. It’s kind of like, the percentage of people that buy a Ferrari who want to drive fast.

How much money have you raised from investors?

The first slate [had a goal of] $73 million, and we now have less than half the slate available. We’re going to shoot the final two films this year. One is a $20 million romantic comedy targeted at females 30 and up; the other is a horror film that will have a gross cost of about $3.5 million. Another project on that slate was a Broadway production, “First Date” [which ran for six months and broke even]. But our primary focus is films.

Who has been cast for the romantic comedy?

Very strong leads, highly recognizable people. We can’t go into that till we’re in production. We never announce details of our projects till then because so many things can happen before we cut that final check to allow production to start.

You don’t let investors know who’s in the cast before they invest money in a movie?

They have a very good idea that it’s going to be this person or that person, or a similar person. We don’t announce it publicly: If there’s a significant talent change and [we’re] not able to bring on the same level of talent, which would change the dynamics of a project, we don’t fund it.

Do investors need to invest through financial advisors?

No, though many do.

What’s the status of the arbitration with investors who say they lost money with IndieVest?

Four individuals are arbitrating using the FINRA platform — that’s because we had a broker-dealer. But it’s been pushed to May since they weren’t prepared when paperwork was to be filed last December.

I saw your online comments saying that their complaint was meritless.

Right. The two films they’re discussing were both released globally. But the one thing we can never guarantee is if the audience will show up. One of the most significant changes we’ve made is that, in Media Society, everyone is using a disciplined approach for every project we work on.

“Knights of Badassdom,” one of the two IndieVest films, went hugely over-budget. That’s not too disciplined.