The creative and entertainment industries have been drastically affected by COVID-19, some seeing demand skyrocket, while others such as theatres have been hit hard. Investment opportunities abound. This news service talks to investment firms and industry figures about the opportunities.

The COVID-19 crisis has cut both ways for the creative industries. The shuttering of cinemas forced new releases to be mothballed, while social distancing rules largely ground work on new film and TV productions to a halt. On the flipside, demand for new content (and platforms) soared as captive audiences whiled away those tedious months - to the extent that Statista predicts worldwide video streaming revenues will have risen by almost 12 per cent to $27.1 billion this year.

There have been some admirable efforts by this ever-adaptive sector to work around restrictions. But the strictest are now coming to an end; just this week it was announced that essential cast and crew working on international film and "high-end" television productions will be exempt from the 14-day isolation requirement for those travelling from many countries abroad. Film and TV production companies are ready to spring back fully into action and a flurry of production activity - and investment from HNW individuals - is expected for autumn, industry figures say.

Cupboards close to bare
The first, very readily understood, driver is that “content cupboards” may be getting alarmingly close to bare at this point. Original content is what drives subscribers to streaming platforms, with these figures having a huge effect on share prices (as well as advertising revenues where these apply). 

“Once restrictions are fully lifted, we could see a double or even triple whammy effect of pent up demand on activity levels,” says Dan Perkins, MD of Great Point Investments, the FCA regulated arm of the Great Point Group, set up in 2013 to help finance independently produced film and television content. “Traditional broadcasters, as well as the streamers, are currently thinking, ‘We need to finish the projects that we had to pause, as well as get started on new projects to fill the schedules over the next six to eighteen months’.” The mood music at the likes of giants Amazon and Netflix, along with more recently launched platforms like Disney+ and Peacock, as well as the more traditional broadcasters will therefore be, “We’ve got to commission a lot of high-quality content, and fast”. 

"There should be a lot of bandwidth for producers with interesting ideas to have conversations with broadcasters to get deals in place so these productions can get up and running fast. In turn, this presents “a great opportunity from a financing perspective,” Perkins says. 

“The growth of content consumption, and the desperate need for more of it, should prove to be a significant opportunity for content creators,” adds John Glencross, chief executive at Calculus Capital, a pioneer in tax-efficient investments and fund manager of the UK Creative Content EIS Fund in association with the BFI. “Given this, alongside the slow reopening of physical production facilities after a production hiatus, it is highly likely that there will be a number of opportunities searching for funding in Q3/Q4 2020.”

Big screen bounce-back
Although the streaming services’ hunger for prestige, subscriber-attracting shows continues to be a big theme for investors to take note of, filmmakers see a bright future for the big screen too. According to Fiona Campbell, co-founder of London-based independent production company Global Chicken, “the signs are that audiences are very much longing for the cinema experience.” Moreover, profitability may not be as harmed by lockdown as it may first seem.

“While the pandemic will no doubt have an effect this year, signs are that cinema will recover quickly,” she says. “Most cinemas were used to budgeting on a 20 per cent occupancy rate before lockdown, so apart from Friday and Saturday nights the new measures shouldn’t have a great effect.”

COVID may actually be a spur to creativity since, as Campbell observes, “smaller, independent films with less reliance on big crowd scenes and stunts will be easier to produce as filming starts again”. The sector has been working intensively on safe shooting guidelines, she explains, so “there is in fact great confidence we can work around whatever the future holds.”

Campbell has in fact just completed her first week’s filming since March, and says she’s actually had an uncommonly busy lockdown working on finance deals for the five films her company currently has in development: 

“We’re looking to close finance on ‘Three-Day Millionaire’, a comedy heist set in Grimsby which will shoot this November,” she says. “We’ve also been having many discussions about ‘Tottenham Rules!’, a coming of age drama set in Tottenham with highly topical themes. The whole industry along with us is raring to go, and it seems investors have had more time to ponder investment opportunities too.”

Routes to investment
As advisors will know, the landscape for film (and other creative) finance has gone through big changes in recent years. In the past, the UK’s Enterprise Investment Scheme was a big part of the picture, with HNW individuals enjoying hefty tax advantages in exchange for supporting creative ventures where the level of eventual commercial success can be hard to predict. But, as Perkins explains, the route of connecting HNW individuals to funding specific film or television projects has essentially been closed since early 2018, when HMRC introduced the “risk to capital conditions” for all tax-efficient investment strategies, refocussing capital towards entrepreneur-led rather than project-based start-up businesses.

Now, Great Point sees HNW individuals pursuing creative funding through two main paths, depending on their risk-return expectations and tax mitigation needs. 

Perkins explains: “For those investors looking for a more predictable return from the creative industries, a fully collateralised lending strategy, that also benefits from inheritance tax relief, may be worthy of consideration. The vehicle will look to lend production capital to producers that have secured a commission from predominantly UK-based blue-chip broadcasters who will pay in, say, a year’s time on delivery. 

“In this instance, we would invest clients’ money, taking a first charge over the entire project (including the pre-sale/commission revenues), and look to generate a minimum cash-plus return of around 3 per cent per annum, typical of what investors have come to expect in the IHT planning market. Our offer, Great Point Estate Planning, has been trading for five years and consistently hit its target returns.

Investors like that they get an inflation-proof return whilst at the same time reducing their risk through the blue-chip broadcasting collateral underpinning their investment.”

The second, higher risk/reward proposition is “essentially about backing talented people” by investing in early-stage businesses with high growth potential. “Someone with a 10-year track record of producing high quality content for a “super indie” may be looking to strike out for themselves. They may have a couple of commissions in the pipeline or a slate deal with a broadcaster,” he continues. “In this instance, we would consider their business plan, analyse their track record and if everything stacks up, look to fund the company with a meaningful sum for a minority stake in the business, whilst also putting a member of our experienced team on the board to help them realise their potential.”

Opportunities across the content creation value chain
Given the UK’s position as a global leader in the creative industries, Great Point seeks to take advantage of this homegrown talent pool by investing across the whole content creation value chain, including distribution, post-production, content delivery platform and associated tech-enabled businesses aiming to challenge the status quo. And, while investors have to accept the increased risk that comes along with this fast-moving sector, outsize returns are on the table. “If we do our job right, that £50,000 ($63,067) investment made today could, in five to seven years’ time, turn into £100,000, maybe more,” he says.

Nor should investors overlook the opportunities created by broader trends such as corporate marriages. One headline-grabbing example being the recent acquisition by Sony Pictures of Eleven, the British production company behind Netflix’s hit series “Sex Education”.  “Growing demand for content had led to increased M&A activity for content companies, giving rise to attractive potential exit opportunities for investors,” Glencross notes.

With offerings to suit risk appetite at both ends of the scale, along with significant tax efficiencies besides, Great Point and Calculus Capital are seeing growing interest in the creative sector from advisors of all kinds, including those at mainstream wealth managers. Platforms like Wealth Club, which connect qualified investors with deal-makers, are another important conduit. 

Tax-efficient investing may have slipped slightly down HNW individuals’ agendas amid the pandemic, but a surge of EIS funding could be right around the corner. “Given the timing of when lockdown hit, I am hearing from the market that many individuals deferred their usual end-of-year EIS or VCT investment until there was a bit more economic certainty,” Perkins says. “With the country easing out of lockdown, the indications are that investment activity should hopefully return to normal levels from the end of Q3 onwards.”

Diversification benefits
The fact that the EIS space is dominated by technology companies should provide a further boost, Perkins argues, since “the creative industries provide a neat diversifier to portfolios that may currently be overweight in tech-focussed businesses.” This point is further strengthened by the general technology pile-on prompted by the pandemic, the FAANGs being seen as the new safe haven assets.

Fundamentally, however, “the investment case is less about how much tech exposure an individual is willing to take and more about the UK being a market-leader in the creative industries,” Perkins asserts. 

Calculus Capital’s Glencross agrees, citing some compelling figures in support: “The screen industry is growing faster than any other sector – last year was record-breaking with £3.6 billion being spent on film and high-end TV production, a 16 per cent increase on 2018.

“The creative industry stimulates business growth, creates jobs, attracts inward investment into the UK, and enables export of UK productions and services internationally. It is an important industry for the UK, but it is also a very attractive investment opportunity.”

For those with an appetite for a degree of risk, the UK creative industry holds out the prospect of significant rewards and compelling tax mitigation opportunities too. However, as Campbell notes, the sector’s stardust dazzle does play a natural role, providing many investors with a way to pursue a passion as well as portfolio management goals. 

Pursuing a passion
“Investors are increasingly attracted by the opportunities to get involved the independent producers can offer,” she says. “This might be in the actual production, from visits on set to small roles for them or family, or it might be the more ‘red carpet’ element of invitations to premieres and the chance to mingle with cast and crew.”

With finance deals continuing to go through and the hunger for quality content growing, perceptions that the creative sector is in any way not fully open for business are misplaced. It is even easy to see how the extra leisure time many people have had in recent months may prove a long-term boost to inflows. 

“There are good returns to be made, and the tax benefits are a big draw, particularly the fact you can often offset any losses in an EIS investment against income tax,” Campbell says. “But I think for HNW individuals, film is one of the more fun ways of investing money and you can see you’re investing in homegrown industry too. You could see this as another facet of investors increasingly wanting to invest in line with their interests today.”

Glitz and glamour notwithstanding, the sector also has the very great advantage of actually being relatively easy to understand and engage with. Warren Buffet does, after all, advise investors only to invest in what they understand.

“The great thing about the sector is it appeals to almost everyone since most people can relate to watching a gripping series, or an original documentary that really touched them.” Glencross sums up: “Creative content captures the imagination of so many people. You certainly do not have to be an expert to understand the industry and I think its relatability is an advantage for investors and advisors alike.”