"The Importance of Risk Diversification in Entertainment Investing: A Guide for Investors"

Entertainment investing

The Entertainment sector is a notoriously bad investment for private equity investors. Most deals available to the average investor are somewhat at the bottom end of the food chain where the risks are very high. For this reason, most investments in this category are only considered as suitable tax write-offs and not serious investment opportunities.

But why is this so, when the entertainment industry has such notoriously incredible upsides? Where are the serious investment opportunities and who is managing them? Who is actually making the money?

We have all heard the phenomenal success stories where movies like Paranormal Activity invested a few hundred thousand dollars and went on to make hundreds of millions of dollars. Or the more widely known story of Mel Gibson investing $30MM of his own money into Passion of the Christ and seeing a $600MM+ return. Every year there are stories like these that prove there are huge upsides to entertainment investing. Is this a random phenomenon for a lucky few? or is there a system at play? Who is making the money? and how might an investor capitalize on the lucrative side of entertainment and not fall prey to the downsides?

This is the ongoing topic of Godwin Pictures articles and we invite you to explore this complex discussion with us by signing up so you will receive future articles. 

There are many strategies that the big studios employ to protect investments. Utilizing all these tools is the only way to ensure success in entertainment investing.

One of the most important tools is diversification. Diversification in entertainment is where we assess a projects viability in the market, both creatively, culturally and financially, and then prioritize not just one viable project but a slate of viable projects that have the greatest chance at ROI. This ensures that we can ride out the dips and ensure we are ahead of the game for maximized long term gains.

Diversifying risk is a strategy in the best interest of the investor and it takes a studio with financial infrastructure, and a portfolio of projects from varied producers to choose from, to execute. We will talk more about how we assess a projects viability in future articles. Unfortunately this is not the strategy of a single creative producer for whom an inexperienced investor would commonly come across. See my recent article "The Number One Pitfall for Entertainment Investors to Avoid" for more on this.

Like any other investment, we first must determine which are the good eggs, and then refrain from putting all our eggs in one basket - no matter how good the upsides look. We do not get attached to the emotional energy of a story, though we ensure it is present. We do not get dazzled by the star power of the creatives involved, though we ensure they are there too. It is the difference between a wife purchasing a house because of its kitchen and an investor that knows that a kitchen can be replaced and should never be the criteria for a good real-estate investment.

So how do we successfully invest in entertainment? Through diversification.

We diversify our investment across a slate of projects for which we have accurately assessed within the market for maximum returns. For those who are able to enact all the industry specific levers necessary, such as diversification, success in the business of entertainment is not only possible but probable.

For more information about the industry specific levers of entertainment investing, reach out to our team via our contact page.