Investing In FilmThe most compelling reasons to separate company structures involve financing each picture and offering attractive opportunities for investing. The parent production company, without any subsidiaries, takes a very large risk on a single picture – the production and distribution costs are included along with development, raising the total investment amount greatly and slowing the investment return plan until the entire project is completed.

Neither of these are attractive qualities to potential investors. The production company’s other assets, unrelated to the particular film desired, are also at risk under a single umbrella structure. As an example, to invest in movie production, the time needed to recoup costs could be 36 months, with a total investment amount of up to $70 million per film and an earnings potential of 200% gross yield after nine years.

A development company removes much of this risk. The task is solely to develop a set number of pictures, with producing each one left to individual companies for later; this means that the return time on investment is substantially shorter, and the amount of money needed is a great deal smaller. Investing in motion picture development rather than the production example used above would return 300% gross yield over only five years, with a total investment of up to $2 million per picture and recovering costs in two years or less.

Because of these differences, a production company can give better terms to investors when offered through a separate development company. The investor could own 50% of the development company, receiving 100% of the profits until a certain percentage of the initial investment has been returned (often 120%), and thereafter receiving 50% of the development company’s profits from the film. These earnings are often achieved by selling all rights and interest in the film to one of the parent company’s producing companies.

As the parent production company owns both the development company and the single-film producing company, the price of this sale can also be fixed as part of the investment offering, reducing risk for an investor in yet another way. As in any investment though, there is still risk – the investors and the parent production company are betting on the development company’s ability to finance and develop the films to a point where they can be sold to individual producing companies. This is unpredictable in terms of both time and expense. However, this is another reason why development companies are usually formed to handle at least three pictures – betting that the company can develop two out of the three can still return a profit, and does not depend on a single film.