Edward Sylvan says that his 17 years working in investment banking, corporate finance and public company structure prepared him well to transition into film investment. In his earlier career, working in Canada's Beco International, First Marathon Brokerage and Scotia McLeod, he raised high-risk financing for technology companies and mining companies to enable them to execute their business plans.
Today, Sylvan is focused on the niche component of film finance, called prints and advertising, through Sycamore Entertainment Group, which he co-founded in June 2010. P&A involves the making of release prints of films and advertising them through a variety of media.
According to Sylvan, some 9,000 films are produced domestically every year, but only 5% get distribution, which accounts for $4 billion of revenue-a combination of box office and ancillary sales.
Sycamore's principals created their company after they identified a phenomenon that was happening in the marketplace with the onset of the 2008 credit crisis, says Sylvan. Film studios that had set up independent divisions to make films with budgets in the $15 million to $25 million range withdrew funding after 2008, when these small film projects became unprofitable. Instead, they turned their focus to big budget projects, such as the Spider-Man franchise, with costs running to $100 million to $200 million per film. That in turn left a gaping hole in the $15 million to $25 million budget space, and Sycamore has moved in, though it will also consider marketing and distributing films with smaller budgets.
"We operate in the mid-budget arena, those movies with A-list actors and scripts," says Sylvan. Films in the $15 million to $25 million range, such as this year's Oscar-winning The King's Speech, are usually independently produced adult dramas, with few special effects and little in the way of computer graphics. The stories are driven with high-caliber actors, such as Colin Firth.
A P&A investor helps market a movie. Take a film with a budget of, say, $25 million. The risk to make that movie has been assumed by someone else. Now, it needs an additional $10 million for release prints, the physical negative and other media rented out to exhibitors, and to pay for advertising Advertising includes such things as theatrical trailers, network television, print and radio campaigns, promotions and personal appearance tours.
Most P&A capital is in the form of a short-term loan, and the P&A financer commands between 15% and 20% of the money as interest, plus 5% to 10% of post-box-office revenues into perpetuity. "And that 5% could equal two to three times the P&A money you put in," says Sylvan.
Sycamore is currently raising a P&A investment fund. By the end of the first quarter, it had received commitments of $30 million in equity, according to Sylvan, and was seeking to boost the equity portion to more than $100 million. The fund also has a $70 million revolving line of credit.
P&A funding is required only after a film gets a distribution deal. That money is needed three months prior to the film's theatrical release, and is generally returned three months after the film's release. So the window of the funding being deployed is approximately six months.
There is an extra benefit to P&A investing: The investor is senior in order of repayment. After the distributor is paid, the P&A investor receives his money. Sycamore has gone a step farther by setting itself up as a film distributor as well. "We operate as a hybrid P&A fund-distributor in an effort to control revenues and return to P&A investors," says Sylvan. "The distributor is the first person paid, and is obligated to pay back print and advertising investments immediately."