This includes DVD sales; video on demand such as Netflix, iTunes or Redbox; pay-per-view, cable TV and free TV (networks); airlines, hotels, cruise ships, military installations, prisons and offshore oil rigs; production rebates; and foreign sales.
As to the investor's risk of not being made whole, Sylvan says, "Your risk will be not if, but when. Because the film has a distributor, you're at the top of the recoupment with the actual film itself as collateral. You own all revenues to that picture until you're paid in full. If everything goes right, that will take six months, but it could take longer."
He says any discussion about P&A is one about revenue. The risk is that if the movie does poorly, the recoupment period might be longer than six months, resulting in an opportunity cost with capital not being able to be deployed elsewhere.
Against that is the fact that spending money on P&A drives market interest, he says. And because new players keep entering the market, more revenue streams continue to open up. This happened with the advent of Amazon and Netflix, and the possible entry by Microsoft would create still more demand for content and result in yet more new revenue streams.
Furthermore, Sycamore's P&A fund offers an opportunity for recurring revenue that performs extremely well in down markets. Films historically benefit from increased movie theater attendance during economic downturns. In this sense, the fund is an alternative investment, says Sylvan.
Sycamore
At launch in June 2010, Sylvan and his team took over a publicly traded company called ImaRx Therapeutics Inc. in order to become a reporting issuer to the SEC and FINRA. "As a publicly traded company," he says, "we are able to craft investment products that are tailored and suited to the economy, which private companies are not able to do. If the stock market is up, we can create equity products; if interest rates are hot, create debt products."
In November, the principals changed the company's name to Sycamore Entertainment Group to reflect its business plan. ImaRx no longer exists, says Sylvan.
Sycamore's management team has long experience in marketing and distributing domestic and foreign feature films. Joseph Takats, who serves as senior vice president for marketing, previously worked at After Dark Films and Miramax Films, where he was involved in marketing campaigns for such high profile projects as Sex, Lies, and Videotape, Cinema Paradiso and The English Patient. Chief operations officer Mike Doban was a co-founder of Freestyle Releasing, which distributed The Illusionist and An American Haunting among other films. And Terry Sylvan, Edward Sylvan's brother and the company's co-founder, who serves as executive vice president of corporate communications, formerly held senior executive positions with the advertising companies BBDO and DDB Canada.
The Sycamore team identifies film projects through their extensive relationships with producers and agents and by attending film festivals around the world. Sylvan says Sycamore chooses films based on the story. "It must have a powerful story with international appeal," that is, universal themes such as overcoming adversity (The King's Speech, My Left Foot). Economics are also a factor in deciding which films to work with. He says Sycamore must be able to position a film in the marketplace, and sometimes that may be impossible given budget constraints, for movies with difficult or hard-to-articulate themes.
Sycamore hasn't yet deployed any money. For 2011, it has made one commitment and is in negotiations for two others. "We're expecting to make three deployments of capital by October and are leaving room for two other projects," he says.