Wednesday, April 27, 2005

Why Animated Films Are So Hard. Investing 101

I received an email from an investor asking about my opinion on a particular matter. After beginning my private reply, I figured I would just make an entry about it here. ...continued...

Animated films are extremely complicated. Because of the success of the Pixar and DreamWorks films, people are coming out of the woodwork proclaiming they can make the next blockbuster. If you look closely, you'll realize that most of these people really have no (or very little) experience in animated films (or even animation!). They ease their investors minds by saying they hired a few Pixar guys. That is great and everything, but the fact of the matter is, most failures are going to be because of management and producers and directors, not the artists themselves.

To this individual that asked about a particular company... If you are looking to invest in the community in which you live, then this company is probably a good choice. However, if you are simply interested in investing in animated films, you probably have better options available. There are many startups that are about to get off the ground that have a much more experienced pool of executives, producers, directors, and artists. Potentially being a negative in your situation is that these startups are based in the Los Angeles area. I guess only you know the answer to whether location means that much to your investment.

I get a kick out of the groups that come along and proclaim they are going to be the next Pixar. Even more amusing is that a lot of these groups really don't have any idea what they are doing. They may know business, but animation cannot be considered a normal business. An investor needs to examine and do their due diligence on the management, on the producers, on the directors. Look at their track record (if they have one) in animation. Did they produce a profitable product? Did they stay within budget?

Something else to think about. When a studio comes along and says they will complete a movie for $25 million, you really need to ask yourself (and them) how they are going to do it for that price. Where are the shortcuts going to be? How is that going to affect the quality or the story? If I opened an animation studio in San Francisco and claimed to be able to keep the budget within $25million. Your first question should be- where are you going to find the talent to fill seats? I'm going to have a hard time getting Pixar and ILM employees for that budget. So then I should start worrying about where these people are going to come from? Straight out of school? Inexperienced people looking to work on their first feature project? San Francisco has a ton of talent base. Unfortunately they already have jobs!! It is not the same environment as Los Angeles (people constantly shifting from studio to studio, tons of smaller animation studios to pick talent from). Salary is the number one expense in animated film production. Add up the number of people and multiply by the salary you will have to pay them to leave their cushy jobs at Pixar and then multiply by how many years an animated film is in production. Oh crap, I just blew my $25 million budget and I still haven't bought computers or paid voice talent or gotten sound design or, or, or.

There is a reason why animated films cost so much. Anyone coming along claiming they can do it for a quarter of the usual price is going to deliver a lesser product. There is no denying this. As an investor, you've got to understand that this won't be a Pixar quality production. If your cool with that, and you think the money will be spent in the right areas (story story story, marketing marketing marketing) and have the management, producers, and creatives to pull it off. Maybe it isn't such a bad investment.

If I had the money, I certainly wouldn't do it. I would be looking for a solid core group that has already done it elsewhere and has a budget of at least $45 million.


Josh said...

Thanks for the great info in your blog. I ran accross this article from a forward from a friend and thought it was pertinent to some of the issues you've been talking through.

Mercurie said...

A very interesting article. I hardly have the money to invest in animation (right now the light bill is hard to pay off at times LOL), but how animated films are made has always interested me, including the money aspect.

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Anonymous said...

Im sorry but your comments are way off DO YOUR HOME WORK! Animation is the most profitable genre EVER. Not to mention, the market in 2005 is not todays market. Even in today's economy which is struggling, the box office is booming, and people are seeing profits. Up nearly 15% compared to last year. Wait till you see the number for UP being released MAY 29th.

Look at Pocohantas, Mulan, Prince of Egypt, look at the budgets and the returns. Not only domestic world wide. Not even including other revenue streams.

If you are looking for a aggressive investment, now is the time to consider animation. You snooze you lose.

And dont tell me people have not lost money in stocks, oil, gas..

Its 2009, different times, new opportunities for those who are aware.

Staloren said...

First of all Anonymous. Animation isn't a genre. Second, despite the money that studios make on animated films, it is a risky proposition for an individual to invest in.

Let me ask you. If you had the opportunity to invest in an animated film. What type of company/studio would it be? I don't mean, buy some stocks for DWA, or Disney, I mean, as an actual investor in a film. After all, that is what the post is about. Not buying stocks.

It wouldn't be Disney, it wouldn't be DWA, it wouldn't be Blue Sky (they don't need your money). It would be in smaller company that hasn't proven itself.

Chances are, your investment is going to be a waste. The amount of animated films that did very well financially that are NOT Disney, Pixar, DreamWorks are pretty few and far between.

Look, you are preaching to the choir, when it comes to how profitable animated films are.

But you have to look at who is making the money and receiving those profits. Studios are. However, as an individual investor, your investment in an up and coming animated film company is R.I.S.K.Y. No two ways about it. The big profits are being made by the big companies with only a few exceptions.

Anonymous said...

Staloren, your perspective on film entertainment is its risky, that big companies make all the money? Sounds like you have not done your homework. What about the Investors of films like Napolean dynomite, or Juno? Small indy films that made huge returns. I dont think your in Entertainment, for you would know deal structures and how and when an investor gets paid. Not to mention the other revenue streams one could see such as merchandising. International sales. INVESTMENTS are a gamble period. No guarantee. Yes If I were to invest, I would go with a smaller company that is up and coming, rather then a pixar who out sources animation to india to conserve dollars. It's pretty simple, if people don't gamble on making creative films, we end up with the formula driven crap that you see all over blockbuster walls. Many animation goes direct to DVD. Doesn't mean it will not make money. In fact, the studios are onto this game, and produce much content that is exactly that, direct to dvd for profits. If a distribution deal is in place, talent is attached, and the picture is made, there is a good chance of seeing RIO on your investment if its produced properly. Just as if ones broker makes good decisions for them. In todays market, people are losing money all over the place, but again, doesn't mean there aren't those who are making it. 2009 box office so far has been on fire. Early Friday estimates for Pixar's Up are $20.5 million. thats one night. DOMESTIC. Not including world wide, nor gaming and all the other revenue streams which come into place, but only if you take a chance and become part of it. Film Investing is not for everyone. It is a vague area for some, and like anything else you can lose your money. But if you do your homework, you will see, the entertainment business is booming, people are flocking to theatres, and as technology progresses and films become available for phones, and stream, video to download all this is revilatizing the business. As for animation, I would not invest in any project. But if it is written by someone with a successful track record, and has good talent attached, I may be open to looking into it. Animation is not a genre correct, but most people envision it as family oriented films such as disneys or pixars. Burton is one who tries a darker look and feel, and im sure his films are not as profitable for that reason alone. There is not enough animation for families, for children to see. When one is released, families flock to them for there is a strong demand.

Bottom line, an investment is an investment, cannot tell me people are not losing money in stocks, realestate, or anything else. The econemy is changing, and hey, if you have money, look at film as a optin to make some investments is all im saying.

Staloren said...

Aren't we talking about animated films? If so, why are you bringing up Napolean Dynomite and Juno? Let's at least talk apples to apples here. Bring me some data from similar animated films. You'll find them few and far between the indies. Hoodwinked being one of the few that turned a good profit.

Yes, people lose money in stocks. That isn't the point. The point is regarding investing in ANIMATED films. And not even films in general (that is another bad investment idea, imo, but I won't go into it here).

I'm not going to get out my resume. However, I can assure you it is quite lengthy in the animation business. Your comments so far have only shown that you have little to no experience with knowing anything about animation. Especially when you make claims like "pixar who out sources animation to india". Come on. You are on crack.

And here you go again, bringing Pixar into the mix of box office revenue. Are you not reading my posts? Or do you not realize Pixar is a huge company that I refer to when I say a small number of large studios ARE making money.

Go ahead, buy some Disney stock. If that is your idea of investing in an animated film, well, good for you. That is not what I'm talking about.

Let me give you some advice. If you are an investor. Screw the whole idea of investing in a movie. You're best bet is to invest in a slate of films. However, you can do what you want. When you do, how about you let us know so that we can look forward to the huge BO that your film will make.

Staloren said...

I'd like to comment further by saying that even in live action films, there are great stories of little indie projects doing very well.

However, you aren't looking at the big picture. How many of those indie projects never get distribution? Or how many make so little to never cover costs? As an investor, you need to evaluate your chances of success. It is like a game of chance.

Are you willing to gamble your money like that? If so, good for you. Personally, I'd rather put my money in a much more sound strategy.

Investing in an indie animated film is like playing the lottery. Sure, you could become a gazillionaire. But chances are, you just threw your money away.

Go ahead and do it. I dare you. But again, please let us know what that film is, so we can follow along and track its success.

Anonymous said...

I have been listening to you two guys go back and forth and don't know if either of you have any experience to back your words. I have been approached by Unified Pictures to invest in Noah's Ark directed by Philip Lezebnik and produced by Chris Jenkins. Do either of you have an cements for me if you know anything about the business?


Anonymous said...

I was approached by Unified Pictures to invest in Noah's Ark. Do either of you have any experience that would give me incite for the picture ? Written by Philip Lezbnik and produced by Chris Jenkins.

Staloren said...

Dan, I am not familiar with the film. Sorry. But I don't think I can really help you.

If it has distribution from a well known distributor. Then it is worth some thought. Without that, I wouldn't bother.

As I have said, investing in just one animated film is very risky. I'd pool some money with other investors and look to invest in a slate.

If you are legit, I know of a group that has a slate of animated films backed by well known producers/directors. Budgets are around $50 million each.

Anonymous said...

I was approached recently by Unified Pictures about Noah's ARK and I wish I could have invested since the movie is being directed and executive produced by John Stevenson, the director of Kung Fu Panda and Cameron Hood, of Megamind. They have a competitive budget and they said they could produce a film with a smaller budget since they are able to do all the work in-house. Can't wait to see the movie when it comes out.

Anonymous said...

I got approached by Unified about 12 months ago and the whole thing is a joke. First they offered me round B stock, as all the round A stock was long gone. When I told them I NEVER invest in round B stock suddenly they came back with a fresh supply of round A stock. It's a giant scam. Stay clear.

Anonymous said...

Any more comments or thoughts out there on Unified Pictures and Noah's Ark? There are seeking invests like previous post have said and are asking for the Class A and Class B investments. Seems like a great movie just because of the title and thought of Noah's Ark being told through the eyes of the animals. Anyone please let me know your thoughts on this opportunity

Anonymous said...

I am just getting asked by Paul ruffman to invest in class B on the Noah's Ark film claims to take off in 2years I'm worried that I won't get investment back does anyone know about there is only 1.3 million left for investment

Paul said...

Unified Pictures has been trying to make Noah's Ark since 2007.

They supposedly got $40 million in funding from India Rising in 2009.

Now they are cold calling investors with the pitch they've attached big names to the production (announced in 2013).

The biggest question is "where is their animation pipeline?" You can't just hire a bunch of animators, put them in a room and magically produce an animated film. Animation pipelines have to be developed and that takes time.

The director is important in crafting and telling the story, but there is no way to tell that story unless they have a top-notch animation producer and well-oiled team of artists.

zoomfrog said...

nice read !

and some aggressive comments!

Anonymous may be looking at the numbers from good films' returns.....but NOT the cheques paid back to investors.

I have over 25 years in animation as well....and despite seeing some movies post what look like profits......I have yet to meet anyone who received a cheque for their investment.

Pixar took over 20 years to evolve before making it's first feature film and only then did it realize itself as a company and earn money. Lionsgate does far better than DreamWorks from an investment point of view ( DreamWorks doesn't even pay dividends )

Like anything else investing is a gamble....shares go up and down....but if you're thinking of investing in a single film that far more risky.