Silver screen opportunities

Titanic profits, and losses, can be made in the film industry.

The world-wide success of British films like The Full Monty - despite its relative lack of Oscars at this week's awards in Los Angeles - and the prospect of a host of new television stations has given UK film- makers a tremendous boost. Small investors too can get a slice of the action.

In fact, some parts of the entertainment world have always enjoyed backing from investors. Angels with just a few hundred or thousand pounds to invest have been backing West End theatre for decades. Andrew Lloyd Webber's Cats, for example, raised all its initial pounds 450,000 capital from small investors who bought pounds 750 units in the show when it opened in 1981.

But opportunities to back independent cinema are far less developed. Some films will send out prospectuses to potential investors, whom they hope to encourage with invitations to special premieres or the chance to appear as an extra. This may be fun, but the chances of ever seeing your money again are pretty slim, as all your investment will be riding on just one film.

The alternative for small savers is to buy shares in a film company such as Metrodome or Winchester Multimedia, both of which are listed on the Alternative Investment Market (AIM). Metrodome has now moved into distribution, but was responsible for funding Leon the Pig Farmer. Winchester provided the funds for Shooting Fish.

Buying shares in a company like one of these means you spread your risk across the company's whole portfolio of films, increasing your chances of finding a winner. If the company's films are successful, investors benefit from a rising share price.

Metrodome's managing director, Alan Martin, says: "I would always advise someone to try to get involved in a spread of films. Remember, that's what the big studios do. When they do a Titanic, they get it right and everything washes its face. But they make loads and loads of mistakes too."

If you are tempted to back a single film, Mr Martin says, the key is to be confident the people involved have a good track record, and that the sales side is properly organised.

He says: "Always make sure there is a proper, established sales agent attached beforehand who is keen on selling the film. And make sure there is a UK distributor involved. What you don't want is to be involved in a film that gets made, and then it's hauled round by the producer to try to find a sales agent."

It is also important to be clear just where in the pecking order small investors come if the film should ever show a profit. You should also be clear just which rights you are buying a part of - cinema release, video, television or all three - and which parts of the world each of these apply to.

Richard Platt is an actor and director who is about to start trying to raise money for first full-length feature, called Operation Elvis, a film about a 10-year-old boy who thinks he's Elvis Presley. With a cast of unknowns and a shoot of about six weeks, he thinks the film could be made for pounds 1.2m.

His first film - the 30-minute, award-winning May Day May Day - was made in 1996 at a cost of pounds 38,000. That price was possible only because the actors agreed to work for nothing.

This money cleaned out much of Mr Platt's savings, built up from his acting roles and a couple of lucrative television commercials. Mr Platt plays James White, the pub landlord in television's Peak Practice.

He says: "When you put money into a picture for the first time, you're actually investing in the talent of the writer, the director and the team. Say I go on to Hollywood and make a Full Monty. The first people I go to when I want to raise money again are going to be the same people who had a share in my first pounds 1m picture. Then, of course, the rewards are much greater, because you've got more money to play with."

Like Mr Martin, he says distribution is the key. He showed May Day May Day to a cruise ship audience last year, some of whom were sufficiently impressed to say they might invest in Operation Elvis. But Mr Platt wants at least an agreement in principle on distribution for the film before he calls them back.

"I can't possibly go to people and ask them for money until I've got some kind of outlet for it," he says. "I'll get my editor to put it together as we shoot, we'll make trailers and hawk those around as we shoot. If I die doing it, I'm going to make this damn film."

The industry also benefits from several tax breaks. These are designed to encourage investment in risky or unproven businesses, and film production qualifies on both counts.

Investors with big profits from other shares can defer payment of capital gains tax (CGT) through reinvestment relief. The old shares can be sold with no CGT to pay, providing the money is reinvested in a qualifying unquoted company within three years of the sale. Companies with an AIM listing are not excluded.

Matrix Films & Television is one company pulling in funds through this route. The two projects it has helped finance so far are Mike Leigh's Career Girls and a revival of 1970s' TV series The Professionals, starring Edward Woodward and due to screen later this year. Matrix finds its investors through the UK's network of independent financial advisers.

Nile Bamford, company accountant at Matrix, says: "Our investors are people with CGT liabilities, and we can structure them into a scheme as reinvestment relief. They act as co-producers in the film or the TV series, and defer paying the 40 per cent CGT.

"So far, the minimum investment we've accepted is pounds 100,000. That might come down, but it's a lot more admin work from our point of view if we lower that amount."

The enterprise initiative scheme is another way for big investors to get involved. This scheme, the replacement for the old business expansion scheme, gives tax relief at 20 per cent on sums of up to pounds 150,000. This, again, is intended to encourage investment into risky ventures as film production.