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Beginner’s Guide to Passive Income (5): Entertainment Financing Cycles, Returns, and Entry Thresholds (Part 1)
Entertainment financing has always been a fascinating topic. The allure of movies, music, and famous personalities often makes this asset class seem like a gold mine, but its non-standard nature and lack of transparency make it hard to navigate. Let’s break it down into categories, starting with the simpler ones: music and audio dramas.
Music and Audio Drama Licensing
Music Licensing
This typically involves purchasing copyrights. As long as the music generates streams or royalties, you get a share of the profits—usually on a monthly basis.
- Entry Points: Relatively low, typically around $10,000.
- Returns:
- Popular Songs: 15–20% annualized returns.
- Profitable Songs: Around 10%.
- The Rest: Some assets may generate losses.
- Term: No principal repayment—your investment trades cash for perpetual cash flow (within the copyrights timeframe). Returns depend on the copyright’s lifecycle, often during its “long tail” phase, when peak earnings have already passed.
With long-tail assets, it takes roughly 5–7 years to break even for good assets at 15–20% annualized returns. Personally, I’ve encountered assets yielding only 7%, so I’ve largely steered clear of music copyrights unless a unique structure aligns with my goals.
Audio Dramas
A niche and even less-explored category compared to music. Investments here are typically project-based, without established funds in this area.
- Returns:
- Top-tier dramas: Often return the principal in about 13 months
- Other examples:
- 11 months: 42% ROI.
- 7 months: 39% ROI.
- 5 months: 20% ROI.
- 2 months: 6% ROI.
- Averaging out, the break-even point seems to fall around 1-3 years, with potential long-tail cash flow yielding 7–10% annually.
- Challenges: Highly dependent on luck and market trends. For instance, I invested in an audio drama voiced by the actress behind the Empress in Empresses in the Palace—I’ll share real returns in a future series once the data comes out.
Film Investments
Most people only know one way to invest in movies: equity funding, where you invest in production and earn a share of box office revenue.
Why This Is a Risky Play
Unless you’re financially prepared to burn lots and lots of money, avoid this strategy!
- Major productions: High budgets mean high risk. Even if a film grosses billions, the first payouts go to actors, marketing, distribution, and cinemas.
- Investor returns: In blockbuster cases, producers may pocket only 10–20% of profits, and that’s if the movie succeeds. The risk-to-reward ratio is unfavorable.
Where Profits Lie: Indie Films
Independent films (Indie movies) are often more profitable than blockbusters. They offer higher returns and better risk-adjusted odds. The logic behind this will guide anyone interested in film investments, and I’ll delve into the specifics in the next article.
Stay tuned for part two, where we’ll uncover the principles and strategies for investing in independent films and other opportunities in entertainment financing!
Till next time!