While many sectors of the economy are vulnerable to drastic boom and bust cycles, the media industry occupies an interesting place. This industry is relatively insulated from whatever's happening with the rest of the world economy, with a baseline stability of media consumption.
The form and medium may change – as shown by the COVID pandemic, where movie theaters suffered massive losses while online streaming services made huge gains – but people will always consume content. Humanity's desire for entertainment remains constant, regardless of how the economy is doing in the middle of pandemics, wars, and recessions.
However, investing in the media industry isn't as straightforward, especially in TV and film productions. Because productions have so many moving parts and filming schedules can be quite variable and prone to change at a moment's notice due to various contingencies, it can also expose investors to certain risks. Therefore, investing in this space requires a great deal of specialist knowledge.
Established in 2018, Media Finance Capital (MFC) is a London-based investment company that specializes in providing debt financing, such as senior and mezzanine debt, for independent film and TV productions. Unlike traditional financial lending institutions such as banks, MFC is a more nimble debt financing partner that is able to provide bespoke financing solutions while adhering to the time-sensitive nature of independent production. These traditional institutions often do not have sufficient knowledge to assess risk in the TV and film industry, and thus are more averse to lending money.
The debts provided by MFC are frequently made against producers' receivables, which include public funding or government subsidies (rebates, tax credits, grants, etc.) provided by various countries to encourage productions to film in their jurisdictions. Other receivables include distributor presales, broadcaster license fees, and streaming license fees.
According to Media Finance Capital CEO Marlon Vogelgesang, the company's business model allows it to have a more practical way of appraising risk and is more flexible to the unique qualities of producers and the film industry. As a quasi-banking player that is more "user-friendly", MFC is able to obtain a higher return compared to banks and achieve outsized returns for its investors. The company's expertise lies in being able to balance the needs of producers with the ability to provide returns for investors.
"Thanks to our team's extensive experience in both film and TV production and the financial industry, we have achieved a multi-year track record of finding a good equilibrium between producers' and investors' needs, resulting in constant over-indexing on returns, while at the same time keeping producers happy," Vogelgesang says.
Furthermore, he says that most of MFC's portfolio is not exposed to the risk of a film performing poorly, commonly known as 'flopping', as the repayment of the majority of debt is not contingent on the production's ticket sales. Following the last in and first out principle, MFC's money is often among the last received by producers, but among the first to be paid back, creating a more defensive approach to media project financing.
"For the past five years MFC has been performing on a zero-loss basis, continuously over performing on each and every project from an investors' point of view. This has and will continue to give us the confidence to scale, opening up conversations with other capital partners."
To date, MFC has financed more than 60 film and TV projects, including independent productions with a lower-end budget range of $2 million or $3 million, as well as mid-budget films of around $50 million.
Investors in MFC include family offices and high net worth individuals in the upper nine and lower 10 figures, who are often seeking exposure to the media sector, but are unwilling to take the risk of investing directly in productions. MFC also works with institutional investors and has recently been approached by pension funds and private equity firms that are looking to diversify their investments.
"Media and entertainment, particularly TV and movie production, is an evergreen industry, as producers are always in search of funding to get their projects off the ground," Vogelgesang says. "It presents an opportunity for investors looking to diversify, but it also operates by its own set of rules, both written and unwritten, which may expose investors to risks not present in other types of investments. Since its founding, MFC has successfully provided financing to more than 60 different productions, demonstrating its expertise in navigating the industry, which investors can benefit from if they choose to engage in this asset class."
