Following a successful career as a leading fund manager, London businesswoman Nicola Horlick is turning her attention to film finance with Derby Street Films. Here, she explains why, with the right approach, film can be a low-risk investment.
What motivated you to establish Derby Street Films?
In 2007, my team started looking at the movie industry and thinking of ways that we could make money for our clients. Initially, we set up a fund with a specialist film music company called Cutting Edge. That fund invested money in movie projects in return for the music publishing rights. We then asked the producers that we had worked with what else we could do, and they universally said development money was scarce and that was what they needed most. Thus we set up Derby Street Films and started investing in development projects in April 2011. Derby Street Films has eight development projects on the go and we recently set up Derby Street Films II, which already has one project with several more in the pipeline.
How is Derby Street structured?
Derby Street Films and Derby Street Films II are companies, not funds. In terms of the model, we create the intellectual property, working with a producer. So, if the script is based on a book, we take the option or it is assigned to us when we get involved. We then engage the writer(s). There may also be other elements of the development of the project that we are involved in, like the hiring of a line producer. It varies from project to project. On the first day of principal photography, we sell the fully developed project to the producer. We then get a share of the producers’ net profits and some sort of credit for Derby Street.
I don’t think there is anyone else out there doing things in exactly this way, although some producers do have their own captive development vehicles. There was a lack of money in this area and there is huge demand. We are able to work with some very prominent producers as a result, who will get the films made, which is the key to success for both companies.
How are you applying your career experience in investment fund management to film financing?
I have been a fund manager for 29 years and that experience has stood me in very good stead in the film industry. One thing that portfolio managers really understand is about diversification as a means of mitigating risk. In music and development, we have pursued a portfolio approach in order to mitigate risk. The music fund has 150 projects in it, Derby Street Films will have about 16 over time and we are looking to invest in 25 projects for Derby Street Films II over the next 3 years.
You aim to raise money through the Enterprise Investment Scheme; why is this particularly beneficial to film financing?
It is beneficial to UK taxpayers and so it makes it easier to raise the money, hence benefiting the film industry. The government has greatly improved the benefits of investing in an EIS approved company over the last couple of years. The individual now gets 30 per cent income tax relief on entry as opposed to 20 per cent previously. No capital gains is payable if the investment is held for three years, and if there is a loss this can be offset against income tax. This means that for each £1 invested, it costs the investor 70p and the maximum loss for a 45 per cent taxpayer is 38.5p. If you have a capital gain, you can roll it into an EIS and defer the tax on the original investment. You don’t pay this tax until you come out of the second investment, and you never pay any tax on any additional gain. The film industry is worth supporting. It is one of Britain’s strengths and, even if a film is nominally a US project, many of the top directors and stars currently are British. There are huge amounts of British talent in the crafts too. Post Harry Potter, I think that the government should do more to help the film industry. This could be done by increasing the UK tax credit to encourage filmmakers to come to the UK.
What particular projects/individuals are you looking to work with? Is creative endeavour important, or is it all about the financial potential?
The producers have to convince us that the film is going to get made before we will get involved. It helps if there is a director attached early, or some talent. If there have been previous scripts and a major rewrite is needed before the financing can be locked down, that is ideal for us as we can get the money back faster and reinvest. We do develop early stage projects though. Our first aim is to get the films made and get the money back to our investors, which we do by working with top producers with a record of getting films made. We want to be involved in quality projects which will do well at the box office. The financial model does not include any return from our share of the producers’ net profits, but these could be very valuable if we make the right investments and so we do think about that when making our investment decisions. We also look closely at budgets and try and encourage producers to get the best value for money so that the back end is more likely to have some value.
In terms of who we are working with, it has been announced that we are working with producer Lynda Obst on How To Get Over a Guy in 10 Days; the script has been written by Kiwi Smith (Legally Blonde and 10 Things I Hate About You) and two of her writing team. We are also working with Lawrence Bender (Pulp Fiction and Inglourious Basterds) on Blood Mountain, which we bought from the Black List. In addition, we are working with Inferno on Arabian Nights, and are producing a film called In the Blood, which will star Gina Carano (Haywire) and will be directed by John Stockwell. We are also producing Queen of Diamonds, a British film set in 1960s London, which will be directed by Catherine Hardwicke (Twilight and Red Riding Hood). As you can see, we are really getting traction and are working with some of the industry’s best.
Do you think it’s essential that British projects attract an international audience and, if so, how would you advise filmmakers/producers to do this?
Yes, it is essential. If you look at the British films that have done well, they are not the parochial angst movies set on council estates. They may start off with that theme, but then they develop into something bigger. We are good at comedy too. American comedy has slightly lost its way recently, so if we can come up with some good British comedies, there is a void to fill. It is important for British filmmakers to have an eye to the US and what the US audiences want if they want to make money. They have to remember that there were 1.3 billion cinema tickets sold in the US last year. It is a vast market and they ignore that at their peril. We are also very fortunate that we have an exceptional television industry in the UK and thus the production values are very high here. There is a market for what we produce as long as it is commercial.
The film industry is traditionally a male-dominated business; do you face any particular challenges as a female executive, or do you think such questions of gender are outdated?
It was the same in the City. I’m used to it! I have never found my gender to be an obstacle. The fact that I am a woman means that it is easier for people to remember me.