Private film financing: Gains and losses in the Norwegian film sector
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In a white paper to the parliament the Norwegian Ministry of Culture and Church Affairs in 2004 noted that while many of the recent national films could show a healthy return on its private capital of more than 50 percent there seemed to be a notable lack of participation from the traditional investment community in the financing of these films. This report explores the economic reasons for the lack of involvement applying a project financing perspective. A financing and performance review of all the Norwegian films that were theatrically released in 2005 reveals that while these films collectively lost 20 percent of their private capital some showed very strong returns for their private investors and others produced severe losses. Generally, the distribution of performance outcomes did not converge to an average and extreme outcomes were common. It is also demonstrated how positioning within a film’s structured finance affects investment risk, and how the conditions to which public funding is offered affects conditions for private financing. The findings indicate at least two possible reasons as to why the traditional investment community in Norway may be hesitant to participate in feature film financing: An overall negative return on private capital and extreme performance outcomes for the individual projects. However, the analysis also shows that the right application of layered finance may open for investment opportunities more attractive to risk-averse investors from outside the film industry.