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Buy a piece of Ethan Hawke - Open Knowledge — LiveJournal

Nov. 20th, 2003

10:49 pm - Buy a piece of Ethan Hawke

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[This is an example of how regulations hurt innovation, and harm consumers. The costs of an IPO are huge, due to the regulatory requirements. If there were no regulations, we would see a lot more innovative financing methods like this one.]

http://money.cnn.com/2003/11/17/news/companies/hawke_ipo/index.htm

Buy a piece of Ethan Hawke
Producers of 'Billy Dead', new movie starring heartthrob Hawke, are selling shares to the public.
November 20, 2003: 8:15 AM EST
By Chris Isidore, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Producers of the next Ethan Hawke movie have started selling shares in the film over the Internet, a method of financing believed to be the first public offering for a stake in an individual film.

Investors are being given a chance to buy shares in the film "Billy Dead" starring Ethan Hawke.

The shares are going for $8.75 each, with a minimum order of 100 shares for $875 available to investors. Civilian Capital, an affiliate of the film production company that is underwriting the offering, said it expects to sell 900,000 shares in the film, raising a relatively modest $7.2 million after deducting the costs of the offering.



The producers plan to use the proceeds to produce the movie "Billy Dead" next year. The independent film will be a murder mystery based on a 1998 book by Lisa Reardon.

Normally shares in independent films are offered privately to wealthy investors or film companies rather than offered to the public. Big films from major studios can run above $100 million to produce. (Click here for information on shares in the movie).

While the market for initial public offerings (IPOs) has been improving in recent months, the overall number of offerings is still behind year-ago levels.
Related stories


According to Renaissance Capital, a research firm that tracks IPOs, there have been 42 initial public offerings as of Monday, versus 70 in all of 2002. Those offerings are for shares that are listed on major exchanges, not sold directly on Web sites like this one.

The Securities and Exchange Commission approved the film's offering last week. Civilian Capital President Barry Poltermann said the company has sold about $50,000 in shares so far, with the average investment about $2,500 per investor. It has more orders pending, though, with about 8,000 people having downloaded its offering prospectus so far.

The company has not yet been cleared to sell shares to residents of 13 states, and there are restrictions in some other states, including a minimum net worth for prospective buyers. Poltermann said the company is restricting investors to shares that equal no more than 10 percent of their liquid assets.
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"We're trying to make sure that the glamor of the movie business doesn't overwhelm people's judgment," he told CNN/Money. "This should be only a small percentage of a portfolio, for people interested in a speculative investment."

Poltermann said the firm is looking into another IPO for a group of three films to be financed together, but details of that offering won't be released until the current project is completely financed.

The company's prospectus says box office proceeds are to be used first to reimburse shareholders for their original investment. After that, investors will get half the additional revenue, with some actors and creative talent splitting the rest with the film's producers, including Hawke.
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Paul Dergarabedian, president of box office tracker Exhibitor Relations Co., said that some breakout independent hits such as "My Big Fat Greek Wedding" and "The Blair Witch Project," were among the most profitable films of all time, due to their low costs and big revenue streams, including video as well as box office sales.

But most independent films are not money makers for their investors, he added.

"Out of 400 or 450 movies released every year, maybe 300 are independent films," Dergarabedian said in July, when plans for the IPO were first announced. "The only ones you hear about are the breakouts. They don't all make money. Most don't, even if they only have a $1 million budget. If you break even you're doing great."

Comments:

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From:denshi
Date:November 20th, 2003 08:00 pm (UTC)
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Do I even need to provide links to consumers being hurt by the deregulation of finance trading regulations? Have you been reading the news this decade?
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From:crasch
Date:November 20th, 2003 08:14 pm (UTC)
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Sure, post the links.
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From:denshi
Date:November 20th, 2003 08:25 pm (UTC)
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Nah, too drunk. But you can play this game at home! How were Enron/Worldcom/Tyco/the-last-few-years-of-crashes done if not by the investment deregulation they lobbied for?
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From:zenwarrior01
Date:November 20th, 2003 08:34 pm (UTC)
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The question is what KIND of regulation. Disallowing companies to go public until they meet certain high numbers in income, sales, mkt cap, etc is wrong IMO. The examples of Enron, WCOM, etc... well these are companies that fulfilled all the regulatory requirements for IPOs... I mean you're talking about some of the biggest companies in the world. They have nothing to do with IPO regulations; they have to do with accountability and transparency.
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From:denshi
Date:November 20th, 2003 08:42 pm (UTC)
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I agree with you 100% and would like to offer you a hot spiced rum.
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From:blueadept
Date:November 20th, 2003 08:35 pm (UTC)
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Those were all actually exchange-traded stocks, and the stock exchanges have very strict rules about how companies that trade on them must behave.

The "crashes" of those companies were not due to innovative investment methods, but by incorrect accounting procedures. Generally, all companies that trade on stock exchanges (I'm not sure how this applies to OTC-traded companies, like I'm guessing this film will be) are required to submit statements in GAAP format, and may optionally provide pro forma statements. If you look carefully at the two statements, the differences between them, and suspicious numbers, you can generally find that some companies are shady.

The Motley Fool has some great articles on discovering possible shady accounting, but there are several great books on uncovering less-than-ethical accounting practices from statements that public companies provide. It's not *that* hard to at least do some basic checking, and anyone who doesn't and still buys stock, IMO, deserves their inevitable losses. Investing is not a throw-a-dart-at-a-random-analyst-and-see-what-stocks-they-recommend game. You have to sit down and do research yourself.
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From:bhv
Date:November 20th, 2003 09:44 pm (UTC)

The Success of Regulation

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I offer Enron up as a pristine example of regulated markets at work. From beginning to end, regulation made that scam possible.
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From:blueadept
Date:November 21st, 2003 04:39 am (UTC)

Re: The Success of Regulation

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I'm not exactly sure how that'd be an argument for regulation. :P But I think you're arguing against regulation, and I would agree with you.

I was just pointing out that even if the government regulated investment activity more closely, it wouldn't have stopped Enron/WCOM/Tyco/etc. Their accounting departments simply lied on the accounting statements. I also said it's possible to detect such lies, or at least detect that something fishy is going on. So, regulation or no, people need to take responsibility for protecting themselves against investments in companies that are issuing misleading/false statements.
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From:greendalek
Date:November 21st, 2003 08:28 am (UTC)

On a totally unrelated note...

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Am I the only one who finds it a bit weird that Uma Thurman just finished a movie called "Kill Bill," and her ex is now working on a flick called "Billy Dead?"

Is Ethan Hawke sending some kind of coded message here?
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From:boffo
Date:November 21st, 2003 10:22 am (UTC)
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As someone who knows a little bit about film financing, I have to say that this is an extremely sleazy way to dupe a bunch of suckers out of money to pay for something they don't understand. Anyone who invests in this film will almost certainly lose their entire investment.

To explain why, here is...

A Brief Primer on How Movies Get Made

First, to correct a common misconception, studios do not make movies. Production companies make movies. Studios are a combined venture capital, distribution, and real estate leasing company.

There are three kinds of movies: Studio, Stuido-light, and True Independent. Studio films are the big budget ones that fill the theaters. Typically a studio will fund it with $20 to $100 million, and an equivelent amount on advertising. Studio-light films, which covers most of the movies you probably think of as independent, are funded by the studios' "independent" divisions, which usually pay $1 - $5 million.

With both of these types, the studio pays the production company to make it, rents them space on the lot and in sound stages, offers guidance, and when the film is done, distributes it to theaters and advertises it. (With studio films, they are distributed only to about five theaters in the country. If the film does well there, they are sent out to more theaters. If not, the studio gives up and writes off the investment.)

Most movies lose money. But the studios diversify their investments enough that this is okay, because the hits pay for it all. This is especially true for Independent films, where most will close after a week in five theaters, thus earning back pretty much nothing.

With studio light films, the studios are willing to take risks. They want edgy films that have a reasonable shot of being a breakout hit. They are, however, more likely to fund a movie that has a star attached, as that is somewhat of a guarantee that at least some people will want to see the movie.

Then there's True Independent films. These are ones where the producer/production company was unable to convince any studio executive that the movie had any chance of making money. They typically are financed by the producer maxing out his credit cards and borrowing from his rich uncle. This is a horrible investment. The money has to be spent up front, and the overwhelming majority of the time they won't even get the movie distributed to theaters. If it is distributed, it has to be a breakout hit to make anything back. For every Blair Witch, there are thousands of steaming piles of crap produced by USC grad students which nobody outside of their immediate family has ever heard of. The situation is even worse when you remember that these are already the movies that the studio executives (who know a lot about the subject) didn't think the movie had any hope of success. And in this particular case, the fact that they couldn't get financing even with a major star attached, shows that the script and/or producer must really suck out loud.

So this seems like a scam to get poor schmucks to pour their money down a rat-hole because the people who know better realized this film was a loser.

Not that I think it should be illegal. If someone is stupid enough to "invest" in an industry they know nothing about, I'm not going to be sorry for them when they lose their cash. But it is rather sleazy.
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From:crasch
Date:November 21st, 2003 11:02 am (UTC)
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Thanks for the interesting comment!

But it is rather sleazy.

They may be sleazy, but I personally would reserve judgment until I read what the prospectus says. I don't think that offering a high risk investment is sleazy in and of itself. The key factor is whether they make the risk clear at the outset. As long as they do, I have no problems with it. If they don't, then I agree that it would be sleazy.
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From:boffo
Date:November 21st, 2003 11:29 am (UTC)
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The point is that the risk-adjusted return is almost certainly massively negative, which is of course well below the market rate.

Remember, the people who know what they're doing declined to invest in this. So now the producers are trying to get money from the people who don't know what they're doing.
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From:crasch
Date:November 21st, 2003 11:54 am (UTC)
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Remember, the people who know what they're doing declined to invest in this. So now the producers are trying to get money from the people who don't know what they're doing.

How do you know that they "don't know what they're doing?" A studio exec depends for his livelihood on the success or failure of the films he finances. Therefore, the financial viability his film portfolio must be of utmost importance to him when making financing decisions.

Individual investors don't face that same pressure and therefore may have very different motivations for investing. For example, I might want to invest in a film, knowing full well that I probably will lose my money, simply to be able to say that I helped finance a film that showcases one of my favorite stars. Any return I might earn is simply gravy.



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From:boffo
Date:November 21st, 2003 11:32 am (UTC)
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(With studio films, they are distributed only to about five theaters in the country. If the film does well there, they are sent out to more theaters. If not, the studio gives up and writes off the investment.)

This should say "With studio-light films..."

This is especially true for Independent films, where most will close after a week in five theaters, thus earning back pretty much nothing.

This should say "This is especially true for Studio Light films..."
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From:tojgow
Date:November 24th, 2003 11:19 pm (UTC)

I'm easily amused, and this amuses me

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A few random-ish comments

1. Ethan Hawke has not actually agreed to appear in the film. He has apparently signed on as Executive Producer, but all they have from him re acting is a written letter saying he's interested.
2. The offering price of $8.75 was determined solely by the amount of capital expected to be needed to complete the film.
3. Civilian, the underwriter, has no obligation to sell all the shares. The shares will not actually change hands until all 900,000 are sold. I'm not sure if this is SOP in the OTC market, but it's an interesting risk for potential shareholders (time value of money, and all that jazz).
4. The Risk Factors in the Prospectus note that they plan on making a graphic film and bear the risk of the NC17 rating. This may simply be trying to cover all the bases, but the ole NC rating would be commercial death.
4. Our erstwhile host's comment that somebody(s) may wish to finance this as essentially a vanity project would seem to vitiate the idea of the IPO as a superior capital raising device. I mean, one of the best features of the open market is its ability to agglomerate information from diffuse sources to provide the best possible information. Vanity funding artificially raises the market price and decreases net societal welfare.
5. I haven't read the entire prospectus, but the rights of the purchasers of the "Preferred Stock" sold here seem pretty tenuous. It doesn't have the normal preferred dividends (sensible here due to the nature of the revenue stream), but does have some voting rights. BUT not enough voting rights to actually make a difference should the common stockholders vote contrary. There's also the risk that Billy Dead Inc. could issue debt and pretty much wipe out any chance of recovery.

Overall, I'd have to agree with Boffo. This is probably pretty much hokum designed to take advantage of investors without experience in, or much knowledge of, the motion picture industry. Sure, there's the MBFGWs and the TBWPs, but there's also all the aforementioned garbage made by USC people nobody's ever heard of. In fact, what you'd see in a mature market for this sort of thing probably looks like a balanced portfolio of films with payment to stars based on perceived marketability and scriptwriters being paid a bunch of money for scripts that look good and, oh, heck, it sounds to me like the end result in a mature market would look pretty much like the current environment.

Then again, what do I know.
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