A private investment fund specialising in Latin American audiovisual content is a model of the value of investing in creativity and talent.
How difficult it is to describe the word ‘value’. This term has several different meanings, some quite ambiguous – from ‘the value of something such as a quality, attitude, or method is its importance or usefulness’ to ‘price, cost, worth, merit, usefulness, advantage, profit, gain, importance, significance’.
At Screen Capital, a firm that manages private investment funds specialising in the entertainment industry, we set out to direct our value towards the development and expansion of the audiovisual and entertainment industry. We launched a model specialising in generating returns through an audiovisual content portfolio. Specifically, through our first fund, Screen One, we invest in series or films with a global perspective and reach.
It has not been easy to raise capital for a private equity fund for which the return expectations are based on audiovisual content. However, we are confident that the Latin American entertainment industry has an enormous opportunity to diversify its potential to reach mass audiences.
Launching our first roadshow to find investors was truly a valuable story. We visited family offices, investment managers, entrepreneurs and art patrons. The vast majority told us that the profit model for an intangible fund made no sense. In the creative industries, the asset base is often intangible and is represented by creativity and knowledge. How to ensure, for example, the collection of a loan against that? The traditional investors we visited were right: appropriately evaluating the individual risk of each audiovisual project is very difficult, and evaluating a portfolio would be even more complicated.
In addition, our entrepreneurs, the creatives, almost always share an intrinsic motivation more closely related to their artistic work than to any goal of financial profitability. For the financier, in contrast, profitability is the priority.
In the end, this story of seeking funding turned out well for us. We managed to set up our first fund with investors from within the entertainment industry, who understood the logic of the business. With that achieved, we went out to look for projects. Along the way, we were joined by Chile’s public bodies through Corfo (the Chilean Production Development Corporation), which complemented the private contribution with a public credit line aimed at promoting Chilean venture capital. Thus, we managed to build our fund in March 2020, even as the pandemic took hold.
Every day, consumers need more content in their own languages, with faces they can recognise from their local screens, in locations that are familiar to them, and produced with outstanding artistry and quality.
And this had many consequences, both good and bad. During the pandemic, many stories emerged because there was a lot of time to write, but production was also paralysed, and we all turned to consuming content in our homes. Consumption of the ‘library’ available on streaming entertainment platforms such as Netflix, Hulu, Amazon, and Disney+, accelerated by the pandemic, led to a rapid increase in subscribers and users globally. Every day, these consumers need more and more content in their own languages, with faces they can recognise from their local screens, in locations that are familiar to them, and produced with outstanding artistry and quality.
This could be a positive for the independent producer. However, despite the explosive demand for regional content created by these platforms, producers are unable to obtain financing to produce or to protect their intellectual property. Instead, they end up working on demand for the platforms. In consequence, they retain only a production commission (10–15%) and lose all ownership of their work. As a result of the lack of alternative and efficient sources of finance, producers end up working as contractors for these large platforms, losing their intellectual property and, therefore, all the future value of their work. This not only has monetary implications for the producers, as they miss out on all the possible upsides of a box office success, but also affects projects on a creative level.
Today, the industry urgently needs new, more flexible financing sources aligned with the logic of the business. Venture capital, private investment funds and the traditional finance industry should all see the investment opportunity. However, there is still some way to go before they can conceive of the commercial and risk particularities of projects as ‘unstandard’ as audiovisual productions.
Adopting a different mindset – one that captures the point of view of both the financier and the content creator – will be necessary to bring these two worlds closer together. The entertainment world is collaborative by nature. That is a significant value for the new generation of citizens interested in investing in alternative assets and in green, creative, entrepreneurial industries.
But we as investors must be able to recognise emerging talents, select teams and their portfolios, and guide creative teams in their operational execution, legal structuring and negotiation processes without putting ourselves in the way of the creative process. We’re going to have to start building bridges.
Within the many definitions of value, there is one that we like a lot, which comes from philosophy:
‘Value (phil): The qualities that some things possess, for which they are estimable and are therefore considered to be goods.’
The value of investing in talent and creativity is undeniable. In our native Spanish, the word valor (value) also means courage: bravery, trying different things and taking risks. And where there are risks, there are gains.
