Dublin may not quite be "Hollywood on the Liffey" but the fledgling Irish film industry continues to thrive, providing interesting investment opportunities for the private investor.
The latest Irish film, John Boorman's The General, opens across Ireland on May 29th. Written, produced and directed by Boorman, it is about the life and times of Dublin gangster Martin Cahill who is played in the film by Brendan Gleeson.
IBEC's AudioVisual Federation says that some 122 productions were made in Ireland in 1996.
The total value of the productions was some £97 million compared to £100 million in 1995. Of this, around £62 million was spent in Ireland, down slightly from £64 million a year earlier. In terms of the funding needs, some 42 per cent was raised as Section 35 finance.
The film industry continues to account for significant employment, providing jobs for 1,187 people in 1996, according to IBEC. It also offers attractive investment opportunities.
Section 35 relief was introduced in the 1987 budget and allowed investors in films made in Ireland to deduct the cost of their investment from their taxable income. The scheme has been modified over the years and the latest finance bill consolidated all legislation relating to film into Section 481.
Currently, the portion of an individual's investment that can be claimed against tax is 80 per cent, subject to a maximum of £25,000 in any one year, for private investors.
An individual investor who puts up £25,000 would get tax relief on £20,000, which will amount to £9,200 at the higher 46 per cent tax rate.
The sum the investor gets back is around £18,000. Having invested a net £15,800, this represents an after-tax return of some 14 per cent.
Returns this year will be a little lower than last year when they averaged around 16 per cent because the higher tax rate has been reduced from 48 per cent to 46 per cent. Generally returns don't vary much from project to project because the market for fund-raising is competitive and producers can shop around.
Depending on the size of the film's budget, only 50 to 60 per cent of the funding can be raised for any one project under Section 481 and the total raised is subject to a cap of £7.5 million. Investors cannot avail of tax relief until principle photography has started on a project.
Investing in film is not without risk, but accountants describe it as low-risk rather than no-risk and finance companies do all they can to minimise what risk is involved. This falls into three main categories, film financiers say.
First of all, there is the risk that the film is not completed. A completion bond, an insurance bond which covers liabilities in the event that a film has to be abandoned, can help reduce this risk.
Investors also have to be aware that the party for whom the film or programme is being made may not be able to pay or may not be prepared to take delivery of the finished product if they are not satisfied with the quality.
Finally, there is the risk that creditors remain at the end of filming and money earmarked for investors has to be diverted to settle the bills.
To minimise the risks, the track record of the promoters and producers is very important.
"You have to look at who is producing film. Is it Walt Disney or some unknown producer?" says Mr Noel Minogue, head of marketing at AIB Investment Managers (AIBIM) which organises finance for film projects.
Aside from AIBIM, the other main players involved in film financing in Ireland include KPMG, Smurfit Paribas, Irish Screen and Merlin Films which organised the financing for The General.
But investor demand for good quality projects outstrips supply and the interested investor needs to be on their toes. Those involved in raising film finance say that they never have to advertise to meet their funding requirements and most investors become aware of opportunities through word of mouth or by keeping a close ear to the ground.
"To date, we have had no difficulty raising funds. There are not sufficient projects to take up the demand that's there," says Mr Minogue.
KPMG runs a database of investors in past projects, who know what is involved and are likely to put up money again.
The benefits of film investment will be less now that the top rate of taxation has been reduced to 46 per cent from 48 per cent. But the low interest rates available from cash on deposit allied to changes in the rules governing investment in the property market and BES schemes are likely to mean that demand for good quality film projects remains strong in the current tax year.
Those interested in investing in films usually consider the tax-based relief available under Section 481 of the Finance Act.
But for those who like a bet, particularly a high-risk one, there are other ways of getting involved in bringing a blockbuster to the screen.
Producers frequently need to finance a deficit, usually a high-risk form of funding, while the hardest funds to raise are for development purposes. Film producers point out that there is a long gestation period involved between finding an idea and eventually getting it onto the big screen.
Funds are important at this stage, however, to option books or commission writers to produce scripts.
The sums involved in this tend to be smaller than those necessary to meet production costs and an investor could put money up with a producer they know and trust and have it spread over the development of a number of projects which would spread their risk.
"There is always room for investment. Film producers are always looking for investors," says Ms Mary Leonard, director of corporate finance at KPMG, who is involved in film finance.
But she warns that those opting for the more high-risk forms of investment need to be in a position where they can afford to lose money as well as to make it.
For every unexpected box office hit like The Full Monty, there are a score of duds which bomb or go straight to video.
But investors should not fret even if their film is not an instant success. A lot of films flop at the box office, but recoup the money invested in them over a period of time through video sales.
