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Watch The Movie, Skip The IPO


Incest, murder, and a talking raccoon. Not the usual stuff of investment opportunity. Yet a movie with these elements, plus 2001 Oscar nominee Ethan Hawke in the lead role, is looking for backers in a most unusual way -- an initial public offering of stock. As I scouted prospects for Billy Dead Inc., producer of the film Billy Dead, questions began to pile up fast:

Would buying the stock permit me to act the mogul, taking casting meetings with actresses, maybe Winona Ryder, Hawke's partner in one of cinema's great kisses in Reality Bites? Or, better yet, with Jennifer Connelly, who is penciled in to play opposite Hawke in Billy Dead? Would I be invited to the premiere? See the daily rushes? Might my name be in the credits? Answers: no; no; maybe; sometimes, via the Web; and, only on the DVD, if at all.

PEOPLE LOVE MOVIES SO MUCH that the chance to be involved with one can turn sensible investors into blathering idiots. Billy Dead's source is a 1998 novel of the same name that traces a poor Michigan family's dark history, in part via that odd raccoon. Strange, I know, but after reading the novel, hearing Hawke discuss the movie, and seeing two of director Keith Gordon's films -- A Midnight Clear (1992, with Hawke) and Waking the Dead (2000, with Connelly) -- I bet Billy Dead proves one fine flick. But forget the IPO, if only to abide this prospectus note: "Investors should not buy shares in this offering unless they can afford to lose their entire investment."

Like putting up the dough for a restaurant or a race horse, investing in movies is risky -- almost as risky as biotech stocks. Still, my curiosity about how cash flows in such a deal got the better of me. If no casting meetings, what does a mini-mogul get for his money?

Billy Dead is selling 900,000 preferred shares for $7.9 million, or $8.75 each. From that, Los Angeles underwriter Civilian Capital takes 7%. After other startup costs and overhead, $6.2 million would be left to make the film. So, once Billy Dead is filmed, how might public investors profit? As preferred shareholders, they would enjoy first call, after taxes, on revenue from the sale of rights to distribute the film to theaters, television, and DVD markets, up to their initial investment of $8.75 a share. Then, any leftover cash would be split 50-50 -- half to public investors, half to the actors, others on the creative crew, and to Billy Dead founders and insiders.

Now, suppose Billy Dead wins great reviews and draws, say, $20 million in total revenue. Deals vary widely, but assume a distributor gets 30%. From the remaining $14 million, take out $8 million in costs, leaving $6 million in profit. Subtract 35% for taxes, pay back preferred holders, cut common holders in for their half, and $2.15 a share or so might be left as profit. That's a return of 25% over at least two years. Lots more in revenue or sweeter distribution terms would net higher returns. The trouble is, forecasting these factors is no easier than making sense of a talking raccoon.

If bankrolling a movie still intrigues you, here's a plan: Wait to see how Billy Dead trades on NASDAQ, where it aims to list as BILLY. Odds are, it won't hold its $8.75 IPO price all the while Billy Dead is filmed. As it falls, your chance of moving from mini-mogul to money-making mini-mogul go up. By Robert Barker


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