152W.25thStreet,Suite1202,NewYork,NY10001(212)462‐2600info@chatsbyfilms.comBoxOfficeIsUpDespitetheRecession.Okay,NowWhat?ByLorenSklarThe New York Times published an article recently about record‐breaking box officenumbers so far thisyear ‐‐ "InDownturns,AmericansFlock to theMovies"NYT3/1/09.Thephenomenonof long lines at theboxofficeduring economicupheaval isnotnew; itdatesbacktotheGreatDepression.Thistendencytoseekescapeatthemoviespersistedintherecessionsof1990and2001,and theuptick isparticularlystrong thisyearwithboxofficereceipts17.5%higherthanthesameperiodayearago.Chart1:DomesticBoxOfficeinaRecession

Source:Variety

Okay,sofilmisoneofthefewareasofgrowthinthisrecession.Howdoessomeoneinvestin film? Unfortunately, stocks are an ineffective vehicle. The film studios are owned bymedia conglomerates that derive only a small portion of their revenue from filmproduction. The counter‐cyclical effect of film exposure is overwhelmed by the largerexposuretoconsumerspendingonvacationpackagesorconsumerelectronics.Asaresult,themedia conglomerateshavenotperformedwell duringor immediately followingpastrecessionaryperiods.

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Chart2:DisneyStockinaRecession

Source:Bloomberg

In fact,after the2001recession,Disneystockdidnot tradeabove its recessionmidpointpriceof$28.34untilJanuary25,2005,aperiodofmorethan42months.Chart3:SonyStockinaRecession

Source:Bloomberg

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Sony,withitsgreaterdependenceontechnologyproducts, faredevenworse.Tothisday,more than 90 months later, it continues to trade below its recession midpoint price of$65.75.While it is possible to invest directly in the equity tranche of a studio slate, early slateinvestors suffered disappointing returns as the studios cherry‐picked which films wereincluded,omittingtheestablishedfranchisefilmsandlayingoffriskierprojectsonoutsidebackers. Subsequent slates were more inclusive, but the minimum investment is still$100M or more, too expensive for many investors. However, a savvy investor couldassemble a portfolio of smaller, independently‐financed films for $10Ms rather than$100Ms. This might be a more affordable route to investing in what is, historically, aprofitableindustryinbadeconomictimes.NEXTMONTH:Howmanyfilmsareneededtoachieveadiversifiedportfolio?ThewriterspentthreeyearsworkingontheEquityDerivativeStrategiesteamatGoldmanSachsandfiveyearsasanassistantdirectorandproductionassistantonnumerousfilmsincluding2006SundanceselectionFlannelPajamasandtheupcomingUniversalPicturesblockbusterDuplicity.Hismostrecentlectureonthetopicofquantitativefilmfinance,“FilmFinanceasRiskCapital:ExploringaMisunderstoodAssetClass”,waspresentedattheInstituteofInternationalFilmFinanceinNewYorkCity.Thismaterialisforinformationalpurposesonly.Wearesolicitingnoactionbaseduponit.It is not a prospectus, does not imply and shall not be construed as an offering for anysecurity, nor does it constitute investment, legal or tax advice fromChatsby Films or itsrepresentatives. Filmmaking is a high‐risk venture and is not suitable for all investors.Please consultwith your investment, legal and/or tax advisor(s) before proceedingwithanyinvestmentinfilm.