investing in movies - q group.pdfVIP

Investing in Movies Mark J. Ferrari and Andrew Rudd1 August 2006 Introduction The world economy is increasingly devoted to the production of intangible assets. “The economic output of the United States has become…predominantly conceptual,” according to Greenspan (2003). Borod (2005) states, “The sheer volume of intellectual property worldwide is staggering.” A large part of this intellectual property is filmed content created by the major m ovie studios. Despite its increasing importance, analysis of intellectual property as an asset class remains difficult because of the scarcity of systematically collected data. Filmed content is emerging as an exception. Reasonably reliable information about the creative content and financial performance of feature films is available to those willing to assemble it from a variety of sources. The goal of this article is to use such data to understand the returns to investing in movies. Movie proj ects are priced in an incomplete and inefficient market where valuation and arbitrage are difficult if not impossible, suggesting an opportunity for active management. However, there are at least four reasons why this task is quite different 1 Mark J. Ferrari is director of research and Andrew Rudd is managing partner at Procinea Management LLC, Emeryville, California. Without implicating them in any errors and omissions, we thank our colleagues at Procinea Management who have collaborated at all stages in this research project and who have made truly significant contributions to this study. We would particularly like to thank Adam Cao, Paul Jung, Mark Rozells, Bob Rubin, and Scott Ryles. In addition, Gordon Rausser and Bill Balson directed the initial stages in the project; without their leadership we would have traveled neither as f