Unlocking the potential for private equity investment in the entertainment industry
By Joseph Lee, Head of Asia, Atwater Capital – From Oliver Stone’s “Wall Street” to “American Pyscho” and “The Wolf of Wall Street”, the history of Hollywood is littered with unsympathetic portrayals of the financial industry. The late law professor Larry E Ribstein, who studied the relationships between the financial industry and the media and entertainment sector, once wrote that such portrayals reflected an underlying resentment felt by filmmakers and other artists towards financiers, and in particular the capitalists’ presumed preference for commercial over artistic success.
This resentment is not as widespread as may be assumed, but it exists. Nevertheless, in my experience financiers and artists can – and often do - collaborate without any compromise either in terms of commercial viability or artistic merit. Indeed, significant benefits can come from combining the rigorous financial expertise of private equity firms with the innovation and fearless ambition of creatives. These objectives should not be in conflict.
Of course, that does not mean success is always a given, and there are certainly pitfalls to avoid. But overall, private equity firms should not only be interested in, but thoroughly excited about unlocking investment opportunities in this dynamic and rewarding sector.
While the opportunities are plentiful, investment firms should endeavour to adopt a different mentality to the one they may use for the more commonly PE-backed businesses in their portfolio. The entertainment industry has many idiosyncrasies: past strategies may not be applicable here so it’s important to be open to adopting a new mindset.
To start with, firms must be passionate about the sector. The reason I joined Atwater Capital was because of its hybrid culture drawing on the team’s extensive experience in the financial world but, crucially, combining this with the passion we have for the creative industries in which we invest.
Investing is a human-centric process. As investors, we have to build strong relationships, and this is amplified tenfold when working with creatives. While the personalities you encounter may be different to those in more traditional corporate settings, if you can form strong personal relationships with the founders and entrepreneurs behind these exciting businesses, you will have access to a more receptive audience when suggesting new ideas which, ultimately, will allow for a more effective implementation of an investment firm’s operational strategy.
Adopting a different mindset is not only important when building relationships with founders and executives but also with the structuring of deals. For example, sometimes the best opportunities involve co-invest deal structures, partnering with other investment firms to ensure that best-in-class consortia can be deployed to projects. The media and entertainment sector is collaborative by its nature and these businesses will appreciate a “zero-ego” approach whereby no one over-reaches and everyone plays to their strengths. I can think of several occasions where we have added value by utilising our wide network of contacts within the media and entertainment space and the financial services industry to connect the right opportunities with the right people.
PE firms should focus on what they do best – such as portfolio curation and diversification, operational execution, legal structuring – while never seeking to interfere with the creative process. The best businesses and entrepreneurs will always recognise when they need to seek expertise, but if you try to overly influence their creative process, you will simply dilute the main factor you invested in the business in the first place: creativity! Influencing the financial areas of the business, where you can add real value, will inevitably be harder as a result of trying to impinge on the creative space.
Above all, in a sector notorious for proprietary deal sourcing, having a solid reputation and being known as enjoyable to work with, really pays. Truly exciting deals can undoubtedly come your way, outside of the normal process, giving you a unique advantage over any competitors.
While there will always be challenges and obstacles to overcome for any investment firm when entering this sector, it clearly can be an immensely rewarding experience. It is wonderful to have the opportunity to work with inspiring entrepreneurs and creatives on a daily basis who are not only passionate about what they do but are constantly striving to change the way we consume media, through exciting new content and cutting-edge platforms, always challenging the status quo.
Joseph Lee has over 25 years of experience in the financial and legal fields, having served most recently as the Managing Partner of Korea for Rico Harvest Private Equity Management, a Shanghai-based investment firm. Joseph has helped pioneer new investment strategies in Korea, including fixed income and equity-linked securities investing with the country’s largest institutional investors.