The Small Hedge Fund that bet big on Parasite
In today’s newsletter, we talk about movie financing and the hedge fund that bet…
Well, the title kind of gives it away. So let’s just get on with the story then.
The Story
Now I am not sure if you are aware, but the South Korean Movie Parasite just won 4 Oscars at the Academy Award Ceremony this past Sunday. Everybody’s going gaga over it. Not me though. I watched it. It was good. Not sure if I would call it blockbuster material. But I have weird taste. So let’s not dwell on my review and instead focus on the more juicier bits.
So after the Oscar Win, Bloomberg reported this
“For a tiny South Korean hedge fund, the shock Oscar win of dark comedy “Parasite” couldn’t be better news. The fund, run by Seoul-based Ryukyung PSG Asset Management Inc., has invested around $500,000 in the movie that became the first foreign-language film in history to win the coveted Oscar for best picture. “Parasite” cost $11 million to make and has raked in $165 million so far, and ticket sales are set to climb even more after the award”
Right!
And that means we need to talk about Movie Financing ASAP.
An Uncertain Endeavour
Arthur De Vany writes in his book “Hollywood Economics”
"The movie business is completely and utterly non-Gaussian (a graph that doesn’t look like a mountain) because it is a business of the extraordinary. It is dominated by a handful of exemplary movies and artists that account for nearly all of the industry's revenue and impact."
Meaning everybody else languishes in no man’s land.
And immediately you can see why movie financing is such an uncertain endeavour. You commit a lot of money without knowing what to expect and it can propel you to financial ruin if you aren’t careful. But it’s not like producers aren’t privy to this little detail. In fact, to this end, they employ a wide array of tactics to beat the odds. For instance, most people finance projects with a star cast in tow. This way they’ll know the likelihood of the movie bombing at the box office is fairly low.
And that’s where Parasite comes in.
Okay, maybe it’s not exactly the powerful cast that drove the financiers, but the movie’s director Bong Joon-Ho is a critically acclaimed Korean Film Maker who’s already delivered a slew of box office Bonanzas. It was also backed by the CJ group —Korea’s biggest entertainment company. So that little investment from the private equity fund isn’t exactly a moonshot.
But does this also mean you can replicate the success of the fund house and take home millions consistently? Unlikely.
You have to realise that Parasite isn’t just doing well. It won the bloody Oscars. Meaning the money-making potential here is massive. And to predict this kind of outperformance is nigh impossible. I mean, here is a quick recap on how Parasite actually made it to the Oscars.
As Nate Jones writes for the Vulture
“The greatest movie in the world is worth nothing if you can’t message it, and credit must also go to Neon, the indie distributor that nabbed the rights to Parasite back in the fall of 2018 and ran a masterful campaign. The path they planned for Parasite was slow and steady: After garnering tons of raves and the Palme d’Or at Cannes in May, the film went away for a while before popping back up at the season-launching festivals and then beginning a gradual rollout over the fall that helped it attain the air of a priceless objet d’art. The sense of mystery around the film became a virtuous cycle: Once they fell in love with it, viewers tended to feel protective of Bong’s movie, steadfastly refusing to give any details about the plot away. Becoming a fan of Parasite felt like entering a secret club; I don’t know if there was a phrase spoken more often in Hollywood over the past five months than “Have you seen Parasite?”
But what if Neon hadn’t acquired the North American rights to Parasite. What if they had chosen to run another film instead. What if the Cannes audience had failed to appreciate the genius of Bong Joon-Ho. What if they hadn’t timed the movie’s release to perfection? Would it have ever made it to the Oscars? And would it have garnered the kind of interest at the Box office? These non-events are seldom talked about because we are wired to think Parasite’s success was predicated on a sequence of events that was entirely predictable. Most of it was not predictable. And to believe that the Hedge Fund could somehow foresee this fortuitous sequence of events is foolhardy at best.
So the bottom line is that despite the fund’s success, nobody should think that movie financing is a cakewalk. Because it isn’t and now you know why…