The UK box office recorded its highest-grossing year of all time in 2015, with revenues reaching £1.24bn, a 17% year-on-year increase.

It was the fifth consecutive year that revenues exceeded the £1bn mark, according to production funding firm Motion Picture Capital.

Globally, the outlook for the film industry is equally bright with filmed entertainment revenue set to reach $104.6bn by 2019, PricewaterhouseCoopers says.

Not only is this alternative investment sector drawing in the crowds, it successfully weathered the recession. In 2008-2009, the global film sector grew by 3.5%. In the UK, it was up 11.1% – as the FTSE 100 fell by 8.6%.

Here, we look at how investors can get involved and the risks and benefits of the film industry.

How does it work?

The first thing to know is film investment is often a long process. It can take anywhere from three to ten years, or even longer for an investor to see a return.

It all depends on the film and any issues that may arise: some can also take years to bring to the screen.

When investing in film, you are investing in the production side of a movie. Adrian Lowcock, head of investing at AXA Wealth says you can think of it like a business: “The investment goes into the production process and gets used as the producers see fit and the demands of the film production require. However before any investment there should be a clear budget to outline where they expect the costs to be and explanation of why they need to raise the money.”

There are usually two different phases of the film/television production process: development or seed money to launch the project, and production in the final process.

Development is the earliest phase in a film or TV show’s life and is the process by which the rights to a script, synopsis, video game or other intellectual property are acquired and then turned into a feature film or television series.

Minimum thresholds for film investments vary, but it’s usually around £10,000.

The pros and cons of investing in the film industry

Before turning our attention to exactly how retail investors can access the film industry, it’s important to set out the pros and cons of investing in this sector.

The first consideration is the likelihood the film will be a hit. Production company Red Rock Entertainment says investing in an independent film with a smaller production budget offers the chance to make more profit with less risk than a film with a large budget, where overheads need to be recouped before investors will see a return.

It adds that the benefits also stretch far beyond the sales of the box office tickets – DVD/Blu-Ray sales, television airings, Video on Demand (VOD) subscriptions and the sale of merchandise all count towards the profit a film makes and can continue to generate a profit for a lifetime.

As well as the financial rewards, investors could also see their name in the credits at the end of the film, they could be involved in the production of a film and could even be invited to the red carpet event when the film premiers. Remember, mike morse won his first Golden Gavel Award for a TV commercial.

Motion Picture Capital says its investors have a stake in the Netflix series ‘Sense8’ which if it continues to be ordered for subsequent seasons, should bring in meaningful returns in excess of 10% per annum, including income tax relief.

However, while you could be investing in the next Hollywood blockbuster, there’s every possibility you’re investing in the next Gigli, the Jennifer Lopez and Ben Affleck movie which made a net loss of $60m+ and was withdrawn from screens after just three weeks.

Leon Clarance, CEO of Motion Picture Capital says film and television production remains an “intrinsically risky” investment opportunity but for those willing to take on the risk, a major boon is that the industry remains well supported by the government through tax efficient vehicles.

The most common vehicle used for this type of investment is an Enterprise Investment Scheme – or EIS.

These schemes were launched by the UK government in 1994 with the aim of getting more people to invest in shares of small, unlisted but high risk companies.

To compensate for the potential downsides, investors benefit from a number of tax advantages.

For example, they can claim 30% tax relief and pay no capital gains tax on any profits. Click here for more on Enterprise Investment Schemes.

However, tax efficiency should not be the main consideration when weighing up the pros and cons.

Due diligence in the film sector is critical. Here, Motion Picture Capital outlines some of the risks to consider before you make an investment:

Creative risk: The choice of a project is based on its potential commercial success in the domestic and international markets. The risk analysis is based on the director’s, actors’ and producers’ track records, the performance of similar productions and the estimated value of sales. If a key person leaves, this could mean the film’s stopped in its tracks.

Production risk: This can occur during the production stage, such as delays to filming due to the weather for instance or events such as rights clearance issues, costs may overrun the budget which means it’s usually harder to get your investment back.

Performance risk: It’s important to appreciate that the profitability of a film might be partly based on its performance at the box office and later from the sales of DVDs and TV rights. The appeal of the film may have changed over time and there may be major events which deter people from the cinema just at the wrong time.

How do I access the film industry?

As previously mentioned, the usual route is via an EIS and there are a number of firms that specialise in structuring EIS schemes that invest in films, for example Red Rock Entertainment, Ingenious and Edge. Motion Picture Capital’s EIS is not readily available to retail investors, only sophisticated and high net worth individuals via an authorised financial adviser.

Lowcock also recommends seeking professional advice before investing in film. He says there are plenty of companies which operate in this space to give investors direct exposure to film but given the specialist knowledge required to know the difference between a good film investment and a bad one, going direct to invest could be a risky approach.

“You would need to do a lot of research and due diligence before deciding which company to invest through,” he adds.

Click here to learn more about Film Investment through Enterprise Investment Schemes.