The allure of Hollywood brings with it visions of posh parties, hobnobbing with the rich and famous, awards shows, and dressing up to the nines. There used to be a time when only powerful entertainment moguls could put their money into movie-making ventures; but, not anymore. Indeed, there may be a way for you to get in on the action and invest in the potential success, or failure, of movies.

Investing directly in a movie may sound glam, but it can actually be a complex and risky endeavor. Scouting the right talent, managing production costs, and finding the right distributor are only a few of the hurdles investors share as production moves forward. The hardest thing to gauge, though, is the personal whim of the moviegoer and the voice of critics. After all, taste is fickle. A story with a broad appeal in one decade could fall flat in the next. If a movie does well, it may open the possibilities of a franchise, but if it flops, it could claim a number of casualties—from studios to the careers of actors.

Read on to find out more about what you’ll need to consider before shelling out your hard-earned dough, and how you can get in on the action.

Considerations Before Investing

Before you even consider investing your money in something like a movie project, make sure you do your due diligence. First ask yourself the following:

• What is the producer’s reputation?
• What experience do they have?
• What talent is involved in the project? Do they have appeal?
• What is the quality of the script or screenplay?
• Who else is investing?

Backing someone who does not have a proven track record is akin to investing in a mutual fund with rookie portfolio managers.

Ask yourself whether the film will appeal to a broad market. If it’s only intended for a niche audience, there’s a good chance you may sink your money. Blockbusters tend to have a broad appeal, while foreign films, documentaries, and small pictures tend to have less. There are, of course, notable exceptions like Spike Lee’s “She’s Gotta Have It” and the 2016 Academy Award Best Picture winner, “Moonlight.” Films with a religious message or ones with more intellectual humor could be a hard sell to the distributor, as well, since their audience is typically quite narrow.

What if the film has no A-list talent? That could be a problem, though sometimes the film itself is the talent—think “Slum Dog Millionaire”. Name recognition could vary, too, depending on where the film is targeting its release. Learn about the director’s vision. An outsized ego can prove fatal, as was the case with “Heaven’s Gate,” which came nowhere near to recouping the runaway costs its perfectionist director Michael Cimino incurred.

Are the interests of the filmmaker properly aligned with the distributor and investors, or does much of the revenue inure to the benefit of the filmmaker? Is the investment a fair arrangement?

Investment Vehicles for the Pros

If you have enough money at your disposal, consider the private equity and hedge fund route into Hollywood. These investment vehicles have become the most common for direct investment in cinematic ventures. Unfortunately, this typically means that unsophisticated investors need not apply. The risks of such an enterprise can be substantial and often are better suited for the family office or institutional investor. If you can—and do—go this route, you have a lot of both upside and downside potential. Always be sure to check any offering documents, which must accord with applicable securities laws.

So-called “slate financing” is the hedge funds’ approach to risk management and return generation. This approach simply entails investment in a portfolio of films, rather than a single production. Through diversification comes a more proper balance of risk and return. What films are included in the portfolio may be a function of how the fund’s co-financing efforts with the production and distribution company work through the film studios. Part of the challenge is untangling opaque financial accounts through due diligence in the quest for greater transparency.

Crowdsourcing for the Ordinary Investor

For the ordinary investor, there is another way. Crowdfunding has become a very popular form of investing for many movie-mogul-wannabes, and a great way for filmmakers to raise capital from a broad group of patrons. Filmmakers who may not have had ready access to capital now do by raising small amounts of money from a very large group of people. Movie Investor is one example of a film-related crowdfunding site that is running right now.

Before you promise your hard earned savings to a film project, you should do your due diligence here as well—just like you would with any other investment. After all, a project may sound good on paper, but you still have to look at the fine details. Research the project(s), the personnel, and their track records. And be sure to check what the filmmaker promises as a return. Some may just pass on some film merchandise as a thank you instead of a big reward.

You can, of course, invest indirectly in the movie industry. Entertainment-related stocks are a great option in which to invest, but remember, you won’t get that producer credit. Companies like Lionsgate, Viacom, Netflix, Disney, and Amazon all produce big-budget films. And because they’re generally diversified in their offerings in the entertainment industry, there’s a good chance you can mitigate some of the risk of a stock market investment.

Clauses and Special Considerations

Any investment proposal for a movie project should be produced in writing and contain an arbitration clause for a more cost-effective dispute resolution. Filmmakers may find it useful to have such a clause when dealing with financially stronger distributors in order to protect the former’s interests.

The producer should also have a completion bond, which is a surety bond that kicks in to pay for cost overruns rather than having the investors shoulder the burden of project mismanagement or poor forecasting. For crowdfunders, different fundraising options should be considered, depending upon the script and budget. Tax incentives properly pursued are another revenue-generator, so long as the incentive tail does not wag the movie dog.

The filmmaker should escrow funds during the fundraising stage of the film. This helps to ensure transparency and accountability. If insufficient funds are raised, then they should be returned to investors. All of these considerations point to the need for an investor to work with a professional with experience in the film industry.

As for returns, film revenues should be used to repay investors all of their investment and debts incurred first, before any other stakeholders. The process is akin to a return of basis or of the principal investment. Profit-sharing, or the return on the investment, is the next link in the chain. The split is often even between the producer and investors. The film’s stars, writers, and director are paid from the producer’s profits.

The Bottom Line

On its own, film investments appears to be an asset class unto itself—uncorrelated to the other types of investments. Movies are somewhat recession-resistant because even in hard times, people still need quality entertainment. so they will not stop going to the movies or streaming them online.

Have movies thus been commoditized? Consider how easy it is to access a favorite movie. The theater is but the first of several distribution channels which include cable television, the internet, and other streaming outlets. The ready availability of content has stolen a march on the movie theater experience and created more revenue streams and greater profitability.