Tel Aviv Stock Exchange Investors May Get Shot at Hollywood Tinsel

A draft proposal by the bourse would allow limited partnerships like those used in oil exploration to invest in foreign film and television productions

 Actress Gal Gadot arrives at the Premiere Of Warner Bros. Pictures' "Wonder Woman" at the Pantages Theatre on May 25, 2017 in Hollywood, California.
Frazer Harrison/AFP

After Gal Gadot’s stellar debut as Wonder Woman, the second biggest bit of news for Israeli cinema may be the Tel Aviv Stock Exchange’s plan to allow limited partnerships to raise capital for foreign film and television productions.

Such partnerships exist for the oil and gas industry and they have been available since 1991 for purely local film productions, but under a draft proposal released last month the TASE would drop the local requirement.

For investors, the prospect of buying a stake in a blockbuster hit may be as alluring as Gadot’s screen presence, but experience has shown that film partnerships are more akin to a femme fatale than a superheroine. Still, officials think there is enough interest on the part of experienced content providers than the risk for investors should be tolerable.

Among those who have lobbied the TASE and regulators to allow partnerships to produce foreign content are Gidon Tadmor, who is best known as the top executive in the Delek Group’s energy business but also was an investor in the American-Israel film “Norman,” which starred Richard Gere and was released in April.

Others who have been pushing the idea are the brothers Moshe and Leon Edri, who control the Cinema City theater chain and are leading figures in the Israel film industry, and Avraham Farhi, whose company United Advertising Services had the Israel Broadcast Authority ads franchise.

In addition, Israeli companies like Keshet International, a unit of the Channel 2 franchisee, have had a run of successful television productions overseas, most notably the Showtime TV series “Homeland.” Last week, coincidentally, Keshet said it was seeking to raise $20 million from private investors for future productions but it might well tap TASE investors when the limited partnerships win clearance, which sources said was likely to be by the end of this year.

Tadmor knows a lot about limited partnerships, which was the vehicle Delek Group used to raise capital and invest in the energy business. “Norman,” however, had box office takings of just $3.5 million as of Sunday, according to Box Office Mojo.

Meanwhile, the Edris have been involved in hundreds of productions over the last two decades but few of them have been commercial successes. On the other hand, they have Hollywood connections because they hold exclusive rights for many American films and have the Israeli franchise for the MGM and E! cable channels.

Moreover, the history of limited production partnerships has been less than glorious. Today only one, called Cinema Investment Trust, trades on the TASE and briefly had a market cap of 140 million shekels ($39.5 million). But it never produced a commercially successful film and its market cap plummeted to as little as 400,000 shekels, leaving it on the bourse’s list for companies that fall below minimum standards for market cap and trading activity.

Today it is controlled by an attorney who has stopped producing anything, although it has rights to the reality show “The Winning Couple,” which pits six couples in a contest to determine which pair know each other best, and recently sold them to broadcasters in Hungary and Croatia.

Limited partnerships enjoy tax advantages that are helpful in industries like energy exploration and film productions where losses pile up before investors either strike it big with an oil find or a hit movie, or lose everything on a dry well or a bomb.

Film partnerships aren’t likely to bring the massive returns that, for example, the Tamar natural gas field did for its investors. But, on the other hand, the time it takes to produce a film is much shorter than it takes to explore and develop an oil field and the costs are lower.

That is because, unlike limited liability companies, the investors in partnerships are not shareholders but limited partners. Their holdings are publicly traded but they are taxed based on the partnership’s profits – or losses, the latter of which can be used to offset tax liability on profits from other sources.

The catch is that for the new class of production partnerships the tax advantages don’t apply for foreign productions. But market sources say that the absence of any tax benefit will be offset by lower risk as the partnerships will be professionally managed with marketing and distribution experience and will pursue multiple film and TV projects.