Helping Make Mexican Cinema a Real, Profitable Industry

The biggest hurdle for most business ventures is funding. This is particularly true in the audiovisual segment where risks are high and investors are skeptical. Marco Forte, Fund Manager of VCS Capital, the only private fund in the country specialized in financing audiovisual content for the entertainment sector, is determined to change this, and for good reason. “The entertainment industry is completely abandoned when it comes to funding and financing, which means there is a significant opportunity for a company like VCS Capital,” he says.

Several factors hinder investment, Forte says. Chief among them is bank inflexibility. “Banks in Mexico are not very flexible. They have highly profitable businesses in mortgages, credit cards and auto loans, so they are not as interested in developing other products to help a sector like the creation of audiovisuals. The same is true of Sofomes, which focus on more profitable products.” Forte adds that the element of risk associated with the industry generates reticence. “When it comes to cinema funding, the risk is high and as an investor you have to be willing to bear the costs.”

VCS Capital mitigates risk by getting producers to accept its methodology. “The audiovisual industry has never been in the formal financing market. It is still artisanal and producers still want to manage their funds in their own way,” Forte says. For every project in which VCS Capital participates, the fund invests in resources as well as in management. “We ask producers to comply with a certain methodology related to different processes. We also ensure that the project’s funds are managed responsibly. In some cases, producers have asked us to take charge of the administrative part of the project since that is not their main strength.”

Although VCS Capital participates in a creative industry, Forte ensures that the fund follows the usual logic of a venture capital entity. “We have two business models, one focused on private capital and the other on financing, which allows us to have a balanced risk in our portfolio.” That approach has also allowed VCS Capital to remain a healthy player in the industry. “Our investment committee always focuses on taking on projects that have clear commercialization elements,” says Forte.

The fact that there are no other players involved in financing Mexican films and TV projects stems from the perception of the industry as a lightweight in terms of significant business opportunities. However, the increase in successful Mexican productions in recent years has helped to change this view. “2013 was an atypical year. The industry released two blockbuster movies: No se aceptan devoluciones (Instructions Not Included) and Nosotros los Nobles (The Noble Family). Their success shone a spotlight on Mexican cinema. Suddenly, it was considered a real and profitable commercial opportunity.” Although Mexican cinema has not seen another year quite like 2013, Forte says it is now more common to see Mexican film projects exceed the barrier of 2 million tickets sold, which means that the market is interested in local products.

Thanks to these successes, the industry is beginning to grow, although Forte says the level of success will depend on the industry’s ability to produce good content. “What Mexicans like the most are comedy and horror movies, so it is up to the industry to produce different content to educate audiences and help the market evolve. At the end of the day, the market consumes what is produced. If the industry only produces comedy films then the market will only consume comedy films,” says Forte. Another key factor for the industry’s newfound dynamism is government support, such as fiscal incentives and the availability of public funds destined for the creation of cinematographic projects. VCS Capital also receives public investment. “Around 30 percent of our funds come from Nacional Financiera (NAFIN). We also have money from INADEM while the rest comes from private investors,” says Forte.

Despite being in business for just two years, VCS Capital has already participated in nine projects and has invested around MX$70 million (US$3.6 million). “We are a relevant player and we hope that soon other funds will follow suit,” Forte says.