Netizen Funds

by Darcy Paquet

  Online marketing has taken an unusual turn in South Korea's booming film industry. Film fans can turn to the web not only to read about their favorite films, but to invest in them.

But only if they're fast. On March 12th, two weeks prior to its scheduled release, the gangster film Friend raised 100m won ($77,000) from 190 online investors in one minute. On May 21st, a month before its release date, action-comedy Kick The Moon raised 150m won ($115,000) in only ten seconds. Thousands of potential investors logged on too late to contribute their money.

Referred to as "netizen funds," these investment tools are the latest online development among a populace that averages more time on the internet than any other nation on earth. Local film companies have found the funds to be a huge boon -- less for the money they provide than for the loyalty it engenders in their young investors.

The Intz.com model

The first netizen fund was conceived in 1999 at an industry meeting on internet marketing strategies for film. In dreaming up ways to boost their sites' interactivity, participants developed the idea of having online users invest directly in a film. Online startup Intz.com seized upon the idea and established the first netizen fund for Kim Jee-woon's wrestling comedy The Foul King (pictured right).

Designed as a marketing, rather than an investing tool, the fund was used primarily to finance offline promotional events and press screenings, to which the fund's contributors would receive special invitations. Although Intz.com promised contributors the potential for a return on their investment, they encouraged participants to think of the fund primarily as a way to get involved. "This was a way for them to experience the joy that comes from helping to make a film with your own hands," says Intz.com's Cho Jin-tae.

With public interest in local cinema reaching new heights in 1999, The Foul King's initial offering drew 464 investors for a total of 101m won ($77,500), about one-twelfth of the film's budget. Although individual contributions reached as high as 2m won ($1,500), the fund was mostly fueled by smaller investors -- 63% of participants gave 100,000 won ($77) or less. When the film debuted in February 2000 it was a smash hit, propelled along in part by enthusiastic word-of-mouth marketing by the fund's contributors (68% of whom were in their twenties, the film's major target audience). Eventually the film would outgross all but two of the year's Hollywood releases, earning its investors a 97% return on their investment.

Such high, quick rates of return did not escape notice in an economy with a floundering stock market. Intz.com soon found itself the focus of widespread media attention, and a deal was sealed with local distributor CJ Entertainment for four more films (including record-breaker Joint Security Area). Other companies specializing in the funds quickly appeared and investor demand skyrocketed.

However, Intz.com was soon grappling with the consequences of the phenomenon it had released. Investors large and small flocked to netizen funds with high expectations, and although some films fared quite well (Joint Security Area netted investors a 150% profit), others did not: Kilimanjaro produced a 54% loss for its 212 investors. Once stung, investors began to call for public access to distribution plans and scenarios prior to release. Many also pointed out that without any outside regulation of the funds there was potential for corruption.

"From our first conception of the idea until now, we have always thought of these funds as a means of online marketing," says Cho. Less inclined to promote the funds as an investment tool, Intz.com has announced it will henceforth specialize in "incubating" funds, designed for low-budget independent releases. One such fund last year helped Ryu Seung-wan's 16mm debut work Die Bad to reach local multiplexes, with investors in the fund eventually gathering together to form their own fan club.

The Simmani.com model

In contrast, local internet firms such as Simmani.com and Daum.net have pioneered an alternate model for the funds, based on the stock market. Marketed purely as an investment tool, Simmani's netizen funds are made available in a limited initial offering several weeks prior to a film's release, for investments as small as 10,000 won ($7.75). For the duration of the fund's term, which lasts until three months after the film's release on video, investors may freely trade shares at prices set by the market. When the fund expires, the film's performance in terms of theatrical admissions, video sales, cable TV/internet rights and international sales are taken into account and shareholders are paid an appropriate return (or loss) on their investment.

Simmani's first netizen fund for Hong Kong director Wong Kar-wai's In The Mood For Love earned investors a 10% profit, after which it opened funds on eight Korean films, including all-time box-office champion Friend (currently trading at 32,900 won per share, from its initial 10,000). Failan (pictured left), a local film which won critical acclaim but moderate box-office returns after its release in April, is not faring as well: shares can currently be bought at 7,000 won apiece.

For the highly-anticipated upcoming releases Resurrection Of The Little Match Girl and 2009 Lost Memories, Simmani.com is upping the ante, offering 400m won ($308,000) worth of shares for each film, a new record. Two prime examples of the trend towards inflated budgets in local filmmaking, these films will provide online investors a personal taste of the increased risk taken on by local film studios.

The future of netizen funds

Netizen funds appear to settling in as a permanent fixture in the Korean film industry, with virtually all major local releases and many imported films making use of the fund's marketing power. In July the Korean government announced that the Financial Supervisory Service would oversee the operation of the nation's netizen funds, helping to quell some fears among investors. At the same time, netizen funds are spreading from the film industry into other forms of entertainment, notably Korea's booming music industry.

However, some worry that the funds might backfire. "Many sites, to promote their own interests, are telling netizens that if they invest in movies, they are guaranteed strong profits. But actually if the film industry produces 60 films a year, only 10 of those are likely to make any money," says Hwang Dong-Mee of the Korean Film Commission. For the moment at least, Korea's netizens seem undeterred.

Seoul, November 2001

Koreanfilm.org, posted March 5, 2002.