As Secret Cinema Launches Crowdfunder, Is Its Business Model Working?

For 14 years, U.K.-based immersive events company Secret Cinema has enabled fans to become part of their favorite movies by exhibiting classic films amid elaborate sets, actors and costumes. Now the company is letting fans become part of Secret Cinema itself by launching a crowdfunding initiative.

Set to go live this week, the fundraiser, which will be hosted by Crowdcube, allows investors to buy between £20 ($28) and £75,000 ($106,000) worth of shares in Secret Cinema. “We’ve been thinking about [crowdfunding] for a long while,” the company’s CEO Max Alexander tells Variety.

“We talked to various people and they said, ‘Well, you have all of the characteristics of a business that’s really appropriate for this type of funding, which is a large audience of people who are really passionate about your brand.’”

Alexander joined Secret Cinema at the end of 2017, following an 18-month stint as managing director of Andrew Lloyd Webber’s Really Useful Group. Before the pandemic, the company was, outwardly at least, riding high, having signed “big” deals with Netflix and Disney and launching an international expansion, with a James Bond-themed “Casino Royale” event in Shanghai and events planned for the U.S. “Then the shutters came down, because we’re a live experience business,” says Alexander.

“For the last 15 months, we have funded the business on a combination of shareholder equity — our shareholders have been unbelievably generous with us — and a bit of government funding from the Arts Council grant that we’re incredibly grateful for,” says the executive. (The company was heavily criticized for receiving a £977,000 grant from the Art Council’s Culture Recovery Fund, with critics pointing out that Secret Cinema doesn’t even operate a physical cinema; Alexander says he was “flabbergasted” by the reaction.) “We’ve probably spent £5 million basically keeping our team together over the last 15 or 16 months.”

Which is why, presumably, the company has now turned to crowdfunding: “It just feels right, non-exploitative and entirely loving,” Alexander says. He insists the crowdfund represents a genuine investment opportunity rather than a glorified membership scheme, although investors will also receive a range of soft benefits, such as priority ticket sales and discounts. “It feels like crowdfunding is an entirely appropriate way to proceed for this kind of business and the way that we’re approaching it is with exactly the seriousness we would approach an institutional fundraise.”

Whether investors will feel quite so loving after seeing the company’s books is questionable, however. In 2019, Secret Group Limited — which trades as Secret Cinema — posted losses of almost £3 million despite profits of £15.8 million. In 2018 they posted losses of £1.4 million despite profits of £10.7 million.

“All our shows are profitable, at the show level,” Alexander says. “The reason we make losses is we’ve invested a lot in a team that’s able to build shows and new products that take you to other markets.” He says a conservative projection is that the business will break even between 2022 and 2023.

This sounds reasonable except for the fact that Secret Cinema isn’t a start-up: it’s been running since 2007. It also has a major shareholder in private equity group Active Partners and has embarked on significant partnerships with companies like Disney, Netflix and Häagen Dazs.

What does Alexander expect will change in the next 18 months, especially given the world is still in the throes of a pandemic? “The company wasn’t really a business; it was a cultural event, a real passion project,” he says of Secret Cinema’s former ethos, before his appointment four years ago. “It wasn’t a [fully] flushed business with a marketing department and partnerships and all of that kind of good stuff…Ever since I’ve arrived, the shows have been profitable.”

Alexander is particularly optimistic because his projections don’t factor in many of the events he hopes will bring in new audiences. Secret Cinema put on its first North American event in Los Angeles last year, providing creative direction on a “Stranger Things” drive-thru experience (the show was produced by Netflix and Fever). The show resulted in a number of “mega” musical artists reaching out to him, he says, and the company is also working on an as-yet unannounced video game-themed event, which they plan to hold at the end of the year in LA. They are also exploring events for children and their first original project, which will be a horror-themed immersive theatrical experience (albeit one that isn’t set around a screen).

This next chapter builds on a foundation set over the last 12 months, when the company experimented with other formats in a bid to keep going during the pandemic. Last summer, as the U.K. briefly emerged from its first lockdown, Secret Cinema hosted a series of drive-in screenings at Goodwood House in West Sussex. (While not financially disastrous, it wasn’t exactly viable: Alexander says the company invested £750,000 in the event and made a £330 total profit, which they are splitting with Goodwood.)

Meanwhile, although Secret Cinema has long prided itself on being an antidote to the digital world (Alexander says he first met the company’s founder, Fabien Riggall, at an “intolerably smug tech-fest” in Los Angeles where Riggall gave a speech about the evils of technology), last December it finally dipped a toe into digital, partnering with Häagen Dazs to host interactive screenings at home, which they called “Secret Sofa.”

The company is now investing in its own digital platform. “A lot of people can’t make it to our shows. But if you can do a $10 or $20 experience, which is really great fun, you might get to love us,” says Alexander. “And then once you’ve got to love us and know us, maybe that’s the time that you want to really dress up like a lunatic and go and run around a warehouse in South London.”

Ambitious plans for Secret Cinema will no doubt delight the company’s hardcore fans and perhaps even incentivize them to dip into their own pockets. But for serious investors, the question Alexander will need to answer is whether any of these plans will finally set the company on a path to profitability.

He is optimistic. “We’ve got a big show with Netflix, we’ve got a big show with Disney, we’ve got our first global digital show, and we’ve got a show, which I’m unbelievably excited about, with a games company, which we’re going to open in LA at the end of the year, God willing,” Alexander says. “And so, in order to do all of these things, and I think we have to do all of these things — even though that’s probably a lunatic thing to try and decide to do — we do need to raise money.”

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