What Investors Can Learn From the ‘Legends of Oz’ Failure

Legends of Oz: Dorothy's Return is an unofficial animated sequel to L. Frank Baum's famous tale, The Wonderful Wizard of Oz. Despite that pedigree -- and a fair amount of star power with Lea Michele, Dan Aykroyd, and Martin Short among those voicing key roles  -- the movie has flopped at the box office. What should entertainment stock investors take from this? Are there lessons to be learned?

Guest host Alison Southwick puts these questions to analysts Nathan Alderman and Tim Beyers in this week's episode of 1-Up On Wall Street, The Motley Fool's web show in which we talk about the big-money names behind your favorite movies, toys, video games, comics, and more.

Legends of Oz: Dorothy's Return could end up as one of 2014's biggest flops. Credit: Summertime Entertainment.

Nathan says there's a sketchy backstory to the film's production that's risen to the level of finger pointing and conspiracy theories. All we can say for sure is that Legends of Oz was largely funded by six-figure contributions from individual investors. At least one report says the producers raised $100 million for the movie and at least two sequels by cold-calling prospects.

Alpine Pictures' Summertime Entertainment division produced the movie in concert with India's Prana Studios. Clarius Entertainment distributed Legends of Oz, but apparently without offering enough support to draw a meaningful audience. BoxOffice.com estimates marketing and distribution spending at just $15 million for a movie that cost $70 million to produce. Legends of Oz had grossed just $7.2 million worldwide heading into the long weekend.

Both Tim and Nathan say that, while there's nothing inherently wrong with backing a project directly, it's almost never a good idea to respond to a cold call. Instead, seek the sorts of disclosures required by fundraising platforms such as Kickstarter. Find out exactly how producers will allocate money: who gets paid, how much, and for what services. That way, you'll know exactly what you're investing in.

We've also seen the direct-funding model work while offering just these sorts of protections. Nathan invested in the Veronica Mars movie while it was still in the early stages at Kickstarter. Time Warner (NYSE: TWX  ) agreed to distribute the finished product, which has gone on to gross $3.5 million worldwide at theaters, and likely a great deal more than that via DVD, Blu-ray, and digital downloads.

Now it's your turn to weigh in using the comments box below. Have you seen Legends of Oz: Dorothy's Return? Did you invest in the movie? Click the video to watch as Alison puts Nathan and Tim on the spot, and then let us know your thoughts. You can also follow us on Twitter for more segments and regular geek news updates!

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Read/Post Comments (7) | Recommend This Article (13)

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  • Report this Comment On May 26, 2014, at 12:34 PM, sdhane wrote:

    Shawshank Redemption did awful in its theatrical release as well and now is considered one of the best dramatic films of all time by many. I am an investor in this film and I think the film is great. I suspect most who criticize it haven't seen the film. The animation is fantastic, the music is moving, and the story is uplifting. It is the tale of a young girl faced with a real world disaster who is then pulled back into a fantasy world in chaos. Through perseverance and loyalty to her friends she is able to overcome a power hungry, despotic leader and restore order. Then returned to the real world she stands up for her family and reveals the bearaucratic threat to rebuilding their damaged home to be a fraud.

    The success of a film is not measured in dollars from its theatrical release alone. I believe time will show this film didn't get its due respect at first. See the film first before judging it.

  • Report this Comment On May 26, 2014, at 12:48 PM, heynowhank wrote:

    You have got to be kidding me!!! You are comparing legends of oz to Shawshank!!!! Come on man! This was a scam from the get go regardless of how much spin the investors try to put on it. You lost your $ because these guys sold you a dream that did not exist. Good luck getting any of your initial investment back from this colossal failure. I feel bad for everyone that was taken. Maybe you should all consider a class action against the guys who sold you this pipe dream

  • Report this Comment On May 27, 2014, at 8:32 AM, Truthworks wrote:

    The lesson to learn? GOOGLE! I was asked to invest in this "once in a lifetime opportunity" and it only took only a few clicks to know that I would never give a penny to the players involved. 1.) They had never produced a successful movie 2.) There were a dozen state-issued cease and desist orders for their fundraising practices. 3.) The same players had changed the name of their company (like it was a shell game) 4.) Their physical addresses are...well...

  • Report this Comment On May 27, 2014, at 1:52 PM, denali3 wrote:

    I've invested in three movies-a small amount for this. The sad truth is that the amazing movies that make money

    come out of studios where the big money and huge talent reside. If you get an "indie" that hits big it is no different than playing the lottery...lucky you! Investors really need to know who they are working with before throwing money at it and hopefully it is money you can afford to lose.

  • Report this Comment On May 27, 2014, at 2:15 PM, Momo wrote:

    How was this a scam? They raised money to make a movie & they produced a movie. I understand it may have been a risky investment, but that doesn't make it a scam. There are other revenues to be had other than domestic box office, correct? If anything was a scam it was the 15M in marketing & distribution, where was that? It looks like it was poorly advertised as I hardly saw anything for it. Too bad because I actually saw this in the theater with my kids & they loved it! I thought it was just as good as any other animation, I mean it wasn't Pixar, but it never claimed to be!

  • Report this Comment On May 27, 2014, at 3:39 PM, Truthworks wrote:

    Dorothy of Oz LLC and Emerald City of Oz LLC raised $103M to make the movie, plus they received a loan of $17M, which gave them the same amount that the LEGO movie spent ($120M for production plus advertising). Maybe if the execs had not skimmed at least $22M off the top, they would have had a larger promotional budget. My personal opinion is that this movie was more about a few people stuffing their pockets and running than it was about making a quality product. The pitch I received did compare this movie to the likes of Toy Story and other successful animated movies (so it did claim to be similar) then I was told I didn't actually need cash - I could sign over my 401K and that I would be "sorry if I didn't." THAT has scam written all over it. By the way: I'm not sorry.

  • Report this Comment On May 29, 2014, at 9:33 PM, JKRiki wrote:

    " I suspect most who criticize it haven't seen the film. The animation is fantastic, the music is moving, and the story is uplifting."

    I suspect much of the same, for the most part. I, however, went to see the film myself. I am a professional animator. As a professional animator I can tell you frankly that the animation is not "fantastic." I'm sorry. It is mediocre throughout with glimpses of "good" here and there (Toto, for example, was handled well for the most part, as was the Jester). I have no doubt your emotional and financial investment lends a pair of rose colored glasses when viewing the film, as we all have when we help to create something. I just wanted to chime in that while the story was alright and some of the songs were decent, the animation left a great deal to be desired. On top of that the character model of Dorothy was unappealing, and mostly stiff through the film. I don't claim to be an expert when it comes to music or writing, but I have been a lifetime study of animation, composition, and character design. It was average here, and average doesn't cut it.

    It's a real shame that this did as poorly as it did at the box office because I don't think it was all bad. I saw the rays of great things shine through in places, and you could tell there were some very dedicated people behind many scenes. Unfortunately it did not come together well enough to warrant a big success. I think the biggest problem it had was marketing, or lack there of. I am an animator, I have my finger on the pulse of this industry, and I had no idea it was released until a week after it came out (and only then because of articles about its failure). That is a bad job at marketing if you ask me.

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