A.You never know if a movie will be a hit until you make it. Movies are highly volatile financial products. That’s why, generally speaking, the more challenging the project, the harder it is to secure funding. As Director Nishikawa Miwa has said, Children Untold likely wouldn’t have been made if it hadn’t been produced by K2 Pictures. After all, people would probably think we were out of our minds to spend JPY 800 million on an ensemble drama set in postwar Japan, with war orphans as the main characters. We created the fund so that we could make movies freely.

A.K2P Film Fund I plans to produce 50 films over seven years. When you make 50 films, some will be hits and others won’t. The fund operates as a blind pool, raising capital without disclosing investment targets in advance and building its portfolio sequentially based on the judgment of K2 Pictures’ producers. Since we don’t judge success based on a single film but instead diversify investments across multiple projects, we can make bold investments in films that might become blockbusters or in edgy, innovative works. Managing the portfolio in this way is also one way to address the high-risk, high-return nature of the film business.

K2P Film Fund I does not simply use the JPY 5 billion in private equity it has raised to produce 50 films at JPY 100 million each. For example, it might enter into a multi-year exclusive global streaming agreement with Netflix and use that contract as collateral to secure a loan. By applying leverage, the fund grows its capital. If a JPY 5 billion fund is increased to JPY 15 billion in this way, the profit distribution on the JPY 5 billion in equity will come from the JPY 15 billion worth of films. The idea is that as the fund grows, so do the profits. If the final revenue reaches JPY 16 billion, we repay the JPY 10 billion loan, recover the initial JPY 5 billion in equity, and the remaining JPY 1 billion is recorded as profit. I believe this is a significant benefit, even if the amount is small. Under the production committee system—which is a voluntary association under the Civil Code—only companies engaged in the content business (even if only partially) may contribute capital; foreign companies that do not participate in the operation of the funded project within Japan and merely provide capital are not permitted to participate. K2P Film Fund I aims to serve as a platform for these companies.

A. Profits from hit films go back to the fund, not to K2 Pictures. While dividends to K2 Pictures are minimal, we’ve separated the risks, so even a major failure wouldn’t cause significant damage. In exchange for a lower profit margin from the fund, K2 Pictures operates as a production company that takes on commissions to create Netflix series and TV dramas, and as a distributor that handles commissioned and acquired titles. To prevent any potential conflict of interest or breach of fiduciary duty, K2 Pictures does not produce film projects outside the fund; all our film productions are carried out using the fund’s capital.

A.The eight producers I trust are responsible for evaluating and selecting projects for production. They only approve projects for which they have a sound, theoretical basis for success; anything that won’t turn a profit is rejected. In return, I never tell them to cast an actor just because they’re a box-office draw. I don’t operate under the mindset that a project needs to recoup its costs in Japan alone. I grant the producers full responsibility and authority from production through to recoupment, so they have a great deal of discretion. But there’s only one requirement: to turn a profit. While the honor of winning film awards certainly helps raise the profile of the film and the producers, what ultimately matters is how we generate a profit. That is where the responsibility lies. Ultimately, the final decision to give the green light rests with three people: myself, our outside director Frederic Katsuro Schmidt, and Kouda Tetsuro of the game company Akatsuki.

A.In the Japanese film industry, the structure is such that companies take the profits, so creators don’t have sufficient incentives. It’s a system where creators simply can’t make money no matter what they do. Naturally, their motivation ends up being low. Our fund is an impact fund that gives 30 percent of the success fee to the creators. We ask investors to contribute on the premise that a portion will go to the creators from the very beginning. If they don’t like that, we tell them to make their money through stocks, bonds, real estate, or other means. No matter how many years you’re in the business, you never know whether a movie will be a hit or not. I’m sure no one really knows. But unless talented creators are nurtured, there is no future for the industry.