In the late 1990s, South Korea's government came to the realisation that it takes a comparatively vast number of Hyundai car exports to equal the profits of a single Hollywood hit. Economic motivation to create employment, coupled with a cultural policy to develop national cinema, spurred the government to create several film funds through the Small and Medium Business Corporation (SBC) and the Korean Film Council (KOFIC).
At this time, marked by watershed local hits such as Shiri in 1999 and JSA a year later, the two government-funded organisations started to put seed money into funds created with venture capitalists (VCs) attracted to the up-and-coming film industry.
Film companies including CJ Entertainment and later Showbox Mediaplex also became involved with the aim of limiting their risk on productions for their own distribution slates.
Starting in 1999, a series of five-year funds ran with an estimated $300m. By the time the first wave of these funds started closing and evaluating accounts in 2004 and 2005, the Ministry of Finance had decided to turn the SBC's mandate over to the Korea Venture Investment Corporation (KVIC), which was much more particular about profitability.
At the same time but unrelated to this, manufacturing companies looking for stock-market valuation entered into mergers and acquisitions with entertainment companies, resulting in a series of KOSDAQ backdoor listings.
Telecommunications leaders Korea Telecom (KT) and SK Telecom (SKT), which later absorbed Hanaro Telecom, also started to buy up shares in entertainment companies such as Sidus FNH and iHQ.
With plenty of capital and shareholders eager to see action, a host of ill-thought-out productions were greenlit, creating a glut of local films that left audiences unmoved in 2006 and 2007.
'Towards the end of 2005, you could tell from the overall quality of the projects that came up for investment that the industry was looking at a downturn,' says Shin Moon Chul, investment analyst at Wooridul Venture Capital.
'At one point, there were 14 or 15 different VCs running film funds, but in 2005-06 that number went down to only four or five. VCs get a fee of about 2.5% for putting together and running a fund, but that's not enough to offset the risks and burden involved.'
'Before, financiers like Korea Development Bank and Industrial Bank of Korea would invest in film funds, too,' says Lee Se Hyong, a partner at Centurion Technology Investment Corporation.
'Lack of profitability and transparency in accounting are problems. Now almost only strategic partners - like distributors and broadcasters interested in owning different rights - are left.
'The film industry needs to develop an investment analysis system, and overhaul the profit-sharing structure for film funds to be attractive to non-strategic partners,' he adds.
But overall, lack of capital is not an issue, especially for conglomerate-backed companies such as CJ or Showbox which work with affiliates and/or partners in cable, internet and exhibition.
The number of VCs running funds has gone back up to about 10 or 11. New funds such as Asian Cultural Technology Investment's (ACTI) $15m content fund, which covers films, online games, TV dramas, animation and performances, and the $4m Sovic Diversity Fund for low-budget arthouse films, have continued to launch this year and last.
But after some expensive lessons in trial and error, fund managers have become more cautious.
'It's not as if there are so many good scripts but no money,' says Unkyoung Park, Showbox's general manager of investment planning.
On the other hand, producer/investors still like to hedge their risks, and have cash on hand for a revolving slate of productions - hence the case of My Boss, My Teacher (an unexpected gangster comedy hit in 2006), offering investment options up until two weeks before its release.
Meanwhile, leading rival telecoms companies KT and SKT have been investing in funds, such as the $40m global new-media fund KT launched with Softbank Ventures this April, with the aim of picking up exclusive IPTV rights.
(However, CJ has recently managed to strike fund deals with non-exclusive IPTV rights with both companies. This has led to some concern the telecom giants might lose interest in investing in funds when they do not need to compete with each other for exclusivity.)
Alternatively, funds are finding a new focus on foreign films. 'Compared with local films, you won't make a blockbuster profit but neither will you see a huge loss, and returns are quicker,' explains Kim Tae Hoon, COO of Daisy Entertainment, an importer/distributor which has set up a $10m content fund with Hanhwa Venture Capital.
The fund aims to invest annually in a minimum of 10 films. Analysts will evaluate potential investments - usually foreign-film acquisitions for which importers have already paid royalties.
Wooridul Venture Capital has teamed with KD Media to put together an $8m fund with a special interest in foreign films - mostly imports, and possibly also equity investments in safe bets with high transparency.
The conglomerates are also moving into the game. Showbox recently bought into John Woo's Red Cliff, and CJ put $1.5m into Warner Bros' August Rush for equity and local distribution rights. The $30m romantic fantasy, starring Jonathan Rhys Meyers, took $7m at the Korean box office alone.
'The axis of the market is moving away from just trying to add to your local slate or produce for shareholders and towards investing in good, solid content,' says Park.