Will Cinema Just Disappear?

Will Cinema Just Disappear?

South Africa's local film industry is becoming a serious economic player, but for all the advances in technology, film distribution has become far more complex. Forbes Africa delves into whether theatrical releases are still feasible.

There's the old ADAGE that "there must be money in film", but research and interviews this reporter conducted recently revealed a complex and tricky new system that needs to be simplified and explained.

The biggest question remains, why do it? What are the models for making money?

There must be money being made somewhere since the South African and African film industry and box office seems to be thriving. The time has come to demystify one very specific area of the business of film and this is distribution.

A brief explanation of distribution is in order before we delve into the technological advancements that have disrupted the entire industry over the last few years.

Distribution is defined as the release of a completed film. Back in the 1980s, 1990s and up until the late 2000s, the process was fairly simple; write the script, get the funding or studio backing, shoot the film, post-produce the film and have a distributor release the film to cinemas, then video or DVD and ultimately television.

The process is no longer that simple. One of the major reasons for the more complex distribution model these days is the advent of high-end digital technology.

Back in the day, about a decade or so ago, all films were projected on 35mm film. The origination format was irrelevant but the final product was always 35mm projection. Now, although 35mm has its advantages, it also has its flaws.

It was both cumbersome and expensive. Prints of film cost anywhere from $2,000 to $5,000 per print, then there was the delivery costs associated with the prints, as well as the fact that after a certain period of time, the prints would be damaged and/or ruined - due to their organic nature, film as a medium does degrade over time.

The advent of high-definition cameras in the early 2000s and ultimately 4K and 5K cameras in the last five years changed everything.

Cinemas decided to adopt a new standard, the Digital Cinema Print (DCP). A DCP is a digital file that, much like a film print, consists of a variety of digital stills and sound files that are sequenced and recognized by the digital projectors that cinema owners have now equipped their cinemas with.

The file can be either in 2K or 4K depending on the projection system that's available.

The cost of the digital conversion from the old 35mm projectors was astronomical, so much so, that the cinema owners, locally and internationally, had to be subsidized by what's now become known as a virtual print fee. This has effectively replaced the old 35mm print fee and is cheaper, ranging from $750 per screen to $2,000 per screen.

Helen Kuun from Indigenous Film Distribution in South Africa has some insights on this.

"When the world converted to the DCP system, all that equipment had to be funded by two banks in the world who funded it because it was around R1.5 million ($110,000) per screen to the software and hardware conversion.

"So the exhibitors put up as much money as they could and then Arts Alliance Ventures put up the rest of the money; everywhere in the world, they are there for digital conversion as a bank, so that digital print goes straight to them to pay off the digital equipment. But there is an end in sight, it's November of 2020."

The financial burden has now been placed on the distributor who owns the film to pay the virtual print fee to screen it. This has become an additional rather large expense, thereby reducing profit margins for the filmmakers and their respective distributors.

If you want to put your film into 100 cinemas, at $650 per cinema, that's $65,000, and this is more than the entire budget of some South African feature films.

Also, the exhibitors are keeping on average 55% of your box office receipts on top of all these fees and this excludes print and advertising costs.

The burden of profit is far greater than it used to be, even though it's become cheaper than ever to produce a film with 4K production and projection available to almost all.

"You have to structure your funding. You need to source money from more than one place in the world. You can tap into various structures of soft funding and then you can have two environments of recoupable funding. If you're spending, say R10 million ($732,000), you should be able to, quite easily have not more than 60% of your budget recoupable due to soft money," Kuun says.

Due to the complex nature of the business structures behind the independent film world, this is often times why the cinema market is flooded with mainstream Hollywood releases and not local independents.

We spoke to Ben Crowley, CEO of Gravel Road Media in Cape Town, who's a South African and international distributor, about the merits of a theatrical release. Is it still feasible?

"Releasing a film theatrically is not necessarily the start and the end of the film. It's a very important part of the life of a film, certainly if you're wanting to drive other sales because a good theatrical performance will drive your home entertainment sales, it will drive your pay TV price, it can influence your initial batch of marketing that happens, creating awareness around the project, so it is important especially with the higher budget films. One shouldn't be naive thinking you can do a high budget film and then release it straight to TV or VOD (video on demand) platforms," he says.

The truth is this money is being made in the process of windowing.

It would be remiss of me not to mention that South Africa's local film industry is becoming a serious economic player, having contributed R5.4 billion ($395 million) to the GDP during the 2016/17 financial year.

The research was gathered from an economic impact assessment study commissioned by the National Film and Video Foundation (NFVF).

With the Department of Trade and Industry's filmmaking incentive schemes and rebates in place, production has been taking place swiftly in South Africa over the course of the last four to five years. Let's face it, a 40% rebate on all local revenue spent is an attractive offer to any producer, because it's soft money.

There are also various regional film commission incentives around the country and the KwaZulu-Natal (KZN) Film Commission is one such office making a viable swing for the stars in terms of what they're offering for development in the province. We spoke to Carol Coetzee, the CEO of the KZN Film Commission.

"We are a fully-funded government organization, funded by the Department of Economic, Tourism and Environment Affairs and we have a very clear mandate. First of all, we look at promoting the region (KZN) as a destination for productions and secondly, we focus on the KZN film industry and how we facilitate the development. One of those areas is through the funding of film productions so we fund right from the beginning of development through to production right through to marketing and distribution and we've got about 160 projects on our portfolio at the moment.

"We've had about 26 productions that have been completed in the last four years, that's how long we've been around. We really have quite an interesting selection process. We want to have a balance of historical artistic films but we also want to have a balance of films that are going to be commercially viable but our focus is KZN stories so they get priority," Coetzee says.

But where are these films being seen? They're certainly not all at your local cinema complex. You also can't find many of them on physical media (DVD or Blu-ray) but where you can find them is the new on-demand platforms like Amazon, Netflix, Showmax, DSTV Box Office, Cell C Black and many others and across specialist local television channels like Mzansi Magic and KykNET.

With the death of physical media, the video-on-demand platforms have become the go-to for independent filmmakers and, let's face it, all African filmmakers encompass the word independent.

We spoke to Crowley of Gravel Road about their distribution arm.

"We work with all the major VOD platforms, so your Netflix, Showmax... there's a plethora of VOD platforms that are popping up. Some are better than others, some pay more, some pay less. When you're trying to build a relationship with anyone, you've got to get to know who the buyers are.

"VOD is all about volume as well, so the amount of content and the quality of content that you're pushing through to them as well. Eventually you become a reliable supplier of good quality content.

"It's not something that anyone can do and it's not something that a filmmaker should want to be doing. Filmmakers should concentrate on making movies and let distributors who have these relationships deal with it because it's a very complex side of the film business, when you're dealing with rights and how they're carved up amongst the different platforms. It's really not for the faint-hearted."

We also asked Crowley as to whether or not he thought film was still a viable revenue stream or business model.

"I think film is still viable, it just really comes down to doing your research and knowing who your market is. What you find is that filmmakers often go and make a movie without thinking about their market.

"You have to take the reverse approach. So, first think about your market, what does the market want and then produce for that market and also know what the buying power of your market is. So, if your market is a hundred people strong you can't go and make a movie that's going to cost a hundred million rand."

A logical approach, but there's a conflict of interest with exhibitors. Exhibitors want big box office returns and instant gratification and they seem to propagate the myth that only Hollywood or big action adventure superhero films can deliver these numbers with an attractive young cast, which you'll have to compete directly against.

Crowley offers another solution - local content quotas.

"Local content quotas would be a good idea from a local circuit perspective because what that will do is it will open up the market to a lot more South African content because we need to get our audiences used to watching more local content theatrically.

"I think more so what should actually happen is also to have a levy or a tax on all the international films that get released in this market, where a small percentage of that box office taking actually gets allocated back into the industry by some sort of fund that's administered by the NFVF or some other body so we can further develop our industry. It's worked excellently in France."

So what then do you do with your finished film to pay back those investors to whom you've promised the earth. This is where the term windowing comes into play - it is the gradual platform release of your film to various forms of media over a period of two years. This is the life of the film.

Step one is to secure your theatrical release and prepare yourself for the fact that you're probably not going to make any money at this stage. Your exhibitor is going to take a minimum of 55% of the receipts, which leaves you with about 45% of the box office gross, then your distributor is going to take off their expenses for releasing your film off the balance before you see a cent.

These figures can amount to millions; including things like advertising and virtual print fees per screen. You'd need to try and keep the costs down and secure as much free publicity as possible but the chances of you actually making any kind of return on investment at the South African box office are slim to none, unless you have the kind of hit that transcends all markets locally, it's highly unlikely though.

You're left with the video-on-demand platforms and television stations, which your distributor will approach for you. The key to making money seems to be to get an international buyout from one of the big international on-demand platforms like Netflix, Shudder, Hulu and Amazon.

Research reveals even these license figures vary wildly; anywhere from $10,000 to $250,000.

VOD platforms are broken down into several sub -categories: TVOD (Transactional Video on Demand). This is a service like iTunes, where you rent or buy a specific film; SVOD (Subscription Video on Demand). These are subscription-based monthly services like Netflix, Amazon Prime, Showmax and so on; then there's AVOD (Advertiser Video on Demand). Free video on-demand services that have commercials peppering their content, an example of this would be TubiTV.

Windowing reveals that an ideal strategy would be to keep a two- to three-month gap between releases on each one of these services for maximum impact. After you've hit the VOD platforms, there are hundreds of TV channels crying for content, again the figures aren't big in terms of rights but if you take the sheer volume of platforms available today, windowing your film can become a potential goldmine.

All the VOD platforms and TV stations take into account whether or not you've had a theatrical release in your country of origin since that automatically pushes the value of your film up. So although you won't be making any money off the theatrical release it's still something important to secure since it increases the value of your film down the line in the distribution window chain.

Kuun has some encouraging but sobering words.

"The good thing is volumes of content are increasing across the board worldwide because there are so many more places to host it but it doesn't mean that every single piece of content that goes out there is watched by millions of people, so every platform has its place. Cinema will always be there, I don't personally think it will just disappear, it will always have a place because it's about going out and having a communal experience."

With the sheer volume of platforms and windows available to you and with a good marketing plan, the opportunity is still there to make some serious cash, it just takes patience and happens strategically.

www.forbesafrica.com

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