OBG economic update ? SA?s film industry

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OBG economic update SA s film industry --

Tue, 08 Sep 2015 14:16

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An increasing appetite for domestic content and a rising appreciation by foreign filmmakers of South Africa as a filming location should sustain growth in the country s entertainment industry, with the sector s expansion set to outpace that of the broader economy in the years ahead.

South Africa s film entertainment market is projected to grow by 6.4% this year, generating earnings of R2.76 billion ($221.1 million), according to a PwC study. Revenues are expected to reach R3.42 billion ($273.7 million) within three years, with the industry expanding by a compound average growth rate of 7.1% in the five years to 2018.

Broadening the market

A system of incentives put in place by the Department of Trade and Industry (DTI) is helping to support the South African film industry, providing assistance to both domestic and foreign productions. The incentives not only encourage filming on location in the country but also offer additional rebates for post-production work conducted therein. This is helping to create employment in the sector, which currently numbers around 25 000 according to DTI figures, and further develop the skills base of the local industry.

The financial incentives currently include a 20% tax deduction for foreign movies filmed in South Africa with budgets of R12 million ($950 000) or higher, with a cap of R50 million ($4 million). There is also an additional 2.5-5% deduction offered to those conducting post-production work on the ground, depending on the level of expenditure. Another promotion scheme includes a 35% rebate on the first R6 million ($475 000) of qualified spending, with a 25% rebate applied thereafter, according to the DTI.

Box office figures

In addition to fostering South African content and expertise, these incentives are creating an important multiplier effect on the broader economy. The DTI estimates that for every R1 ($0.08) spent on film production, another R3 ($0.24) is spent in the wider economy, effectively tripling the department s more than R60 million ($4.7 million) worth of investments to date.

Lower production costs are another draw for overseas filmmakers. According to a recent study by the GFC, it is 40% cheaper to shoot a movie in South Africa s Gauteng province than in Europe or the US, and up to 20% less expensive than filming in Australia.

The weaker rand, down 7% against the US dollar year to date, will make local film shoots even more cost effective for foreign productions budgeted in their own currencies. While the cost of travel remains a factor in budget considerations, especially for crews coming from the US or Europe, added positives such as the country s broad skills base, established infrastructure and widespread use of English, weigh heavily in South Africa s favour.

The support of the DTI, combined with South Africa s other competitive advantages, is likely to drive an increase in foreign productions filmed in the country, according to Charl van der Merwe, CEO of film and broadcast service provider Silverline360.

It s an exciting time to be in the film and television industry, especially if you re catering to the international production companies, he told OBG. Going forward, we re going to need to grow our production capacity to keep pace with increasing demand, while also focusing on strengthening our offering across the entire value chain.

Several high-profile movies have already taken advantage of the country s offer. The much-anticipated Mad Max: Fury Road sequel was partly filmed in South Africa, with some R326 million ($25.8 million) spent locally, according to PwC, while Marvel s high-grossing Avengers: Age of Ultron included scenes filmed in Johannesburg and other areas of Gauteng.

Growth in the local industry is also expected to boost domestic content generation. However, to fully develop the South African creative industry, original content needs to be produced that can appeal to a larger market, according to Christine Service, country manager for the Walt Disney Company Africa. The industry is recognising that to really be successful and to fund the development of content with high production values, the creative community needs to make content that has the potential to reach beyond one single country or market, she told OBG.

Full stream ahead

South Africa could also benefit from changing viewing habits locally. Growth in domestic consumption is being driven by the continued popularity of conventional cinema, as well as the rise of online streaming, which is expected to play a greater role as a platform of choice for consumers in the years ahead.

Andile Mbeki, CEO of the Gauteng Film Commission (GFC), identifies technological advances and changing viewing preferences, such as the greater take-up of smartphones and digital migration, as key drivers that will govern the shape of future production and distribution channels. The shift from analogue to digital TV will create a lot of platforms for content distribution in the form of additional channels, he told OBG.

With around 850 cinemas serving a population of 53 million, access to local productions can be limited, though the move to formal digital and online platforms is the best way to both expand reach and combat piracy, with bootleg DVDs remaining a common vehicle for viewing local movies.

Moreover, as the industry sees greater investment in new media platforms, increased availability of content will help drive sales of new technology to consumers.

*This piece is published as part of Oxford Business Group economic updates

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