Contents Objectives



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Contents

  • Objectives

  • Background to Project Gaullywood

  • Project Framework

  • Setting the Scene

  • Key Project Findings

  • High-Level Strategic Recommendations

  • Appendices



The objectives of the project were to conduct strategic research on the local and international audio-visual markets for the Gauteng Film Commission (GFC)

  • Review the GFC’s existing market intelligence and establish gaps.

  • Conduct local and international audio-visual (AV) industry research:

    • Comprehensive analysis of the South African AV industry,
    • Comprehensive analysis of the Gauteng AV industry,
    • Review of global trends, best practices and industry benchmarks.
  • Assess the competitiveness of the Gauteng audio-visual industry:

    • SWOT Analysis,
    • Critical Success Factors.
  • Make high-level Strategic Recommendations:

    • Optimum positioning of the Gauteng audio-visual film industry,
    • Optimal role of the GFC.
  • Consolidate findings and outcomes for submission to GFC Board.



Background to the Project



The Gauteng Film Commission (GFC) is a provincial government agency, tasked with the development and promotion of the audio-visual industry in Gauteng



The Gauteng Film Commission (GFC) lacks sufficient market intelligence to adequately fulfil its mandate …

  • The South African audio-visual industry as a whole is facing a number of challenges:

    • Structural constraints i.e. high volatility, general unprofitability, and monopolised international distribution networks,
    • Prohibitive film production costs and decreasing levels of private production financing,
    • Lack of competitiveness relative to competitor countries,
    • Large volumes of imported material,
    • Increasing reliance on government funds as a means to protect local content development.
    • Rapidly changing consumer tastes and behaviour, with the emergence of new, interactive media platforms and technologies
  • The GFC’s main challenge is that it lacks access to quantitative and qualitative industry data. This has inhibited its capacity to:

    • Adequately respond to the challenges facing the industry,
    • Maximise the competitive advantage offered by this industry.


… and so subsequently requires comprehensive industry intelligence to inform its short-to-medium term strategic objectives



Project Framework



We defined a high-level project plan that detailed the key activities needed to deliver on the project’s objectives



We started by reviewing the GFC’s existing documentation, to establish any gaps in market data



We then mapped both the Gauteng and SA audio visual markets, in addition to reviewing industry best practices …



… having chosen to review the Gauteng audio-visual market in relation to both the national and international AV landscapes



Finally, we evaluated our findings to identify potential opportunities for the GFC and Gauteng as a whole



We mapped out a project timeline, with key milestones to measure progress



The project was structured into defined streams of work, with subject matter expertise and research support





… and sourced reliable and comprehensive secondary research data from the Deloitte Global Research Centre



Setting the Scene



The audio-visual (AV) industry is large and complex, with a myriad of role players and sub-sectors



The AV industry value chain contains value enhancing activities and role players that stimulate growth



Film Commissions tend to be established at a national or regional level, with a strategic mandate







We used a number of different sources to establish the extent of audiovisual production in South Africa



Key Findings



We conducted a review of the GFC’s available market documentation to gain an understanding of any data gaps



Global Trends and Industry Benchmarks



Global Trends and Industry Benchmarks



Global growth estimates for the film and television industries in 2003 were 9.4% and 6.3% respectively



Traditional industry revenue streams are on the decline worldwide, due to technology convergence, among other factors





The global film industry is in a state of flux, as movie theatre attendance stagnates and content delivery channels proliferate



Box office attendance is on the decline globally, primarily due to rising ticket prices



In the UK, digital media distribution and an increase in personal movie watching has driven down box office sales



The high risk nature of big budget films has led to changes in production funding approaches …



… which has forced changes in traditional business models



In the United Kingdom, the film business model has traditionally been driven by box office sales …



… however new distribution channels such as online portals are expected to change this



The digitisation of film content has led to an increase in piracy …



… that has in turn led to a shortening of the window period between movie theatre and DVD release



The digitisation of film production, distribution and exhibition is bringing greater efficiencies to the industry



Digitisation has facilitated the growth of the animation industry



Digitisation has facilitated the growth of the animation industry (cont.)



In South Africa, animation is seen as the possible next big break for the industry however challenges exist



The digitisation of film production, distribution and exhibition is bringing greater choice to TV audiences



Digitisation has enabled the production of higher quality content that can be distributed faster and cheaper



In a bid to increase market share and boost revenue, national film industries are now targeting global audiences



As a result of technology convergence, online revenue streams are gaining importance



Low budget, high volume films are the driving force behind the success of Nigeria’s film industry



Global Trends and Industry Benchmarks



Accessibility and suitability of setting are both industry growth drivers and they play a role in the choice of a location





Mexico’s technical infrastructure and conducive regulatory environment have helped make it an attractive location



The “Made in New York Incentive program” is a good example of the benefits of creating a film-friendly environment



There are a range of both financial and non-financial incentives that are typically used to attract productions



Incentives are a popular instrument employed by countries to attract productions



Incentives are a popular instrument employed by countries to attract productions (cont.)



In Ireland, a wide range of financial incentives are offered to help create opportunities for foreign and local involvement in the industry



The general business environment in Ireland is also supportive of the audio-visual industry



Government financial incentives in New Mexico have helped film productions grow tenfold



In the UK, public funding is available for a wide range of AV growth initiatives and capacity building



Both public and private sector funds are available to meet the needs of the AV industry in Spain



Funding should ideally be spread across the different segments of the value chain, with a focus on areas of greatest need



Revenue generation guarantee requirements are the largest barrier to access to funding in South Africa



In South Africa, funds from the National Lottery cannot be allocated to private companies in the industry however…



The audio-visual industry can have a proven positive economic impact on the economy of a region or country



The audio-visual industry can have a proven positive economic impact on the economy of a region or country



The audio-visual industry can have a proven positive economic impact on the economy of a region or country (cont.)



Job creation is often the single largest economic outcome of the audio-visual industry



The GFC can better demonstrate the economic impact of the audio-visual industry, so as to lobby government for more resources



The broader economic competitiveness of a location has an effect on investor perceptions of its attractiveness



The availability of skilled resources, and the flexibility of the labour market, has helped attract productions to competitor countries



Productions are more likely to be shot in locations with readily available state-of-the art facilities and high-tech equipment



Global Trends and Industry Benchmarks



The role of a Film Commission typically ranges from facilitating the approval of permits to dealing with trade and investment policy related matters



Certain areas of commonality were identified amongst the Film Commissions / Film Offices that were reviewed



Certain areas of commonality were identified amongst the Film Commissions / Film Offices that were reviewed



Some differences were identified amongst the Film Commissions / Film Offices that were reviewed







Film Commissions have a diverse range of stakeholders within the audio-visual industry …



… to whom they need to provide different products and services



Few Film Commissions focus their efforts consistently within every segment of the audio-visual industry value chain



Ideally, Film Commissions add value by creating an environment that is conducive for the growth of the industry



The Gauteng Film Commission (GFC) is a provincial government agency, tasked with the development and promotion of the audio-visual industry in Gauteng



The GFC’s stated core functions are not divergent from industry expectations



The value proposition of a Film Commission is dynamic i.e. it evolves as the industry evolves



Full public or full private funding are the two extremes of the continuum of revenue models for Film Commissions



The major source of revenue for Film Commissions is usually government funding



The bulk source of revenue for Film Commissions is usually government funding (cont.)



In the US, some Film Offices have been established with limited government involvement or public funding



Film festivals are just one of the many marketing platforms for Film Commissions



Although National and Regional Film Commissions employ similar marketing strategies, Regional Film Commissions also have a domestic focus



The AFC utilises different types of marketing initiatives to raise the profile of its industry



The Irish Film Board aims to maximise the participation of its industry in the international and national marketplace



Strategic industry partnerships often lead to better coordinated marketing efforts



Australia has a number of agencies that are dedicated to the audio-visual industry and supportive of the AFC



In Spain, various government-related and privately funded agencies support the audio-visual industry



South African AV Industry Overview



South African AV Industry Overview



The South African audio-visual industry dates back to the ‘birth’ of film, circa 1895



The South African audio-visual industry has two segments - the servicing of foreign productions and production of local content



South Africa has established audio-visual hubs in Gauteng, the Western Cape and Kwazulu Natal



The Cape Film Commission is mandated to promote Cape Town and the Western Cape region to the entertainment industry, as a world class production destination



Similarly, the Durban Film Office has a mandate to promote KZN as a world class production destination and attain 3% of the global film making share by 2008



There are also several other emerging hubs in South Africa, evidence of the growth potential of the local audio-visual industry



The primary value proposition of local Film Offices and Commissions is to market their regions as locations of choice



In South Africa, various government-related and privately funded agencies support the audio-visual industry



There are a number of initiatives being undertaken at provincial government level to promote the audio-visual industry …



… with the GFC engaging in a range of AV activities within Gauteng



The last 5 years have seen a renewed focus on strategies to grow the national and provincial audio-visual industries



South African AV Industry Overview





In 2006, almost R3 billion revenue was generated in the South African audiovisual production industry



Over a 3 year period, the bulk of commercials produced nationally were concentrated in Gauteng and the Western Cape



With very few exceptions, the local box office is dominated by foreign films …



… with ‘slapstick’ the most successful of local movie genre’s



South African audiences perceive local films as being either ‘slapstick’ or socio-political; there is little variety of genre



In South Africa, cinema attendance is characterised by areas of growth, stagnation or decline



Countrywide, new content delivery channels are booming due to falling prices of DVDs, computers and cell phones



South Africa faces impediments to increasing its market share as a globally competitive film-making destination



The AV industry has had a positive economic effect on the local economy



South African AV Industry Overview



There are several factors influencing the growth of the national audio-visual industry



One of the main impediments to growing the local industry has been poor audience development



South Africa has an internationally recognised comprehensive and progressive legal framework



There have been a few initiatives to reduce bureaucracy and inconsistent application of rules



There have been a few initiatives to reduce bureaucracy and inconsistent application of rules (contd.)



There are a number of commercial and government organisations offering film production financing in South Africa





The Large Budget Film and TV Production Rebate is the prime investment incentive available to both foreign and local big budget producers



Other incentives are available to support the industry in South Africa



As at 24 April 2007, R124 million had been paid from the Large Budget Film and TV Production Rebate Scheme

  • Efficiency of the Rebate Scheme:



The cost of production in South Africa is relatively cheap compared to developed countries, such as in the European Union



South Africa has a vibrant service industry catering to all aspects of the audio-visual industry …

  • Service Providers



… and a variety of small to medium-sized fully equipped studio spaces

  • The studio facilities available in South Africa have technical infrastructure and equipment that is ideal for commercials and low budget films.

  • A number of technically advanced studios are required in a country so as to attract international productions e.g. both Ireland and Australia have state-of-the art technical infrastructure, which is used to attract big-budget productions. To compete with these countries, South Africa would need to invest in such infrastructure e.g. the Dreamworld Film Complex:

    • The Cape Town Dreamworld Film Complex is expected to open in 2008. The complex will include four soundstages, four backlots and premises for production, post-production and supply companies. The Dreamworld project should open up opportunities for both local and international filmmakers as it meets international standards for studios.
  • For post-production projects, security and access to facilities is a big issue due to piracy. Shortening the theatre to DVD window in the country would be a key measure to mitigate the threat of piracy.



South Africa has well-developed public infrastructure with modern facilities and services available in all major centres

  • South Africa has a relatively advanced telecommunication industry with one fixed line operator, three cellular network operators and international links fed via submarine cable and satellite networks:

    • There is conflicting data available on the global competitiveness of Telkom’s rates
  • Upgrading of national broadcasting infrastructure from analogue to digital at an estimated cost of R2bn will eventually lead to greater efficiencies in the sector and enhance new content delivery channels.

  • Transportation compares favourable with first world countries – excellent road, rail, sea and air travel services.

    • South Africa has 3 international airports linking it to more than 59 cities around the world.
  • Major public and private hospitals have outpatient and casualty facilities for all health care.



South Africa’s diverse physical environment makes it an attractive location



Limited skills data on the South African AV market has restricted our evaluation of the skills set within the industry



Employment figures in the Commercials sector show a a general decline in overall numbers …



A comparison of two locally produced movies shows a high degree of employee transformation, with most employees working as freelancers

  • ...



There are also skills gaps that have been identified by stakeholders as needing urgent redress to ensure the continued growth of the local industry



Several public and private sector organisations are providing training programmes to help address identified skills gaps



Tertiary institutions are also playing a key role in developing the skills required by the AV industry



From a global perspective, the business environment in South Africa is generally perceived to be supportive of businesses and is conducive for growth



Gauteng AV Industry Overview



Gauteng AV Industry Overview







Gauteng has the largest cinema audiences nationally, reflecting its strong movie-going culture …



… but cinema facilities are concentrated in the wealthier northern suburbs of Johannesburg and Tshwane



The Gauteng audiovisual production industry achieved revenue of approximately R1,1 billion in 2006 …



… and is generating a total of over R2 billion a year in economic activity due to multiplier effects



Gauteng’s audiovisual industry is dominated by television series production



Most popular South African TV shows are Gauteng-based



Commercials production in Gauteng is dominated by local production



Gauteng accounts for the bulk of locally produced films

  • Gauteng accounted for approximately 85% of all local film productions in 2006:

    • The Province is strong in the initial stages of the value chain (pre-production, production and post-production),
    • In other Provinces, particularly the Western Cape, Eastern Cape and KZN, servicing of international film productions is dominant.
  • Gauteng does however provide post-production services for international film productions:

    • E.g. Blood Diamond, Catch a Fire, The Interpreter, The Flyer etc.
  • Access to distribution channels remains a constraint for local filmmakers:

    • Alternate distribution channels for locally-produced content e.g. DVDs and cellphones, could address this issue in the future.


Gauteng AV Industry Overview



Gauteng is perceived as having strong technical skills, with easy access to both the wider South African and international skill pools



Gauteng is strong in technical infrastructure, particularly in the Auckland Park-Randburg corridor



Gauteng’s public infrastructure is excellent, but rapid economic growth is putting pressure on the system



Gauteng has a business environment that is conducive to the AV industry



Safety and security however, have emerged as a key concern for the industry



Film budgets in the province rely heavily on subsidies, incentives and soft loans



Other incentives are available, such as in the Jhb urban development zone



Gauteng has a good physical environment, not only for shooting of films but for post production as well



Sound infrastructure and a conducive business environment rate as the most important factors for the local industry



Gauteng AV Industry Overview







The challenge for the industry is how to effectively address the constraints it faces, so it can unlock the province’s growth potential



High-Level Strategic Recommendations



A visionary strategy provides the platform for rapid growth



The principles of good strategy highlight the importance of government supporting activities rather than individual firms or projects

  • Target productivity-enhancing “activities” instead of individual firms or sectors.

  • Provide additional support for new activities, while existing ones can be assisted by removing regulatory or infrastructure-related obstacles.

  • Promote an environment conducive to experimentation with products, production and distribution e.g. Innovation hubs.

  • Reduce information gaps that may limit private-sector economic activity, while avoiding creating economic opportunities for some firms and not others.

  • Avoid creating a form of corporate welfare. Incentives should be designed up front to be discontinued so that companies and the State do not come to depend on specific programmes.

  • Maximise public accountability and transparency, which will help to ensure positive net economic benefits and provide clear mechanisms for discontinuing programmes that do not work.

  • Take into account economic benefits and costs of interventions.



The GFC’s mandate aligns to these principles and does not mandate case-by-case interventions, instead focusing on ‘public goods’



In line with its mandate, the GFC is focusing on supporting activities that benefit the whole industry, not one or two players



To successfully execute its mandate, we recommend the GFC focus on five key areas to sustainably grow the industry



To meet its mandate, we recommend that the GFC focus on five key areas to sustainably grow the industry (cont.)





Bearing in mind that the international industry has potential to generate high revenues within the province ...



... sustainable growth in the province could be achieved by exploiting the synergies between the local and international AV industries



The GFC would need to tailor its functions to meet the different needs of both the international and local industries



An analysis of the provincial landscape suggests a lack of institutional capacity at local level, with overlap at national level



The GFC is one of a number of bodies supporting the AV industry, as part of the province’s strategy to drive economic growth



An institutional structure that contains national, regional and local structures would benefit from greater co-ordination and integration …



The GFC needs to play an increasingly strategic role in growing the provincial AV industry, even as it fulfils its stated mandate



This role however will need to evolve in line with the demands of its rapidly changing operating environment



The GFC needs to strategically drive the creation of a film-friendly environment in Gauteng



Though the GFC is fully government funded, it could consider other funding options to reduce its dependence on government grants



In conclusion, Gauteng film industry has the potential to be a significant economic force with the right strategy in place





Appendices



Appendices



We developed an overall project charter that outlined the project’s key objectives, activities and deliverables



Stream Charter: Gauteng Market Analysis



Stream Charter: South Africa Market Analysis





Appendices



References



References



References







References



References



References



References



References



Appendices



The audio-visual industry value chain contains value enhancing activities and role players that stimulate the growth of the industry (cont.)





All the countries we reviewed provide support for funding and are focused on promoting their locations



Film Commissions typically have mandates that are developed by government in consultation with key industry stakeholders



The Madrid Film Commission is funded by a variety of public sector organisations



Effective performance management, including monitoring and reporting, ensures accountability in Film Commission operations



Best-in-class Film Commissions typically operate within a clearly defined governance framework



Australia has a number of agencies that are dedicated to the audio-visual industry and supportive of the AFC



Australia has a number of agencies that are dedicated to the audio-visual industry and supportive of the AFC (cont.)



In Spain, there are various government and private related agencies that support the audio-visual industry



In Spain, there are various government and private related agencies that support the audio-visual industry (cont.)



In terms of the global movie theatre market, there is also a growing shift towards alternative sources of entertainment



The audio-visual industry can have a proven positive economic impact on the economy of a region or country (cont.)



The audio-visual industry can have a proven positive economic impact on the economy of a region or country (cont.)



Some degree of transformation has occurred in the sector, for part time and full time employees



South Africa has a vibrant service industry catering to all aspects of the audio-visual industry …

  • Service Providers:



… and a variety of small to medium-sized fully equipped studio spaces



We have calculated the multiplier for the industry as a whole to be 2,3



Gauteng’s strengths complement other regions in the country



A BCG matrix provides a way of ranking different sectors in terms of their relative attractiveness and competitive advantage



In Gauteng, TV and commercials are classic cash cows, whereas film is a ‘question mark’



With the right strategy in place, ‘question marks’ have the potential to become cash cows or stars

  • Film industry – Given its existing advantages (good technical infrastructure, conducive business environment and good skills base), Gauteng has the potential to grow its market share,

  • Television – typical cash cow, and Gauteng should avoid over-investing in the industry as it is already growing near its potential,

  • Commercials – also a cash cow, but Gauteng is losing market share as international commercial producers prefer Cape Town,

  • New media / multimedia – the province’s existing strength in this area and the potential for explosive growth makes this the province’s star; it is still in early stages of development however.





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