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					Project Gaullywood: Project Book

Phase I: Market Intelligence and Sector
Competitiveness

27th July 2007
Contents



   Objectives

   Background to Project Gaullywood

   Project Framework

   Setting the Scene

   Key Project Findings

   High-Level Strategic Recommendations

   Appendices




                                       2
The objectives of the project were to conduct strategic
research on the local and international audio-visual
markets for the Gauteng Film Commission (GFC)
Objectives:
• 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.


                                              3
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
GFC Mandate:

   •   To promote Gauteng as a preferred film destination,
   •   To facilitate transformation of the film industry,
   •   To regulate and co-ordinate inter-government communication of permit
       issuance, code of conducts, municipal by-laws and risk management factors
       through the development and implementation of provincial film policy,
   •   To facilitate, support and promote new investment in film production within
       Gauteng thereby contribute to economic growth and sustainable job creation,
   •   To create and manage a repository of statistical and industry related
       information,
   •   To monitor and support local industry developments,
   •   With the approval of the MEC and Board, to provide finance for any projects
       which will develop filming in the Province,
   •   To develop strategic and business partnership and other co-operative
       activities with the filming and television industry both locally and
       internationally,
   •   To support greater access to and participation in the film and television
       industry by Previously Disadvantaged Individuals (PDI).


                                                    5
The Gauteng Film Commission (GFC) lacks sufficient
market intelligence to adequately fulfil its mandate …

Problem Statement:
• 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.
                                                  6
… and so subsequently requires comprehensive industry
intelligence to inform its short-to-medium term strategic
objectives
Project Scope:

    Project Gaullywood Objectives:
    • A comprehensive contextual and situational analysis of the Gauteng audio-visual
      market,
    • Reporting on current international and national best practice as regards the activities
      of Film Commissions/ Offices.

    The resulting market intelligence will form the backbone for the development of a
    strategic 5–year Sector Development Plan for the GFC.




    Project Gaullywood Output:
    • Key research and analysis findings, including:
        Global trends, best practices and industry benchmarks,
        Overview of the Gauteng and SA audio-visual markets.
    • Sector competitiveness assessment:
        Key challenges and potential opportunities (SWOT analysis),
        Critical success factors (CSF’s).
    • High-level strategic recommendations:
        Optimum positioning of the Gauteng audio-visual film industry,
        Optimal role of the GFC.


                                                           7
Project Framework
 • Project Plan

 • Project Charter and Timeline

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

Project Plan:
     PROJECT PLANNING &                               INDUSTRY MAPPING                                  EVALUATION             COMPILATION
          KICK-OFF                                       (As-Is Analysis)                               OF FINDINGS             OF REPORT
                2-4 wks                                          8-12 wks                                     2-4 wks            1-2 wks


                                           SA AUDIO-VISUAL MARKET ANALYSIS
                                           • Operating landscape (regional bodies,
                                             activities, facilities, market share, initiatives
                                             etc)
                                           • Regulatory environment
                                           • Financing (incentives and access to funds)
                                                                                                                                  • Consolida
                                                                                                 • Develop detailed                 te
• Review existing GFC                      GAUTENG AUDIO-VISUAL MARKET
  documentation and other available                                                                SWOT analysis                    findings
                                             ANALYSIS
  data                                                                                           • Prioritise and validate          and
                                           • Market activity; demand and supply
• Establish key areas of research                                                                  key issues and potential         outcomes
                                           • Competitive positioning
  focus and identify any gaps in                                                                   opportunities                    for
                                           • Skills and resources
  available data                                                                                 • Identify critical success        submissio
                                           • Key challenges and potential opportunities
                                                                                                   factors                          n to GFC
                                           • Review of the GFC
                                                                                                                                    board
                                           • TRENDS AND BEST PRACTISE REVIEW
                                           • Global trends
                                           • Best practice and industry benchmarks




• Project Administration                         PROJECT MANAGEMENT
• Project Planning:                              •Bottom-up solution generation
    • Clarify project scope                      •Day-to-day project management
    • Validate project plan and charters         •Client Relationship Management
    • Identify key GFC stakeholders




                                                                                            9
We started by reviewing the GFC’s existing
documentation, to establish any gaps in market data

Project Planning & Kick-off:

                                    PROJECT PLANNING & KICK-OFF
                                                 (2-4 wks)


 Project Planning                      Documentation Review                Project Administration
 • Clarify:                            • Review existing                   [Internal]
     • Project parameters (scope)        documentation:
     • GFC expectations and                • GFC documentation e.g.
       requirements                          business plans, annual
 • Finalise project team                     reports, legislation etc
   structure and members                   • Benchmarking and best
 • Meet GFC Management                       practice data (trends, case
                                             studies etc)
 • Develop and validate (sign-             • Other background
   off):                                     information and databases
     • Detailed project plan and
       charter
                                       • Identify gaps in available
     • Detailed project timeline,        data
       with key milestones and
       updates
 • Identify key GFC
   stakeholders




                                                                10
We then mapped both the Gauteng and SA audio visual
markets, in addition to reviewing industry best practices …
Industry Mapping:

                                                   INDUSTRY MAPPING
                                                           (8-12 wks)


 SA audio-visual market:                      Gauteng audio-visual market:          Trends and Best Practice:
 •Operating landscape:                        • Market activity and facilities      • Trends in the global audio-
    • Market activity (complementary          • Market demand and supply              visual industry
      and competitive) and facilities           (products and services);            • Global best practices – other
      resident in other regions in SA;
      demand and supply
                                                market share                          Film Commissions / Offices:
    • Market share and positioning            • Competitive Positioning                  • Role, mandate, statutory
    • Existence and effectiveness of            (location, infrastructure,                 composition, value chain
                                                                                           positioning, institutional and
      regional bodies with mandates             funding etc)                               revenue models etc
      similar to the GFC                      • Skills and resource availability:
    • Regional development plans and                                                • Competitor destinations and
                                                  • Demographics vs. skills set
      initiatives                                                                     countries:
                                              • Local industry expectations and
 •Regulatory environment:                                                                •   Regulatory framework
    • Impact on industry (+ and -)
                                                requirements                             •   Funding and Incentives
 •Incentive schemes:                          • Key challenges and                       •   Product and service offering
    • Government initiatives (current           opportunities (SWOT)                     •   Locations and Infrastructure
      and future)                             • Overview of the GFC:                     •   Value proposition (destination
    • Impact of current initiatives               • Mandate and role                         of choice)
 •Funding:                                        • Structure                       • Identify critical success factors
    • Accessibility of funding for projects       • Operations and activities         for:
    • Sophistication and responsiveness           • Strategic objectives                 • Film Commissions / Offices
      of financial markets to fund                • Value proposition (natural           • The audio-visual industry
      applications                                  scenery, expertise,
    • Market understanding of industry              infrastructure etc)
      mechanics; evaluation of risk vs.           • Key challenges and
      reward etc                                    opportunities



                                                                       11
… having chosen to review the Gauteng audio-visual market
in relation to both the national and international AV
landscapes
Stream Interface:

                                Understand the global operating landscape -
           Global Trends and    What trends are shaping it? What are the
             Best Practice      best in the business doing and what can be
                Review          learnt from them? What’s driving or
                                hindering growth?


                                Understand the NATIONAL operating
              SA Market         landscape – What’s the current state of
               Review           industry? What’s driving or hindering
                                growth, relative to the rest of the world?
                                What trends / factors unique to South Africa
                                are shaping the industry?


               Gauteng          Understand the PROVINCIAL operating
             MarketReview       landscape – What’s the current state of
                                industry? What’s driving or hindering
                                growth, relative to the rest of the country?



                                Define the STRATEGIC implications of the
                                above - Where do the opportunties for
                                growth / improvement lie? How can this be
                                effected? What is the role of the GFC in this?




                                12
Finally, we evaluated our findings to identify potential
opportunities for the GFC and Gauteng as a whole

Evaluation of Findings:

                                                 EVALUATION OF FINDINGS
                                                               (2-4 wks)



  •Collate and synthesise all research and data
  •Develop a detailed SWOT analysis of both the Gauteng and SA audio-visual industries:
     • Identify key strategic issues, potential opportunities and critical success factors for the Gauteng market
  •Engage Steercom and key stakeholders:
     • Validate research and analysis findings
     • Prioritise and validate issues and opportunities
     • Build consensus and secure buy-in
  •Make high-level strategic recommendations
     • Optimum positioning of the Gauteng audio-visual film industry
     • Optimal role of the GFC




                 Our high-level strategic recommendations will feed in to the second phase of
                                                the project.



                                                                            13
We mapped out a project timeline, with key milestones to
measure progress

Timeline and Milestones:
                          Wk. 1 - 4             Wk. 5 - 8    Wk. 9 - 12             Wk. 13 - 16             Wk. 17 - 20
TASK
Project Planning &
Administration
                               • Framework validation
                               • Charter sign-off



Documentation Review
                                           • Gap analysis



SA Market Analysis



Gauteng Market Analysis
                                                                                     First-cut
                                                                 Initial Insights
                                                                                     SWOT Analysis



Best Practice Review



Evaluation of Findings
                                                                                              Stakeholder
                                                                                              Validation




Preparation of Report

                                                                                                                  Final Submission



                                                            14
The project was structured into defined streams of work,
with subject matter expertise and research support

Project Team Structure:

                           Project
                           Director




                           Project
                           Manager




    SA Market           Gauteng Market            Best Practice   Global Research
     Analysis              Analysis                 Review         Centre (GRC)




                Subject Matter Experts (SME’s)




                                             15
We employed an issue-driven research approach to
source and analyse our primary data …

Research Methodology:



                     Develop                  Conduct                       Analyse                 Identify
                                              Research
                   Hypotheses                                               Findings            Opportunities



             • Develop relevant       • Carry out desktop       • Establish key trends      • Identify potential
               (issue-based)            research and analysis     and growth drivers          opportunities
               hypotheses             • Perform an analysis     • Validate key issues,      • Develop client-
                                        of the client             threats and gaps            specific solutions
 Activity




                                        organisation
                                      • Commission
                                        secondary research
                                        by GRC & BICS




             • Provide structure      • Source factual and      • Gain a clear              • Assist the client to
 Objective




               and direction to the     meaningful data           understanding of the        achieve sustainable
               research                                           factors influencing the     growth or recovery
                                                                  client, and industry or
                                                                  market at large




                                                                       16
… and sourced reliable and comprehensive secondary
research data from the Deloitte Global Research Centre

The Global Research Centre (GRC):



                           Tailored       Vast portfolio of
                           Research         Databases


            Professional                                 Access to SME’s
              Research
                                                            globally
             Specialists



      Industry                                                  Data Analysis
      Expertise                                                 and Synthesis




                              The Deloitte Global
                                Research Centre
                                     (GRC)



                                             17
Setting the Scene
The audio-visual (AV) industry is large and complex, with
a myriad of role players and sub-sectors

The audio-visual industry:
• The term “audio-visual” is a broad one, covering, amongst others - film,
  documentaries, video, broadcasting (television and radio), commercials,
  stills photography, music and multimedia.
• This content is delivered through numerous channels, such as cinema,
  television, radio, internet portals, video, DVD, hand-held devices
  (cellphones, PDA’s) etc.
• For the purposes of this project, we will primarily be focusing on film,
  television and commercials.
• The audio-visual industry provides a platform for the provision of a wide
  range of specialist services and functions, ranging from script
  development and film direction to post-production, financing, deal
  making, distribution, exhibition and broadcasting.
• The industry structure is thus fairly complex, with a large and diverse
  number of role players operating across the value chain.


           Source: Deloitte Research; GFC Business Plan 2007-2010
                                                                    19
The AV industry value chain contains value enhancing
activities and role players that stimulate growth

Value Chain:

                                Cost Consumption                                      Revenue Generation
                                                                           Post
                                                     Pro                                              Dist
                                                                           Prod
   Pre-Production                                   ducti                                            ribut
                                                                           uctio
                                                     on                                               ion
                                                                             n
  • Concept Development           • Actors                  • Film Editing and        • Licensed merchandise
    and Screenplay                • Costumes and Make up      Projection              • Theatrical release
  • Rights Acquisition            • Location Management     • Video Post-production   • DVD and Video
  • Development                   • Lighting and Sound      • Computer Effects and    • Television
  • Financing                     • Grips                     Graphics                     – Pay TV
  • Location Scouting             • Set Construction        • Music and Sound              – Public Broadcaster
  • Talent Packaging              • Special Effects         • Titles                  • Internet
       – Casting Agents           • Transport and           • Distribution deals
       – Crewing Agents             Accommodation
                                  • Photography
                                  • Camera Crews
                                  • Studio Facilities


                                             Industry Associations

                                       Government and Regulators




          Source: Deloitte Best Practice Research                     20
Film Commissions tend to be established at a national or
regional level, with a strategic mandate

Film Commission vs. Film Office:

              Film Commission                                            Film Office



  • A Film Commission is usually a                     • A Film Office is usually a local level office
    government agency, operating at national             of a Film Commission:
    or regional level.
                                                            Could be a stand alone office that performs
                                                             a role similar to a Film Commission but at a
                                                             more operational level.

  • It typically plays a strategic role i.e.           • It plays a more operational role i.e. that
    facilitation or lobbying on issues such as           of logistics support e.g. assistance with
    marketing, funding and incentives, policy            location selection, obtaining of permits,
    development, skills development etc.                 procuring of film resources, community
                                                         relationship management etc.




             For the purpose of this study, we will look at both type of institutions as the
                                 GFC is currently a hybrid of the two.


             Source: Deloitte Best Practice Research
                                                            21
We selected 6 diverse comparator countries that would
provide appropriate benchmarks for South Africa and the GFC

Comparator countries:
 Country                 Audio-visual Industry Characteristics

 Australia           •    A sophisticated and capable domestic industry,
                     •    Tax and investment incentives,
                     •    Good marketing and promotion of the AV industry,
                     •    Studio and infrastructure development,
                     •    Comprehensive government support from agencies ranging from film commissions to finance houses and training
                          organisations,
                     •    Good country-to-country relationship with the US.

 United              •    Long established industry,
 Kingdom (UK)        •    Well-established institutional arrangements,
                     •    Incentives (tax breaks),
                     •    Co-productions with the US,
                     •    Investments by international film makers,
                     •    Concerted skills development drive.

 United States       •    Well established industry,
 (US)                •    Large pool of companies, leading to high job creation,
                     •    Production houses with financing ability,
                     •    Growth of private funding,
                     •    Skills availability,
                     •    Both financial and non-financial incentives e.g. free parking,
                     •    Growth of private funding.




       Source: Key GFC Stakeholders and Industry Experts                             22
We selected 6 diverse comparator countries that would
provide appropriate benchmarks for South Africa and the
GFC (cont.)
Comparator countries:
 Country                   Audio-visual Industry Characteristics
 Ireland                  • Considered as one of the top 6 preferred locations for film production,
                          • Building expertise and knowledge at every level,
                          • Exemplary tax incentive scheme,
                          • Government support,
                          • The industry has grown rapidly over the last decade; there was an 11% increase in
                            annual average expenditure by the Irish Film industry between 1989 and 1994.

 Mexico                   • Strong national film industry,
                          • Tax breaks for companies that invest in Mexican cinema,
                          • No VAT payments required for film productions,
                          • Emerging economy similar to South Africa.

 Spain                    • Growth in public funding,
                          • Growth in high-quality animation,
                          • Large talent pool,
                          • Exposure to international projects.




             As an aspiring location of choice, Gauteng can learn a lot from both established
                                         and emerging countries.

           Source: Key GFC Stakeholders and Industry Experts         23
 We used a number of different sources to establish the
extent of audiovisual production in South Africa

Production Data Sources:
• Film: Data on all major films made in South Africa between 2000 and
  2006 was sourced from IMDBPro, EU data sources and major SA
  production /post-production facilities. This includes locally-produced and
  foreign films,
• Commercials: CPA Commercial Producers Industry Survey 2006,
• TV: Information was sourced from industry executives,
• The above information was cross-checked with industry experts, DTI
  rebate data and other relevant studies:
   The data is presented as collected, with no assumptions made regarding
    unmeasured activity.
• For Gauteng market data, as far as possible only activity that took place
  in the province was measured:
   E.g. for film expenditure, we used only the proportion of expenditure that was
    spent in the province,
   This highlights the fact that production does not always occur exclusively in
    one province; different stages may take place in different provinces.
                                                24
Key Findings
 • Global Trends and Industry Benchmarks

 • South African AV Industry Overview

 • Gauteng AV Industry Overview
We conducted a review of the GFC’s available market
documentation to gain an understanding of any data gaps

Documentation Review:

                          •   Review of available GFC documentation:
      Review                      Familiarisation   with content thereof




                          •   Evaluation of GFC documentation to establish the
                              quality of the available data, i.e.
      Evaluation                  Age, scope, source, history, numerical data etc
                                  Relevance of data vs. workstream requirements



                          •   Subsequent identification of any gaps in the
        Gap                   available documentation:
                                         direction to workstreams around data
                                  Provide
      Analysis
                                  requirements going forward



         We found there to be insufficient market data that was both exhaustive and
                                         up-to-date.



                                                     26
Global Trends and Industry Benchmarks
 • Global Industry Trends

 • Key Growth Drivers

 • Film Commission Best Practice
Global Trends and Industry Benchmarks
 • Global Industry Trends

 • Key Growth Drivers

 • Film Commission Best Practice
Global growth estimates for the film and television
industries in 2003 were 9.4% and 6.3% respectively

Global Growth Projections:




 The United
 States is the
 leader in the
 exportation of
 filmed content




                                                            Africa imports
                                                            70% of its filmed
                                                            content from the
                                                            US and 15% from
                                                            Europe

                       In 2003, the global content industry was valued at US$1.2 trillion.



      Source: Deloitte Best Practice Research                 29
Traditional industry revenue streams are on the decline
worldwide, due to technology convergence, among other
factors
Summary of Global Industry Trends:


         • Declining box office attendance,
         • Digitisation of film production, distribution and
           exhibition,
         • Growth of digital animation,
         • Shrinking theater-to-DVD windows,
         • New technology enabling higher quality content and
           both faster and cheaper distribution,
         • Globalisation of entertainment,
         • Production of high budget movies and changing
           financing models,
         • Increased threat of Piracy,
         • Changing business models.




      Source: Deloitte Best Practice Research
                                                30
  The industry is being driven by the increasing buying
  power of audiences and competition between producers
  of content...
Five Forces Analysis:                                    National and provincial
    •Governments are committed to                         government, public
    promoting copyright protection and                         funds, film                       The impact of continuing customer
    other intellectual property protection.                commissions etc.                      fragmentation and buying power is
    •Public funding and incentives are                                                           high. The combination of increased
    available to grow local industries and                                                       competition and technologically
    attract foreign productions.                                                                 advanced platforms increases the
    •Skills development and development                                                          number of choices available to
    of technical infrastructure are high                                                         consumers. This overall change in the
    priorities.                                                                                  industry requires companies to become
    •Audience development is key.                                                                more responsive to consumer needs.

     Casting and crewing                                     Industry
        agents, actors,                                     Competitors                                    Audiences
      camera crews etc.

  Suppliers have a low bargaining
  power, as they are fragmented and
  small in size and they benefit from the             Numerous players exist offering similar products and services ensures that
  multiplier effect of productions.                   rivalry among firms is high. Businesses operate in a highly competitive,
                                                      consumer-driven, and rapidly changing industry. To differentiate themselves,
  Threat of substitutes is increasing                 these businesses must develop content; manage talent; and acquire, develop,
  with the proliferation of user-generated            and adopt new and existing technologies.
  content, the internet, and intense
  competition for consumers’ attention in
  a fragmenting media world.                                                                             Threat of new entrants is low,
                                                                                                         primarily due to the huge capital
  Businesses compete with each other
                                                                                                         and distribution (traditional and
  and all other sources of news,                                                                         digital) requirements of the
  information and entertainment:
                                                                           Emerging producers,
                                                   Internet                                              business. New entrants face stiff
  broadcast television, live events, radio                                    independent
                                                portals, DVD,                                            competition from strong global
  broadcasts, print media and the                                            producers, new              studio brands.
                                               cell phones etc.
  internet.                                                                    distributors

         …This makes it imperative that producers focus on the quality and respond to audience
                 needs in an increasingly multi-channel and competitive environment.

            Source: Deloitte Best Practice Research                             31
The global film industry is in a state of flux, as movie theatre
attendance stagnates and content delivery channels
proliferate

Industry Snapshot:

                                                            As part of its efforts to
                                                            diversify its revenue streams,
               The world’s most                             NBC Universal unveiled plans
               popular search engine,                       for an office and residential
               Google, bought out the                       project on part of its
               world’s most popular                         Universal Studio lot,
               video sharing portal,                        amounting to $3bn (2005)
               You Tube, for $1.65bn
               (2006)


                                                                                             A wave of overbuilding
                                                                                             has lead to
                                                                                             bankruptcies in the
                                                                                             movie theatre business
                                                                                             in the US (2005)
                                  In 2005, the global movie
                                  theatre industry’s revenue
                                  growth was flat due to
                                  declining movie admissions,
                                  lacklustre box-office
                                  receipts and increased
                                  home video spending
                                  (2005)




    Source: Deloitte Best Practice Research                              32
Box office attendance is on the decline globally, primarily
due to rising ticket prices

Trend: Box Office Attendance                                                                          In emerging economies
                                                                                                       however e.g. Mexico,
                                                                                                        Egypt and Thailand,
                                                                                                        attendance is on the
                                                                                                               rise.
        Trend                                                               Detail

                          Why?
        1                 • Rising ticket prices, a shrinking theater-to-home video release window, competition from Internet
                            video games, and “weak” films are the primary reasons for the drop in admissions.
  Declining Box-          • The overall home video market is expected to grow at GAGR of 5.4% to $33.1BN in 2010 versus,
  Office                    $25.4bn in 2005.
  Attendance
                                               Reasons for the Decline in Box-Office Attendance




                          Implications:
                          • In 2005, box-office spending fell 5.7% and admissions fell 8.7%, to their lowest amounts since
                            1999.
                          • Exhibitors (theater owners) now have weaker pricing power in the industry.
                          • However, the number of movies released has grown steadily grown by 11% from 2005 to 2006.
                            High definition DVDs and increasing availability of TV shows on DVDs are set to boost the sell-
                            through market.
                          • Mitigations:
                          • Studios can leverage the shrinking theatre-to-DVD window to benefit from the publicity buzz that
                            accompanies a movie release. Releasing fewer films to ensure that each title is marketed effectively.



     Source: Deloitte Best Practice Research                               33
 In the UK, digital media distribution and an increase in
 personal movie watching has driven down box office sales

Declining Box Office Attendance: UK
     Revenue UK £M




                                                   Year




    Source: Deloitte Best Practice Research   34
 The high risk nature of big budget films has led to
 changes in production funding approaches …

Trend: Production Funding Models
          Trend                                                                Detail



                                • In the US, the number of big-budget productions is on the rise because they tend to perform
                                  well in international markets, and, there is an increased demand for animated feature films,
                                  which are traditionally big-budget.
            2                   Why?
  Shift in production           • Big-budget films carry a higher risk, which studios have sought to minimize by entering into co-
  funding models, in              production deals with other studios or by pre-selling the rights for international distribution.
  part due to an                • A significant development in film financing in 2005 was that private equity funding gained
                                  importance. Private funds generally invest relatively small amounts in a large number of films,
  increase in big-
                                  so diversifying their risk. Private financiers also have become involved in the industry due to:
  budget productions
                                      The emergence of different content delivery channels, which have increased the market
                                      for films.
                                      Emerging methods of advertising films such as working with TV networks to show
                                      promotional clips of new movies.
                                      Opportunities for the private equity holders to reduce costs in studios and thus increase
                                      profits.
                                • Film production budgets are constantly rising, driven by the cost of changing technologies and
                                  high-profile casts. It is expensive for most content creators to self-finance high-end content.
                                • Public funding of production is significant in most countries. For instance in Australia, in of the
                                  28 Australian and co-produced films shoot in 2005/06, 17 were from government sources, 6
                                  from substantially private sources, 3 from foreign sources and 1 from other sources.
                                Implications:
                                • Private funding lessens a studio’s need to pre-sell rights or enter into co- production
                                  arrangements, increasing its potential back-end revenues.
                                • Whether private equity financiers will receive significant returns is however to early too
                                  determine as their involvement in the industry is a recent phenomenon.

      Source: Deloitte Best Practice Research                                 35
… which has forced changes in traditional business
models

Trend: Changing Business Models

          Trend                                                         Detail


                                Why?
         3                      • Movies are not always able to cover their production costs e.g. “ The
  Changing Business               Adventures of Pluto Nash” which cost over $100M to produce but earned less
  Models                          than $5M in U.S. theaters.
                                • Subsequently, studios and distributors hedge their bets by releasing a slate of
                                  movies each year. The most promising projects ('tent pole' or 'event' movies)
                                  receive the most attention. These movies often receive the highest production
                                  and marketing budgets, critical to a successful theater release.
                                • Multi-channel distribution e.g. theaters, DVD, pay-TV, Video on Demand,
                                  Internet etc has also changed traditional distribution models.
                                Implications:
                                • Studios are changing their talent compensation practices by signing
                                  compensation deals which form some percentage of gross profit from the
                                  movie e.g. Tom Cruise’s profit sharing arrangement for “Mission Impossible II”,
                                  which yielded over $70M.
                                • Production of movie sequels can often, but not always, lead to box-office
                                  success. Of the top 50 US domestic box-office hits released between 2000 and
                                  July 2006, 21 were sequels. Furthermore, adaptation of novels and remakes of
                                  earlier releases can also result in blockbusters.




     Source: Deloitte Best Practice Research                       36
In the United Kingdom, the film business model has
traditionally been driven by box office sales …

Changing Business Models: UK
    United Kingdom Traditional
          Business Model




    Source: Deloitte Best Practice Research   37
… however new distribution channels such as online portals
are expected to change this

Changing Business Models: UK

    United Kingdom Emerging
         Business Model




    Source: Deloitte Best Practice Research   38
The digitisation of film content has led to an increase in
piracy …

Trend: Increased Piracy
        Trend                                                      Detail
                         •   Piracy is currently the biggest threat to the motion picture industry.
       4                 •   Piracy rates are highest in China (90%), followed by Russia (79%) and Thailand (79%);
                             the piracy rate in the U.S. is 7%.
   Increased             •   In South Africa, movie sales account for 60% of the country’s DVD market, costing the
   Piracy Threat             industry an annual R500-million.
                         •   The worldwide motion picture industry (including foreign and domestic producers,
                             distributors, theaters, video stores, and pay-per-view operators) lost $18.2B to piracy
                             in 2005.




                         • Of the total $6.1B lost by MPA member companies in 2005, 62% was from the piracy of
                           hard goods such as DVDs, while 38% was from Internet piracy.
                         Why?
                         • There are numerous cheap and easily available illegitimate sources of “freeware” (e.g.
                           P2P services), which enable copying of videos, music and books.
                         • The Internet greatly increases the threat of piracy, as illegal copies of digital content
                           can easily be made and distributed.



    Source: Deloitte Best Practice Research                         39
… that has in turn led to a shortening of the window period
between movie theatre and DVD release

Trend: Shrinking Theatre-to-DVD Window
         Trend                                                         Detail

                            Why?
         5                  • Companies attempt to extract the maximum value from their content by exploiting it over
                              a series of sequential release windows. These windows are particularly well-defined for
                              films (theatrical, DVD, and eventually, TV).
  Shrinking Theater-
  to-DVD Window             • TV broadcasters who invest in a film’s production also have an incentive to show the film
                              on their networks.
                            • There is a greater risk from piracy if DVD release is delayed.
                            Implications:
                            • The decline in box-office revenues has worsened due to the shortening of the theatre-to-
                              DVD window, which reduced by 20% from 2002 – 2005.
                            • Studios are rethinking feature release strategies and product life cycle management.
                            • Future value chain of films:




       To mitigate the threat of piracy, the audio-visual industry is also providing easier forms
                                     of alternative licence access.

      Source: Deloitte Best Practice Research                         40
The digitisation of film production, distribution and
exhibition is bringing greater efficiencies to the industry

Trend: Digitisation
       Trend                                                       Detail


                           Why?
        6
                           • Digitisation minimizes physical distribution costs.
  Digitisation –           • The use of digital cameras and the growth in the bandwidth available to transmit
  Production,                video instantaneously is making it easier for directors, editors and their
  Distribution, and          collaborators to work together from distant locations.
  Exhibition               • Digital broadcasting, HDTV, Internet protocol television (IPTV), video-on-demand
                             and the distribution of content to mobile devices will increasingly impact the TV
                             network market.
                           Implications:
                           • Advances in digital graphics are turning computers into virtual studios that allow
                             digital artists and editors to create entire scenes and characters, such as those in
                             “The 300”, reducing the need to film live actors on location or in studio.
                           • The development of digital projection capabilities means that printing and
                             distributing physical copies of the film will soon become unnecessary. Instead, the
                             movies will be digitally transmitted to theatres, television stations, or even
                             individual computers via satellites, cable, or broadband phone lines.
                           • Digitisation allows films targeted at different audiences to be shown at different
                             times of the day, which provides an alternative to the current model in which a
                             single film occupies a screen for a given period.




     Source: Deloitte Best Practice Research                       41
Digitisation has facilitated the growth of the animation
industry

Trend: Digitisation
         Trend                                                       Detail


                            Why?
         7
                            • The global digital animation industry was estimated to have grown to a significant
  Digitisation –              $70bn in 2005, up from $25m in 2001.
  Growth of                 • The big US animation studios have made large profits from animation e.g. “Happy
  Animation                   Feet” grossed $150m in December 2006.
                            • The use of digital technology to produce visual effects is now used in most movies.
                              Movies such as “Independence Day”, “Starship Troopers” and “Titanic” featured
                              data sets in terabytes, a huge increase from previous years.
                            • A few years ago, single companies would provide most or all of the visual effects
                              for a film; today, up to 12 suppliers could be involved.
                            • Asian animation studios, especially those in India, are playing an increasing role in
                              the global film industry. The Indian animation industry is pegged at $550m and is
                              expected to reach $15bn by 2008. India is currently the destination of choice for
                              outsourcing assignments from global studios such as Walt Disney Pictures and
                              Cartoon Network.
                            • Japanese animation has been acclaimed worldwide for its original Japan-based
                              culture and content, to the extent that it is called “Japanimation”.
                            • Japanese animation is in the spotlight not only in Japan but internationally as well,
                              with many American and Asian animators reportedly wanting to work on Japanese
                              animation productions.




      Source: Deloitte Best Practice Research                       42
Digitisation has facilitated the growth of the animation
industry (cont.)

Trend: Digitisation
       Trend                                                          Detail


        7                  Implications:
                           • Due to the rapid growth of animation, it is expected that there will soon be a shortage of
                             professionals skilled in using animation and multimedia software such as Maya, 3D Studio
  Digitisation –             Max, Tictactoon, Flash, Giff Animator, Ulead and Adobe After Effects.
  Growth of                • Huge investments in skills development and animation studios are subsequently required.
  Animation                • Animation is a potential growth area for employment as it offers career opportunities in a
                             variety of technology-based jobs such as scanning, compositing, digital ink and paint,
                             game designing, visual effects, 3D modelling and character animation.
                           • In Japan, production systems have been set up to meet demand however, weaknesses in
                             domestic/overseas distribution and rights such as licensing and international business
                             expertise exist.
                           • The industry in Japan is grappling with attracting talent as a career in animation does not
                             have a high social standing.
                           • In New Mexico, the industry growth is expected to increase rapidly due to the investment
                             by major studios in local production facilities. The Albuquerque Studios will be a full-
                             service venue for movies, TV, music videos, commercials and digital media. The Mesa del
                             Sol studio will have eight soundstages, back-lot space, set-construction facilities and
                             offices.




     Source: Deloitte Best Practice Research                          43
In South Africa, animation is seen as the possible next
big break for the industry however challenges exist

Trend: Digitisation
  •   Animation in South Africa is in its infancy and it is fragmented, localised and lacks the availability of cash.
  •   The industry has been characterised by short-form animation for TV commercials, corporate videos and the
      Internet.
  •   Short-form animation constitutes the biggest part of the animation industry.
  •   Long-form for TV series and film is underdeveloped.
  •   It costs between R35,000 and R80,000/minute to produce an animated series and a full-length series could cost
      between R24M and R45M.
  •   The SABC only pays between R7000 and R10000/minute for a highly rated filmed production.
  •   Broadcasters need to collaborate with each other to afford the cost of animation production.
  •   IDC has shown an interest in investing in animation. It has invested in a series by Red Pepper Pictures and
      assisted an empowerment group to buy a stake in the Refinery Group, which owns Video Lab.
  •   The IDC has indicated that it wants to invest in animation production of international studios and in the
      development of ideas by South Africans.
  •   Building talent and the ability to raise funds offshore are important for South Africa.
  •   The Animation Production Training Initiative has been developed to address specific challenges in the animation
      industry.
  •   The objectives of the Animation Production Training Initiative are to:
         • “Provide high quality African animation programmes (13X3 minute short animated films),
         • Develop computer-assisted animation as a way to support development activities,
         • Introduce quality programmes which will provide culturally relevant entertainment for the youth.
         • Act as a catalyst for the development of a self-sustaining African animation industry with the aim of
             producing quality animation products for the local and international markets.
  •   Help build a critical skills and capacity base and address the shortage of black and female representation in
      South African animation by serving as a bridge between schools and the industry.
  •   Create a platform for the experimentation of African imagery in animation.”




      Source: Deloitte Best Practice Research                      44
The digitisation of film production, distribution and
exhibition is bringing greater choice to TV audiences

Trend: Digitisation
       Trend                                           Detail


       8                   Why?
                           •The introduction of digital video recorders, such as TiVo and
  Digitisation              the Digital Video Recorder and services like Sky Plus, which
  – the Future              allow the recording of television programmes onto a hard disk
  of TV                     also allow the viewer to essentially skip advertisements.
  Commercials
                           Implications:
                           •It is possible that television advertisements will eventually
                            disappear, replaced by advertising in TV shows themselves.
                            For example, Sears, Kenmore and Home Depot are advertised
                            within the “Extreme Makeover: Home Addition”




    Source: Deloitte Best Practice Research            45
Digitisation has enabled the production of higher quality
content that can be distributed faster and cheaper

Trend: Digitisation

          Trend                                                          Detail



                                Why?
        9                       • Computer Generated Imagery (CGI) makes it possible to produce impressive
  Quality content and             visual effects.
  Efficient                     • The introduction of digital cinemas – In August 2005, the major US studios
  distribution                    agreed on technical standards for digital films and equipment.
                                • Digital prints do not wear out, scratch, or deteriorate, a problem encountered
                                  by theatres after a film has been replayed several times.
                                Implications:
                                • New technology ensures higher quality, but not always at lower costs. CGI-
                                  enhanced films have proven expensive to make.
                                • Devices such as digital video cameras can significantly reduce the production
                                  costs of audio-visual content. Marginal physical distribution costs will likely
                                  diminish in the digital age (via digital distribution, on-demand services etc).




     Source: Deloitte Best Practice Research                        46
In a bid to increase market share and boost revenue,
national film industries are now targeting global audiences

Trend: Global Entertainment
        Trend                                                       Detail


                             Why?
        10                   • Increasing market coverage and therefore potential for increased revenue.
  Globalisation of           • Technological advancements that have led to greater access to global viewers.
  Entertainment              • Globalisation, which has helped break down cultural barriers, helping to create a
                               universal market for films.
                             Implications:
                             • Wider customer base due to worldwide accessibility. Recently, "Pirates of the
                               Caribbean: Dead Man's Chest” grossed $1B (Sept 2006), of which $415M came
                               from domestic box-office and $587M came from international markets.
                             Outlook:
                             • The media and entertainment industry is expected to become even more global in
                               its outlook in the near future, due to:
                                   An increase in the ability of media giants to reach and engage global
                                    audiences, as TV networks proliferate and broadband internet penetration
                                    rises.
                                   An expected decline in trade barriers for media and entertainment products
                                    and services in many countries. China is an exception, as it currently only
                                    allows 20 foreign films to be screened in a year.




     Source: Deloitte Best Practice Research                       47
As a result of technology convergence, online revenue
streams are gaining importance

Trend: Online Revenue Streams

        Trend                                                       Detail




                             Why?
         11                  • Media companies are exploring new platforms for content distribution, to help
  Ad-supported and             increase revenue streams.
  Subscription               • Certain websites also allow users to freely upload, view, and share content e.g.
  Internet                     You Tube, which has emerged as a popular free video sharing website. It allows
  Downloads                    users to post movie and TV clips, and music videos, as well as setting up video-
                               blogs.
                             Implications:
                             • Media companies are now entering into agreements with such websites.
                             • Going forward, it is likely media companies will make their content available for
                               online streaming and download on these websites for a share in advertising
                               revenues generated through search platforms like Google’s Ad words and
                               Adsense.




     Source: Deloitte Best Practice Research                       48
Low budget, high volume films are the driving force
behind the success of Nigeria’s film industry

Low Budget/High Volume Films: Nigeria

 • 1992 is seen as the year that Nollywood began, when Kenneth Nnebue shot a film called “Living Bondage”
   and sold 750,000 video copies.
 • It has sales of $200M to $300M a year. Most of Nollywood films are viewed from videos or DVDs.
 • Films cost between $15,000 to $100,000 to make. The financing of the films is mainly from the market
   and reinvestment by producers from earnings from other films.
 • Filmmakers prefer to finance their films, owning their own copyrights and “renting” their distribution.
 • There are four main distributors in Nigeria and they are becoming involved in the financing of films.
 • Nollywood makes over 2,000 low-budget films a year, which is more than Hollywood and Bollywood.
 • Approximately 1 million people are employed in the industry in Nigeria and it is divided equally between
   production and distribution, including spin-off jobs.
 • after agriculture.
 • Nollywood’s film industry is watched all over Africa. MultiChoice in South Africa has a channel that shows
   Nollywood films. Zenithfilms, a British company intends to launch a new channel, called Nollywood Movies
   on BSkyB.
 • Piracy is a constant problem since the films originate and are distributed on video and DVDs. Measures to
   reduce piracy include shrink-wrapping cassettes to prove it is an original copy and putting raffle tickets
   inside the boxes to encourage people to buy the original cassette.
 • The industry has grown with little government intervention. The Nigerian government has indicated that it
   wants to establish mechanisms to help the industry grow further.
 • There are plans, which are supported by government (using financial incentives) to show Nollywood films
   in new cinemas that are being built in Nigeria.
 • Expatriate Nigerians have established the Nollywood Foundation in Los Angeles so that links with
   Hollywood are formed.



      Source: Deloitte Best Practice Research                 49
Global Trends and Industry Benchmarks
 • Global Industry Trends

 • Key Growth Drivers

 • Film Commission Best Practice
Accessibility and suitability of setting are both industry
growth drivers and they play a role in the choice of a
location
Growth Drivers Influencing Choice of Location:

                                              •   Multiplicity of locations within close radius
                   Physical                   •   Time zones and distance from the US
                   Location                   •   Climate
                                              •   Ease of access to locations


                                              •   Adequate public infrastructure
                                              •   High-tech equipment and state-of-the-art facilities
               Infrastructure



                 Funding and                  •   Availability of finance
                  Incentives                  •   Availability of incentives to lower production costs



                                              •   Efficient and flexible bureaucracy
                 Government                   •   Support from government institutions and infrastructure
                   Support


                                              •   ‘Country-of-the-moment’ status
                      Other                   •   Dependent on the script (scenery)
                                              •   Business environment perceptions (crime, political stability etc)




    Source: Deloitte Best Practice Research                                     51
In addition, the decision involves a balance between a set
of complex economic factors and production requirements

Growth Drivers Influencing Choice of Location :

                                                                 Productio
                                                                     n
                                                                 Location
                                                                 Decision



                       Economic                                                          Production
                        Factors                                                         Requirements




    Anticipated                         Production                                Production         Talent/Creative
     Revenue                               Cost                                   Capability         Considerations




  Above the   Below the                  Exchange       Govt.                                              Director/
                            Residuals                                                      Script                        Ability to
     line        line                      Rates       Rebates                                               Actor
                                                                                        Requirements                      Control
                                                                                                         Requirements


                                          Facilities
  Work
               Rates       Crew Cost         &           Other
  Rules                                  Equipment



                          Work                                                    Finance                        Crew
                                            Rates                                              Infrastructure                  Crew Quality
                          Rules                                                   Vehicles                       Depth




       Source: Deloitte Best Practice Research                               52
Mexico’s technical infrastructure and conducive regulatory
environment have helped make it an attractive location

Case Study: Mexico



  Economic:
  • Modest tax incentives
  • Low Peso exchange rate against the US$
  • Low cost of labour and materials
                                                                  Physical location:
                                                              •   Warm and sunny
                                                              •   Variety in terrain
  • Major film studio complex which has                       •   Historical architecture
    hosted major international productions                    •   Proximity to the US
    e.g. “Dune” and “License to Kill”
                                               Destination
  • At least 7 studios and post production      of Choice:
    houses, where films such as “Titanic”        Mexico
    have been made                                            • Free permit for street shots in Mexico
                                                                City
                                                              • Interior shots do not require permits,
                                                                only notification to officials
  • Temporary work permit, which allows                       • One permit for all Mexico City
    actors and technicians to enter and                         boroughs
    leave Mexico without the need for
    additional permits




     Source: Deloitte Best Practice Research             53
The “Made in New York Incentive program” is a good
example of the benefits of creating a film-friendly
environment
Case Study: New York
             Made in New York Incentive
                                                                       Results
                      program
           • 5% city tax rebate over and above           • 35% increase in location shooting
             the 10% state tax credit for film and         days in 2005,
             TV shows that are produced at least         • 20% increase in screen actors guild
             75% in New York,                              jobs in 2004,
           • Qualifying productions receive              • 6000 jobs created for local residents
             promotions on city bus shelters and           in 2004,
             the city’s TV channel,                      • 6.7% job growth in motion picture
           • Discounts on services provided by             and video production,
             local vendors,                              • 9.2% job growth in radio and TV
           • Free parking and police services,             broadcasting,
           • Waivering of fees for film and TV           • $600 million work of new production
             shoots,                                       business to the city.
           • Facilitating the development of large-
             scale sound stages e.g. Steiner
             Studios,
           • Reduction of red tape/bureacracy,
           • “Made in New York” branding.


            The creation of a similar film friendly environment in Gauteng would be key to
            growing the local industry; the GFC has an important role to play in facilitating
                                                   this.


    Source: Deloitte Best Practice Research               54
There are a range of both financial and non-financial
incentives that are typically used to attract productions

Types of Incentives:

       Tax Incentives                          Other Financial Incentives        Non-Financial Incentives

 Tax rebates                                   Loan guarantees                  Free / subsidised government
                                                                                  services e.g.
 Tax write offs                                Loans with low interest          • Free permits
                                                                                • Free parking
                                                                                • Free use of traffic police
 Tax offsets                                   Co-production arrangements       • Reduced bureaucracy
                                                                                • Production promotions


 Tax concessions                               Marketing funding

                                               Discounts on local vendor fees   • Ease of access to work permits
 Cast and crew tax rebates
                                                                                • Multiple entry visas
 Tax credits                                   Subsidies                        • Long-term temporary work
                                                                                  permits
                                               Location attraction grants
 Exemptions from sales tax

                                               Production and post-production
 Tax exemptions for individuals                grants, including digital        …
                                               production


     Source: Deloitte Best Practice Research                             55
Incentives are a popular instrument employed by countries to
attract productions

Incentive Offerings:
            Australia                                       USA                                Ireland
  • Tax rebate - has attracted big-              New Jersey                           • Ireland’s tax incentive is
                                                                                      • Ireland’s tax incentive is
    budget productions e.g. “World               • Offers a tax credit which is         attractive due to its quick
                                                                                         attractive due to its quick
    Trade Centre”,                                 equivalent to 20% of qualifying      turnaround times for
                                                                                         turnaround times for
  • Visa incentive - provides an                   production expenses,                 decision-making and rebate
                                                                                         decision-making and rebate
                                                 • Exemption from 6% of sales
    efficient immigration process for                                                   payments,
                                                                                         payments,
                                                   tax,
    the film industry,                           • Loan guarantees for up to 30%
                                                                                      • The most important benefit
                                                                                      • The most important benefit
  • Official co-production                         of financing or $1.5 million.        of the tax incentive is the net
                                                                                         of the tax incentive is the net
    arrangements between                         New Mexico                             benefit offered to producers
                                                                                         benefit offered to producers
    governments e.g. UK, Ireland,                • Offers a 25% tax rebate on all       i.e. 20% of the total
                                                                                         i.e. 20% of the total
    Canada. Can apply for benefits or              production expenditures,             production budget,
                                                                                         production budget,
    programs of assistance in both                 including local labour costs,      • The benefit is based on the
                                                                                      • The benefit is based on the
    countries e.g. tax deductions,               • Has a loan for up to $15 million     cost of EU cast and crew
                                                                                         cost of EU cast and crew
    refundable tax offsets and                     per project, if the film             working in Ireland, and
                                                                                         working in Ireland, and
    investments,                                   production cost is ≥ $2 million,     goods and services
                                                                                         goods and services
                                                 • Waives sales tax for film
  • International co-production                                                         purchased in Ireland, up to a
                                                                                         purchased in Ireland, up to a
                                                   production.
    program established to facilitate            New York
                                                                                        maximum value of 80% of
                                                                                         maximum value of 80% of
    cultural and creative exchange               • “Made in New York” incentive         the global budget,
                                                                                         the global budget,
    between co-production countries.               program, which includes a 5%       • The ceiling for qualifying
                                                                                      • The ceiling for qualifying
    Allows countries to share the risk             city tax rebate over and above a     expenditure of a film is €35
                                                                                         expenditure of a film is €35
    and cost of productions and                    10% state tax credit,                million.
                                                                                         million.
    increase the output of high-                 • Discounts on services provided
    quality productions.                           by local NY vendors,
                                                 • Waives permit fees for film and
                                                   TV shoots and extends free
                                                   parking and police services.




       Source: Deloitte Best Practice Research                        56
Incentives are a popular instrument employed by countries to
attract productions (cont.)

Incentive Offerings:
               Spain                                          UK                            Mexico
  • Advance subsidies for full-                  • Funds are the single most        • VAT refund as long as at
    length feature productions                     influential incentive used for     least 6 Mexican film industry
    (new filmmakers); cannot                       the development of the UK          services are hired,
    exceed cost of production, up                  film industry,                   • Incentives are available for
    to 50 m Pesetas per film,                    • £49.30m of funding available       co-productions with Mexican
  • Subsidies for short features;                  to promote the UK film             companies; $7 m per year in
    cannot exceed the cost of                      industry,                          financing available,
    the film up to 10 m Pesetas                  • €70m funds shared equally        • 10% income tax deduction
    per film,                                      between production, post-          for investments made in the
  • 15-25% subsidies for box                       production, distribution,          domestic industry,
    office earnings for first 2                    talent development and new       • Article 226 - designed to
    years,                                         technology,                        attract corporate financing
  • Incentives for the marketing                 • A tax credit set at a rate of      by offering companies
    and exhibition of community                    30% is available for               income tax exemptions equal
    films,                                         qualifying UK expenditure.         to investments in domestic
  • Protective measures e.g.                                                          productions.
    screen and distribution
    quotas; designed to restrict
    the absolute monopoly of the
    US audio-visual industry.




       Source: Deloitte Best Practice Research                        57
In Ireland, a wide range of financial incentives are offered
to help create opportunities for foreign and local
involvement in the industry
AV-specific Incentives: Ireland



    • The Section 481 Tax Incentive for film and television made in Ireland. It
      applies to Feature Films, Creative Documentaries, Television Drama and
      Animation. The incentive does not apply to Commercials, Reality TV,
      Game Shows and Soaps.
    • Projects can derive a benefit, net of all fees, of up to 20% of their
      qualifying expenditure. This benefit is based on the cost of EU cast and
      crew working in Ireland, and goods and services purchased in Ireland, up
      to a maximum value of 80% of the global budget. The ceiling on
      qualifying expenditure for any one film is €35 million.
    • An incentive framework is also available for co-productions between
      foreign producers and local Irish producers.




    Source: Deloitte Best Practice Research   58
The general business environment in Ireland is also
supportive of the audio-visual industry

General Incentives: Ireland
 • Corporation Tax: Ireland enjoys an EU approved Corporation Tax rate of 12.5% which is the
   lowest in Europe. This applies to all corporate trading profits. This rate has been the focus of
   Ireland’s strategy to attract inward investment, creating a favorable economic and fiscal
   environment which supports industry.
 • Tax Exemptions For Individuals: Individuals may locate in Ireland and enjoy tax-free income
   for their works under this scheme, known as ‘artist's exemption’. It can apply to writers (including
   scriptwriters), visual artists and composers. Where individuals become resident in Ireland, they
   are entitled, on making a claim, to have earnings arising from the publication, production or sale
   of books, screenplays, plays and musical compositions, disregarded for tax purposes where the
   work or works involved are original, creative and have cultural or artistic merit.
 • Research and Development Tax Credit: In 2004, the Irish Government introduced a research
   and development tax credit. It is aimed primarily at research undertaken to acquire new scientific
   and technical knowledge. It is also aimed at achieving technological advancement directed at new
   or improving existing materials, products, devices, and systems. In order to qualify it is
   necessary to achieve scientific or technical advancement and involve the resolution of scientific or
   technological uncertainty. As the film industry converges with emerging technologies, this may be
   used by companies advancing research and development in the industry.
 • Zero Rated Value Added Tax: VAT (Sales Tax) is normally charged on the supply of goods and
   services within Ireland. Foreign film and TV productions carried out in Ireland, can avail of zero
   rating under section 13a of the VAT act, when the master negative is being exported i.e. visiting
   filmmakers are exempt from 21% VAT. Foreign producers can work with Irish co-producers, who
   will arrange the VAT exemption.



      Source: Deloitte Best Practice Research              59
Government financial incentives in New Mexico have helped
film productions grow tenfold

Incentives: New Mexico
 Film Crew Advancement Program (FCAP)
 • New Mexico offers a 50% reimbursement of wages for on-the-job training to local
   residents.
 • The jobs should be advanced below-the-line crew positions.

 Government Initiatives
 • The New Mexico Film Office and state government provides incentives and an assistance
   program that are comparable to the best in the U.S. Some of the highlights include tax
   incentives and film loans.
 • While assisting the film production industry, the New Mexico Film Office strategy is to
   train local resources in film industry production techniques.
 • New Mexico markets the region by emphasising its film-friendly government initiatives
   and available skilled human resources. Due to such initiatives, production in the New
   Mexico region has grown 10 times in the last two years, reaching $428 million in FY 2006.
 • In 2007 alone, four new soundstages were constructed for operation in New Mexico. Sony
   pictures is also planning to move some L.A City jobs to Culver City in New Mexico.


     New Mexico is testament to the impact targeted Government support can have on the AV
                                            industry.

    Source: Deloitte Best Practice Research         60
In the UK, public funding is available for a wide range of
AV growth initiatives and capacity building

Sources of Funding: UK
  Funding                       Goals                                                    Available Funds/Year
  British Film Institute        To champion the UK film industry. Reach and increase     £16,000,000
                                audiences.
  Distribution and              To offer more diverse range of films. Reach a wider      £8000,000
  Exhibition Fund               audience in the UK.
  Premier Fund                  To assist in the production of British or European       £8,000,000
                                feature films.
  Regional Investment           Co-ordinate film policy and assist during strategy       £7,500,000
  Funds for England             formulation across England.
  Film Skills Fund              To ensure the industry has adequate labour and skills.   £6,500,000


  New Cinema Fund               To support new idea, creativity and the latest           £5,000,000
                                filmmaking techniques.
  Development Fund              To promote filmmaking, new concepts etc.                 £4,000,000


  First Light                   To grow a new generation of filmmakers.                  £1,100,000


  Sponsorships                  To promote targeted showcase events.                     £600,000


  Nations                       To co-ordinate film policy and strategy across the UK.   £505,000


  Publications Fund             To provide quality information and research to the       £100,000
                                public.



      Source: Deloitte Best Practice Research                               61
Both public and private sector funds are available to meet
the needs of the AV industry in Spain

Sources of Funding: Spain

      Public Sector                                 Private Sector

      • Instituto de la Cinematografia y            • There are a couple of private
        de las Artes audio-visuales                   sector initiatives ranging from
        (ICAA):                                       the financing of film productions
             Production, distribution and            to discount TV contracts, and
             commercial exhibition.                   distribution advances against
      • ICAA Mutual Protection Fund:                  bank loans.
            Provides guarantees for access to      • A 5-30% equity initiative is
             bank loans for SMME’s in                 available for co-productions.
             production, distribution, exhibition
             and technical sectors.
      • Regional Government Funds
        (grants and subsidies):
            Development of audio-visual
             production; international co-
             productions; script development;
             new directors; innovative works.




    Source: Deloitte Best Practice Research          62
Funding should ideally be spread across the different
segments of the value chain, with a focus on areas of
greatest need
Funding Distribution: Australia




    Source: Deloitte Best Practice Research   63
Revenue generation guarantee requirements are the
largest barrier to access to funding in South Africa

Barriers to Funding in South Africa:
                                                                       Broadcaster
      Due to the high risk                                             monopolies on IP
      nature of the industry, it                                       ownership limits the
      is difficult for producers                                       income that
      to guarantee income                                              producers can make
      and thus meet the                                                from their content.
      requirements of
      financial institutions.




                                                                                   The combination of the high
                     Alternative sources of funding                                cost of making films and
                     such as the National Lottery                                  uncontrollable variables such as
                     are not available due to legal                                audience tastes are a major
                     restrictions on the money                                     barrier to accessing funds, by
                     going to private companies.                                   the industry.




             The GFC should lobby for the implementation of Enterprise Business
         Development support for the industry, so that the industry-inherent financial
                                   risks can be mitigated.


    Source: Focus Interviews with Key GFC Stakeholders and Industry Experts
                                                                              64
In South Africa, funds from the National Lottery cannot be
allocated to private companies in the industry however…




                       •   Requirements for the Allocation of Funds for Arts, Culture and
                           National Heritage in terms of Section 30 of the Act
                       •   Application for a grant can be by:
                             •A body established to promote the arts, culture or the
                             national historical, natural, cultural or architectural heritage
                             •An organisation that does not distribute its income and
                             property to its members, employees, managers, except as
                             reasonable compensation for services rendered




       … in terms of the regulations, as a government agency, the Gauteng Film
      Commission would be able to apply for funds for use in supporting the film
                                       industry.



                                                   65
The audio-visual industry can have a proven positive
economic impact on the economy of a region or country

Economic Impact: Australia

                 National Economic Multiplier for the Cultural sector in Australia

                                     Gross Value Added               Employment Multiplier
                                         Multiplier       (FTE employment by $million of investment
                                        (effect on GDP)                  spend)*
                                                                 1997                       2005/06
                                                                 ($)                           ($)
 Film and video                              1.80                37.0                         30.7
 production and
 distribution


 Motion picture                               1.3                 19                          15.8
 exhibition



      N.B. The Australian Bureau of Statistics sets the output multiplier for screen production at 2.67


                  Growth in the Australian industry has been driven by foreign productions
                 (increased from A$78m in 2000 to A$249m in 2004) and its tax incentives,
                                  which have helped attract productions.

  Source: Deloitte Best Practice Research



                                                                66
The audio-visual industry can have a proven positive
economic impact on the economy of a region or country

Economic Impact: States in Australia

                           The Economic Contribution of a Film Project

                            Output Multiplier   Gross Value Added   FTE Employment
                                                Multiplier          Multiplier (FTEs per $
                                                                    million – adjusted
                                                                    2005/06)
 New South Wales –          Not published       1.025               9.3
 Motion picture services
 sector - 2000/01

 Victoria Film and TV –     2.88                1.27                12.3
 1996/97



 Queensland – Motion        Not published       1.06                15.1
 picture, radio and TV
 services – 1996/97

 Queensland – Film, TV      2.64                1.34                Not published
 and entertainment
 software –
 2005


                                                        67
The audio-visual industry can have a proven positive
economic impact on the economy of a region or country
(cont.)

Economic Impact: Ireland

 Multiplier                  Direct           Direct and        Direct and    Direct +
                                              Indirect          Indirect      Indirect +
                                                                and           Induced +
                                                                Induced       Government

 GNP                         0.5064           0.7354            0.9284        1.2558


 Employment                  24.01            35.60             41.96         56.91




         Growth in the Irish industry has been driven by relatively low labour rates and
                     its efficiently managed tax incentive for feature films.




    Source: Deloitte Best Practice Research
                                                           68
 Job creation is often the single largest economic outcome
 of the audio-visual industry

Economic Impact: UK
 The UK film industry:
 • Directly supported 31,000 people in 2004, while direct and indirect jobs created stood at 97,500 during the same
   period.
 • Contributed (including multiplier effect) £3.1 billion to UK GDP in 2004. During the same period, it contributed £850
   million to the exchequer. Total inward investment to UK film industry stood at £2.0 billion.
 • Has a highly talented workforce - 46% of the production workforce are university educated, while 31% have graduate
   level education. Nearly 10-15% of the production work force is from outside U.K.
 • Has undertaken nearly £710 million fixed capital investment in infrastructure and implementation of new technology
   over the last decade (1990-2000).
 • Has an average salary that is almost double the average national salary (£373,00 vs. £186,500).

     UK Film Industry and Economic Impact



         Pre-production                               Indirect                Catalytic Effects



           Production                       • Suppliers: TV and            • Induced impacts
                                              other broadcasting           • Skills and labour
                                            • Manufacturing:                 supply
                                              Equipment,                   • Tourism
        Post-production                       computer/electronics         • Merchandising
                                            • Business Service:            • Cultural exchanges
                                              Publicity, legal,
          Distribution/                       accountancy                  • Promotion and trade
           Exhibition



            Source: Deloitte Best Practice Research
                                                                     69
The GFC can better demonstrate the economic impact of the
audio-visual industry, so as to lobby government for more
resources
Economic Impact:


                                                        Spend on
                                                        ancillary
                                                        services
       Creation                                                                    Contributio
        of jobs                                                                     n to GDP




                                                   Multiplier
                                                   in South
             Spin-off                              Africa is                      Skills
              for the                                 2.5                      development
             tourism
             industry




     Source: Focus Interviews with Key GFC Stakeholders and Industry Experts
                                                                          70
The broader economic competitiveness of a location has an
effect on investor perceptions of its attractiveness

Factors Influencing Perceptions:

  • Exchange rate considerations:
       • Australia has benefited from a lower exchange rate against the US $; it has
           lowered the cost of production relative to the US,
       • The US has however began to benefit from a weaker $ and is attracting
         back production.
  • Inflation rate / price levels,
  • Economic and political stability,
  • Government commitment to support the industry e.g. the
    establishment of funds for production, tax incentives, flexible
    immigration rules etc,
  • Public spending on public infrastructure that is supportive of the AV
    industry e.g. Information, Communication and Technology (ICT)
    infrastructure.




     Source: Focus Interviews with Key GFC Stakeholders and Industry Experts 71
The availability of skilled resources, and the flexibility of the
labour market, has helped attract productions to competitor
countries
Technical Expertise:

      Country                  Talent

      Ireland                  • Ireland’s film crew and creative talent are widely regarded as world class.
                               • The flexibility and stability of labour relations are subject to regular
                                 consultative review.
                               • The labour rates in Ireland are lower that in the US, making it a more
                                 competitive destination.
      Australia                • The high quality of Australian crews, technicians and actors is a factor
                                 contributing to the recent increase in the number of foreign films and
                                 television shot in Australia.



      United States            • Availability of highly skilled labour is a key driver for film production in
                                 both traditional and ‘new-age’ digital film making in the US.
                               • The film industry in the US is also heavily unionised, which helps to
                                 protect local labour from exploitation but can also discourage producers
                                 from filming in the US.


             The GFC can play a role in addressing the issue of insufficient skilled resources
                     by facilitating training and funding of development programs.



    Source: Deloitte Best Practice Research                          72
Productions are more likely to be shot in locations with
readily available state-of-the art facilities and high-tech
equipment
Technical Infrastructure:

                                                             Australia

    • Australia has a comprehensive range of sound stages, the larger complexes being Central City Studios in Melbourne, Fox
      Studios in Sydney and Warner Road show Studios on the Gold Coast. Each studio facility offers state-of-the-art sound
      stages, production offices, editing rooms, construction workshops and water tanks. Also, all are centrally located in the
      region and near international airports.
    • Australia has a talented and award-winning AV industry (visual effects, post and digital production, music and sound
      design). Producers are choosing to bring their work to Australia independent of whether they are shooting in Australia or
      not.
    • Australia’s world-class infrastructure has supported big-budget films such as “Superman Returns”, “Ghost Rider” and
      “Charlotte’s Web”. High-profile international titles that brought some of their post-production to Australia during
      2005/06 include the features “Harry Potter and the Goblet of Fire”, Oliver Stone’s “World Trade Centre”, Merchant
      Ivory’s production “White Countess” , Chen Kaige’s “The Promise”, Zhang Yimou’s “Riding Alone for Thousands of Miles”
      and Fred Schepisi’s mini-series “Empire Falls”.



                                                             Ireland
    • Ireland is seen as an attractive location because it has extensive infrastructure, with film studios in the North, East and
      West of the country. There about 50 facility companies in Ireland, providing a full range of services to the industry.
    • The main studios in Ireland are located closely to city centres and airports, with well trained and experienced crew
      bases.




        Facilitating and lobbying for the development of technologically advanced facilities
                    and equipment could be a key role for the GFC going forward.

     Source: Deloitte Best Practice Research                              73
Global Trends and Industry Benchmarks
 • Global Industry Trends

 • Key Growth Drivers

 • Film Commission Best Practice
The role of a Film Commission typically ranges from
facilitating the approval of permits to dealing with trade
and investment policy related matters
Roles of Film Commissions:
                                                         Development of a Film
                                                                Culture
                                                      • Supporting the development of a
            Marketing                                   screen culture
                                                                                                            Logistics Support
 • Promotion of the audio-visual                                                                     • Liaison with communities and
   industry                                                                                            government departments for
 • Location marketing                                                                                  permit approvals
 • Attendance of festivals                                                                           • Information sharing
 • Lobbying co-production markets                                                                    • Locations assistance




   Policy Development and                                                                            Training and Development
     Industry Partnerships                                    Roles of Film                          • Support for training initiatives
 • Input into policy formulation                                                                     • Labour relations assistance
 • Partnering with other                                      Commissions                            • Facilitation of the development of
   organisations for marketing and                                                                     digitisation and animation skills
   distribution initiatives




                                                                                                                 Lobbying
   Funding and Incentives                                                                            • Facilitation of an enabling policy
 • Funding and incentive support                                                                       and regulatory environment
 • Support for the acquisition of                                                                    • Lobbying for the development and
   resources                                     Technology                    Monitoring and          implementation of attractive
                                           • Promotion of use of digital         Evaluation            funding and incentives
                                             platforms
                                           • Facilitation of government      • Market intelligence
                                             investment in technical         • Impact studies
                                             infrastructure


                All the Film Commissions we reviewed provide support for funding and are
                                  focused on promoting their locations.

       Source: Deloitte Best Practice Research                                   75
Certain areas of commonality were identified amongst
the Film Commissions / Film Offices that were reviewed

Areas of Commonality:

  Role                                Value Chain and Value                Funding of Film
                                      Proposition                          Commissions


  Financial support. Funding          All operate within the production    The major source of revenue of
  assistance is mostly for the        sector.                              film commissions is government
  production sector but some also                                          funding.
  support script development.

  Logistics support including,        Few Film Commissions operate         Initiatives are being implemented
  locations and permits assistance.   consistently in every segment of     to reduce the dependency on
                                      the AV value chain.                  government. However the other
                                                                           revenue sources are a small
                                                                           proportion of total revenue.


  Training and development            The most optimal value               Private sector funding is usually
  assistance.                         proposition of a Film Commission     directed towards specific
                                      is creating an environment that is   initiatives rather than funding of
                                      conducive for the growth of the      a Film Commission itself.
                                      industry.

  Marketing of locations.




                                                               76
Certain areas of commonality were identified amongst
the Film Commissions / Film Offices that were reviewed

Areas of Commonality:
 Role                                       Institutional                          Marketing
                                            Arrangements

 Information sharing.                       Most countries have a national body    Film Commissions tend to use many
                                            that coordinates Film Commission/      marketing platforms to position their
                                            film agencies programmes.              AV industries.



 Advice on filming within their areas.      There are a number of organisations    National and regional Film
                                            and agencies that work in support of   Commissions employ similar
                                            Film Commissions and the industry.     marketing strategies. However
                                                                                   regional Film Commissions also
                                                                                   promote their regions to the
                                                                                   domestic industry.

 National and regional Film                 Public-private partnerships are        Strategic industry partnerships are
 Commissions often share the same           implemented on a project basis.        used to attain coordinated marketing
 roles. However the national body has                                              efforts.
 a national and coordinating focus
 whereas the provincial one has a
 regional ambit.

 Liaison with communities and               Fragmentation is reduced by clearly
 logistics often occurs at the local film   defined institutional frameworks for
 office level.                              Film Commissions and
                                            supplementary agencies.



                                                                      77
Some differences were identified amongst the Film
Commissions / Film Offices that were reviewed

Differences:


  Role                           Institutional              Funding
                                 Arrangements

  Film Commissions in more       Film Commissions in the    In the United States, some
  advanced industries            United States do not       film offices are established
  actively get involved in the   operate under a national   with limited government
  development of AV-related      coordinating body.         involvement or public
  government policies.                                      funding.




                                                      78
The role of a Film Commission is based on its ability to
grow the local industry and create an environment that
attracts foreign productions

Role of a Film Commission:

   Role of a Regional
                            Activities
   Film Commission


                            • Develop and lobby for policies that are AV industry friendly.
   Policy Development
                            • Advocate for the establishment of national coordinating structures or mechanisms.



                            • Establish platforms for regular communication between industry and the Film Commission
   Industry Partnerships      and other government structures.
                            • Jointly develop strategies to build on identified strengths and opportunities within a region.



                            • Advocate for competitive incentive and funding structures.
                            • Develop regional incentives and funding mechanisms.
   Funding and Incentives   • Promote the development of producers and other role players in the value chain by using
                              targeted funding or incentives.
                            • Facilitate the improvement of access to private and institutional finance houses.


                            • Facilitate the development of technical infrastructure and expertise in line with new
   Technology                 technologies.




                                                                   79
The role of a Film Commission is based on its ability to grow
the local industry and create an environment that attracts
foreign productions (cont.)
Role of a Film Commission:

   Role of a Regional
                           Activities
   Film Commission
                           • Develop regional specific research and analysis and build up the reliability and validity of
                             data.
   Monitoring and          • Establish agreements with international Film Commissions for regular information sharing on
   Evaluation                global developments in the industry.
                           • Conduct market intelligence and impact studies.
                           • Distribute findings to stakeholders.

   Training and            •Develop a coordinated professional training and skills development strategy.
   Development             •Provide funding for training and development initiatives.

                           • Develop mechanisms for ease of access to government-owned locations and those owned by
                             private business.
   Logistics Support       • Lobby for free or low-cost government services.
                           • Provide assistance for permitting and locations selection.
                           • Provide guidelines on filming in the region.

   Development of a Film   •Sponsorships of film festivals.
   Culture                 •Lobbying for the establishment of movie theatres in underserviced areas.

                           •Develop a brand identity and marketing strategy that increases domestic knowledge of the
                           region and attracts foreign productions.
   Marketing               •Participate in national marketing initiatives.
                           •Attend festivals and co-production markets

                                                                    80
Film Commissions have a diverse range of stakeholders within
the audio-visual industry …

Key Stakeholders:
                                                     General Business
                                                     Community

                                                                                 Companies in the
           Other Government                                                      industry
           agencies



                                                    Key Stakeholders

                                                                                    National and
            Municipalities                                                          Provincial
                                                                                    Government

                                                    Film Producers and
                                                    Industry Associations

         Community                                                                     Media

                                                     Funders/Financiers


    Source: Focus Interviews with Key GFC Stakeholders and Industry Experts 81
… to whom they need to provide different products and
services

Services Provided:


                                                Lobbying   Facilitation


                                                                           Information
                        Marketing
                                                                           Dissemination



                                                     Services
                    Funding                                                        Market
                    Assistance
                                                    Provided to                  Intelligence
                                                   Stakeholders

                         Alignment
                         with Govt.                                        Advisory
                          initiatives
                                              Skills        Logistics
                                            Development     Support e.g.
                                              Support       permits



                    The GFC focuses primarily on marketing and logistics support.


      Source: Deloitte Best Practice Research                   82
  Few Film Commissions focus their efforts consistently
  within every segment of the audio-visual industry value
  chain
 Value Chain:

                           Pre-production                 Production        Post-production   Distribution



                                                                                            
Australia Film
Commission

United
Kingdom
Film Council
                                                                                             
                                                                            
United States
(various)



                                                                                              
Conafilm
(Mexico)
Film


                                                                                               
Commission
Spain Film
Commission                                                
Irish Film
Board
                                                                             
Gauteng Film
Commission                                               
                     To meet the needs of the growing SA audio-visual industry, the GFC may need to
                                          play in each sector of the value chain.

                Source: Deloitte Best Practice Research                83
Ideally, Film Commissions add value by creating an
environment that is conducive for the growth of the
industry
Value Proposition:
                                                                                             “Film Commissions should
                                                                                                  prioritise location
                                                                                              marketing and lobby for
                                                     “Film Commissions should                  multiple ownership of
                                                      be the one-stop shop for                          rights”
                                                     companies operating along
                                                          the value chain”
  “Film Commissions should
  develop and grow the film
     economy of a region”
                                                                                    “Film Commissions should
                                                                                        focus on creating an
                                                                                         environment that is
                                     “Film Commissions should                       conducive for filming and
                                           focus on basic                             lobby Government on
                                        requirements for film                         behalf of the industry”
                                      productions e.g. permits
                                     and information provision”


                                                                                      “Film Commissions should use
                                                                                       innovative means to attract
                                              “Film Commissions should             productions, funding and investments
                                                  mould themselves                           to their regions”
 Stakeholder Views
                                              according to the needs of
                                             the region they operate in”




      Source: Focus Interviews with Key GFC Stakeholders and Industry Experts 84
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 Mandate:

   •   To promote Gauteng as a preferred film destination
   •   To facilitate transformation of the film industry
   •   To regulate and co-ordinate inter-government communication of permit
       issuance, code of conducts, municipal by-laws and risk management factors
       through the development and implementation of provincial film policy
   •   To facilitate, support and promote new investment in film production within
       Gauteng thereby contribute to economic growth and sustainable job creation
   •   To create and manage a repository of statistical and industry related
       information
   •   To monitor and support local industry developments
   •   With the approval of the MEC and Board, to provide finance for any projects
       which will develop filming in the Province
   •   To develop strategic and business partnership and other co-operative
       activities with the filming and television industry both locally and
       internationally
   •   To support greater access to and participation in the film and television
       industry by Previously Disadvantaged Individuals (PDI).


                                                   85
The GFC’s stated core functions are not divergent from
industry expectations

The GFC’s Core Functions:



  • Marketing Gauteng as a location of choice;
  • Acting as a centralized industry intelligence hub and resource;
  • Working with, and providing advice to, industry, government agencies and
    other key stakeholders to support the development and growth of a
    sustainable audio-visual industry;
  • Promoting and celebrating an active screen culture across the Province;
  • Supporting the transformation of the sector into a world-class industry
    and that is reflective of South Africa in its entirety.




                  The challenge however is how to adequately meet these expectations.



    Source: GFC Business Plan 2007 – 2010
                                                        86
The value proposition of a Film Commission is dynamic
i.e. it evolves as the industry evolves

Value Proposition Evolution:


               Emergent Industry                       Mature Industry




         Film Commission leads the
         development of an                    Film Commission engages
         environment that enables             and develops policies related
         ease of access to                    to the industry such as skills
         permissions, locations,              development, investment,
         financial incentives and             exports, research and
         funding.                             development.




    Source: Deloitte Best Practice Research       87
Full public or full private funding are the two extremes of
the continuum of revenue models for Film Commissions

Funding Models:

     The GFC is
                                               Hybrid funding models
       99%
    government
      funded




             100%                                                                    100%

              Public                                                                 Private
             funding                                                                 funding
                                               Revenue generation could include:
                                               • Membership fees,
                                               • Referral fees,
                                               • Charges for location services,
                                               • Staff charge-outs,
                                               • Levies on movie ticket, DVDs etc,
                                               • Institutional funding e.g. IDC.




              The type of revenue model depends on the structure of a Film Commission i.e.
                non-profit making, profit making or a public benefit organisation with tax
                                              exemptions.


     Source: Deloitte Best Practice Research                             88
The major source of revenue for Film Commissions is
usually government funding

Revenue Model : Australian Film Commission (AFC)


                         70
                         60                                       57.5       Revenue from
                                                54.2              52
                         50                     48.6                         Government
               Revenue




                         40
                 A$ M




                                                                             Other revenue
                         30
                         20                                                  Total revenue
                         10
                                                5.6               5.5
                          0
                                      2004/05                 2005/06
                                                       Year



 In order to reduce government dependency and to be financially self-sustainable, the
 AFC is expected to:
 • Foster relationships with organizations and individuals who may be in a position to donate to the
   national film collection.
 • Forge partnerships with the private sector in key program areas, with a view to securing revenue
   from industry sources e.g. the Broadband Production Initiative, where the Government’s initial
   investment was doubled through industry partnerships.

      Source: Deloitte Best Practice Research                     89
The bulk source of revenue for Film Commissions is
usually government funding (cont.)

Revenue Model: UK Film Council


The UK Film Council’s main
source sources of revenue are:
  • Grant-in-aid,
  • Proceeds        from       the     National
    lottery.
A small proportion of funding
comes from other sources:
  • NLDF investment income,
  • Funds from other tie-ups                   /
    strategic partnerships,
  • International marketing,
  • Sale of research and statistics.




     Source: Deloitte Best Practice Research       90
In the US, some Film Offices have been established with
limited government involvement or public funding

Revenue Model: Film LA

                                              Film LA Revenue Model

                           8.0
       Revenue in US $ M




                           7.0                                                    7.1
                           6.0
                           5.0                                           5.3
                           4.0
                           3.0      2.9
                           2.0                                  2.0
                                                   1.6
                           1.0
                           0.0
                                 2002           2003     2004         2005     2006
                                                         Year


  Film LA’s primary revenue comes from permit assistance, assistance with
  field services and property management.

    Source: Deloitte Best Practice Research                91
Film festivals are just one of the many marketing platforms
for Film Commissions

Marketing Approach:


                                       Target international                Establish interactive
                                          co-production                       websites that
                                             markets                        facilitate logistics

                 Develop marketing
                    strategies in                                                            Collective marketing
                 collaboration with                                                          of country vs. region
                   stakeholders


         Highlight                   Marketing Strategies employed by
      incentives that                                                                                 Direct marketing to
                                            Film Commissions                                          foreign companies
        support the
          industry


  Advertise in key                                                                                        Attend and hold Film
   magazines e.g.                                                                                               Festivals
 Hollywood Reporter




     Source: Focus Interviews with Key GFC Stakeholders and Industry Experts 92
 Although National and Regional Film Commissions employ
 similar marketing strategies, Regional Film Commissions
 also have a domestic focus

National and Regional Marketing Strategies


              National Film Commission                      Regional Film Commission

           • Attract foreign productions to             • Promote their regions to
             the country                                  foreign and local producers
           • Information on tax incentives,             • Promote their regions to the
             financing packages and funds                 domestic industry
           • Management of a website                    • Location liasion
                                                        • Management of a website




      The objective at both levels is to develop a domestic screen culture, grow the ability to
     service foreign productions and increase the export of domestic film to the international
                                               market.
                                                       93
The AFC utilises different types of marketing initiatives to
raise the profile of its industry

Marketing Initiatives: AFC


                                                          Travel Grants
                        E.g. Support for Australian practitioners to attend international festivals, international
                                         markets for finance and key international pitching forums




                      International Market                                               Dissemination of
                         Representation
                                                           Marketing                       Information
                     E.g. AFC Participation in
                     International Film Festivals          Initiatives                E.g. via the AFC website




                                                National Events and Seminars
                                      E.g. Holding feature finance markets and distribution forums




    Source: Deloitte Best Practice Research                                94
The Irish Film Board aims to maximise the participation of
its industry in the international and national marketplace

Marketing Initiatives: Irish Film Board


                                                    Information
                                                   Dissemination




                                                                                           User-friendly
               Participation in
                                                                                        website to attract
                domestic and
                                                                                       visitors and provide
              international film
                                                                                       information on the
                   festivals
                                                                                           Irish industry
                                                   Marketing
                                                   Initiatives




                                                                        Setting up an office
                                Co-production
                                                                         in Los Angeles to
                                 treaties with
                                                                        promote Ireland in
                               various countries
                                                                              the US




              A multi-pronged marketing approach by the GFC would be a boost for the
                                            industry.


    Source: Deloitte Best Practice Research                        95
Strategic industry partnerships often lead to better
coordinated marketing efforts

Industry Partnerships: Australia

  Ausfilm:

  • Ausfilm is a screen industry-government partnership, comprising some 40 private
    sector companies, Australia's State and Territory film agencies, and the Australian
    Government through the Department of Communications, IT and the Arts.

  • Ausfilm works together with the AFC when required.

  • Ausfilm markets Australia internationally as the world's best destination for screen
    production, providing up-to-date, clear and effective advice on all aspects of working in
    film in Australia, including facilities, crew, locations and government regulation.

  • On its website, Ausfilm provides location photos, a database of films and television shot
    in Australia, testimonials from a variety of the world's best directors and producers, and
    an ever-changing show reel of television commercials.




     The GFC needs to identify and engage tourism, investment and other role players that it
       can partner with for marketing, funding and ICT projects, to support the industry.




     Source: Deloitte Best Practice Research          96
Australia has a number of agencies that are dedicated to
the audio-visual industry and supportive of the AFC

Institutional Arrangements: Australia

          1       Film Victoria



          2       New South Wales Film and Television Office



          3       Screen Act



          4       Film Finance Corporation Australia



          5       Australian Children’s Television Foundation



          6       Australian Film, Television and Radio School



          7       Film Australia



               These organisations have roles and mandates that are complementary to each
                                                  other.


    Source: Deloitte Best Practice Research                      97
 In Spain, various government-related and privately
 funded agencies support the audio-visual industry

Institutional Arrangements: Spain
                              National


                                         Film and Audio-visual                  Spain Film
                                             Arts Institute                    Commission
        Regional




                          Andalusia Film                         Madrid Film                Galicia Film
                           Commission                            Commission                 Commission




                                                         Santiago de
                     Tenerife Film                                                    Jerez Film           Barcelona Plató Film
                                                       Compestela Film
Local




                     Commission                                                      Commission                Commission
                                                         Commission



                     A clearly defined institutional framework for Film Commissions and complementary
                    organisations is important to reduce fragmentation and duplication; it results in better
                                          information sharing and aligned strategies.



                   Source: Deloitte Best Practice Research                      98
South African AV Industry Overview
 • Institutional Landscape

 • Key Trends

 • Industry Growth Drivers
South African AV Industry Overview
 • Institutional Landscape

 • Key Trends

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

South Africa AV Industry Brief Timeline:


 1895                    1956                 1962                     Mid-1980s          Late-1980s




                     State support
 Films shown                                  Afrikaans       Creation of     Tax           Collapse of   New democratic
                     For Afrikaans
 in                                           based private   ‘black’ films   concessions tax shelter     dispensation.
                     films
 Witwatersrand                                capital         by              boost         scheme        Cultural
                                              financing       predominantly   production of               industries
                 Some films                   Afrikaans       white           US imitated                 established as a
                 produced that                films           producers       films                       priority sector by
                 depicted                                                                                 government
                 urban black       Segregation
                 culture           of cinemas




                  1950s              1950s                    1970s                                        Post-1994


      Since 1994, the local feature film industry has experienced a rebirth and foreign productions
               have increased; however skills development and other challenges remain.

        Source: Deloitte SA Market Research                             101
The South African audio-visual industry has two segments -
the servicing of foreign productions and production of local
content
South Africa AV Industry Snapshot:


    • The South African audio-visual industry encompasses a range of
      creative production activities including film, TV and documentary
      production, commercials, stills photography and multimedia.

    • The two main streams of the South African industry are:
          •   The facilitation and provision of logistical and technical
              services for foreign productions,
          •   The local production of South African commercials, TV,
              documentaries and feature films.
    • South Africa’s film and TV is industry is located around the two
      major cities of Johannesburg in Gauteng Province and Cape Town
      in the Western Cape. There is limited activity in other provinces.




     Source: Deloitte SA Market Research   102
 South Africa has established audio-visual hubs in Gauteng,
 the Western Cape and Kwazulu Natal

Audio-visual Hubs:

                                              There are similar or equivalent bodies to the GFC in South
                                               Africa, the major bodies being:

                                               1.   Cape Film Commission




                                               2.   Durban Film Office




                                               NB: For the purposes of this project, an audio-visual
                                                    hub is defined as the centre or focal point for film
                                                    related matters within a Film Commission.



          Film Commissions and Offices can play an important role in driving growth
                       through industry promotions and marketing.


     Source: Deloitte SA Market Research                103
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

 Cape Film Commission:

                                 • The Cape Film Commission was launched in 2001 by the City of Cape Town
     Establishment                 and the Provincial Government of the Western Cape.



                                 • Position Cape Town as a globally competitive film city, thereby boosting
        Strategic                  tourism, job creation and the development of core skills,
        Objectives               • Increase the Cape's global film making share.



                                 • Facilitate and coordinate on-location filming in both the City and the
                                   Province,
                                 • Assemble and manage all information that affects and influences film
                                   making in the region - visas, immigration and crew rates, permits and
                                   permit management etc,
                                 • Communicate regularly with neighbourhood and business organisations so
                                   as to mitigate any negative impacts associated with filming,
     Keys Activities             • Promote the absorption of large numbers of professionals from
                                   disadvantaged backgrounds into the film industry,
                                 • Increase access to the industry for all “Capetonians”,
                                 • Provide information on funding opportunities for training and film projects.




    Source: Deloitte SA Market Research                             104
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
Durban Film Office Overview:

                                 • The Durban Film Office was launched in 2003 by Ethekwini Municipality.
     Establishment


                                 • Position Durban as a globally competitive film city, thereby boosting
        Strategic                  tourism, job creation and the development of core skills and SMME’s,
        Objectives               • Increase Durban’s global film making share from 0% currently to about 3%
                                   by 2008.


                                 • Facilitate and coordinate on-location filming in both the city and province.
                                 • Assemble and manage all information that affects and influences film,
                                   making in the region – visas, immigration, crew rates, permits and permit
                                   management etc,
                                 • Communicate regularly with neighbourhood and business organizations so
                                   as to mitigate any negative impacts associated with filming,
                                 • Promote the absorption of large numbers of professionals from
     Keys Activities               disadvantaged backgrounds into the film industry,
                                 • Provide information on funding opportunities for training and film projects.




    Source: Deloitte SA Market Research                             105
There are also several other emerging hubs in South Africa,
evidence of the growth potential of the local audio-visual
industry
Emerging Hubs:

                                          The Mpumalanga Province is in the process of setting up a
 Mpumalanga                               Film Office / Commission through its Arts and Culture
                                          department. A detailed research and strategic plan has
                                          been developed, with implementation to commence once
                                          funding has been secured.




                                          The Eastern Cape province has completed a study to set
 Eastern Cape                             up a film office under the Arts and Culture Department.
                                          Each of the 7 districts in the province will have a film
                                          service centre at municipal level, which will report into the
                                          provincial film office.




    Source: Deloitte SA Market Research                       106
The primary value proposition of local Film Offices and
Commissions is to market their regions as locations of choice

Comparative Overview:
      Line Item              Cape Film Commission               Durban Film Office             Gauteng Film Commission



 Governance &              S21 Company with             Mayor’s Office & City Department –     – S21 Company with
 Structure                 Independent Board            Economic Development                     Independent Board
                                                                                               – In the process as registering
                                                                                                 as a Public Entity
 Budget                    R 4.15 Million               R1.5 Million operational, plus         R14.1 Million (2006)
                                                        infrastructural Support +/- R4.5m.     R18.5 Million (2007)
                                                        Additional Funding dependent on
                                                        approved Projects.


 Value Chain               Active in all areas of the   - Concentrates on marketing the        - Focus currently on the
 Positioning               value chain                    region as a location of choice for     production segment of the
                                                          production.                            value chain.
                                                        - Limited involvement in other areas
                                                          of the value chain due to budget
                                                          constraints.

 Source of Funding         - CoCT: Economic             - Ethekwini Municipality               DED: Gauteng Provincial
                             Development                - KwaZulu-Natal Provincial             Government
                           - PGWC: Economic               Government (Projects)
                             Development

 Jurisdiction              Cape Town &                  Ethekwini Municipality                 Province of Gauteng
                           Western Cape


                The bodies are seen to be complimentary in promoting the South African
                                         audio-visual industry.

      Source: Deloitte SA Market Research                               107
  In South Africa, various government-related and privately
  funded agencies support the audio-visual industry

Institutional Arrangements: South Africa
                                                                                    Supporting Institutions
National




            • NFVF                                                                    E.g.
                                                                                      • Department of
                                                                                        Arts and Culture
                                                                                      • Department of
                                                                                        Trade and
            •   Gauteng Film Commission                                                 Industry
                                                                                      • SARS
Regional




            •   Cape Film Commission
                                                                                      • MAPPPSETA
            •   Durban Film Office (covers entire KZN)                                • National Arts
            •   Eastern Cape - Arts and Culture                                         Council of SA
            •   Mpumalanga - Arts and Culture                                         • SA Scriptwriters
                                                                                        Association
                                                                                      • Independent
                                                                                        Producers
                                                                                        Organisation
                                                                                      • Commercial
            • Departments in Municipalities
Local




                                                                                        Producers
                                                                                        Association
                                                                                      • The Producers
                                                                                        Alliance etc.


            There is a perception within the industry that there is a lack of coordination between
                                      key institutions and programmes.


           Source: Deloitte SA Market Research               108
There are a number of initiatives being undertaken at
provincial government level to promote the audio-visual
industry …

Regional Initiatives:

  Festivals to showcase films:                    Other initiatives include:
  • Sithengi – November, Cape Town,               • Industry workshops held by Film
  • Encounters Documentary Festival –               Commissions/Offices,
    July/August, Johannesburg/Cape                • City of Johannesburg - has identified
    Town,                                           film as part of its Creative Industries
  • Durban International Film Festival,             Strategy and has a plan to establish
  • Loerie Awards – July, different venues          a Film Incubator in Newtown,
    in South Africa,                              • Ekhuruleni has shown interest in
  • Attendance of international film                promoting locations. No initiatives
    festivals e.g. Cannes, Montréal,                have been implemented to date
    Toronto etc.                                    however.




    The impact of these regional and other initiatives is difficult to measure as limited data
                                         is available.




    Source: Deloitte SA Market Research                109
… with the GFC engaging in a range of AV activities
within Gauteng

6-month Snapshot of GFC Activity:


          Permit Applications by category                                            122

          Gauteng Festivals Applications Received                                     11


          Gauteng Festivals Supported                                                 4


          GFC Advertising Placement and
          Circulation Figures
                         - Total Adverts                                              31

                         - Total Circulation reach                                  922,061

          GFC on-line Directory Usage

                       - No of Hits (Jan-Sep ‘07)                                   217,818
                       - Number of Visitors (Jan-Sep ‘07)                           10,640



   Source: GFC 6-month Production and Marketing Activity Report (Apr – Sept 2007)
                                                                          110
The last 5 years have seen a renewed focus on strategies to
grow the national and provincial audio-visual industries


National Growth/Development Plans:

      Key Challenges                            Some Key Strategies                       Focus Areas

• Skills development.                        • DAC Cultural Industries Growth    • Sustainable national industry
• Audience development.                        Strategy, 1998.                     growth and development.
• Access to finance.                         • Industrial Development            • Enhancement of economic
• Improving coordination between               Corporation Report, 2000.           growth and development.
  key institutions.                          • NFVF National Value Charter.      • Accessibility to financing.
• Obtaining critical industry                • Strategy for the Development of   • Development of content for
  information.                                 the Content Industries, 2003.       broadcasting and multimedia.
• Transformation.                            • Film and Electronic Media         • Development of skills in the
                                               Sector Skills Plan, 2004.           industry.
                                             • Western Cape Province Micro       • Increased competitiveness,
                                               Economic Development                exports and investment
                                               Strategy: Film Sector, 2005.      • Transformation of the industry.
                                             • The DTI Draft Sector
                                               Development Strategy: Film
                                               and Television, 2005.
                                             • 2007-2008 Sector Development
                                               Skills Plan




       The GFC’s key priority areas match the focus areas of other complementary industry
                                           strategies.



       Source: Deloitte SA Market Research                             111
South African AV Industry Overview
 • Institutional Landscape

 • Key Trends

 • Industry Growth Drivers
The South African AV industry operates is an
environment that is rapidly and continuously changing

Local Operating Environment:
 Broadcast Television                                               Commercials
 • The South African Broadcasting Corporation has:                  • The Commercials sector is very competitive, with over 50
       • 3 national channels and an Africa channel.                   companies that specialise in TV commercials.
       • 2 licenses for regional channels that will broadcast in    • It is an industry driven by production costs relative to the
          indigenous languages.                                       purchase of airtime.
 • There are two M-Net channels and over 40 DSTV channels.          • The sector is characterised by high quality output.
 • One free-to-air channel i.e. E.TV.

 Corporate Video                                                    Facilitation
 • The making of corporate videos boomed in the 1980’s, when        • South Africa has diverse and attractive locations that are
   cheap, simple and high quality video cassettes came onto           sought after by film and commercials producers worldwide.
   the market.                                                      • The Rand / US $ exchange rate has enabled relatively
 • Estimates are that corporate video makes up a quarter of           competitive costs for air travel, accommodation etc.
   production turnover in South Africa.                             • Local equipment, facilities, services and crew are rated
                                                                      amongst the best in the world.
                                                                    • SA has about 50 successful local facilitating producers in.

 Ancillary Services                                                 Distribution and Exhibition
 • The economic multiplier effect of the industry is estimated to
                                                                    • New technologies such as digitization have enabled new
   be between 2 - 2.5.
                                                                      content delivery channels such as DVDs and online portals.
 • International experience has shown that the industry has a
                                                                    • Digitisation has lead to an increase in small independent
   positive economic impact. In Australia, the output multiplier
                                                                      companies that can produce for TV due to reduced costs of
   is 2.67.
                                                                      production and distribution, once the initial expensive
 • Industries that benefit from the industry include tourism,
                                                                      capital cost has been incurred.
   hospitality, insurance, marketing, tax and legal advisory etc.



           The impact of new technologies on content production and distribution mirrors
                                          global trends.

        Source: Deloitte SA Market Research                             113
In 2006, almost R3 billion revenue was generated in the
South African audiovisual production industry

South African AV Industry Revenue:

                                                   Audiovisual industry production*

                                         R 3 250
                                         R 3 000             Multimedia
                                         R 2 750               R 20 M
                                         R 2 500                 TV
                                         R 2 250              R 1 000 M
                          Revenue (Rm)




                                         R 2 000                                          Multimedia
                                         R 1 750                                          TV
                                         R 1 500            Commercials R                 Commercials
                                                               802 M                      Film
                                         R 1 250
                                         R 1 000
                                          R 750
                                                                 Film
                                          R 500               R 1 040 M
                                          R 250
                                            R0
                                                                2006
                                                                Year


               Nationally, audiovisual industry production is almost equally made up of film,
                                            commercials and TV

             * This is an estimate of the value of AV industry production and includes only revenue generated in the
             “cost consumption” phase of the value chain. It thus excludes the revenue of the broader media and
             entertainment industry e.g. box office revenue, advertising agencies revenue, DVD sales etc.
    Source: Deloitte South African Market Research                          114
Over a 3 year period, the bulk of commercials produced
nationally were concentrated in Gauteng and the Western
Cape
Annual Commercials Production Data*:



             Outside of SA


       Elsewhere in SA
  Location




                                                                                                     2005/6
                           KZN
                                                                                                     2004/5

                    Gauteng


             Western Cape


                                   0         50         100        150   200       250   300   350

                                                              No. of Commercials




             * From Commerical Producers Association (CPA) member data
             Source: Deloitte South African Market Research                115
With very few exceptions, the local box office is
dominated by foreign films …

Sample Local Box Office Earnings:


                            South African Gross Box Office Earnings
                                   (25 Nov 2005 - 20 Jan 2006)

                     35
                     30
          Earnings




                     25
           (R m)




                     20
                     15
                     10
                      5
                      0




                                                     Movie




     Source: Deloitte SA Market Research               116
… with ‘slapstick’ the most successful of local movie
genre’s

Top 15 Local Films:

                All Time Top 15 South African Gross Box Office Earnings


                     35
                     30
                     25
          Earnings
           (R m)




                     20
                     15
                     10
                      5
                      0




                                              Movie




     Source: Deloitte SA Market Research       117
South African audiences perceive local films as being either
‘slapstick’ or socio-political; there is little variety of genre

South African Audience Tastes:

                      Positives                                         Negatives

   • South African youth are keen to                 • Local films fall into two categories:
     watch local films that are relevant               socio-political or ‘slapstick’.
     to them.                                                • Lack of variety of content.
   • Socio-political films perform better            • South African youth find TV soaps
     on the arthouse circuit.                          more relevant than local films as
   • International recognition of socio-               they deal with current issues.
     political films e.g. Tsotsi and                          Local films are perceived to be
                                                               focused on the past.
     Yesterday:
        The international success of these          • Perceived poor quality, editing and
         films have raised the profile and             lack of special effects.
         perceptions of local films.                 • Poor acting and use of the “same
   • Low budget films can be successful                faces”.
     e.g. ‘Whale Rider’ from New                     • Insufficient marketing of local films.
     Zealand and “High School Musical’
     from the US.


        There exists strong potential demand from local audiences for local content if
                         it is of greater variety, quality and relevance.

     Source: Deloitte SA Market Research               118
In South Africa, cinema attendance is characterised by
areas of growth, stagnation or decline

Cinema Attendance:
• The international experience is that cinema admissions are on the
  decrease:
    In the US, cinema admissions fell from a high of $1.64bn in 2002 to $1.4bn in 2005.
• In South Africa, overall attendance is on the rise:
    A 4.5% increase in 2002/3, and a 5% increase in 2005/6.
    It is anticipated however that with technological convergence, local cinema attendance
     trends will mirror global trends in the future.
• However, there are two phenomena locally:
   1.Cinema attendance is growing in previously under-serviced markets.
    This is because cinemas have become more accessible due to:
        Competitive pricing,
        An expanding spatial footprint, primarily in urban areas.
   2.In better serviced markets however, the trend is towards stagnation:
       • Ster-Kinekor has seen a slowdown in the traditionally lucrative LSM 9 - 10 markets.
• Peri-urban and rural areas however still require focused audience
  development initiatives to grow cinema audiences.

     Source: Deloitte SA Market Research             119
Countrywide, new content delivery channels are booming
due to falling prices of DVDs, computers and cell phones

Content Delivery Channels:

                                     National Penetration of Content Channels                    2004
                                                                                                 2005
                       60                                                                        2006

                                                                                              49.4

                                                                                       41.6
     % of Population




                       40
                                                                                33.5
                                            31


                                      19
                       20

                                 9
                                                               6     6.4

                       0
                               % with DVD player       % accessed internet      % with cellphone
                                                         Channel Type



                            Local movie theatres may face growing competition from alternative content
                                   delivery channels, especially if ticket prices continue to rise.



     Source: Deloitte SA Market Research                             120
South Africa faces impediments to increasing its market
share as a globally competitive film-making destination

Global Market Share:


   • It is estimated that South Africa has 0.5% of the market share of
     the global film, TV and commercials industry1.
   • The reasons for the country’s relatively low market share are:
            •      “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.”
   • South Africa’s main regional competitors in the market for African
     and Middle Eastern content are currently Iran, Egypt, Israel and
     Nigeria.



    Source: 1. GFC Business Plan (MEFS) 2007 – 2010; Deloitte SA Market Research
                                                                          121
The AV industry has had a positive economic effect on the
local economy

Economic Activity:



         • The audio-visual industry in South Africa is estimated to
           generate over R5.5 billion in economic activity annually.
         • The multiplier effect for the local industry is estimated to be
           between 2 and 2.5, with spin-offs for the toursim industry
           e.g. the promotion of filming locations as tourist attractions.
         • South Africa’s cost advantage in the industry relative to the
           US and the Europe could continue if the rand continues to
           be weaker than major world currencies.




   It is difficult to monitor and evaluate the social and economic impact of the industry due to
                                           data limitations.




      Source: Deloitte SA Market Research               122
South African AV Industry Overview
 • Institutional Landscape

 • Key Trends

 • Industry Growth Drivers
There are several factors influencing the growth of the
national audio-visual industry

Growth Drivers:
                               Business                 Audience
                           Environment and             Development
                            Cost Advantage


      Regulatory                                                     Funding and
     Environment                                                      Incentives




                                          Destination of
                                             Choice



                                                                  Infrastructure
       Physical                                                 –Technical
     Environment                                                –Public


                                          Human Resources
                                             Capacity


    Source: Deloitte SA Market Research                124
One of the main impediments to growing the local industry
has been poor audience development

Audience Development:

                    Background                                Audience Development
                                                                    Initiatives
    • Due to previous social, spatial and economic      • The Film Resource Unit (FRU) has partnered
      planning inequalities, the overwhelming             with the Department of Arts and Culture, the
      majority of the population is located in            Humanist Institute for Development
      townships with no exhibition outlets.               Cooperation, the GFC and the Government
    • Geographical distance from movie theatres           Communication and Information System to
      and ticket pricing has precluded growth in          establish community based audio-visual
      previously disadvantaged groups.                    facilities to promote development,
    • Many South African films are perceived as           communication and active citizen
      being too socio-political and do not appeal to      participation. N.B. There was announcement
      the tastes of 16 – 35 year old audiences who        on 20 June 2007 by the Board of Directors of
      want films that reflect their current realities     the FRU that it might close down due to
      and more variety of content.                        financial problems. However discussions were
                                                          being held with the DAC to resolve the matter.
                                                        • Movie theatres owners are opening new
                                                          complexes in previously under-serviced areas,
                                                          such as the new eight cinema complex in
                                                          Soweto’s Maponya Mall.
                                                        • CineMARK is using a mobile unit to take
                                                          movies to rural areas.
                                                        • Movie houses are lowering ticket prices as a
                                                          strategy to attract new movie goers.
                                                        • Use of digital technology to show 3D films and
                                                          so attract tech-savvy audiences.
                                                        • Use of DVDs and other content delivery
                                                          channels.


    Source: Deloitte SA Market Research                       125
South Africa has an internationally recognised
comprehensive and progressive legal framework

South African Legislation:
   Independent Communications Authority of South                      The Skills Development Act - provides an institutional
   Africa Act - in particular, deals with local content quotas,       framework for national, sector and workplace strategies to
   which are viewed as key to developing the local industry.          develop and improve the skills.


   The Labour Relations Act - due to the proliferation of             Basic Conditions of Employment Act - to provide for
   small firms and unorganised ‘freelance’ labour, the effects of     fair labour practices in the workplace.
   this Act are smaller than in other sectors.


   The Films and Publications Act - distribution of any               The Immigration Act – regulates the entry of foreigners
   prohibited film or publication is a criminal offence in terms of   to South Africa and the issue of work and residence
   the legislation.                                                   permits.


   The Lotteries Act - provides for payment of lottery money          The Income Tax Act – provides a legal framework for
   for projects that promote the arts, culture and national           tax related matters.
   historical or cultural heritage.


   The Employment Equity Act - aimed at achieving a                   TRIPS Agreement - South Africa, as a member of the
   diverse workforce that is broadly representative of the South      World Trade Organisation (WTO) is bound by the
   African population.                                                Agreement which affords scriptwriters and creators a high
                                                                      standard of copyright protection.

   The Intellectual Property Laws Amendment Act –                     Counterfeit Goods Act – provides for the protection
   provides for the protection of rights of local and foreign         against trading in falsifications of merchandise and
   companies.                                                         products.


            However there are perceptions that legislation is too rigid and there is limited
                               institutional capacity to implement it.

      Source: Deloitte SA Market Research                                126
There have been a few initiatives to reduce bureaucracy and
inconsistent application of rules

Concessions:



                                                 Home Affairs issues a
                                                   Visitors Visa with
       The City of Cape                         concessions for actors
           Town has                             and crew. The Visitors
        abolished film                          Visa must be issued in
        location tariffs                       the country of origin and
          on publicly                            specifically endorsed
        owned Council                             with the purpose of
             land.                                       entry.



                                                                     SARS is
                                           .
                                                                   considering
                                                                     allowing
                                                               employees in the
                                                                film industry to
                                                               apply for a single
                                                                    annual tax
                                                                    directive.

     Source: Deloitte SA Market Research                 127
There have been a few initiatives to reduce bureaucracy and
inconsistent application of rules (contd.)

Concessions:

     • The South African regulatory
       environment is perceived as
       onerous for SMMEs.
     • An 2003 international survey found
       that 46% of South African
       respondents said that bureaucracy
       was a significant constraint on
       business growth; the global
       average is 35%.
                                            • Uncertainty around the SARS definition of
                                              employees and independent contractors is an
                                              concern.
                                            • Currently the industry defines freelancers as
                                              employees; this however has labour law and tax
                                              implications.
                                            • As employees, freelancers cannot claim for
                                              expenses and have to work within legislated
                                              hours. However given the nature of the industry,
                                              hours worked are often in excess of the
                                              prescribed 45 hour week and 9 hours a day. This
                                              is in contravention of the BCEA.




     Source: Deloitte SA Market Research             128
There are a number of commercial and government
organisations offering film production financing in South
Africa

Key Funding Channels:

                                          IDC – 31 Movies
                                            worth R0.5bn                  NFVF Fund –
       Commercial                                                        education and
                                             funded in 6
    banks – e.g. Rand                                                       training
                                            years through
     Merchant Bank                                                       development,
                                                equity
    provides funding                                                      production,
                                          investments and
    capped at 30% of                                                     marketing and
                                           commercial and
      a production                                                        distribution.
                                            venture loans.
         budget.




                                                                             Private funding
       Other funds that are
                                              Government                     e.g. individual
        being investigated
                                              grants- skills                      private
        for establishment
                                                 training                       investors.
         include the SABC
             Film Fund.                        initiatives,
                                              sponsorships
                                                   etc.



       Funding is potentially a major growth driver as it helps attract industry players
                                        to the market.

    Source: Deloitte SA Market Research                 129
Revenue generation guarantee requirements are the
largest barrier to access to funding in South Africa

Barriers to Funding in South Africa:
                                                                                       Broadcaster monopolies
     Producers often struggle                                                          on IP ownership limit the
     to meet the stringent                                                             income that producers
     revenue generation                                                                can make from their
     guarantee requirements                                                            content.
     of financial institutions.
                                                   Local banks consider the
                                                   industry to be high-risk,
                                                   with few mitigation
                                                   strategies in place.


                                                                                   The combination of high
                                                                                   production costs and
       Alternative sources of funding
                                                                                   uncontrollable variables mean
       such as the National Lottery
                                                                                   financial success is not often
       are not available due to legal
                                                                                   guaranteed.
       restrictions on funding of
       private ventures.




    Use of guarantees, pre-selling of rights and other measures to mitigate risk are required
    locally. Benchmark countries address the issue of risk through the use of public funding
                                bodies at national and local level.


     Source: Focus Interviews with Key GFC Stakeholders and Industry Experts 130
The Large Budget Film and TV Production Rebate is the
prime investment incentive available to both foreign and
local big budget producers
Key Incentives:
                             • Eligible applicant rebated a sum totalling 15% for foreign productions or 25% for
  Large Budget                 qualifying South African productions, including official co-productions of the
                               qualifying South African production expenditure that an applicant has spent on an
  Film and TV                  eligible film production. The maximum rebate for a project is R10 million.
  Production                 • The rebate scheme tends to be inaccessible to most local producers as minimum
  Rebate Scheme                spend production expenditure is R25 million. There are however proposals to lower
                               the rebate threshold to accommodate lower budget productions (<R10m).


                            • Enables any activity in the development of a film project to be tax deferrable so as
  Section 24F of              to attract investment.
  the Income Tax
  Act


                            • Provides South Africa manufacturers, including filmmakers, with funds to travel
  DTI rebates /               globally to attract funding for projects.
  subsidies for
  international
  travel


     International best practice suggests that a variety of film specific incentives are
       required at national and regional levels and for smaller local productions. A
      business environment that provides general incentives to encourage business,
                           such as in Ireland, is also beneficial.


     Source: Deloitte SA Market Research                            131
Other incentives are available to support the industry in
South Africa

Other Incentives:


                             • Employers can claim back the Skills Development Levy if they
  Skills                       provide training that is MAPPP-SETA accredited.
  Development
  Fund




                             • Enables productions from participating countries to apply for
  Co-production                benefits or programmes of assistance from both countries.
  Treaties




   Benchmark countries tend to link incentives to initiatives to build capacity in local industries
     e.g. skills transfer programs. For instance, rebate schemes could have matching labour
                                              grants.




      Source: Deloitte SA Market Research                   132
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:


                30

                25
                                                                    Number of Applications
                20                                                  received
       Number




                                                                    Number of Applications
                15
                                                                    approved
                10                                                  Number of Applications
                                                                    paid
                 5

                 0
                       South African      Co-prod   Foreign




                     There appear to be constraints in the payment of rebates to approved
                              applicants, which need to be investigated further.


    Source: Deloitte SA Market Research                       133
The cost of production in South Africa is relatively cheap
compared to developed countries, such as in the European
Union
Cost Advantage:


   • South Africa has a shrinking but still tangible cost advantage over
    developed countries mainly due to the current relatively weak rand
    exchange rate. This cost advantage is spread across the value chain:
        A weak rand makes South Africa more attractive to foreign productions due to
         lower production costs
        A strong rand, whereas unfavourable for foreign productions, may lower the cost
         of importing skills, equipment, content etc for the local industry.

   • It is estimated that production costs in South Africa are 60% of USA
     costs. A 2002 study shows that South African crew rates are 16.9% of
     that of American crews.
   • Prices in ancillary industries e.g. hotels, restaurants, domestic flights and
     car rental are generally competitive. However these have been known to
     be inflated on occasion for foreigners:
        The high cost of travel from the Americas and Europe to Africa is an issue for
         some international producers.




    Source: Deloitte SA Market Research              134
South Africa has a vibrant service industry catering to all
aspects of the audio-visual industry …

Service Providers


                                          Production
                                           Facilitation
                           Original                          Equipment
                           Production                         Provision




    Art Direction                                                         Distribution


                                           Service
                                           Providers

   Film Processing                                                         Exhibition




                                                             Insurance
                      Post-production
                                                               Services
                                           Financial
                                            Services



    Source: Deloitte SA Market Research                135
… and a variety of small to medium-sized fully equipped
studio spaces

Technical Infrastructure:

  • 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.




     Source: Deloitte SA Market Research                     136
South Africa has well-developed public infrastructure with
modern facilities and services available in all major
centres
Public Infrastructure:

   • 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.


   Source: Deloitte SA Market Research               137
South Africa’s diverse physical environment makes it an
attractive location

Physical Environment:


            • 14 hours of sunlight during summer
              months.
            • Weather and seasons that alternate with
              Europe and North America.


                                                                 • Same time zone as most
                                                                   of Europe.

             • Gauteng offers high density urban
               infrastructure and architecture and is in
               close proximity to a variety of natural
               scenery.
             • Cape Town offers a variety of coastal
               scenery and period architecture.
             • Durban is ideal for tropical settings.
             • Mpumalanga has numerous nature
               reserves.



      South Africa has become a favoured location for filmmakers keen to capitalise
                                 on its natural beauty.



   Source: Deloitte SA Market Research                     138
Limited skills data on the South African AV market has
restricted our evaluation of the skills set within the
industry
Human Resource Capacity:

Current data on the audio-visual industry        According to MAPPP SETA, there are
skillset is not readily available. However       seven priority areas for future skills
the following points were noted from a           development in the industry. They are:
2004 MAPPP SETA study:                              • Asset exploitation and
    • Technological developments mean                  management.
      that skills need to be continuously           • Risk management.
      upgraded.                                     • Project management.
                                                    • Partnership development.
    • Significant skills gaps persist in the
      business, creative and technical              • Investor relations.
      fields across all occupations and             • Marketing and promotion.
      sub-sectors.                                  • Technical expertise.
    • The sector faces the challenge of          The largest employment concentrations
      improving its equity profile,              are found in clerical (16%), technicians
      particularly in relation to race and       and associate professionals (15%), plant
      gender in large and medium                 and machine operators(15%) and
      enterprises.                               elementary occupations (15%).


      Temporary staff constitute an important component of the AV workforce at 13%.



    Source: Deloitte SA Market Research            139
Employment figures in the Commercials sector show a a
general decline in overall numbers …

Employment Data:

                            Employment Figures - Freelance*                                                            Employment Figures - Full time
 No. of Employees




                                                                                              No. of Employees
                    50000                                                                                        420
                                                                                                                 400
                    40000
                                                                                                                 380
                    30000
                                                                                                                 360
                    20000
                                                                                                                 340
                    10000
                                                                                                                 320
                        0                                                                                        300
                                2005             2006                        2007                                       2005           2006             2007
                                                 Year                                                                                  Year



                                                                             Employment Figures - Part time
                                                     No. of Employees




                                                                        50
                                                                        40
                                                                        30

                                                                        20
                                                                        10
                                                                        0
                                                                             2005            2006                        2007
                                                                                            Year




                     Source: Commerical Producers Association (CPA) member data
                     * Approximate figures                                                                       140
A comparison of two locally produced movies shows a high
degree of employee transformation, with most employees
working as freelancers
Case Studies:
          ...                 Small, independently funded (local) movie:
                              • Employee no’s: 40 crew, 20 cast, Total = 60.
                              • Employee profile:
                                  • 30% women,
                                  • 50% black (ACI).
                              • The entire production team consisted of freelance resources.
                              • Budget estimate: ~ R5m
                                  • 50% of budget spent on employee salaries,
                                  • 25% of budget spent on auxiliary services (car hire, accommodation,
                                    security, transport, insurance, equipment hire etc).

          ...                 Large, foreign-funded move:
                              • Employee no’s: 431 crew, 99 cast, Total = 530.
                              • Employee profile:
                                  • 17% women,
                                  • 53% black (ACI).
                              • Only 3 permanent staff (from production company); remainder freelancers.
                              • Only 12 international recruits; remainder local.
                              • Budget estimate: ~ R90m
                                  • SA costs ~ 55% of budget, non-SA costs ~ 45%.



   Source: Deloitte SA Market Research                        141
There are also skills gaps that have been identified by
stakeholders as needing urgent redress to ensure the
continued growth of the local industry
Skills Gaps:

                                                                       Lack of coordination,
                                                                          promotion and
                                                                        monitoring of skills-
    Low quality of                                                         transfer from
     scriptwriting                                                     international and co-
    that does not                                                           productions.
    meet audience
         needs
                                              Lack of
                                             business
                                          entrepreneurial
                                             capacity




        Limited access
          to training                                             Rapid and continual
         opportunities                                               technological
            for new                                                  changes that
        entrants to the                                            require ongoing
           industry                                               skills development




    Source: Deloitte SA Market Research                     142
Several public and private sector organisations are
providing training programmes to help address identified
skills gaps
Skills Development Initiatives:

                                           • Responsible for administering skills development in the industry using the
       MAPPP SETA                            Skills Development Levy.
                                           • Coordination of learnerships and mentorship programmes.




       Public – Private                    • E.g. the MultiChoice and Department of Labour Film Skills Development
       Partnerships                          Programme that provides internships for a hundred trainees.




                                           •   Offers bursaries for study at training institutions.
                                           •   Development of Unit Standards
       NFVF                                •   Financial support for training projects.
                                           •   Investigating the possibility of establishing a National Film School.




                                           • E.g. the Audiovisual Entrepreneurs of Africa, which is a development
                                             programme for producers in Southern Africa.
       Private Initiatives                 • M-Net’s New Directions Scriptwriter and Director Development Programme.




  There is however an industry perception that skills development in the sector needs to be
                       better managed by the key responsible bodies.

     Source: Deloitte SA Market Research                                 143
Tertiary institutions are also playing a key role in
developing the skills required by the AV industry

Tertiary Institutions:
  • A number of tertiary institutions    • These courses cover, among
    nationally offer professional          others (cont.):
    qualifications (Certificates,            Directing
    Higher Certificates, Diplomas,           Editing
    Degrees, Doctorates) in the AV           Location hunting etc
    field,                               • Some of these institutions
  • These courses cover, among             include:
    others:                                  Boston Media House:
        Journalism / Photojournalism,           – Registers +-1500 students
        Advertising,                              annually
        Production,                         Tshwane University of
        Media (Operations,                   Technology – Pretoria Film
         Management, Law, Finance etc)        School:
                                                 – Registers +-40 students annually
        Communication
                                             South African School of Motion
        Creative Thinking
                                              Picture Medium and Live
        Public Relations                     Performance:
        Multimedia Technology                   – Registers +- 300 students
        Scriptwriting                             annually

                                           144
From a global perspective, the business environment in
South Africa is generally perceived to be supportive of
businesses and is conducive for growth
Business Environment:
 Hospitality
 • South Africa has a vibrant hospitality industry with many businesses catering
   exclusively to the film industry.
 Business Services
 • Most major global financial institutions are represented in South Africa e.g.
   Barclays Bank, Standard Bank, HSBC.
 • Competitive insurance services are available e.g. Lloyds, Hollard, AIG, Lion of
   Africa etc.
 • Corporate governance is strengthened through the implementation of King II
   recommendations and other governance initiatives e.g. PFMA.
 • South Africa’s business efficiency has climbed up two places from a ranking of 40 in
   2005 to 38 in 2006. This means that the country is improving its innovation,
   profitability and accountability levels.
 • The government has made improving safety and security a key focus area:
     • Official data for the financial years 2004/05 - 2005/06 shows a 9% overall reduction in 21
       types of serious crime.
     • However, there were concerning increases in car hijackings (3%) and car theft and cash in
       transit heists (74%).


      Locally, perceptions are that the business environment is not conducive for the
                                      growth of SMMEs.
     Source: Deloitte SA Market Research               145
Gauteng AV Industry Overview
 • Key Trends

 • Industry Growth Drivers

 • SWOT Analysis
Gauteng AV Industry Overview
 • Key Trends

 • Industry Growth Drivers

 • SWOT Analysis
Strong economic growth is driving booming demand for
entertainment in Gauteng …

Economic Growth:

                                                             Economic growth          South Africa
                                                                                      Gauteng
                                                  6


                                                  5
                                   y-o-y change
                                                  4


                                                  3

                                                  2


                                                  1

                                                  0
                                                      2001      2002   2003    2004        2005
                                                                       Year




                                        Gauteng is the growth engine of the country.



    Source: Deloitte Gauteng Market Research
                                                                       148
… as is the Province’s relatively rich and growing
population

Income Distribution:


      • Gauteng is
        home to the                                                          Income distribution (2001)
        wealthiest                                             1 000   000                                           Gauteng
        population.                                              900   000                                           KZN
      • Population                                               800   000                                           Western Cape

                                               No. of People
        growth of 20%                                            700   000
        between 1996                                             600   000
        and 2001.                                                500   000
                                                                400 000
      • By 2010 or                                              300 000
        earlier, Gauteng
                                                                200 000
        will be the
                                                                100 000
        largest province
                                                                      0
        by population.




                                                                                   1+
                                                                                     0

                                                                           45 600
                                                                                     0

                                                                                     0

                                                                                     0
                                                                                     0

                                                                                     0

                                                                                     0
                                                                                     0
                                                                                    0




                                                                                  80
                                                                                  60

                                                                                  20

                                                                                  40
                                                                                  20

                                                                                  40

                                                                                  80
                                                                                  60

      • In 2001
                                                                                  80




                                                                                60
                                                                                8

                                                                                7
                                                                                3

                                                                                7

                                                                                4
                                                                              19

                                                                              38

                                                                              76
                                                                                9
                                                                       R4




        500,000 people




                                                                             22

                                                                             45
                                                                             15

                                                                             30

                                                                             61




                                                                              7
                                                                             R

                                                                            R

                                                                            R

                                                                            R
                                                                   to




                                                                           1

                                                                           2
                                                                           R

                                                                           R

                                                                           R
        earned more
                                                                 up




                                                                        R2
                                                                         R

                                                                         R
        than R300 000 a                                                                      Annual Income (R)
        year.                                                                      (Excludes respondents reporting zero income)




    Source: Deloitte Gauteng Market Research
                                                                                   149
Gauteng has the largest cinema audiences nationally,
reflecting its strong movie-going culture …

Average Cinema Attendance:


                                          Ster-Kinekor average Weekly Cinema Attendance (2006)

                                      70 000
                                               62 391
                                      60 000
               Number of seats sold




                                      50 000             44 762

                                      40 000                      34 043
                                      30 000

                                      20 000                                      14 032
                                      10 000                                                 7 289        5 803

                                          0
                                               Gauteng    KZN     Western         Eastern   Free State   Limpopo
                                                                   Cape            Cape




                                 Established cinema infrastructure, particularly in wealthy areas, is a key
                                                        strength of the province.


    Source: Deloitte Gauteng Market Research
                                                                            150
… but cinema facilities are concentrated in the wealthier
northern suburbs of Johannesburg and Tshwane

Cinema locations in Gauteng:



                                                                           Carlton Centre and
                                                                           Sterland doing well
                                                                           (Sterland Junction
                                                                           has experienced
                                                                           rapid growth)




                 There is a shift to the inner cities, making them excellent places to invest in
                                                 cinema facilities.

    Source: GFC Spatial analysis
                                                            151
The Gauteng audiovisual production industry achieved
revenue of approximately R1,1 billion in 2006 …

Gauteng AV Industry Revenue:

                                                   Audiovisual Industry Production*

                                           1 250
                                                                         R 20m
                                           1 000      R 15m
                           Revenue (R m)




                                            750                         R 710m             Multimedia
                                                      R 650m                               TV
                                                                                           Commercials
                                            500                                            Film


                                            250                         R 310m
                                                      R 290m

                                                      R 50m              R 99m
                                              0
                                                      2005               2006
                                                               Year




              Film is relatively small compared to the rest of the AV industry, but is growing
                                                  quickly.

             * This is an estimate of the value of AV industry production and includes only revenue generated in the
             “cost consumption” phase of the value chain. It thus excludes the revenue of the broader media and
             entertainment industry e.g. box office revenue, advertising agencies revenue, DVD sales etc.
    Source: Deloitte Gauteng Market Research                           152
… and is generating a total of over R2 billion a year in
economic activity due to multiplier effects

Estimates of Economic Activity:




              • Total GDPR Gauteng in 2005 = R519
                billion
              • Industry = R1,1 billion
              • Assuming a multiplier of between 2 - 2,5
                the industry generates in excess of R 2
                billion worth of economic activity and
                accounts for 0,4 percent of the provincial
                economy


               Contribution to GDP is still relatively small but with ancillary industries could
                                                   be larger.

    Source: Deloitte Gauteng Market Research               153
Gauteng’s audiovisual industry is dominated by
television series production

  • Gauteng is home to approximately 70% of all South African TV
    productions.
  • The total Gauteng TV industry was worth approximately R700m in 2006.
  • Most popular South African series are set and produced in Gauteng, such
    as Generations, Egoli, 7de Laan, Hard Copy etc.
  • Major television series can have larger budgets than some films: The Lab
    cost an estimated R7 500 000, and Jozi H created an estimated 500 jobs.
  • Viewership is large: SABC TV: 19m; DSTV/MNet 1,5 m.




                 As it is the home of the major broadcasters, Gauteng is the centre of the
                                            television industry.

   Source: Focus interviews and Deloitte Gauteng Market Research   154
Most popular South African TV shows are Gauteng-based


7 out of the top 10 SA TV shows are Gauteng-based


                                               TV Series Viewership


                                                                   22
                                                                 19
                                                             13.6
                   TV show




                                                             12
                                                            11.6           Gauteng-based
                                                           10.2            Other SA/International
                                                            10
                                                           9.3
                                                       5

                                                   0                 10          20            30
                                                                     AMPS Viewership

                             Local content is consistently the most popular content on TV.




    Source: Deloitte Gauteng Market Research                   155
Commercials production in Gauteng is dominated by local
production

Breakdown of Commercials Produced in Gauteng:


  • 353 commercials                                          % of Commercials produced
    were produced in
    Gauteng compared                                                in Gauteng
    to 545 elsewhere
    in the country.                                   100%                         SA/International
                                                                           12.5%
  • The average
    commercial has 46                                                      7.5%    Servicing of foreign
    freelance crew.                                   75%                          productions
                                       % of revenue



  • On average, locally
    produced                                                                       Locally
                                                      50%                          produced
    commercials cost
    R13.4m, compared                                                       80.0%
    to R13,1m for
    servicing of foreign                              25%
    commercials.

                                                       0%
                                                                           2006




    Source: Deloitte Gauteng Market Research                         156
Gauteng accounts for the bulk of locally produced films


Film-related activity in Gauteng:
 • 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,        “It’s no use making
      could address this issue in the future.           shoes and then not
                                                        having a shop to sell
                                                        them in” - Producer

    Source: Deloitte Gauteng Market Research      157
Gauteng AV Industry Overview
 • Key Trends

 • Industry Growth Drivers

 • SWOT Analysis
Gauteng is perceived as having strong technical skills, with
easy access to both the wider South African and
international skill pools
Human Resources:
                                                                  Skills in the TV
                                Lack of clarity
                                                                 and commercials
                                on the role of
                                MAPPP-SETA                         sectors are
                                                                   world-class



              Gaps exist and                                               There is a need
            industry has yet to                                            for experienced
                conduct a                                                   staff in senior
              comprehensive                                                    positions
                skills audit
                                           Film schools are
                                                helping
                                           producing more
                                              of the skills
                                                needed

              Skills are key to the long-term survival of the industry thus skills development
                                                 is crucial.


    Source: Focus Interviews                             159
Gauteng is strong in technical infrastructure, particularly in
the Auckland Park-Randburg corridor

Distribution of Technical Infrastructure:



• The provincial
  industry is centred
  around the hubs
  created by SABC and
  MultiChoice,
• ICASA has recently
  issued additional
  commercial satellite-
  based subscription
  broadcasting,
• This is bound to put
  additional pressure on
  existing technical
  infrastructure, both at
  a provincial and
  national level.




     Source: GFC Spatial Analysis      160
Gauteng’s public infrastructure is excellent, but rapid
economic growth is putting pressure on the system

Public Infrastructure:

                                                 Johannesburg                  The N1 carries
                                               alone has 9000km              14,000 cars an hour
     OR Tambo                                       of road                  during morning rush
    International
    handled 16m
   passengers last
        year

                                                         Sandton City /
                                                        Nelson Mandela
                                                         Square is the
                                                      largest retail space
                                                        in the southern
      60% of all research                                 Hemisphere
       and development                                                            Gautrain will link
       takes place in the                                                        airport to Sandton,
           province                                                                Rosebank and
                                                                                      Tshwane




                 Strong film-specific and public infrastructure is one of Gauteng’s greatest
                                                  strengths.
    Source: Deloitte Gauteng Market Research                        161
Gauteng has a business environment that is conducive to
the AV industry

Key Statistics:


               • Office and industrial space still amongst the cheapest in
                 the world:
                      • In 2005, office rentals in London were R8500/m2,
                        compared to Johannesburg rates of R780/m2.
               • 78% of SA corporates are based in Johannesburg,
               • Good logistics support - permits, accommodation,
                 transportation, insurance, banking services etc,
               • Johannesburg is the 8th cheapest city to live in:
                      • 136th out of 143 global cities.




                        The province is the heart of South African business and industry.




     Source: Deloitte Gauteng Market Research               162
Safety and security however, have emerged as a key
concern for the industry

Safety and Security:

 • Safety and security have emerged as a key constraint for the provincial AV
   industry,
 • There are two aspects to this issue, both of which impact the competitiveness of
   the industry:
     Perception – There is the perception, both among local and international industry
      players, that Gauteng is particularly dangerous relative to the rest of the country. This
      has negatively affected local companies servicing international productions, who
      continue to lose out to perceived “safer” destinations such at Cape Town.
     Reality – That crime is problematic in South Africa, and Gauteng, is well documented.
      This has directly affected the local provincial AV industry, from a cost and productivity
      point of view e.g. need for security personnel, increased risk to staff, inaccessibility of
      certain locations due to crime concerns, higher insurance premiums etc.
 • Gauteng then is especially vulnerable to negative publicity around crime, which
   could dilute international marketing efforts to promote the province as a
   destination of choice.
 • Going forward, particularly in run up to the 2010 World Cup, the GFC will need
   to develop strategies to mitigate the effect of crime in the province on the
   industry e.g. provision of accurate, objective safety information.

     Source: Deloitte Gauteng Market Research          163
Film budgets in the province rely heavily on subsidies,
incentives and soft loans

Funding:


     • From the Deloitte online survey,
       Gauteng rates relatively poorly with
       regards to funding and incentives,
     • Lack of easy access to finance and
       incentives is a key constraint to
       doing business,
     • The Province has gaps in funding,
       but can leverage off national funding
       mechanisms,
     • No Provincial financial incentives.




                   Access to financing is a key constraint, both nationally and in Gauteng.




    Source: Deloitte Gauteng Market Research              164
Other incentives are available, such as in the Jhb urban
development zone

Thinking beyond ‘traditional’ film incentives:




                  The GFC has a key role in assisting industry in taking advantage of these
                                 incentives by raising awareness of them.



    Source: Deloitte Gauteng Market Research              165
 Gauteng has a good physical environment, not only for
 shooting of films but for post production as well
 Physical Environment:
Title

                                           Advantages:
                                           - Wide variety of scenery, from gritty urban
                                             locations to wide open spaces,
                                           - Particularly strong for New York-type
                                             locations,
                                           - Generally dry all year round, clear and sunny,
                                             which is good for filming and post-
                                             production.
                                           Disadvantages:
                                           - Summer days are shorter than Cape Town,
                                           - Sometimes too dry (dust and static).
                              But filming is only a small part of the film-making process




Source: Deloitte Gauteng Market Research                          166
Sound infrastructure and a conducive business
environment rate as the most important factors for the
local industry
Industry Perception Survey Output:

                                                      Responses to perception survey
             Number of respondents




                                            35
                                            30                                        8    7
                                                                                 12
                                            25                            19
                                                                22   22                                Good/Excellent
                                            20             26
                                                 30   30                                               Weak/Average
                                            15                                        23   25
                                                                                 20                    N/A
                                            10                            11
                                             5                  10   9
                                                           6
                                                 2     3
                                             0
                                                                         s




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                                                                 Industry aspect
                                                                                                No. of respondents = 33


             Lack of incentives and access to funding are highlighted as key weaknesses for
                                               the province.



    Source: Focus Interviews and Online Survey output                      167
Gauteng AV Industry Overview
 • Key Trends

 • Industry Growth Drivers

 • SWOT Analysis
The Gauteng film industry can grow by leveraging its
sound technical infrastructure and domination of the TV
and local commercial market …
Strengths and Weaknesses:

                    Strengths                                     Weaknesses

     • Strong business environment.                 • Safety and security.
     • Strong provincial economy leads to strong    • ‘Gauteng’ is a weaker brand than ‘Cape
       domestic demand for entertainment.             Town’ which is widely known
     • Strong existing local film industry.           internationally.
     • Availability of TV infrastructure capacity   • Lack of provincial incentives and funding.
       e.g. studios, crews and support services.    • Lack of co-ordination between national,
     • TV infrastructure can be expanded to film      provincial and local agencies.
       infrastructure.                              • Lack of distribution outlets for local
     • National tax incentives.                       filmmakers.
     • TV and commercials production business       • Distance from major markets.
       expertise.                                   • Skills exist, but at busy times capacity is
     • Increased tourism profile.                     stretched.




               … while overcoming perceptions around safety and more aggressively
                                    marketing the province.



                                                      169
The industry must also act to grasp opportunities by
focusing on creating a ‘film-friendly’ environment

SWOT:

               Opportunities                                         Threats

  • Digitisation – province has advanced           • Low-cost destinations in South America and
    communications network and industry will         Eastern Europe.
    benefit from reduced cost of filming.          • Digitisation requires capital investment and
  • Hub for productions shooting in remote           coordination; other locations may implement
    locations (particularly in Africa).              rapid digistisation quicker than Gauteng.
  • Development of Gauteng specific AV policies.   • Increased film activity in other provinces.
  • Favourable exchange rate.                      • Development of advanced post-production
  • Development of technological expertise and       infrastructure in other provinces e.g.
    infrastructure.                                  Dreamworld.
  • Capitalising on 2010 Soccer World Cup.
  • National tax incentives developed for local
    production.
  • Development of training and development
    programmes.
  • Development of the distribution sector.
  • Use of new business and financing models.
  • Building on growth areas such as animation.
  • Dreamworld will bring in more international
    productions into SA, and Gauteng can benefit
    from providing services.


                                                      170
The challenge for the industry is how to effectively address
the constraints it faces, so it can unlock the province’s
growth potential
Summary:

   • As South Africa’s key economic hub, the province has a wealthy,
     growing population hungry for entertainment, which provides a
     ready audience for both local and international content.
   • Gauteng is already a leader in sections of the AV industry, with
     television emerging as the province’s key strength, followed by local
     production of commercials and film.
   • Technical infrastructure emerges as the province’s competitive
     edge, and this can be leveraged to benefit from AV activity in other
     regions and neighbouring countries, as South Africa is increasingly used a
     location for international AV productions.
   • The province is well positioned to expand into new high-growth
     areas - there are significant opportunities in new technologies such as
     digitisation and animation, as well as in the shift to alternative content
     delivery channels e.g. internet, DVD, handheld devices etc.
   • Continued growth of the provincial industry is likely, but constraints
     such as difficulty accessing funding and distribution channels, skills
     shortages and concerns about safety and security may dampen growth.


                                                171
High-Level Strategic Recommendations
Optimal Role of the GFC to best Position the
Gauteng AV industry for Growth
  A visionary strategy provides the platform for rapid
  growth

High-Impact Strategic Approaches:

                                                                                     Vision of where we
                                                                                     need to be five years
                                                                                     from now
                     Where can we be
                     next year?
GOAL




                                                                  GOAL
                                                       Versus
                                                                                         Actions driven by
                                      Actions taken
       Where we                       in response to                     Where are       strategy
       are now?                       circumstances                      we now?

                          TIME                                                         TIME

             Incrementalism                                                        Vision
       [One reason why companies                                                    Focus
          [Leads to stagnation]                                            [Leads to rapid growth]
                stagnate]                                             [One reason why companies grow]

                 “Incremental                                                 “Disruptive innovation”
               innovation” is the                                             provides the opportunity
              process of making a                                             to create something new
               few things slightly                                              and create explosive
                     better                                                            growth
       Source: Deloitte Gauteng Market Research                 173
The principles of good strategy highlight the importance
of government supporting activities rather than
individual firms or projects
Principles of Good Strategy:
 • 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.




     Source: Deloitte Gauteng Market Research   174
The GFC’s mandate aligns to these principles and does not
mandate case-by-case interventions, instead focusing on
‘public goods’
GFC Mandate:

   •   To promote Gauteng as a preferred film destination
   •   To facilitate transformation of the film industry
   •   To regulate and co-ordinate inter-government communication of permit
       issuance, code of conducts, municipal by-laws and risk management factors
       through the development and implementation of provincial film policy
   •   To facilitate, support and promote new investment in film production within
       Gauteng thereby contribute to economic growth and sustainable job creation
   •   To create and manage a repository of statistical and industry related
       information
   •   To monitor and support local industry developments
   •   With the approval of the MEC and Board, to provide finance for any projects
       which will develop filming in the Province
   •   To develop strategic and business partnership and other co-operative
       activities with the filming and television industry both locally and
       internationally
   •   To support greater access to and participation in the film and television
       industry by Previously Disadvantaged Individuals (PDI).

       Source: GFC Business Plan (MEFS) 2007 – 2010
                                                      175
In line with its mandate, the GFC is focusing on supporting
activities that benefit the whole industry, not one or two
players
GFC Core Functions:


                            Marketing Gauteng as a location of choice.

           Acting as a centralised industry intelligence hub and resource.

     Working with, and providing advice to, industry, government agencies
      and other key stakeholders to support the development and growth
                     of a sustainable audio-visual industry.

           Promoting and celebrating an active screen culture across the
                                     Province.
            Supporting the transformation of the sector into a world-class
              industry and that is reflective of South Africa in its entirety.

                   The challenge however lies in translating its mandate into successful
                                              interventions.


    Source: GFC Business Plan (MEFS) 2007 – 2010
                                                          176
To successfully execute its mandate, we recommend the GFC
focus on five key areas to sustainably grow the industry

High-level Strategic Recommendations:

    Holistic            • Develop accessibility to Gauteng specific financial mechanisms e.g. a
    packaging of          regional fund,
                        • Improve logistics support,
1   Gauteng as a
                        • Facilitate easy access to varied locations,
    Location of         • Assist the establishment of state-of-the infrastructure,
    Choice              • Support the development of technical expertise.


    Facilitate          • Attract local and foreign productions through incentives and availability of
    synergies             finance. Incentives should focus on building industry e.g. incentives for
    between               skills transfer,
2   attracting          • Facilitate the building of basic infrastructure for production,
    international       • Support the training of below-the-line cast and crew,
                        • Develop studios, sound stages, recording studios etc,
    productions and
                        • Encourage equity investments,
    growing the local   • Develop production clusters.
    industry

    Lobby for           • Industry benefits from greater coordination and integration,
    greater national    • Ensure clarity on roles,
                        • Deliver according to national, regional and local needs.
3   coordination and
    institutional
    reform


                                                        177
To meet its mandate, we recommend that the GFC focus on
five key areas to sustainably grow the industry (cont.)

Strategic Recommendations:


                        • Developing Industry Partnerships,
                        • Funding and incentives support,
                        • Training and development assistance,
4   Define the          • Lobbying,
    Strategic Role of   • Monitoring and evaluation,
    the GFC             • Building of a screen culture,
                        • Facilitate the development and availability of state of the art facilities and
                          equipment,
                        • Support the industry in the development of new content delivery windows.



                        • Long-term strategy to reduce dependency on government and provide
5   Explore               value-added services to industry,
    Alternative         • For specific projects, leverage private funds rather than committing
    Models for the        government money.
    Funding of GFC




              Our recommendations highlight the need for the GFC to take a focused
               approach to stimulating activities that will benefit the film industry.


                                                          178
    To compete successfully and be a leading destination
1   of choice, Gauteng needs to offer the industry a
    holistic package
The Gauteng Advantage:

        Access to differentiated Gauteng specific financial incentives e.g.
        •   Availability of regional specific funding mechanisms,
        •   Loan guarantees,
        •   Low interest loans,
        •   Government grants,
        •   Private equity etc.



        Reduced filming cost and hassle through sound logistics support e.g.
        •Free / subsidised government services,
        •Reduction in bureaucracy.
        •Provision of safety and security measures etc


        Easily accessible and varied locations




        Availability of state-of-the-art technical infrastructure:
        •   Can help reduce production costs.




        Availability of technical expertise:
        •Including practitioners with skills in digital and animation technology.




       The GFC needs to take the lead in coordinating the development of a holistic
                                package for the industry.

                                                                           179
    Bearing in mind that the international industry has
2   potential to generate high revenues within the
    province ...
Case Studies:

                                 Home-grown with Gauteng as location:
                                 • Pre-production: SA Story idea from Athol Fugard’s novel
                                 • Production: SA, including actors, director etc.
                                 • Post-production: SA
                ...
                                 • Distribution: International

                                 •   Production budget: $3m
                                 •   Spent in Gauteng: R21m
                                 •   Earned: $5m
                                 •   Raised profile of SA and Gauteng industry

                                 Foreign-originated film shot in Gauteng:
                                 • Pre-production: US
                                 • Production: location SA, some SA actors, rest US
                                 • Post-production: US / SA
                ...              • Distribution: US

                                 • Production budget: $17,5 m
                                 • Spent in Gauteng: + R150m
                                 • Earned: $23,5 m
    Source: Deloitte Gauteng Market Research                  180
... sustainable growth in the province could be achieved by
exploiting the synergies between the local and
international AV industries
Industry Approach:
                                                      High growth potential: Develop local AV
 • Benefits of Foreign production: Once-
                                                      industry and leverage strengths (e.g. post-
   off economic impact with potential
   spin-offs e.g. Hotel Rwanda (R200m)                production capacity) to attract big foreign
 • Benefits of Domestic production:                   players. Local industry benefits from increased
   Broad economic impact (multiplier of 2             revenue and better facilities (AusFilm model).
   – 2.5) e.g. Jozi H led to the creation of
   500 jobs
                                                                             Grow the service industry
                                                                             for foreign films; high but
       Hybrid Approach                                                       sporadic revenue.
       Grow the International
       (Servicing) Industry
                                                                                    Develop and
       Grow the Local AV                                                            support local
       Industry                                                                     industry through
                                                                                    range of directed
                                                                                    initiatives.



                  The optimal positioning for Gauteng may be to expand its local production
                            market to service international productions as well.



                                                          181
The GFC would need to tailor its functions to meet the
different needs of both the international and local industries

Industry Requirements:
  • Local AV industry requirements:
       Skilled resources,
       Access to marketing opportunities,
       Access to finance,
       Access to distribution channels.
  • Additional international AV industry needs:
       Access to financing and incentives e.g. rebates,
       Logistic support (permits, locations assistance etc),
       Understanding of the complexities of the local market e.g.
        labour legislation,
       Assistance with interacting with role players at national,
        regional and local level.

        The GFC needs to ensure that that it effectively balances its support for attracting
                  international films and growing the local Gauteng industry.

    Source: Deloitte Gauteng Market Research            182
    An analysis of the provincial landscape suggests a lack of
3   institutional capacity at local level, with overlap at
    national level
Institutional Alignment:
                                                                             Metros and
                                                         GFC         NFVF
                                                                            Municipalities
                                                                                             High focus
      Market as a location of choice
                                                                                             Neutral

      Act as a centralised industry intelligence hub                                         Low focus
      and resource centre


      Work with, and provide advice and support to,
      industry, government agencies and other key
      stakeholders

      Promote and celebrate an active screen culture
      across region


      Support the transformation of the sector into a
      world-class industry that is reflective of South
      Africa in its entirety

      Act as a permitting office for the region



      Assist in the sourcing of finance for any
      projects which will develop filming in the
      province




                      Significant areas of overlap exist between different institutions.


    Source: Deloitte Gauteng Market Research                   183
The GFC is one of a number of bodies supporting the AV
industry, as part of the province’s strategy to drive economic
growth
Stakeholder Relationships:

               Industry
                                                                                     OTHER
                                                                    DAC            DEPARTMENTS

                                                                    DTI
                                               AV                                                         National and
                                             Industry
                                                                    NFVF
                                                                                   Strategies: ASGI-SA,
                                                                                        Incentives,
                                                                                                          local
                                                                                      Microeconomic       government
                                                                                       Development
                                                                    Industry
                                                                                         Strategy
                                                                    groups:
                                                                    IPO CPA




                                                                    DED

                     Provincial
                     government                             Strategy: Provincial
                                                            Economic strategy



         A complex institutional environment can make it difficult to coordinate industry
            growth. The GFC should be an interface for the industry, rather than being
                                  another layer of bureaucracy.
    Source: Deloitte Gauteng Market Research and Focus Interviews          184
                                  An institutional structure that contains national, regional
                                  and local structures would benefit from greater co-
                                  ordination and integration …
   Proposed Institutional Structure:
     e.g. NFVF?
     National




                                                                                             National Film
                                                                                             Commission
Local e.g. Ekhuruleni Regional e.g. Gauteng




                                                           Regional                             Regional                           Regional
                                                       Film Commission                      Film Commission                    Film Commission




                                                                                              Local          Local    Local       Local     Local
                                              Local      Local       Local         Local
                                                                                               Film           Film     Film        Film      Film
                                               Film       Film        Film          Film
                                                                                              Office         Office   Office      Office    Office
                                              Office     Office      Office        Office




                                                                              Supporting Agencies/Organisation


                                                       … as well as gaining from clarity on roles and the ability to deliver at the
                                                                                  appropriate level.

                                                                                                       185
    The GFC needs to play an increasingly strategic role in
4   growing the provincial AV industry, even as it fulfils its
    stated mandate
Proposed GFC Role:

    GFC Mandate                                              Best Practice



                            • Destination Marketing
                            • Strategic Industry
                              Partnerships
                            • Funding and Incentives
       • Industry           • Training and Development
         Transformation                                  • Monitoring and
                            • Policy Development and
       • Industry             Implementation               Evaluation
         Intelligence Hub
                            • Lobbying
                            • Logistics Support
                            • Audience Development
                            • Technology




                                “Overlap”
                                              186
 This role however will need to evolve in line with the
 demands of its rapidly changing operating environment

Evolving Role:

              TREND                        GFC RESPONSE / ROLE

                               • Actively build a screen culture in underserviced
        Declining Box Office     areas/demographics and support the development of
            Attendance           alternative content delivery channels.


                               • Facilitate the development of technical infrastructure and
            Digitisation         expertise as the industry becomes increasingly digitised
                                 and new technologies emerge.


                               • Support the industry to develop new content delivery
         Changing business       windows.
              Models


                               • Promote the development of a variety of funding models
        Shift in Production      from both public and private sources.
         Funding Models




                                              187
 The GFC needs to strategically drive the creation of a film-
 friendly environment in Gauteng

Proposed Role of GFC:

                                                     Marketing              Development of a Film
                                            • International - National
                                            • Domestic - Provincial
                                                                                   Culture




               Policy Development
                                                                                                       Logistics Support




                                                                Role of Film
       Industry Partnerships                                   Commissions                                  Human Resources
                                                                                                        • Support the development
                                                                                                          of skilled human resources




             Funding and Incentives
           • Develop the local industry
             by attracting productions
                                                                                                           Lobbying




                                                   Technology
            GFC                            • Facilitate availabilty of
 National (Regional) Local                   state-of-the art technology
                                             to attract production and     Monitoring and Evaluation
                                             post-production acitvities



        Source: Deloitte Best Practice Research                              188
      Though the GFC is fully government funded, it could
5     consider other funding options to reduce its
      dependence on government grants
Alternative GFC Revenue Model:
                                                                                         “Self-generated funds
                                                                                          could be obtained by
                                                                                       charging fees for services
                                                                                           and … a fee-paying
                                           GFC                                             membership base”




                                                                                       “Though self-generated
     100%                                                                     100%     funding is not viable at
                                                                                       present, sales of permits
     Public                                                                  Private   or levies on movie tickets
    funding                                                                  funding   are a future option”

                               • 5% self-generation of funding
                                 e.g. fees for resource centre
                                 information
                                                                                        “Public-private
                               • 10% institutional funding e.g.
                                                                                        partnerships… could raise
                                 IDC
                                                                                        funds to be used for
                                                                                        specific projects”
       Increasing self-generation of funds and institutional funding




    However, given the GFC’s mandate, it is likely to remain primarily government funded in the
                                            short-term.



       Source: Deloitte Gauteng Market Research and Focus Interviews   189
In conclusion, Gauteng film industry has the potential to be
a significant economic force with the right strategy in place

Key considerations for a film sector development strategy:

        • Build on the strong already-existing base of TV,
          commercials and local film: Gauteng is already a leader in
          sections of the AV industry.
        • Focus on its value proposition: Where can the GFC add
          greatest value to industry?
        • Assist the industry in developing new markets: Explore
          options for film, TV and commercials.
        • Support activities rather than specific projects.
        • Align provincial strategy to national strategies: The GFC
          strategy should align with national AV sector strategies, the
          Media/Entertainment Sector strategy and overall Economic
          strategy of the province.



         GFC has within its grasp the opportunity to make a meaningful contribution to
                                   the Province’s AV industry.



                                                   190
Thank You!
Appendices
 I.   Charters

 II. References

 III. Supporting Documentation
Appendices
 I.   Charters

 II. References

 III. Supporting Documentation
 We developed an overall project charter that outlined the
 project’s key objectives, activities and deliverables
Project Charter:
             Objectives                                  Key Activities                                Deliverable
• To acquire sound market intelligence on                                                 • Key research and analysis findings,
                                             • Review existing client documentation
  the local and international audio-visual                                                  including:
                                               and other available data:
  markets:                                                                                      • Global trends, best practices and
                                                   • Identify gaps
    • Comprehensive overview of the SA and                                                        industry benchmarks
                                             • Analysis of the SA audio-visual
      Gauteng audio-visual industries                                                           • Overview of the Gauteng and SA
    • Global trends, best practices and        market:
                                                                                                  audio-visual markets
      industry benchmarks                          •   Operating landscape
                                                   •   Regulatory environment             • Gauteng audio-visual industry sector
• To assess the competitiveness of the                                                      competitiveness assessment
                                                   •   Incentives and Financing
  Gauteng audio-visual industry:                                                          • High-level strategic recommendations:
                                                   •   SWOT
    • SWOT and Critical Success Factors
                                             •   Analysis of the Gauteng audio-visual           • Optimum positioning of the Gauteng
• To make strategic recommendations to                                                            audio-visual film industry
                                                 market:
  the GFC:                                                                                      • Optimal role of the GFC
                                                   • Market activity
    • Optimum positioning of the Gauteng
                                                   • Market supply (facilities, skills,
      audio-visual film industry
                                                     infrastructure, funding etc)
    • Optimal role of the GFC
                                                   • Competitive positioning
                                                   • “As-Is” review of the GFC
                                                                                                   Project Sponsor
  Critical Success Factors                         • SWOT
                                             • Review global trends, best practice        • Jacques Stoltz, Senior Marketing
• Access to, and availability of, data:        and industry benchmarks:                     Manager
     • GFC documentation, benchmarking             • Competitor countries /destinations
       data etc                                    • Other Film Commissions / Offices            Project Resources
• Availability of GFC resources                    • Critical success factors
                                                                                                     (Deloitte)
• Support from GFC management to             • Prioritise and validate key issues and
  expedite decision making                     potential opportunities (Steercom)         •   1 x Project Director
• Sound planning and effective time          • Consolidate findings and outcomes for      •   1 x Project Manager
  management                                   submission to GFC Board                    •   1 x 3 Consultants
• Integration of work streams                                                             •   2 x Subject Matter Experts (SME’s)
• Access to key stakeholders                                                              •   Global Research Center (GRC) Support


                                                                              194
 Stream Charter: Gauteng Market Analysis

Stream Charter:
              Objectives                                   Key Activities                                    Deliverable

• To conduct a comprehensive overview            • Develop work stream story board               • Comprehensive overview of the
  of the Gauteng audio-visual market                  • Develop issue based hypothesis to          Gauteng udio-visual industry
• To assess the competitiveness of the                  guide research on the Gauteng                 • Market activity and facilities
  Gauteng audio-visual market                           audio-visual industry                         • Market demand and supply
     •   Identify key challenges and potential   • Review existing client documentation               • Competitive positioning
         opportunities                             and other available data                           • Skills and resource availability
• To conduct a strategic review of the                • Identify gaps                                 • Local industry expectations and
  GFC and its operations                         • Perform desktop research                             requirements
                                                 • Identify industry players                          • Key challenges and opportunities
     •   Role and value proposition
                                                 • Conduct interviews with industry              • Overview of the GFC
• Make strategic recommendations
                                                   players                                            • Mandate and role
  (high-level):                                                                                       • Structure
     •   Critical success factors for both the        • Set up detailed questionnaires
                                                 • Review of information obtained                     • Operations and activities
         Gauteng audio-visiual industry and
                                                      • Evaluate findings                             • Value proposition
         the GFC
                                                                                                      • Key challenges and opportunities
                                                 • Analysis of the Gauteng audio-visual
                                                                                                 • High-level strategic recommendations
                                                   market
  Critical Success Factors                            • Establish competitive positioning
                                                      • Evaluate GFC against similar bodies
• Access to, and availability of, reliable            • Evaluate findings against global best
                                                                                                       Stream Resources
  statistical data                                      practice                                           (Deloitte)
• Comparability of different sources of          • GFC “As-Is” analysis
                                                                                                 • 1 x Deloitte Consultant
  data                                           • Develop detailed SWOT analysis
                                                      • Prioritise and validate key issues and
                                                                                                 • 2 x SME’s
• Availability of GFC resources
• Sound planning and effective time                     potential opportunities
  management                                     • Present insights from research to
• Integration with other work streams              project team for review
• Access to key stakeholders                     • Integrate stream output into final
                                                   project deliverable


                                                                                195
 Stream Charter: South Africa Market Analysis

Stream Charter:
             Objectives                                    Key Activities                                Deliverable

• To conduct a comprehensive overview            • Develop work stream story board           • Comprehensive overview of the SA
  of the South African audio-visual                   • Develop issue based hypothesis         audio-visual industry.
  market:                                                 to guide research on SA market          • Current competitive framework in
     •   Identify key challenges and potential   • Review of current information,                   terms of skill and facilities
         threats                                   including available information from           • Current complementary and
• Make high-level strategic                        GFC                                              competitive activities in SA
  recommendations                                     • Identify gaps                             • Current level of demand in SA
     •   How to leverage the strengths of,       • Identify industry players and similar          • Current competitive positioning in the
         and opportunities within, the             bodies to GFC                                    SA market
         national audio-visual industry          • Conduct desktop research                  • Overview of sector competitiveness
                                                 • Design and conduct focus interviews         outlining key challenges and potential
                                                 • Collate , evaluate and analyse findings
                                                                                               opportunities
                                                 • Analyse the SA audio-visual market
                                                                                             • High-level strategic recommendations
                                                 • Establish the competitive framework
                                                   on a national level
                                                 • Identify competitive positioning
  Critical Success Factors                       • Analyse regulatory environment,
                                                   incentive schemes and funding
                                                 • Develop detailed SWOT analysis
• Access to, and availability of, data           • Prioritise and validate key issues and
                                                                                                   Stream Resources
• Availability of GFC resources                    potential opportunities                             (Deloitte)
• Sound planning and effective time              • Identify critical success factors
                                                                                             • 1 x Deloitte Consultant
  management                                     • Present insights from research to the
                                                   project team for review                   • 2 x SME’s
• Integration with other work streams
• Access to key stakeholders                     • Integrate stream output into final
                                                   project deliverable




                                                                             196
Stream Charter: Best Practice


Stream Charter:
             Objectives                                    Key Activities                                  Deliverable
                                                 • Develop work stream story board              • Global trends, best practices and
• To review global trends, best
                                                      • Develop issue based hypothesis to         industry benchmarks:
  practices and industry benchmarks:
                                                        guide research on global trends, best        • Film Offices
     •   Film Commissions/Offices
                                                        practice and industry benchmarks             • Audio-visual industries
     •   Competitor countries and
         destinations
                                                 • Review existing client documentation         • An overall assessment of factors to:
                                                   and other available data:                         • Enable the GFO to be a leader in
• To identify opportunities and
                                                      • Identify gaps                                  the audio-visual industry
  challenges
                                                 • Draft research brief to be used by the            • Make the Gauteng region a
• Make strategic recommendations                                                                       destination of choice
  (high-level):                                    GRC & BICS:
                                                      • Contact GRC & BICS and                  • Strategic recommendations (high-
     •   Critical success factors for both the
                                                        commission research                       level)
         Gauteng audio-visual industry and
         the GFC                                 • Conduct desktop research
                                                 • Conduct focus interviews with key
                                                   industry experts (DTT)
                                                 • Review information obtained:
  Critical Success Factors                            • Identify best practice, trends and
                                                        benchmarks
• Timely and comprehensive                            • Identify challenges and opportunities
                                                        for the Gauteng Film Commission &
                                                                                                      Stream Resources
  identification of data requirements
• Maintain constant contact with the                    Gauteng audio-visual industry                     (Deloitte)
  GRC & BICS to ensure that relevant             • Identify performance measures used
  information is obtained                          by global:
• Timely feedback and support from                    • Film offices                            • 1 x Deloitte Consultant
                                                      • Audio-visual industries                 • 2 x SME’s
  the GRC & BICS
                                                 • Identify critical success factors            • GRC Support
• Access to, and availability of, local
                                                 • Present insights from research to the
  industry data
                                                   project team for review
• Sound planning and effective time
                                                 • Integrate work stream output into final
  management
                                                   project deliverable
• Integration with other work streams

                                                                                  197
Appendices
 I.   Charters

 II. References

 III. Supporting Documentation
References


1. American Film Market Website (2007)
   www.afma.com
2. Animation Production Training Initiative Website(2007)
   www.anamazing.co.za
3. Andalucia Film Commission Website (2007)
   www.andaluciafilm.com
4. Animation School Review Website (2007)
   www.animationschoolreview.com
5. Associated Press Newswires (2005): ‘Mexico Exchange Rate Favours Foreigners’
   www.ap.org
6. Audio-visual Federation Review (2006): ‘Film and Television Production in Ireland’
7. Australian Film Commission Website (2006): ‘The Economic Contribution of a Film
   Project’, 2006
8. Australia Film Commission Website (2007): National Survey of Feature Film and TV
   Drama Production, 2005/2006
   www.afc.gov.au
9. Australia Film Commission Website (2007): Fast Facts, 2006
   www.afc.gov.au

                                                  199
References


10. Australia Film Commission Website (2007): Corporate Plan, 2006/07-2008/09
    www.afc.gov.au
11. Australia Film Commission Website (2007): Report on State Owned Enterprises by
    the Minister of Arts and Sport
    www.afc.gov.au
12. Australia Film Commission Website (2007): Service Charter, 2006
    www.afc.gov.au
13. Australia Film Commission Website (2007): Annual Report, 2005/06
    www.afc.gov.au
14. Australia Film Commission Website (2007): ‘Statement of Intent by the Australian
    Film Commission for the Minister of Arts and Sports’
    www.afc.gov.au
15. Australia Film Commission Website (2007): ‘About the AFC’s Film Development
    Funding Programs’
    www.afc.gov.au




                                                200
References



16. Australia Film Commission Website (2007): National Survey of Feature Film and
   TV Drama Production, 2005/06
   www.afc.gov.au
17. Australia Film Commission Website (2007): Australia’s audio-visual Markets
    www.afc.gov.au
18. Australia Film Commission Website (2007): Film Agency Funding in Australia
    www.afc.gov.au
19. Australia Film Commission Website (2007): The Economic Contribution of a Film
    Project
    www.afc.gov.au
20. Australia Film Commission Website (2007): AusFilm Fact Sheet on Incentives
    www.afc.gov.au
21. New York Film and TV Office Website (2007) Boston Consulting Group
    Presentation: ‘New York Visual Media Industry and the Digital Age’ ,2000
    www.nyc.gov
22. California Film Commission Website
    www.film.ca.gov




                                                201
References



 23. Cape Film Commission Website
     www.capefilmcommission.co.za
 24. Centre for Justice and Crime Prevention Website (2007):’Crime and Victimisation
     Mapping Tool’,
     http://www.cjcp.org.za
 25. CineEuropa Website, www.cineuropa.org
 26. Commercial Producers Association (CPA) Industry Surveys, 2005 - 2006
 27. Community, Social and Personal Services Industry Survey: ‘Gauteng Motion Picture
     Statistics’, www.statssa.gov.za
 28. Deloitte (2007): ‘The Digital Turn On, 2007’
 29. Deloitte (2006): ‘Overview of the Film Sector in the United Kingdom, 2006’
 30. Deloitte (2007): ‘Movies and Music Quarterly Industry Report, 3rd Quarter,
     2006’
 31. Deloitte (2003): ‘Understanding the Business of Hollywood, 2003’
 32. Department of Arts and Culture: ‘Cultural Industries Growth Strategy, 1998’
 33. Department of Trade and Industry: ‘CSP Report, 2005’
 34. Department of Trade and Industry: ‘Film and Television Production Rebate Guidelines’
 35. Department of Trade and Industry South Africa (2005): ‘Film and TV Sector
     Development Strategy, 2005’
 36. Durban Film Office Website, www.durbanfilmoffice.co.za
                                                   202
References



 37. Durban Film Office: ‘KwaZulu Natal Film Commission Draft Business Plan 2005 –
     2008’
 38. Evolution Research Solutions (2005): ‘Commercial Producers Industry Survey’,
     2005
 39. Evolution Research Solutions (2006): ‘Commercial Producers Industry Survey’,
     2006
 40. European Observatory (2006): ‘World Market Film Trends Focus, 2006’
 41. European Observatory (2006: ‘Public Aid Mechanisms for the Film and the
     Audiovisual Industries in Europe’
 42. Film LA Annual Report 2006
 43. Film LA Inc Website, www.eidc.com
 44. Film New Mexico Website
     www.nmfilm.com
 45. Filmmaker South Africa (2007): ‘Animation, the Next Big Break?’, 2007
     www.filmmaker.co.za
 46. www.findarticles.com
 47. Financial Express Website
     www.financialexpress.com


                                              203
References



48. Galicia Film Commission Website
    www.filmcommissiongalicia.org
49. Gauteng Film Commission (2007): ‘Spatial Analysis’, 2007
50. Gauteng Film Commission (2007): ‘Business Plan - Medium Term Expenditure
    Framework Submission 2007-2010’
51. Harvard Business School website
    www.hbs.edu
52. Hollywood Reporter (2007): ‘IRS Ruling Stings Film Production, 2007’
53. Hollywood Reporter (2006): ‘Location Spotlight - Mexico Locations, 2006’
54. Institute of Security Services Website
   www.iss.co.za
55. Internet Movie Database Professional (2007): ‘Internet Movie Statistics’, 2007
   www.imdpro.com
56. Irish Department of Arts, Sports and Tourism Report 2005
57. Irish Film Board Website
58. Japan Economic Monthly (2005): ‘Japan Animation Industry Trends’, 2005




                                                    204
References



 59. Lotteries Act, 1997: Regulations Relating to Allocation of Money in National Lottery
     Distribution Trust Fund
 60. Los Angeles County Economic Development Corporation website
    www.laedc.org
 61. Los Angeles Times (2006): ‘New York is Making a Comeback As Film
    Production Ramps Up’, 2006
 62. Los Angeles Times Website
    www.latimes.com
 63. Madrid Film Commission Website
    www.madridfilmcommission.com
 64. MAPPP SETA ’Sectors Skills Update 2008/9’ v.1
 65. Marketing Mix Volume 25 Issue No. 1 / 2
 66. Motion Picture Association (2006): U.S. Theatrical Market Statistic Report,
    2006
 67. Monitor Report 2001, US Runaway Film and Television Production Study Report
 68. National Productivity Institute (2007): ‘South Africa’s 2007 Standing in World
    Competitiveness’, 2007
 69. New Jersey Economic Development Authority - Film Production Assistance in New
    Jersey
                                                    205
References




 70. New Jersey Film Website
    www.njeda.com
 71. New Mexico Economic Development Department Website
    www.newmexicodevelopment.com
 72. Producers Masterguide Film Production Directory and Guideline, 2005
    New York Film and TV Office Website
    www.nyc.gov
 73. Oxford Economic Forecasting (2004): ‘Economic Contribution of the UK Film
    Industry, 2004’
 74. PriceWaterHouse Global Entertainment and Media Outlook, 2006-2010
    www.researchandmarkets.com
 75. Screen Africa Website
    www.screenafrica.co.za
 76. Screen Africa News Volume 19 March 2007
 77. Sithengi Website
    www.sithengi.co.za



                                                  206
References



 78. South African Advertising Research Foundation (2007): ‘All Media and Products
    Survey’
    www.saarf.co.za
 79. South African Gateway Website
    www.southafrica.info
 80. South African Federation Against Copyright Theft (SAFACT) website: Piracy
    Figures 2006, http://www.safact.co.za/statistics.htm
 81. South African Labour and Development Research Unit (2006): ‘The South
    African Feature Film Industry: Comparative Analysis’, 2006
 82. Statistics South Africa (2001): ‘Census 2001’
 83. Statistics South Africa (2007): ‘Gross Domestic Product 2006’
 84. Strategic Economic Solutions (2006): ‘A Strategic Economic Analysis of the
    Cape Town and Western Cape Film Industry’, 2006
 85. Reed Business Information website
    www.reedbusiness.com
 86. Tenerife Film Commission Website, www.tenerifefilm.com
 87. The Economist (2006): ‘Nollywood Dreams – Nigeria’s Film Industry, 2006’
 89. The Film Makers Guide to South Africa, 2007

                                                     207
References


90. The Times web article, ‘Joburg is World’s 8th Cheapest City’, 20th June 2007
   www.thetimes.co.za
91. Trade and Industry Monitor: ‘Microeconomic Development Strategy for the
   South African Film Sector’
92. United Kingdom Film Council Annual Report 2006
93. United Kingdom Film Council Website
   www.ukfilmcouncil.co.uk
94. United States Department of Labour Website
   www.dol.gov
95. United States Entertainment Industry (2006): Market Statistics, 2006
   Value Based Management Website
   www.valuebasedmanagement.net/methodsbcgmatrix.html
96. Western Cape Department of Economic Development and Tourism (2005): ‘Film
   Sector 2005 Western Cape Micro Economic Development Strategy’, 2005
97. Western Cape Trade and Investment Promotion Agency: ‘Film and Multimedia
   Sector Brief 2005 – 2006’
98. Wikipedia Website
   www.wikipedia.org
99. Wall Street Journal (2004): ‘Private Equity Goes Hollywood’, 2004
                                                      208
Appendices
 I.   Charters

 II. References

 III. Supporting Documentation
The audio-visual industry value chain contains value
enhancing activities and role players that stimulate the
growth of the industry (cont.)
Detailed Value Chain:




      Source: Deloitte Best Practice Research   210
A number of other potential benchmark countries were also
considered


Comparator Countries:
  Brazil                • Similar to Mexico i.e. representative of Latin America.


  Canada                • A mature industry, similar to the UK. The UK however was selected due to language
                          similarities, closer time zone, ease of access to data and an interlinked history with
                          South Africa.
  Colombia              • Questions regarding the legitimacy of sources of funding/financing.

  Croatia               • Primarily competing from a location point of view, rather than from a ‘holistic package’
                          basis.
  Dubai                 • The investment in Studio City an initiative of the Crown Prince rather than government
                          per se. Industry at a very early developmental stage.

  India                 • Strong domestic market characterised by high volumes of sometimes poor quality
                          content.
  Nigeria               • Characterised by high volume but fairly poor quality content; not in line with GFC’s
                          aspirations for the local industry. Lessons to be learnt from distribution model i.e.
                          made-for-video/DVD content.



           Gauteng aspires to establish a flourishing high quality audio-visual industry.




     Source: Key GFC Stakeholders and Industry Experts           211
All the countries we reviewed provide support for funding and
are focused on promoting their locations

Different Roles of Film Commissions:

          Australia (National)                                        United Kingdom (National)
 • Funding of script development and production                   • Promotion of the UK film industry in the global market
 • Input into skills development, investment, exports and         • Development of distinctive UK films
   R&D government policy development                              • Promote distribution and reach to more audiences
 • Support to screen culture development                          • Support appropriate training of talented youth
 • Promotion of use of digital platforms                          • Support to make people appreciate UK films and film
 • audio-visual archiving                                           making
                                                                  • Development for access to cinema history and heritage


        United States (State)                                           Spain (National)
 •   Assistance with location selection and permits               • Promotion and development of film, audio-visual and
 •   Post-production assistance                                     multimedia production
 •   Support for the acquisition of film resources                • Promotion of Spain as a location for productions
 •   Development of guidelines for filming in their areas         • Coordination, cooperation and collaboration of activities
 •   Financial incentives                                           of film commissions and offices operating in Spain
 •   Internships                                                  • Facilitating formal debates on the industry
 •   Liaison with communities and government
 •   Labour relations assistance

           Mexico (National)                                           Ireland (National)
 • ......
  • Promotion of the high quality domestic productions            • Funds development and production of Irish films
      Promotion of the distribution of Mexican films nationally
 •• ......                                                        • Location promotion
      and internationally                                         • Ensuring that Ireland is film friendly
  • Facilitating contact of producers with government agencies    • Partners with other government agencies to market, sale
      that support production                                       and distribute films and for training and development
  • Advises foreign film producers on licenses, customs and       • Creation of employment is a criterion for approval of
      import regulations, fiscal matters etc.                       applications for funds

                      Source: Deloitte Best Practice Research
                                                                      212
Film Commissions typically have mandates that are
developed by government in consultation with key
industry stakeholders
Mandate Development:

                                       Minister of Sports and Arts and the
                                       Department of Communication,
   Australia                           Information, Technology and Arts
                                       developed the mandate.




                                          Various representatives involved:
                                          • The entertainment industry,
       Los                                • Labour and trade,
     Angeles                              • Local businesses,
                                          • Civic and community bodies etc.




    Source: Deloitte Best Practice Research                       213
The Madrid Film Commission is funded by a variety of
public sector organisations

Revenue Model: Madrid Film Commission



      Its sponsors include:
         • The Entity for the Management of the Rights of Audio-visual
           Producers
         • The Federation of Spanish Audio-visual Producers
           Associations
         • The Society of Filming, Cinema and Television Commissioners
         • The Community of Madrid Culture and Sports Commission
         • Madrid City Council Arts Commission




        This encourages the Madrid Film Commission to work closely with the other
                          institutions to advance its objectives.




          Source: Deloitte Best Practice Research
                                                    214
Effective performance management, including monitoring
and reporting, ensures accountability in Film Commission
operations
Accountability:
             The AFC Has Developed a Service Charter to Instil Accountability

                            •   The AFC’s current Service Charter describes the range of services and service
                                standards that clients can expect. The AFC has recently revised its Service Charter to
   Service                      consolidate the previously separate Service Charters of the AFC and the NFSA into one
   charter                      document.

                            •   In 2005/06 the AFC recorded 19 formal compliments for its service standards and over
                                370 ‘informal’ compliments in the form of emails and telephone calls. Four complaints
                                were recorded against the service charter.

                            •   In providing financial assistance and grants to organizations in the screen industry, the
                                AFC is publicly accountable under various Commonwealth Acts, codes and protocols.
                                These include (but is not limited to) the Australian Film Commission Act 1975 and the
                                Commonwealth Authorities and Companies Act 1997.
      AFC
   Corporate                •   These Guidelines are intended to assist AFC-funded organizations to identify and
  Governance                    implement better governance policies and procedures to fit their own needs and
  Guidelines                    circumstances.

                            •   The AFC, in considering grant applications for the forthcoming and subsequent funding
                                rounds, will take into account subsequent governance standards of AFC-funded
                                organizations, as part of its public accountability responsibility.


                 It may be beneficial for the GFC to implement a service charter, to improve
                              stakeholder perceptions around accountability.


    Source: Deloitte Best Practice Research                           215
Best-in-class Film Commissions typically operate within a
clearly defined governance framework

Governance Framework: AFC

                                       • The legal framework for the AFC’S corporate governance practices is set out in the
                                         Australian Film Commission Act 1975 and the Commonwealth Authorities and Companies
                                         Act, 1997.
                                       • The legal framework is supplemented by a number of other internal protocols and
                   Corporate             measures that are consistent with the Department of Finance and Administration –
                  Governance             Governance Arrangements for Australian Government Bodies (2005), the DCITA
                                         publication on General Guidance for Directors of Statutory Authorities (2004) and the
 Australian                              Australian National Audit Office publications on Public Sector Governance.
                                       • The AFC has established a number of governance practices and procedures to ensure it
   Film
                                         adheres to appropriate levels of accountability, disclosure and transparency.
Commission
Governance
Framework                              • The members of the AFC are appointed by the Governor-General on the nomination of the
                                         Minister of the Arts. All Commissioners serve in a non-executive capacity.
                                       • Under section 16 of the AFC Act, Commissioners can be appointed for a period not
                                         exceeding 5 years, with the provision for re-appointment.
                Commissioners          • The Commission is responsible for the governance practices of the AFC. To this end,
                                         Commissioners participate in ongoing corporate governance workshops.




         Source: Deloitte Best Practice Research                       216
Australia has a number of agencies that are dedicated to
the audio-visual industry and supportive of the AFC

Institutional Arrangements: Australia
                                                                      Film Agencies

                                              Australian Children’s                 Australian Film
      Film Finance Corporation
                                              Television Foundation              Television And Radio                  Film Australia
           Australia (FFC)
                                                      (ACTF)                       School (AFTRS)
     The FFC is the government’s           The ACTF is a national non-     •   The AFTRS is the
                                                                                                            •   Film Australia is one of the
      principal agency for funding           profit organization                 national centre for
                                                                                                                nation’s largest producers of
      the production of Australian           encouraging the                     professional education
                                                                                                                television documentaries and
      film and television programs. It       development, production             and advanced training in
                                                                                                                educational programs, whose
      invests in feature films,              and dissemination of                film, broadcasting and
                                                                                                                mission is to create an audio-
      telemovies, mini-series and            television programs, films          interactive media for
                                                                                                                visual record of Australian
      documentaries which have               and other audio-visual              Australian citizens and
                                                                                                                life. Film Australia produces
      financial backing from the film        media for children, and the         permanent residents. A
                                                                                                                programs under the National
      and television marketplace,            promotion of these                  variety of full-time
                                                                                                                Interest Program, a contract
      both domestic and                      programs in the community.          courses (mostly at
                                                                                                                with the Australian
      international. The FFC’s share                                             postgraduate level) are
                                                                                                                Government to devise,
      of returns from around the                                                 conducted in Sydney and
                                                                                                                produce, distribute and
      world are re-invested in                                                   hundreds of short
                                                                                                                market productions that deal
      production                                                                 courses are conducted
                                                                                                                with matters of national
                                                                                 nationwide each year.
     The FFC also provides                                                                                     interest or illustrate and
                                                                                 AFTRS also offers online
      information on production,                                                                                interpret aspects of Australian
                                                                                 courses.
      distribution and legal matters                                                                            life.
      to applicants intending to seek
                                                                                                            •   Film Australia is the executive
      funding and suggests advice
                                                                                                                producer on these
      be sought before negotiations
                                                                                                                productions.
      begin with potential co-
      financing and distribution
      partners.



          Source: Deloitte Best Practice Research                                    217
Australia has a number of agencies that are dedicated to the
audio-visual industry and supportive of the AFC (cont.)

Institutional Arrangements: Australia
                                                                  Film Agencies


                                                        New South Wales Film and Television
                 Film Victoria                                                                                                   ScreenACT
                                                                   Office (FTO)
     Film Victoria is a government agency that provides         The FTO offers support for project                 •   ScreenACT is the Australian
      leadership and assistance for film, television and          development, production finance and                    Capital Territory (ACT) Office of
      digital media production in Victoria. The agency            industry and audience initiatives in New               Film, Television and Digital Media.
      develops and invests in both projects and people,           South Wales. Established and emerging                  ScreenACT aims to advance the
      and promotes Victoria as a centre for production            talent is actively supported through initiatives       capability and professionalism of
      nationally and internationally.                             such as the Aurora Script Workshops.                   these industry sectors in Canberra
                                                                                                                         and the surrounding region, and
     Film Victoria provides filmmakers with assistance          Industry and audience development grants
                                                                                                                         promote the ACT as a filming
      and information on locations, permits immigration,          encourage a sustainable industry,
                                                                                                                         location. The agency liaises with
      customs, taxation, unions, studios and facilities.          professional development and promote
                                                                                                                         organizations and persons of
      Two incentive funds are available to encourage film         public interest in screen content as a n art
                                                                                                                         interest to the industry sectors.
      and television producers to bring their projects to         form and medium of communication. A
      Victoria. Film Victoria offers a range of programs to       Regional Filming Fund exists to support
      assist filmmakers with content creation, production         filming outside the Sydney metropolitan
      investment and professional development.                    region.

     It also supports cross-platform development
      between the traditional and new sectors in niche
      markets such as animation and game innovation.




                                  These institutions complement each others roles and mandates.


         Source: Deloitte Best Practice Research                                           218
In Spain, there are various government and private related
agencies that support the audio-visual industry

Institutional Arrangements: Spain

               The Film and Audio-visual Arts Institute                         The Spain Film Commission

               • Support, promote and plan Spanish audio-                       • Promote and develop the audio-visual
                 visual activities in the areas of production,                    production industry
                 distribution and screening                                     • The promotion of Spain as a location for
    National




                                                                     National
               • To recover, restore, preserve, research and                      productions
                 disseminate film heritage                                      • Coordination, cooperation and collaboration in
               • To contribute to the training of professionals in                activities developed by regional film
                 the different film disciplines                                   commissions
               • To maintain relations with international and                   • Facilitate formal debates on the industry
                 national bodies with similar purposes
               • To co-operate with the autonomous
                 communities in audio-visual arts


                Andalusia Film Commission                                       Madrid Film Commission

               • Non-profit making organisation                                 • Negotiate filming guidelines with city, town and
               • Created by the Andalusia Radio and Television                    district councils
               • Advises national and foreign producers                         • Manage a website
                 regarding production logistics                                 • Extend information on logistic services
    Regional




               • Promotes the Andalusia region
                                                                     Regional   • Process film permits
               • Create and coordinate Film Commission                          • Negotiate filming permit prices and conditions
                 regional offices in the Andalusian autonomous                    with city, town, district councils, churches and
                 region                                                           private individuals
               • Information on locations                                       • Promote locations
               • Liaison between production companies and                       • Negotiate economic advantages (discounts,
                 government administration                                        subsidies etc.) to attract audio-visual
                                                                                  productions



         Source: Deloitte Best Practice Research
                                                                                219
In Spain, there are various government and private
related agencies that support the audio-visual industry
(cont.)
Institutional Arrangements: Spain

                    Barcelona Plató Film Commission                                         Galicia Film Commission
                    • Provides a wide range of free services to aid
                                                                                            • Represents Galacia at the main audio-visual
   Council office




                      audio-visual production in Barcelona. Its
                                                                                              fairs and commercial missions abroad
                      services include:
                                                                                            • It is the reference point for information on




                                                                          Regional
                         • Free use of municipal locations
                                                                                              policy of the Galician audio-visual industry
                         • Fee reduction in non-municipal spaces
                                                                                            • It promotes an information line addressed to
                         • Processing of shooting permits
                                                                                              the Galician sector on aspects related to the
                         • Professional and industrial support
                                                                                              international commercialisation



                    Tenerife Film Commission                                                Santiago de Compestela Film Commission

                    • Promotes Tenerife abroad as a film location                          • Its main aim is to create a conducive
   Council office




                                                                          Council office
                    • Facilitating obtaining of permits                                      environment for film and TV production
                    • Liaison between foreign and local production                           companies
                      and service companies                                                • It provides free services such as location
                    • Identification of commercial opportunities                             scouting, processing of film shoot permits and
                      for local productions internationally                                  professional support and advice
                    • Collaboration with other public institutions                         • Liaison between the local audio-visual industry
                                                                                             and ancillary industries


                                                 Jerez Film Commission
                                                 • Its main aim is to create a conducive
                                                   environment for film and TV production
                                                   companies
                                                 • Promotes the audio-visual industry in
                                                   Jerez


                           Source: Deloitte Best Practice Research
                                                                                            220
In terms of the global movie theatre market, there is also a
growing shift towards alternative sources of entertainment

Global trends:




  • Worldwide box-office revenue decreased by 8%, from $25.24B in 2004 to $23.24B in 2005.
  • Canada experienced the steepest percentage decrease in box-office revenue — almost 14%, followed
    by EMEA (Europe, Middle East and Africa ) at 13% and Asia-Pacific at 4%.
  • Worldwide admissions decreased by 2%, down from 7.57 billion in 2004 to 7.45 billion in 2005.
  • However, admissions in Asia-Pacific were modestly up by 4%.




     Source: Deloitte Best Practice Research               221
 The audio-visual industry can have a proven positive
 economic impact on the economy of a region or country
 (cont.)
Economic Impact: Australia
    Using the National Multiplier

    Suppose a film company decided to shoot a feature film in Australia in February 2007, which
    involved new expenditure within Australia of $20 million (say the total budget for the film was $25
    million, but $5 million was spent overseas on script and specific inputs). Note that this $20 million
    needs to be assessed as incremental – new expenditure, not a transfer of expenditure from some
    other investment project. In this case, the $20 million expenditure represents the ‘initial new
    demand’ for the products and services of the film and video production and distribution industry, and
    the impact on the Australian economy as a whole can be estimated as follows:

    Impact on gross value added                              Impact on employment

    = Initial demand x Gross Value Added Multiplier          = Initial demand x Employment Multiplier
    = $20m x 1.80                                            (adjusted for inflation)

    = $36m (approximately the contribution to GDP            = 20 x 30.7
    resulting from the initial $20m expenditure)             = equivalent to approximately 614 people
                                                             employed full-time for one year


 • This increase in employment is not just in the film industry but an economy-wide increase. It should be noted,
   however, that as this multiplier is derived from IO methodology it assumes there are no constraints in the
   economy, whereas in reality at the national level there are some constraints, such as a limited labor supply or the
   impact of expenditure on inflation.

 • It can be generally concluded that the film production and distribution sector is at the higher end of industry-based
   multipliers, with a Gross Value Added Multiplier of 1.8, relative to a median for all industries of 1.35, and an
   Employment Multiplier (2005/06 dollars) of 30.7 relative to a median of 15.

                                                                      222
 The audio-visual industry can have a proven positive
 economic impact on the economy of a region or country
 (cont.)
Economic Impact: Ireland
  • The multiplier captures the overall impact of what might be termed the ripple effects of an economic activity. For
    example, a film distributes its budget amongst various suppliers of Irish goods, services and labour. Each of these
    individuals will, in turn, spend a proportion of this additional income on suppliers of Irish goods, services and labour
    in a ripple effect expanding throughout the economic system, far beyond that of the film industry..

  • A GNP and Employment multiplier captures the sum of all successive ripples, in terms of both output and
    employment, respectively.

  • The multiplier estimates are taken from a report for Bord Fáilte by Professor Eamon Henry “Estimated Irish 1993
    GNP and Employment Multipliers by Input-Output Modelling”, tables 6 and 8. The multiplier impact of audio-visual
    production activity on the economy was calculated, using the Henry multiplier for the NACE sector Other Market
    Services and allowing for the proportion of domestic and foreign-funded expenditure. The multiplier data for this
    sector are shown in the table below:
     Multiplier             Direct                 Direct +                 Direct +              Direct +
                                                   Indirect                 Indirect +            Indirect +
                                                                            Induced               Induced +
                                                                                                  Government
     GNP                    0.5064                 0.7354                   0.9284                1.2558


     Employment             24.01                  35.60                    41.96                 56.91


  • In order to allow for the impact of both domestically funded and foreign-funded expenditure, a composite multiplier
    is generated comprising the Direct + Indirect multiplier and the Direct + Indirect + Induced multiplier weighted by
    the proportion of domestic and foreign-funded expenditures respectively. For example, the GNP multiplier is
    calculated as (0.7354 * 0.73) + (0.9284 * 0.27) = 0.7874

  • By applying the composite GNP multiplier of 0.7874 to the Irish expenditure of €97 million, it can be estimated that
    the final contribution of this expenditure to the Irish economy to be €76.4 million. Similarly, by applying a weighted
    employment multiplier of 37.32 to the expenditure of €97 million in Ireland, it can be estimated that the final
    contribution of this expenditure to Irish employment to be 3,620 full-time jobs.

                                                                      223
Some degree of transformation has occurred in the
sector, for part time and full time employees

Employment Data*:

                              Transformation Figures - Full time
No. of Employees




                   140
                   120
                   100                                                    Indian
                    80
                                                                          Coloured
                    60
                    40                                                    Black
                    20
                     0
                               2005           2006          2007
                                             Year                                                               Transformation Figures - Part time




                                                                                      No. of Employees
                                                                                                         20

                                                                                                         15
                                                                                                                                                     Indian
                                                                                                         10                                          Coloured
                                                                                                                                                     Black
                                                                                                         5

                                                                                                         0
                                                                                                                2005         2006         2007
                                                                                                                             Year



                            The equity ownership profile of production companies in the sector however has
                                             improved marginally over the last 3 years*.

                         Source: Commerical Producers Association (CPA) member data
                         * Limited data available                                                         224
South Africa has a vibrant service industry catering to all
aspects of the audio-visual industry …

Service Providers:

 Value Chain              Small/ Medium                         Large
 Segment
 Production               Numerous small production companies   Based in Gauteng:
                          employing between 1-3 people           Endemol (TV), Philo Pieterse, Franz Marx (TV)
                                                                Based in Cape Town:
                                                                 Made in Africa, McKenzie Rudolph, DO productions
                                                                Country-wide:
                                                                 Video Vision, Velocity, Moonlighting

 Post Production          Prosound, The Audio Lab, The          Country-wide:
                          Facilities Factory                     Sasani, The Refinery
                                                                Based in Cape Town:
                                                                 Condor
                                                                Based in Gauteng:
                                                                 Blade and Pudding

 Distribution- Film       Film Resource Unit, Video Vision      Primedia, Johnnic Communications, United Independent
 and Video                                                      Pictures (UIP)

 Exhibition -Cinema       131 Independents                      Ster-Kinekor (Primedia), Nu Metro (Johnnic)

 Exhibition - Video       United Independent Pictures           Ster-Kinekor Home Entertainment, Nu Metro Video
 Retail and Rental

 Exhibition-                                                    SABC, M-Net, Etv
 Broadcasters




       Source: Deloitte SA Market Research

                                                                225
… and a variety of small to medium-sized fully equipped
studio spaces

Facilities:

              Facility                                      Facility                                  Facility
  Audio Duplications                        7    Equipment Hire - Grips              12   Outside Broadcasts             26

  Broadcast Facilities                      25   Equipment Hire - Lighting           47   Post Production - Audio        45

  Broadcast Signal Distributors             5    Equipment Hire - Sound              35   Post Production - Facilities   94

  CD Duplications                           10   Equipment Hire - Video              27   Post Production - Film         33

  Concert Sound Equipment                   10   Film Laboratories                   4    Post Production - Video        75

  Equipment                                 27   International Control Rooms         2    Radio Facilities               4

  Equipment Hire - Aerial Mounts            5    JIB Hire/Operators                  1    Recording Studios              59

  Equipment Hire - audio-visual /
                                            23   Live Sound Recording                8    Recording Studios (Music)      12
  Presentations

  Equipment Hire - Camera                   45   MPEG Encoding                       24   Satellite Broadcasting         30

  Equipment Hire – Camera/Editing                MPEG Transfers - Internet
                                            1                                        17   Satellite News Gathering       6
  HD                                             Delivery Solutions

  Equipment Hire - Camera Support           12   Music Video Production Facilities   8    Sound Studios                  34

  Equipment Hire - Editing                  16   Narrowcasting / Nichecasting        6    Studios / Studio Facilities    71

  Equipment Hire - Film                     17   News Facilities                     8    Video Duplications             29

  Equipment Hire - Generators               19   Optical Services                    3    Video Streaming                14




      Source: Deloitte SA Market Research                                 226
 We have calculated the multiplier for the industry as a
 whole to be 2,3

Multiplier calculation:




          • Out of each R1 spent by the industry, approximately 63c
            ultimately becomes employment income
          • This income is then spent in the economy, generating new
            spending on goods and services equal to a further 60c.
              • This estimate is based the proportion of crew expenditure versus
                other expenditure and proportion of employment income generated
                by each sector in the economy.
          • This 60c generates a further 34c worth of employment income,
            with generates a further 18c….
          • As a result, R1 becomes R2,30 (R1+63c+60c+34c+18c….)


                                                227
Gauteng’s strengths complement other regions in the
country                                        “Everyone describes
                                                                               themselves as a film
                                                                               producer, but they make
What can Gauteng offer the national industry?                                  their money out of TV or
                                                                               ads” – TV executive


   • Province has competitive edge due to the clustering of TV and local film producers,

   • Local producers are attracted to the province because of its good business
     environment, advanced infrastructure (technical and public) and its skills set,

   • Film and TV production is about more than shooting, and Gauteng offers supporting
     infrastructure,

   • While less glamorous than film, TV and commercials are the bread and butter of the
     Gauteng industry, providing jobs, training and boosting economic activity,

   • TV has brought to the province large studio facilities (e.g. Sasani complex in Highlands
     North), excellent producers, crew, directors etc,

   • Commercials industry is world-class, and Gauteng industry is locally focussed,

   • Commercials are strong in multimedia e.g. animation,

   • Skills in TV and commercials are transferable to film, but constraints exist.


             Gauteng should leverage off its strengths in TV, commercials and local film
                                             production.

                                                      228
A BCG matrix provides a way of ranking different sectors
in terms of their relative attractiveness and competitive
advantage
A stylised Boston Consulting Group (BCG) matrix:

                                 100%

                                             Question mark:                            Star:

                                             • High growth rate,                       • High growth, high
                                               but low market                            market share
                                 75%           share
          Business growth rate




                                             • Select a few and
                                               focus on growing
                                               market share

                                 50%

                                               Dog:                                    Cash cow:

                                               • Low growth, low                       • Low growth, but
                                                 market share                            high market share
                                 25%
                                               • Beware of                             • Are often in
                                                 expensive plans to                      relatively mature
                                                 fix dogs                                markets so avoid
                                                                                         over-investing

                                  0%
                                        0%            25%                        50%                         75%

                                                                  Market share


    Source: Deloitte Gauteng Market Research                             229
In Gauteng, TV and commercials are classic cash cows,
whereas film is a ‘question mark’

BCG matrix for the Gauteng AV industry:

                        100%

                                     Film


                        75%
          Growth rate




                        50%


                                                                         Multimedia

                        25%
                                                                                          TV
                                                                Commercials


                         0%
                               0%                 25%                     50%                  75%

                                         Gauteng's share of the South African AV market


    Source: Deloitte Gauteng Market Analysis                     230
With the right strategy in place, ‘question marks’ have
the potential to become cash cows or stars

Differentiated strategy:

 • 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.




                                            231

				
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