Project gaullywood report2

South African AV Industry Overview: 

South African AV Industry Overview Institutional Landscape Key Trends Industry Growth Drivers

South African AV Industry Overview: 

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: 

The South African audio-visual industry dates back to the ‘birth’ of film, circa 1895 South Africa AV Industry Brief Timeline: State support For Afrikaans films Films shown in Witwatersrand Afrikaans based private capital financing Afrikaans films Creation of ‘black’ films by predominantly white producers Some films produced that depicted urban black culture Tax concessions boost production of US imitated films Collapse of tax shelter scheme New democratic dispensation. Cultural industries established as a priority sector by government 1895 1956 1962 1950s 1970s Mid-1980s Late-1980s Segregation of cinemas Post-1994 1950s Source: Deloitte SA Market Research

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

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

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

South Africa has established audio-visual hubs in Gauteng, the Western Cape and Kwazulu Natal There are similar or equivalent bodies to the GFC in South Africa, the major bodies being: Cape Film Commission 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. Audio-visual Hubs: Source: Deloitte SA Market Research

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: 

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 The Cape Film Commission was launched in 2001 by the City of Cape Town and the Provincial Government of the Western Cape. Position Cape Town as a globally competitive film city, thereby boosting tourism, job creation and the development of core skills, 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, 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. Cape Film Commission: Source: Deloitte SA Market Research

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: 

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 The Durban Film Office was launched in 2003 by Ethekwini Municipality. Position Durban as a globally competitive film city, thereby boosting tourism, job creation and the development of core skills and SMME’s, 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 disadvantaged backgrounds into the film industry, Provide information on funding opportunities for training and film projects. Durban Film Office Overview: Source: Deloitte SA Market Research

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

There are also several other emerging hubs in South Africa, evidence of the growth potential of the local audio-visual industry Source: Deloitte SA Market Research Mpumalanga The Mpumalanga Province is in the process of setting up a 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 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. Eastern Cape Emerging Hubs:

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

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

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

In South Africa, various government-related and privately funded agencies support the audio-visual industry Institutional Arrangements: South Africa National Regional Local NFVF Departments in Municipalities Gauteng Film Commission Cape Film Commission Durban Film Office (covers entire KZN) Eastern Cape - Arts and Culture Mpumalanga - Arts and Culture E.g. Department of Arts and Culture Department of Trade and Industry SARS MAPPPSETA National Arts Council of SA SA Scriptwriters Association Independent Producers Organisation Commercial Producers Association The Producers Alliance etc. Supporting Institutions Source: Deloitte SA Market Research

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

There are a number of initiatives being undertaken at provincial government level to promote the audio-visual industry … Source: Deloitte SA Market Research Festivals to showcase films: Sithengi – November, Cape Town, Encounters Documentary Festival – July/August, Johannesburg/Cape Town, Durban International Film Festival, Loerie Awards – July, different venues in South Africa, Attendance of international film festivals e.g. Cannes, Montréal, Toronto etc. Other initiatives include: Industry workshops held by Film Commissions/Offices, City of Johannesburg - has identified film as part of its Creative Industries Strategy and has a plan to establish a Film Incubator in Newtown, Ekhuruleni has shown interest in promoting locations. No initiatives have been implemented to date however. Regional Initiatives:

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

… with the GFC engaging in a range of AV activities within Gauteng 6-month Snapshot of GFC Activity: Source: GFC 6-month Production and Marketing Activity Report (Apr – Sept 2007)

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

The last 5 years have seen a renewed focus on strategies to grow the national and provincial audio-visual industries Source: Deloitte SA Market Research National Growth/Development Plans:

South African AV Industry Overview: 

South African AV Industry Overview Institutional Landscape Key Trends Industry Growth Drivers

Slide15: 

Local Operating Environment: The South African AV industry operates is an environment that is rapidly and continuously changing Source: Deloitte SA Market Research

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

In 2006, almost R3 billion revenue was generated in the South African audiovisual production industry South African AV Industry Revenue: * 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

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

Over a 3 year period, the bulk of commercials produced nationally were concentrated in Gauteng and the Western Cape * From Commerical Producers Association (CPA) member data Source: Deloitte South African Market Research Annual Commercials Production Data*: No. of Commercials Location

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

With very few exceptions, the local box office is dominated by foreign films … Sample Local Box Office Earnings: Source: Deloitte SA Market Research

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

… with ‘slapstick’ the most successful of local movie genre’s Top 15 Local Films: Source: Deloitte SA Market Research

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

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

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

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: 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. 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

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

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

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

South Africa faces impediments to increasing its market share as a globally competitive film-making destination Global Market Share: Source: 1. GFC Business Plan (MEFS) 2007 – 2010; Deloitte SA Market Research

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

The AV industry has had a positive economic effect on the local economy Source: Deloitte SA Market Research 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.

South African AV Industry Overview: 

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: 

Destination of Choice Funding and Incentives Physical Environment Infrastructure Technical Public Regulatory Environment There are several factors influencing the growth of the national audio-visual industry Growth Drivers: Business Environment and Cost Advantage Human Resources Capacity Audience Development Source: Deloitte SA Market Research

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

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

South Africa has an internationally recognised comprehensive and progressive legal framework: 

South Africa has an internationally recognised comprehensive and progressive legal framework South African Legislation: Independent Communications Authority of South Africa Act - in particular, deals with local content quotas, which are viewed as key to developing the local industry. The Skills Development Act - provides an institutional framework for national, sector and workplace strategies to develop and improve the skills. The Labour Relations Act - due to the proliferation of small firms and unorganised ‘freelance’ labour, the effects of this Act are smaller than in other sectors. Basic Conditions of Employment Act - to provide for fair labour practices in the workplace. The Films and Publications Act - distribution of any prohibited film or publication is a criminal offence in terms of the legislation. The Immigration Act – regulates the entry of foreigners to South Africa and the issue of work and residence permits. The Lotteries Act - provides for payment of lottery money for projects that promote the arts, culture and national historical or cultural heritage. The Income Tax Act – provides a legal framework for tax related matters. The Employment Equity Act - aimed at achieving a diverse workforce that is broadly representative of the South African population. TRIPS Agreement - South Africa, as a member of the World Trade Organisation (WTO) is bound by the Agreement which affords scriptwriters and creators a high standard of copyright protection. Source: Deloitte SA Market Research The Intellectual Property Laws Amendment Act – provides for the protection of rights of local and foreign companies. Counterfeit Goods Act – provides for the protection against trading in falsifications of merchandise and products. The Intellectual Property Laws Amendment Act – provides for the protection of rights of local and foreign companies. Counterfeit Goods Act – provides for the protection against trading in falsifications of merchandise and products.

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

There have been a few initiatives to reduce bureaucracy and inconsistent application of rules Home Affairs issues a Visitors Visa with concessions for actors and crew. The Visitors Visa must be issued in the country of origin and specifically endorsed with the purpose of entry. Concessions: Source: Deloitte SA Market Research The City of Cape Town has abolished film location tariffs on publicly owned Council land. SARS is considering allowing employees in the film industry to apply for a single annual tax directive. .

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

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

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

IDC – 31 Movies worth R0.5bn funded in 6 years through equity investments and commercial and venture loans. There are a number of commercial and government organisations offering film production financing in South Africa Key Funding Channels: NFVF Fund – education and training development, production, marketing and distribution. Commercial banks – e.g. Rand Merchant Bank provides funding capped at 30% of a production budget. Private funding e.g. individual private investors. Government grants- skills training initiatives, sponsorships etc. Source: Deloitte SA Market Research Other funds that are being investigated for establishment include the SABC Film Fund.

Slide32: 

Revenue generation guarantee requirements are the largest barrier to access to funding in South Africa Producers often struggle to meet the stringent revenue generation guarantee requirements of financial institutions. Broadcaster monopolies on IP ownership limit the income that producers can make from their content. Alternative sources of funding such as the National Lottery are not available due to legal restrictions on funding of private ventures. The combination of high production costs and uncontrollable variables mean financial success is not often guaranteed. Barriers to Funding in South Africa: Source: Focus Interviews with Key GFC Stakeholders and Industry Experts Local banks consider the industry to be high-risk, with few mitigation strategies in place.

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

The Large Budget Film and TV Production Rebate is the prime investment incentive available to both foreign and local big budget producers Key Incentives: Source: Deloitte SA Market Research

Other incentives are available to support the industry in South Africa: 

Other incentives are available to support the industry in South Africa Other Incentives: Employers can claim back the Skills Development Levy if they provide training that is MAPPP-SETA accredited. Enables productions from participating countries to apply for benefits or programmes of assistance from both countries. Source: Deloitte SA Market Research

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

As at 24 April 2007, R124 million had been paid from the Large Budget Film and TV Production Rebate Scheme Source: Deloitte SA Market Research

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

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

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

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

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

… and a variety of small to medium-sized fully equipped studio spaces The studio facilities available in South Africa have technical infrastructure and equipment that is ideal for commercials and low budget films. A number of technically advanced studios are required in a country so as to attract international productions e.g. both Ireland and Australia have state-of-the art technical infrastructure, which is used to attract big-budget productions. To compete with these countries, South Africa would need to invest in such infrastructure e.g. the Dreamworld Film Complex: The Cape Town Dreamworld Film Complex is expected to open in 2008. The complex will include four soundstages, four backlots and premises for production, post-production and supply companies. The Dreamworld project should open up opportunities for both local and international filmmakers as it meets international standards for studios. For post-production projects, security and access to facilities is a big issue due to piracy. Shortening the theatre to DVD window in the country would be a key measure to mitigate the threat of piracy. Source: Deloitte SA Market Research Technical Infrastructure:

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

South Africa has well-developed public infrastructure with modern facilities and services available in all major centres South Africa has a relatively advanced telecommunication industry with one fixed line operator, three cellular network operators and international links fed via submarine cable and satellite networks: There is conflicting data available on the global competitiveness of Telkom’s rates Upgrading of national broadcasting infrastructure from analogue to digital at an estimated cost of R2bn will eventually lead to greater efficiencies in the sector and enhance new content delivery channels. Transportation compares favourable with first world countries – excellent road, rail, sea and air travel services. South Africa has 3 international airports linking it to more than 59 cities around the world. Major public and private hospitals have outpatient and casualty facilities for all health care. Source: Deloitte SA Market Research Public Infrastructure:

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

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

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

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

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

Employment figures in the Commercials sector show a a general decline in overall numbers … Source: Commerical Producers Association (CPA) member data * Approximate figures Employment Data:

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

A comparison of two locally produced movies shows a high degree of employee transformation, with most employees working as freelancers ... Source: Deloitte SA Market Research Case Studies:

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

There are also skills gaps that have been identified by stakeholders as needing urgent redress to ensure the continued growth of the local industry Source: Deloitte SA Market Research Skills Gaps: Lack of business entrepreneurial capacity Lack of coordination, promotion and monitoring of skills-transfer from international and co-productions. Low quality of scriptwriting that does not meet audience needs Limited access to training opportunities for new entrants to the industry Rapid and continual technological changes that require ongoing skills development

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

Several public and private sector organisations are providing training programmes to help address identified skills gaps Source: Deloitte SA Market Research Skills Development Initiatives: MAPPP SETA Public – Private Partnerships NFVF Private Initiatives

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

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

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

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: Source: Deloitte SA Market Research 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%).