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Project Gaullywood: Project Book Phase I: Market Intelligence and Sector Competitiveness 27 th July 2007.

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Presentation on theme: "Project Gaullywood: Project Book Phase I: Market Intelligence and Sector Competitiveness 27 th July 2007."— Presentation transcript:

1 Project Gaullywood: Project Book Phase I: Market Intelligence and Sector Competitiveness 27 th July 2007

2 2 Contents  Objectives  Background to Project Gaullywood  Project Framework  Setting the Scene  Key Project Findings  High-Level Strategic Recommendations  Appendices

3 3 The objectives of the project were to conduct strategic research on the local and international audio-visual markets for the Gauteng Film Commission (GFC) Review the GFC’s existing market intelligence and establish gaps. Conduct local and international audio-visual (AV) industry research:  Comprehensive analysis of the South African AV industry,  Comprehensive analysis of the Gauteng AV industry,  Review of global trends, best practices and industry benchmarks. Assess the competitiveness of the Gauteng audio-visual industry:  SWOT Analysis,  Critical Success Factors. Make high-level Strategic Recommendations:  Optimum positioning of the Gauteng audio-visual film industry,  Optimal role of the GFC. Consolidate findings and outcomes for submission to GFC Board. Objectives:

4 Background to the Project

5 5 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).

6 6 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. The Gauteng Film Commission (GFC) lacks sufficient market intelligence to adequately fulfil its mandate … Problem Statement:

7 7 … and so subsequently requires comprehensive industry intelligence to inform its short-to-medium term strategic objectives 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. Project Scope: 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. The resulting market intelligence will form the backbone for the development of a strategic 5–year Sector Development Plan for the GFC.

8 Project Framework Project Plan Project Charter and Timeline Project Methodology

9 9 INDUSTRY MAPPING (As-Is Analysis) 8-12 wks EVALUATION OF FINDINGS 2-4 wks COMPILATION OF REPORT 1-2 wks PROJECT PLANNING & KICK-OFF 2-4 wks Project Administration Project Planning: Clarify project scope Validate project plan and charters Identify key GFC stakeholders Review existing GFC documentation and other available data Establish key areas of research focus and identify any gaps in available data PROJECT MANAGEMENT Bottom-up solution generation Day-to-day project management Client Relationship Management PROJECT MANAGEMENT Bottom-up solution generation Day-to-day project management Client Relationship Management SA AUDIO-VISUAL MARKET ANALYSIS Operating landscape (regional bodies, activities, facilities, market share, initiatives etc) Regulatory environment Financing (incentives and access to funds) GAUTENG AUDIO-VISUAL MARKET ANALYSIS Market activity; demand and supply Competitive positioning Skills and resources Key challenges and potential opportunities Review of the GFC TRENDS AND BEST PRACTISE REVIEW Global trends Best practice and industry benchmarks Develop detailed SWOT analysis Prioritise and validate key issues and potential opportunities Identify critical success factors Consolida te findings and outcomes for submissio n to GFC board We defined a high-level project plan that detailed the key activities needed to deliver on the project’s objectives Project Plan:

10 10 We started by reviewing the GFC’s existing documentation, to establish any gaps in market data PROJECT PLANNING & KICK-OFF (2-4 wks) Project Planning & Kick-off: Project Planning Clarify: Project parameters (scope) GFC expectations and requirements Finalise project team structure and members Meet GFC Management Develop and validate (sign- off): Detailed project plan and charter Detailed project timeline, with key milestones and updates Identify key GFC stakeholders Documentation Review Review existing documentation: GFC documentation e.g. business plans, annual reports, legislation etc Benchmarking and best practice data (trends, case studies etc) Other background information and databases Identify gaps in available data Project Administration [Internal]

11 11 We then mapped both the Gauteng and SA audio visual markets, in addition to reviewing industry best practices … Industry Mapping: SA audio-visual market: Operating landscape: Market activity (complementary and competitive) and facilities resident in other regions in SA; demand and supply Market share and positioning Existence and effectiveness of regional bodies with mandates similar to the GFC Regional development plans and initiatives Regulatory environment: Impact on industry (+ and -) Incentive schemes: Government initiatives (current and future) Impact of current initiatives Funding: Accessibility of funding for projects Sophistication and responsiveness of financial markets to fund applications Market understanding of industry mechanics; evaluation of risk vs. reward etc Gauteng audio-visual market: Market activity and facilities Market demand and supply (products and services); market share Competitive Positioning (location, infrastructure, funding etc) Skills and resource availability: Demographics vs. skills set Local industry expectations and requirements Key challenges and opportunities (SWOT) Overview of the GFC: Mandate and role Structure Operations and activities Strategic objectives Value proposition (natural scenery, expertise, infrastructure etc) Key challenges and opportunities Trends and Best Practice: Trends in the global audio- visual industry Global best practices – other Film Commissions / Offices: Role, mandate, statutory composition, value chain positioning, institutional and revenue models etc Competitor destinations and countries: Regulatory framework Funding and Incentives Product and service offering Locations and Infrastructure Value proposition (destination of choice) Identify critical success factors for: Film Commissions / Offices The audio-visual industry INDUSTRY MAPPING (8-12 wks)

12 12 … 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 - What trends are shaping it? What are the best in the business doing and what can be learnt from them? What’s driving or hindering growth? Understand the NATIONAL operating landscape – What’s the current state of 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? Understand the PROVINCIAL operating landscape – What’s the current state of industry? What’s driving or hindering growth, relative to the rest of the country? Global Trends and Best Practice Review SA Market Review Gauteng MarketReview 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?

13 13 Finally, we evaluated our findings to identify potential opportunities for the GFC and Gauteng as a whole Evaluation of Findings: 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 EVALUATION OF FINDINGS (2-4 wks) Our high-level strategic recommendations will feed in to the second phase of the project.

14 14 We mapped out a project timeline, with key milestones to measure progress Timeline and Milestones: Documentation Review SA Market Analysis Best Practice Review Evaluation of Findings Project Planning & Administration Gauteng Market Analysis TASK Wk. 1 - 4 Wk. 5 - 8 Wk. 9 - 12 Wk. 13 - 16 Wk. 17 - 20 Preparation of Report Framework validation Charter sign-off Final Submission Stakeholder Validation Initial Insights First-cut SWOT Analysis 19/216/313/411/58/629/6 Gap analysis

15 15 The project was structured into defined streams of work, with subject matter expertise and research support Project Director Project Director Project Manager Project Manager SA Market Analysis Gauteng Market Analysis Best Practice Review Subject Matter Experts (SME’s) Project Team Structure: Global Research Centre (GRC)

16 16 We employed an issue-driven research approach to source and analyse our primary data … Develop relevant (issue-based) hypotheses Establish key trends and growth drivers Validate key issues, threats and gaps Identify potential opportunities Develop client- specific solutions Activity Provide structure and direction to the research Source factual and meaningful data Gain a clear understanding of the factors influencing the client, and industry or market at large Assist the client to achieve sustainable growth or recovery Objective Develop Hypotheses Analyse Findings Conduct Research Identify Opportunities Research Methodology: Carry out desktop research and analysis Perform an analysis of the client organisation Commission secondary research by GRC & BICS

17 17 … and sourced reliable and comprehensive secondary research data from the Deloitte Global Research Centre The Global Research Centre (GRC): Industry Expertise Professional Research Specialists Tailored Research Access to SME’s globally Vast portfolio of Databases The Deloitte Global Research Centre (GRC) Data Analysis and Synthesis

18 Setting the Scene

19 19 The audio-visual (AV) industry is large and complex, with a myriad of role players and sub-sectors The audio-visual industry: Source: Deloitte Research; GFC Business Plan 2007-2010 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.

20 20 The AV industry value chain contains value enhancing activities and role players that stimulate growth Value Chain: Source: Deloitte Best Practice Research Pre-Production Pro ducti on Post Prod uctio n Dist ribut ion Concept Development and Screenplay Rights Acquisition Development Financing Location Scouting Talent Packaging –Casting Agents –Crewing Agents Actors Costumes and Make up Location Management Lighting and Sound Grips Set Construction Special Effects Transport and Accommodation Photography Camera Crews Studio Facilities Film Editing and Projection Video Post-production Computer Effects and Graphics Music and Sound Titles Distribution deals Licensed merchandise Theatrical release DVD and Video Television –Pay TV –Public Broadcaster Internet Government and Regulators Industry Associations Cost ConsumptionRevenue Generation

21 21 Film Commissions tend to be established at a national or regional level, with a strategic mandate Film CommissionFilm Office A Film Commission is usually a government agency, operating at national or regional level. A Film Office is usually a local level office of a Film Commission:  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. facilitation or lobbying on issues such as marketing, funding and incentives, policy development, skills development etc. It plays a more operational role i.e. that of logistics support e.g. assistance with location selection, obtaining of permits, 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 Film Commission vs. Film Office:

22 22 We selected 6 diverse comparator countries that would provide appropriate benchmarks for South Africa and the GFC Comparator countries: 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 Kingdom (UK) Long established industry, Well-established institutional arrangements, Incentives (tax breaks), Co-productions with the US, Investments by international film makers, Concerted skills development drive. United States (US) Well established industry, 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 CountryAudio-visual Industry Characteristics

23 23 We selected 6 diverse comparator countries that would provide appropriate benchmarks for South Africa and the GFC (cont.) Comparator countries: As an aspiring location of choice, Gauteng can learn a lot from both established and emerging countries. 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. Source: Key GFC Stakeholders and Industry Experts CountryAudio-visual Industry Characteristics

24 24 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.

25 Key Findings Global Trends and Industry Benchmarks South African AV Industry Overview Gauteng AV Industry Overview

26 26 We conducted a review of the GFC’s available market documentation to gain an understanding of any data gaps Documentation Review: We found there to be insufficient market data that was both exhaustive and up-to-date. Review Gap Analysis Review of available GFC documentation:  Familiarisation with content thereof Evaluation of GFC documentation to establish the quality of the available data, i.e.  Age, scope, source, history, numerical data etc  Relevance of data vs. workstream requirements Subsequent identification of any gaps in the available documentation:  Provide direction to workstreams around data requirements going forward Evaluation

27 Global Trends and Industry Benchmarks Global Industry Trends Key Growth Drivers Film Commission Best Practice

28 Global Trends and Industry Benchmarks Global Industry Trends Key Growth Drivers Film Commission Best Practice

29 29 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

30 30 Traditional industry revenue streams are on the decline worldwide, due to technology convergence, among other factors Summary of Global Industry Trends: Source: Deloitte Best Practice Research 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. 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.

31 31 Casting and crewing agents, actors, camera crews etc. Industry Competitors National and provincial government, public funds, film commissions etc. Internet portals, DVD, cell phones etc. Suppliers have a low bargaining power, as they are fragmented and small in size and they benefit from the multiplier effect of productions. Numerous players exist offering similar products and services ensures that rivalry among firms is high. Businesses operate in a highly competitive, consumer-driven, and rapidly changing industry. To differentiate themselves, these businesses must develop content; manage talent; and acquire, develop, and adopt new and existing technologies. Threat of new entrants is low, primarily due to the huge capital and distribution (traditional and digital) requirements of the business. New entrants face stiff competition from strong global studio brands. Threat of substitutes is increasing with the proliferation of user-generated content, the internet, and intense competition for consumers’ attention in a fragmenting media world. Businesses compete with each other and all other sources of news, information and entertainment: broadcast television, live events, radio broadcasts, print media and the internet. The impact of continuing customer fragmentation and buying power is high. The combination of increased competition and technologically advanced platforms increases the number of choices available to consumers. This overall change in the industry requires companies to become more responsive to consumer needs. Audiences The industry is being driven by the increasing buying power of audiences and competition between producers of content... Emerging producers, independent producers, new distributors Governments are committed to promoting copyright protection and other intellectual property protection. Public funding and incentives are available to grow local industries and attract foreign productions. Skills development and development of technical infrastructure are high priorities. Audience development is key. …This makes it imperative that producers focus on the quality and respond to audience needs in an increasingly multi-channel and competitive environment. Five Forces Analysis: Source: Deloitte Best Practice Research

32 32 The global film industry is in a state of flux, as movie theatre attendance stagnates and content delivery channels proliferate Industry Snapshot: Source: Deloitte Best Practice Research As part of its efforts to diversify its revenue streams, NBC Universal unveiled plans for an office and residential project on part of its Universal Studio lot, amounting to $3bn (2005) A wave of overbuilding has lead to bankruptcies in the movie theatre business in the US (2005) The world’s most popular search engine, Google, bought out the world’s most popular video sharing portal, You Tube, for $1.65bn (2006) 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)

33 33 Box office attendance is on the decline globally, primarily due to rising ticket prices Trend: Box Office Attendance TrendDetail Declining Box- Office Attendance Why? 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. The overall home video market is expected to grow at GAGR of 5.4% to $33.1BN in 2010 versus, $25.4bn in 2005. 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. Reasons for the Decline in Box-Office Attendance Source: Deloitte Best Practice Research 1 In emerging economies however e.g. Mexico, Egypt and Thailand, attendance is on the rise.

34 34 In the UK, digital media distribution and an increase in personal movie watching has driven down box office sales Declining Box Office Attendance: UK Source: Deloitte Best Practice Research Year Revenue UK £M

35 35 The high risk nature of big budget films has led to changes in production funding approaches … TrendDetail Shift in production funding models, in part due to an increase in big- budget productions 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. Why? Big-budget films carry a higher risk, which studios have sought to minimize by entering into co- production deals with other studios or by pre-selling the rights for international distribution. 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, so diversifying their risk. Private financiers also have become involved in the industry due to:  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. Trend: Production Funding Models Source: Deloitte Best Practice Research 2

36 36 … which has forced changes in traditional business models Trend: Changing Business Models TrendDetail Changing Business Models Why? Movies are not always able to cover their production costs e.g. “ The Adventures of Pluto Nash” which cost over $100M to produce but earned less 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 3

37 37 In the United Kingdom, the film business model has traditionally been driven by box office sales … Changing Business Models: UK Source: Deloitte Best Practice Research United Kingdom Traditional Business Model

38 38 … however new distribution channels such as online portals are expected to change this Changing Business Models: UK Source: Deloitte Best Practice Research United Kingdom Emerging Business Model

39 39 The digitisation of film content has led to an increase in piracy … Trend: Increased Piracy Source: Deloitte Best Practice Research TrendDetail Increased Piracy Threat Piracy is currently the biggest threat to the motion picture industry. Piracy rates are highest in China (90%), followed by Russia (79%) and Thailand (79%); the piracy rate in the U.S. is 7%. In South Africa, movie sales account for 60% of the country’s DVD market, costing the 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. 4

40 40 … that has in turn led to a shortening of the window period between movie theatre and DVD release TrendDetail Shrinking Theater- to-DVD Window Why? 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). 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: Trend: Shrinking Theatre-to-DVD Window Source: Deloitte Best Practice Research To mitigate the threat of piracy, the audio-visual industry is also providing easier forms of alternative licence access. 5

41 41 The digitisation of film production, distribution and exhibition is bringing greater efficiencies to the industry TrendDetail Digitisation – Production, Distribution, and Exhibition Why? Digitisation minimizes physical distribution costs. The use of digital cameras and the growth in the bandwidth available to transmit video instantaneously is making it easier for directors, editors and their collaborators to work together from distant locations. 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. Trend: Digitisation Source: Deloitte Best Practice Research 6

42 42 Digitisation has facilitated the growth of the animation industry TrendDetail Digitisation – Growth of Animation Why? The global digital animation industry was estimated to have grown to a significant $70bn in 2005, up from $25m in 2001. The big US animation studios have made large profits from animation e.g. “Happy 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. Trend: Digitisation Source: Deloitte Best Practice Research 7

43 43 Digitisation has facilitated the growth of the animation industry (cont.) TrendDetail Digitisation – Growth of Animation 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 Max, Tictactoon, Flash, Giff Animator, Ulead and Adobe After Effects. Huge investments in skills development and animation studios are subsequently required. 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. Trend: Digitisation Source: Deloitte Best Practice Research 7

44 44 In South Africa, animation is seen as the possible next big break for the industry however challenges exist 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.” Trend: Digitisation Source: Deloitte Best Practice Research

45 45 The digitisation of film production, distribution and exhibition is bringing greater choice to TV audiences TrendDetail Digitisation – the Future of TV Commercials Why? The introduction of digital video recorders, such as TiVo and the Digital Video Recorder and services like Sky Plus, which allow the recording of television programmes onto a hard disk also allow the viewer to essentially skip advertisements. 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” Trend: Digitisation Source: Deloitte Best Practice Research 8

46 46 Digitisation has enabled the production of higher quality content that can be distributed faster and cheaper TrendDetail Quality content and Efficient distribution Why? Computer Generated Imagery (CGI) makes it possible to produce impressive visual effects. The introduction of digital cinemas – In August 2005, the major US studios 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). Trend: Digitisation Source: Deloitte Best Practice Research 9

47 47 In a bid to increase market share and boost revenue, national film industries are now targeting global audiences Trend: Global Entertainment TrendDetail Globalisation of Entertainment Why? Increasing market coverage and therefore potential for increased revenue. Technological advancements that have led to greater access to global viewers. 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 10

48 48 As a result of technology convergence, online revenue streams are gaining importance TrendDetail Ad-supported and Subscription Internet Downloads Why? Media companies are exploring new platforms for content distribution, to help increase revenue streams. Certain websites also allow users to freely upload, view, and share content e.g. You Tube, which has emerged as a popular free video sharing website. It allows 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. Trend: Online Revenue Streams Source: Deloitte Best Practice Research 11

49 49 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

50 Global Trends and Industry Benchmarks Global Industry Trends Key Growth Drivers Film Commission Best Practice

51 51 Accessibility and suitability of setting are both industry growth drivers and they play a role in the choice of a location Multiplicity of locations within close radius Time zones and distance from the US Climate Ease of access to locations Multiplicity of locations within close radius Time zones and distance from the US Climate Ease of access to locations Adequate public infrastructure High-tech equipment and state-of-the-art facilities Adequate public infrastructure High-tech equipment and state-of-the-art facilities Availability of finance Availability of incentives to lower production costs Availability of finance Availability of incentives to lower production costs Efficient and flexible bureaucracy Support from government institutions and infrastructure Efficient and flexible bureaucracy Support from government institutions and infrastructure ‘Country-of-the-moment’ status Dependent on the script (scenery) Business environment perceptions (crime, political stability etc) ‘Country-of-the-moment’ status Dependent on the script (scenery) Business environment perceptions (crime, political stability etc) Physical Location Infrastructure Funding and Incentives Funding and Incentives Government Support Government Support Other Growth Drivers Influencing Choice of Location: Source: Deloitte Best Practice Research

52 52 In addition, the decision involves a balance between a set of complex economic factors and production requirements Growth Drivers Influencing Choice of Location : Source: Deloitte Best Practice Research Productio n Location Decision Economic Factors Production Requirements Anticipated Revenue Production Cost Production Capability Talent/Creative Considerations Above the line Below the line Residuals Exchange Rates Govt. Rebates Work Rules RatesCrew Cost Facilities & Equipment Other Work Rules Rates Director/ Actor Requirements Script Requirements Ability to Control Finance Vehicles Infrastructure Crew Depth Crew Quality

53 53 Mexico’s technical infrastructure and conducive regulatory environment have helped make it an attractive location Case Study: Mexico Destination of Choice: Mexico Destination of Choice: Mexico Economic: Modest tax incentives Low Peso exchange rate against the US$ Low cost of labour and materials Economic: Modest tax incentives Low Peso exchange rate against the US$ Low cost of labour and materials Major film studio complex which has hosted major international productions e.g. “Dune” and “License to Kill” At least 7 studios and post production houses, where films such as “Titanic” have been made Major film studio complex which has hosted major international productions e.g. “Dune” and “License to Kill” At least 7 studios and post production houses, where films such as “Titanic” have been made Free permit for street shots in Mexico City Interior shots do not require permits, only notification to officials One permit for all Mexico City boroughs Free permit for street shots in Mexico City Interior shots do not require permits, only notification to officials One permit for all Mexico City boroughs Physical location: Warm and sunny Variety in terrain Historical architecture Proximity to the US Physical location: Warm and sunny Variety in terrain Historical architecture Proximity to the US Source: Deloitte Best Practice Research Temporary work permit, which allows actors and technicians to enter and leave Mexico without the need for additional permits

54 54 The “Made in New York Incentive program” is a good example of the benefits of creating a film-friendly environment 5% city tax rebate over and above the 10% state tax credit for film and TV shows that are produced at least 75% in New York, Qualifying productions receive promotions on city bus shelters and the city’s TV channel, Discounts on services provided by local vendors, Free parking and police services, Waivering of fees for film and TV shoots, Facilitating the development of large- scale sound stages e.g. Steiner Studios, Reduction of red tape/bureacracy, “Made in New York” branding. Made in New York Incentive program 35% increase in location shooting days in 2005, 20% increase in screen actors guild jobs in 2004, 6000 jobs created for local residents in 2004, 6.7% job growth in motion picture and video production, 9.2% job growth in radio and TV broadcasting, $600 million work of new production business to the city. Results Case Study: New York Made in New York Incentive program 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

55 55 There are a range of both financial and non-financial incentives that are typically used to attract productions Tax rebatesLoan guarantees Free / subsidised government services e.g. Free permits Free parking Free use of traffic police Reduced bureaucracy Production promotions Tax write offsLoans with low interest Tax offsetsCo-production arrangements Tax concessionsMarketing funding Ease of access to work permits Multiple entry visas Long-term temporary work permits Cast and crew tax rebates Discounts on local vendor fees Tax creditsSubsidies Exemptions from sales tax Location attraction grants Tax exemptions for individuals Production and post-production grants, including digital production … Types of Incentives: Source: Deloitte Best Practice Research Tax IncentivesOther Financial IncentivesNon-Financial Incentives

56 56 Incentives are a popular instrument employed by countries to attract productions Incentive Offerings: Tax rebate - has attracted big- budget productions e.g. “World Trade Centre”, Visa incentive - provides an efficient immigration process for the film industry, Official co-production arrangements between governments e.g. UK, Ireland, Canada. Can apply for benefits or programs of assistance in both countries e.g. tax deductions, refundable tax offsets and investments, International co-production program established to facilitate cultural and creative exchange between co-production countries. Allows countries to share the risk and cost of productions and increase the output of high- quality productions. New Jersey Offers a tax credit which is equivalent to 20% of qualifying production expenses, Exemption from 6% of sales tax, Loan guarantees for up to 30% of financing or $1.5 million. New Mexico Offers a 25% tax rebate on all production expenditures, including local labour costs, Has a loan for up to $15 million per project, if the film production cost is ≥ $2 million, Waives sales tax for film production. New York “Made in New York” incentive program, which includes a 5% city tax rebate over and above a 10% state tax credit, Discounts on services provided by local NY vendors, Waives permit fees for film and TV shoots and extends free parking and police services. Ireland’s tax incentive is attractive due to its quick turnaround times for decision-making and rebate payments, The most important benefit of the tax incentive is the net benefit offered to producers i.e. 20% of the total production budget, The 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 for qualifying expenditure of a film is €35 million. Source: Deloitte Best Practice Research AustraliaUSAIreland Ireland’s tax incentive is attractive due to its quick turnaround times for decision-making and rebate payments, The most important benefit of the tax incentive is the net benefit offered to producers i.e. 20% of the total production budget, The 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 for qualifying expenditure of a film is €35 million. Ireland

57 57 Incentives are a popular instrument employed by countries to attract productions (cont.) Incentive Offerings: Advance subsidies for full- length feature productions (new filmmakers); cannot exceed cost of production, up to 50 m Pesetas per film, Subsidies for short features; cannot exceed the cost of the film up to 10 m Pesetas per film, 15-25% subsidies for box office earnings for first 2 years, Incentives for the marketing and exhibition of community films, Protective measures e.g. screen and distribution quotas; designed to restrict the absolute monopoly of the US audio-visual industry. Funds are the single most influential incentive used for the development of the UK film industry, £49.30m of funding available to promote the UK film industry, €70m funds shared equally between production, post- production, distribution, talent development and new technology, A tax credit set at a rate of 30% is available for qualifying UK expenditure. VAT refund as long as at least 6 Mexican film industry services are hired, Incentives are available for co-productions with Mexican companies; $7 m per year in financing available, 10% income tax deduction for investments made in the domestic industry, Article 226 - designed to attract corporate financing by offering companies income tax exemptions equal to investments in domestic productions. Source: Deloitte Best Practice Research SpainUKMexico

58 58 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

59 59 The general business environment in Ireland is also supportive of the audio-visual industry 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. General Incentives: Ireland Source: Deloitte Best Practice Research

60 60 Government financial incentives in New Mexico have helped film productions grow tenfold Incentives: New Mexico 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. Film Crew Advancement Program (FCAP) 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. Government Initiatives Source: Deloitte Best Practice Research New Mexico is testament to the impact targeted Government support can have on the AV industry.

61 61 In the UK, public funding is available for a wide range of AV growth initiatives and capacity building Sources of Funding: UK Source: Deloitte Best Practice Research FundingGoalsAvailable Funds/Year British Film Institute To champion the UK film industry. Reach and increase audiences. £16,000,000 Distribution and Exhibition Fund To offer more diverse range of films. Reach a wider audience in the UK. £8000,000 Premier Fund To assist in the production of British or European feature films. £8,000,000 Regional Investment Funds for England Co-ordinate film policy and assist during strategy formulation across England. £7,500,000 Film Skills FundTo ensure the industry has adequate labour and skills.£6,500,000 New Cinema Fund To support new idea, creativity and the latest filmmaking techniques. £5,000,000 Development FundTo promote filmmaking, new concepts etc.£4,000,000 First LightTo grow a new generation of filmmakers.£1,100,000 SponsorshipsTo promote targeted showcase events.£600,000 NationsTo co-ordinate film policy and strategy across the UK.£505,000 Publications FundTo provide quality information and research to the public. £100,000

62 62 Both public and private sector funds are available to meet the needs of the AV industry in Spain Sources of Funding: Spain Source: Deloitte Best Practice Research Private Sector There are a couple of private sector initiatives ranging from the financing of film productions to discount TV contracts, and distribution advances against bank loans. A 5-30% equity initiative is available for co-productions. Public Sector Instituto de la Cinematografia y de las Artes audio-visuales (ICAA):  Production, distribution and commercial exhibition. ICAA Mutual Protection Fund:  Provides guarantees for access to bank loans for SMME’s in 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.

63 63 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

64 64 Revenue generation guarantee requirements are the largest barrier to access to funding in South Africa Due to the high risk nature of the industry, it is difficult for producers to guarantee income and thus meet the requirements of financial institutions. Broadcaster monopolies on IP ownership limits 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 the money going to private companies. The combination of the high cost of making films and uncontrollable variables such as audience tastes are a major barrier to accessing funds, by the industry. Barriers to Funding in South Africa: 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

65 65 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 Lottery, Act 1997, Regulations Relating to the Allocation of Funds … 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.

66 66 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 Multiplier (effect on GDP) Employment Multiplier (FTE employment by $million of investment spend)* 1997 ($) 2005/06 ($) Film and video production and distribution 1.8037.030.7 Motion picture exhibition 1.31915.8 Source: Deloitte Best Practice Research 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. N.B. The Australian Bureau of Statistics sets the output multiplier for screen production at 2.67

67 67 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 Multiplier FTE Employment Multiplier (FTEs per $ million – adjusted 2005/06) New South Wales – Motion picture services sector - 2000/01 Not published1.0259.3 Victoria Film and TV – 1996/97 2.881.2712.3 Queensland – Motion picture, radio and TV services – 1996/97 Not published1.0615.1 Queensland – Film, TV and entertainment software – 2005 2.641.34Not published

68 68 The audio-visual industry can have a proven positive economic impact on the economy of a region or country (cont.) MultiplierDirect Direct and Indirect Direct and Indirect and Induced Direct + Indirect + Induced + Government GNP0.50640.73540.92841.2558 Employment24.0135.6041.9656.91 Economic Impact: Ireland 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

69 69 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). Pre-production Production Post-production Distribution/ Exhibition Indirect Suppliers: TV and other broadcasting Manufacturing: Equipment, computer/electronics Business Service: Publicity, legal, accountancy Catalytic Effects Induced impacts Skills and labour supply Tourism Merchandising Cultural exchanges Promotion and trade UK Film Industry and Economic Impact Source: Deloitte Best Practice Research

70 70 The GFC can better demonstrate the economic impact of the audio-visual industry, so as to lobby government for more resources Economic Impact: Creation of jobs Spend on ancillary services Contributio n to GDP Spin-off for the tourism industry Skills development Multiplier in South Africa is 2.5 Source: Focus Interviews with Key GFC Stakeholders and Industry Experts

71 71 The broader economic competitiveness of a location has an effect on investor perceptions of its attractiveness 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 Factors Influencing Perceptions:

72 72 The availability of skilled resources, and the flexibility of the labour market, has helped attract productions to competitor countries Technical Expertise: The GFC can play a role in addressing the issue of insufficient skilled resources by facilitating training and funding of development programs. CountryTalent 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 StatesAvailability 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. Source: Deloitte Best Practice Research

73 73 Productions are more likely to be shot in locations with readily available state-of-the art facilities and high-tech equipment Technical Infrastructure: 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 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”. Australia 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.

74 Global Trends and Industry Benchmarks Global Industry Trends Key Growth Drivers Film Commission Best Practice

75 75 Roles of Film Commissions: The role of a Film Commission typically ranges from facilitating the approval of permits to dealing with trade and investment policy related matters Source: Deloitte Best Practice Research All the Film Commissions we reviewed provide support for funding and are focused on promoting their locations. Roles of Film Commissions Technology Promotion of use of digital platforms Facilitation of government investment in technical infrastructure Logistics Support Liaison with communities and government departments for permit approvals Information sharing Locations assistance Training and Development Support for training initiatives Labour relations assistance Facilitation of the development of digitisation and animation skills Funding and Incentives Funding and incentive support Support for the acquisition of resources Lobbying Facilitation of an enabling policy and regulatory environment Lobbying for the development and implementation of attractive funding and incentives Development of a Film Culture Supporting the development of a screen culture Policy Development and Industry Partnerships Input into policy formulation Partnering with other organisations for marketing and distribution initiatives Marketing Promotion of the audio-visual industry Location marketing Attendance of festivals Lobbying co-production markets Monitoring and Evaluation Market intelligence Impact studies

76 76 Certain areas of commonality were identified amongst the Film Commissions / Film Offices that were reviewed Areas of Commonality: Role Value Chain and Value Proposition Funding of Film Commissions Financial support. Funding assistance is mostly for the production sector but some also support script development. All operate within the production sector. The major source of revenue of film commissions is government funding. Logistics support including, locations and permits assistance. Few Film Commissions operate consistently in every segment of the AV value chain. Initiatives are being implemented to reduce the dependency on government. However the other revenue sources are a small proportion of total revenue. Training and development assistance. The most optimal value proposition of a Film Commission is creating an environment that is conducive for the growth of the industry. Private sector funding is usually directed towards specific initiatives rather than funding of a Film Commission itself. Marketing of locations.

77 77 Certain areas of commonality were identified amongst the Film Commissions / Film Offices that were reviewed Areas of Commonality: Role Institutional Arrangements Marketing Information sharing. Most countries have a national body that coordinates Film Commission/ film agencies programmes. Film Commissions tend to use many marketing platforms to position their AV industries. Advice on filming within their areas.There are a number of organisations and agencies that work in support of Film Commissions and the industry. National and regional Film Commissions employ similar marketing strategies. However regional Film Commissions also promote their regions to the domestic industry. National and regional Film Commissions often share the same roles. However the national body has a national and coordinating focus whereas the provincial one has a regional ambit. Public-private partnerships are implemented on a project basis. Strategic industry partnerships are used to attain coordinated marketing efforts. Liaison with communities and logistics often occurs at the local film office level. Fragmentation is reduced by clearly defined institutional frameworks for Film Commissions and supplementary agencies.

78 78 Some differences were identified amongst the Film Commissions / Film Offices that were reviewed Differences: Role Institutional Arrangements Funding Film Commissions in more advanced industries actively get involved in the development of AV-related government policies. Film Commissions in the United States do not operate under a national coordinating body. In the United States, some film offices are established with limited government involvement or public funding.

79 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 Role of a Film Commission: Role of a Regional Film Commission Activities Policy Development Develop and lobby for policies that are AV industry friendly. Advocate for the establishment of national coordinating structures or mechanisms. Industry Partnerships Establish platforms for regular communication between industry and the Film Commission and other government structures. Jointly develop strategies to build on identified strengths and opportunities within a region. Funding and Incentives Advocate for competitive incentive and funding structures. Develop regional incentives and funding mechanisms. 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. Technology Facilitate the development of technical infrastructure and expertise in line with new technologies.

80 80 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 Film Commission Activities Monitoring and Evaluation Develop regional specific research and analysis and build up the reliability and validity of data. Establish agreements with international Film Commissions for regular information sharing on global developments in the industry. Conduct market intelligence and impact studies. Distribute findings to stakeholders. Training and Development Develop a coordinated professional training and skills development strategy. Provide funding for training and development initiatives. Logistics Support Develop mechanisms for ease of access to government-owned locations and those owned by private business. 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 Culture Sponsorships of film festivals. Lobbying for the establishment of movie theatres in underserviced areas. Marketing Develop a brand identity and marketing strategy that increases domestic knowledge of the region and attracts foreign productions. Participate in national marketing initiatives. Attend festivals and co-production markets

81 81 Film Commissions have a diverse range of stakeholders within the audio-visual industry … Key Stakeholders: Source: Focus Interviews with Key GFC Stakeholders and Industry Experts General Business Community Other Government agencies Companies in the industry Key Stakeholders Municipalities National and Provincial Government Film Producers and Industry Associations Community Media Funders/Financiers

82 82 … to whom they need to provide different products and services Services Provided to Stakeholders Facilitation Information Dissemination Market Intelligence Advisory Logistics Support e.g. permits Skills Development Support Alignment with Govt. initiatives Funding Assistance Marketing Lobbying Services Provided: The GFC focuses primarily on marketing and logistics support. Source: Deloitte Best Practice Research

83 83 Few Film Commissions focus their efforts consistently within every segment of the audio-visual industry value chain Value Chain: Pre-productionProductionPost-productionDistribution Source: Deloitte Best Practice Research To meet the needs of the growing SA audio-visual industry, the GFC may need to play in each sector of the value chain. Australia Film Commission United Kingdom Film Council United States (various) Conafilm (Mexico) Film Commission Spain Film Commission Irish Film Board Gauteng Film Commission

84 84 Ideally, Film Commissions add value by creating an environment that is conducive for the growth of the industry Value Proposition: “Film Commissions should develop and grow the film economy of a region” “Film Commissions should prioritise location marketing and lobby for multiple ownership of rights” “Film Commissions should be the one-stop shop for companies operating along the value chain” “Film Commissions should focus on creating an environment that is conducive for filming and lobby Government on behalf of the industry” “Film Commissions should focus on basic requirements for film productions e.g. permits and information provision” Stakeholder Views “Film Commissions should use innovative means to attract productions, funding and investments to their regions” “Film Commissions should mould themselves according to the needs of the region they operate in” Source: Focus Interviews with Key GFC Stakeholders and Industry Experts

85 85 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).

86 86 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. 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

87 87 The value proposition of a Film Commission is dynamic i.e. it evolves as the industry evolves Value Proposition Evolution: Film Commission leads the development of an environment that enables ease of access to permissions, locations, financial incentives and funding. Emergent Industry Film Commission engages and develops policies related to the industry such as skills development, investment, exports, research and development. Mature Industry Source: Deloitte Best Practice Research

88 88 Full public or full private funding are the two extremes of the continuum of revenue models for Film Commissions 100% Public funding 100% Public funding 100% Private funding 100% Private funding Hybrid funding models Source: Deloitte Best Practice Research 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. Funding Models: The GFC is 99% government funded

89 89 The major source of revenue for Film Commissions is usually government funding Revenue Model : Australian Film Commission (AFC) In order to reduce government dependency and to be financially self-sustainable, the AFC is expected to: Source: Deloitte Best Practice Research 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.

90 90 The UK Film Council’s main source sources of revenue are: The bulk source of revenue for Film Commissions is usually government funding (cont.) Revenue Model: UK Film Council Source: Deloitte Best Practice Research 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.

91 91 In the US, some Film Offices have been established with limited government involvement or public funding Revenue Model: Film LA Film LA’s primary revenue comes from permit assistance, assistance with field services and property management. Source: Deloitte Best Practice Research

92 92 Film festivals are just one of the many marketing platforms for Film Commissions Marketing Strategies employed by Film Commissions Develop marketing strategies in collaboration with stakeholders Target international co-production markets Direct marketing to foreign companies Collective marketing of country vs. region Establish interactive websites that facilitate logistics Highlight incentives that support the industry Advertise in key magazines e.g. Hollywood Reporter Marketing Approach: Source: Focus Interviews with Key GFC Stakeholders and Industry Experts Attend and hold Film Festivals

93 93 Although National and Regional Film Commissions employ similar marketing strategies, Regional Film Commissions also have a domestic focus Attract foreign productions to the country Information on tax incentives, financing packages and funds Management of a website National Film Commission Promote their regions to foreign and local producers Promote their regions to the domestic industry Location liasion Management of a website Regional Film Commission National and Regional Marketing Strategies 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.

94 94 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 Representation E.g. AFC Participation in International Film Festivals Marketing Initiatives National Events and Seminars E.g. Holding feature finance markets and distribution forums Source: Deloitte Best Practice Research Dissemination of Information E.g. via the AFC website

95 95 The Irish Film Board aims to maximise the participation of its industry in the international and national marketplace Marketing Initiatives: Irish Film Board Source: Deloitte Best Practice Research A multi-pronged marketing approach by the GFC would be a boost for the industry. Marketing Initiatives Information Dissemination User-friendly website to attract visitors and provide information on the Irish industry Setting up an office in Los Angeles to promote Ireland in the US Co-production treaties with various countries Participation in domestic and international film festivals

96 96 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

97 97 Australia has a number of agencies that are dedicated to the audio-visual industry and supportive of the AFC Institutional Arrangements: Australia New South Wales Film and Television Office 2 2 Screen Act 3 3 Film Finance Corporation Australia 4 4 Australian Children’s Television Foundation 5 5 Australian Film, Television and Radio School 6 6 Film Australia 7 7 Film Victoria 1 1 Source: Deloitte Best Practice Research These organisations have roles and mandates that are complementary to each other.

98 98 In Spain, various government-related and privately funded agencies support the audio-visual industry Institutional Arrangements: Spain Film and Audio-visual Arts Institute Spain Film Commission Santiago de Compestela Film Commission Madrid Film Commission Galicia Film Commission Tenerife Film Commission Andalusia Film Commission Jerez Film Commission Barcelona Plató Film Commission National Regional Local 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

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

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

101 101 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 189519561962 1950s1970s Mid-1980s Late-1980s Segregation of cinemas 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. 1950s Source: Deloitte SA Market Research

102 102 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. 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

103 103 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: 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. Audio-visual Hubs: Source: Deloitte SA Market Research

104 104 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 Strategic Objectives Keys Activities The Cape Film Commission was launched in 2001 by the City of Cape Town and the Provincial Government of the Western Cape. Establishment 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

105 105 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 Strategic Objectives Keys Activities The Durban Film Office was launched in 2003 by Ethekwini Municipality. Establishment 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

106 106 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:

107 107 The primary value proposition of local Film Offices and Commissions is to market their regions as locations of choice Line ItemCape Film CommissionDurban Film OfficeGauteng Film Commission Governance & Structure S21 Company with Independent Board Mayor’s Office & City Department – Economic Development –S21 Company with Independent Board –In the process as registering as a Public Entity BudgetR 4.15 Million R1.5 Million operational, plus infrastructural Support +/- R4.5m. Additional Funding dependent on approved Projects. R14.1 Million (2006) R18.5 Million (2007) Value Chain Positioning Active in all areas of the value chain - Concentrates on marketing the region as a location of choice for production. - Limited involvement in other areas of the value chain due to budget constraints. - Focus currently on the production segment of the value chain. Source of Funding - CoCT: Economic Development - PGWC: Economic Development - Ethekwini Municipality - KwaZulu-Natal Provincial Government (Projects) DED: Gauteng Provincial Government JurisdictionCape Town & Western Cape Ethekwini MunicipalityProvince of Gauteng Source: Deloitte SA Market Research The bodies are seen to be complimentary in promoting the South African audio-visual industry. Comparative Overview:

108 108 In South Africa, various government-related and privately funded agencies support the audio-visual industry Institutional Arrangements: South Africa National Regional Local There is a perception within the industry that there is a lack of coordination between key institutions and programmes. 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

109 109 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: The impact of these regional and other initiatives is difficult to measure as limited data is available.

110 110 … with the GFC engaging in a range of AV activities within Gauteng 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 6-month Snapshot of GFC Activity: Source: GFC 6-month Production and Marketing Activity Report (Apr – Sept 2007)

111 111 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: The GFC’s key priority areas match the focus areas of other complementary industry strategies. Key Challenges Skills development. Audience development. Access to finance. Improving coordination between key institutions. Obtaining critical industry information. Transformation. Skills development. Audience development. Access to finance. Improving coordination between key institutions. Obtaining critical industry information. Transformation. Some Key Strategies DAC Cultural Industries Growth Strategy, 1998. Industrial Development Corporation Report, 2000. NFVF National Value Charter. Strategy for the Development of the Content Industries, 2003. Film and Electronic Media Sector Skills Plan, 2004. Western Cape Province Micro Economic Development Strategy: Film Sector, 2005. The DTI Draft Sector Development Strategy: Film and Television, 2005. 2007-2008 Sector Development Skills Plan DAC Cultural Industries Growth Strategy, 1998. Industrial Development Corporation Report, 2000. NFVF National Value Charter. Strategy for the Development of the Content Industries, 2003. Film and Electronic Media Sector Skills Plan, 2004. Western Cape Province Micro Economic Development Strategy: Film Sector, 2005. The DTI Draft Sector Development Strategy: Film and Television, 2005. 2007-2008 Sector Development Skills Plan Focus Areas Sustainable national industry growth and development. Enhancement of economic growth and development. Accessibility to financing. Development of content for broadcasting and multimedia. Development of skills in the industry. Increased competitiveness, exports and investment Transformation of the industry. Sustainable national industry growth and development. Enhancement of economic growth and development. Accessibility to financing. Development of content for broadcasting and multimedia. Development of skills in the industry. Increased competitiveness, exports and investment Transformation of the industry.

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

113 113 Local Operating Environment: The South African AV industry operates is an environment that is rapidly and continuously changing The South African Broadcasting Corporation has: 3 national channels and an Africa channel. 2 licenses for regional channels that will broadcast in indigenous languages. There are two M-Net channels and over 40 DSTV channels. One free-to-air channel i.e. E.TV. The South African Broadcasting Corporation has: 3 national channels and an Africa channel. 2 licenses for regional channels that will broadcast in indigenous languages. There are two M-Net channels and over 40 DSTV channels. One free-to-air channel i.e. E.TV. Broadcast Television The Commercials sector is very competitive, with over 50 companies that specialise in TV commercials. It is an industry driven by production costs relative to the purchase of airtime. The sector is characterised by high quality output. The Commercials sector is very competitive, with over 50 companies that specialise in TV commercials. It is an industry driven by production costs relative to the purchase of airtime. The sector is characterised by high quality output. Commercials The making of corporate videos boomed in the 1980’s, when cheap, simple and high quality video cassettes came onto the market. Estimates are that corporate video makes up a quarter of production turnover in South Africa. The making of corporate videos boomed in the 1980’s, when cheap, simple and high quality video cassettes came onto the market. Estimates are that corporate video makes up a quarter of production turnover in South Africa. Corporate Video South Africa has diverse and attractive locations that are sought after by film and commercials producers worldwide. The Rand / US $ exchange rate has enabled relatively competitive costs for air travel, accommodation etc. Local equipment, facilities, services and crew are rated amongst the best in the world. SA has about 50 successful local facilitating producers in. South Africa has diverse and attractive locations that are sought after by film and commercials producers worldwide. The Rand / US $ exchange rate has enabled relatively competitive costs for air travel, accommodation etc. Local equipment, facilities, services and crew are rated amongst the best in the world. SA has about 50 successful local facilitating producers in. Facilitation The economic multiplier effect of the industry is estimated to be between 2 - 2.5. International experience has shown that the industry has a positive economic impact. In Australia, the output multiplier is 2.67. Industries that benefit from the industry include tourism, hospitality, insurance, marketing, tax and legal advisory etc. The economic multiplier effect of the industry is estimated to be between 2 - 2.5. International experience has shown that the industry has a positive economic impact. In Australia, the output multiplier is 2.67. Industries that benefit from the industry include tourism, hospitality, insurance, marketing, tax and legal advisory etc. Ancillary Services New technologies such as digitization have enabled new content delivery channels such as DVDs and online portals. Digitisation has lead to an increase in small independent companies that can produce for TV due to reduced costs of production and distribution, once the initial expensive capital cost has been incurred. New technologies such as digitization have enabled new content delivery channels such as DVDs and online portals. Digitisation has lead to an increase in small independent companies that can produce for TV due to reduced costs of production and distribution, once the initial expensive capital cost has been incurred. Distribution and Exhibition The impact of new technologies on content production and distribution mirrors global trends. Source: Deloitte SA Market Research

114 114 In 2006, almost R3 billion revenue was generated in the South African audiovisual production industry South African AV Industry Revenue: 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

115 115 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

116 116 With very few exceptions, the local box office is dominated by foreign films … Sample Local Box Office Earnings: Source: Deloitte SA Market Research South African Gross Box Office Earnings (25 Nov 2005 - 20 Jan 2006) 0 5 10 15 20 25 30 35 Mama Jack Harry Potter and the G... Chronicles of Narnia King Kong Cheaper by the Dozen 2 Rumour Has It Chicken Little Flight Plan Legend of Zorro The 40-year old virgin Movie Earnings (R m)

117 117 … with ‘slapstick’ the most successful of local movie genre’s Top 15 Local Films: Source: Deloitte SA Market Research All Time Top 15 South African Gross Box Office Earnings 0 5 10 15 20 25 30 35 MR BONES MAMA JACK OH SCHUKS I'M GATVOL PANIC MECHANIC THERE'S A ZULU ON.. MILLENIUM MENACE TSOTSI SWEET N SHORT GODS MUST BE CRAZY 2 OH SHUCKS IT'S SCH... LIPSTIEK DIPSTIEK OH SHUCKS HERE C... ORKNEY SNORK NIE FUNNY PEOPLE 2 GODS MUST BE CRAZY Movie Earnings (R m)

118 118 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 There exists strong potential demand from local audiences for local content if it is of greater variety, quality and relevance.

119 119 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

120 120 Countrywide, new content delivery channels are booming due to falling prices of DVDs, computers and cell phones Local movie theatres may face growing competition from alternative content delivery channels, especially if ticket prices continue to rise. Content Delivery Channels: Source: Deloitte SA Market Research

121 121 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 industry 1. 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. It is estimated that South Africa has 0.5% of the market share of the global film, TV and commercials industry 1. 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

122 122 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. It is difficult to monitor and evaluate the social and economic impact of the industry due to data limitations.

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

124 124 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

125 125 One of the main impediments to growing the local industry has been poor audience development Audience Development: Due to previous social, spatial and economic planning inequalities, the overwhelming majority of the population is located in townships with no exhibition outlets. Geographical distance from movie theatres and ticket pricing has precluded growth in previously disadvantaged groups. Many South African films are perceived as being too socio-political and do not appeal to the tastes of 16 – 35 year old audiences who want films that reflect their current realities and more variety of content. Due to previous social, spatial and economic planning inequalities, the overwhelming majority of the population is located in townships with no exhibition outlets. Geographical distance from movie theatres and ticket pricing has precluded growth in previously disadvantaged groups. Many South African films are perceived as being too socio-political and do not appeal to the tastes of 16 – 35 year old audiences who want films that reflect their current realities and more variety of content. Background The Film Resource Unit (FRU) has partnered with the Department of Arts and Culture, the Humanist Institute for Development Cooperation, the GFC and the Government Communication and Information System to establish community based audio-visual facilities to promote development, communication and active citizen participation. N.B. There was announcement on 20 June 2007 by the Board of Directors of the FRU that it might close down due to 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. The Film Resource Unit (FRU) has partnered with the Department of Arts and Culture, the Humanist Institute for Development Cooperation, the GFC and the Government Communication and Information System to establish community based audio-visual facilities to promote development, communication and active citizen participation. N.B. There was announcement on 20 June 2007 by the Board of Directors of the FRU that it might close down due to 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. Audience Development Initiatives Source: Deloitte SA Market Research

126 126 South Africa has an internationally recognised comprehensive and progressive legal framework However there are perceptions that legislation is too rigid and there is limited institutional capacity to implement it. 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.

127 127 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..

128 128 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; t he 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.

129 129 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 Funding is potentially a major growth driver as it helps attract industry players to the market. 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.

130 130 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: 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 Local banks consider the industry to be high-risk, with few mitigation strategies in place.

131 131 The Large Budget Film and TV Production Rebate is the prime investment incentive available to both foreign and local big budget producers Key Incentives: 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. Eligible applicant rebated a sum totalling 15% for foreign productions or 25% for qualifying South African productions, including official co-productions of the qualifying South African production expenditure that an applicant has spent on an eligible film production. The maximum rebate for a project is R10 million. The rebate scheme tends to be inaccessible to most local producers as minimum spend production expenditure is R25 million. There are however proposals to lower the rebate threshold to accommodate lower budget productions ( { "@context": "http://schema.org", "@type": "ImageObject", "contentUrl": "http://images.slideplayer.com/26/8836922/slides/slide_131.jpg", "name": "131 The Large Budget Film and TV Production Rebate is the prime investment incentive available to both foreign and local big budget producers Key Incentives: International best practice suggests that a variety of film specific incentives are required at national and regional levels and for smaller local productions.", "description": "A business environment that provides general incentives to encourage business, such as in Ireland, is also beneficial. Eligible applicant rebated a sum totalling 15% for foreign productions or 25% for qualifying South African productions, including official co-productions of the qualifying South African production expenditure that an applicant has spent on an eligible film production. The maximum rebate for a project is R10 million. The rebate scheme tends to be inaccessible to most local producers as minimum spend production expenditure is R25 million. There are however proposals to lower the rebate threshold to accommodate lower budget productions (

132 132 Other incentives are available to support the industry in South Africa Other Incentives: 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. Employers can claim back the Skills Development Levy if they provide training that is MAPPP-SETA accredited. Skills Development Fund Enables productions from participating countries to apply for benefits or programmes of assistance from both countries. Co-production Treaties Source: Deloitte SA Market Research

133 133 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: There appear to be constraints in the payment of rebates to approved applicants, which need to be investigated further. Source: Deloitte SA Market Research 0 5 10 15 20 25 30 South AfricanCo-prodForeign Number of Applications received Number of Applications approved Number of Applications paid Number

134 134 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:

135 135 South Africa has a vibrant service industry catering to all aspects of the audio-visual industry … Service Providers Source: Deloitte SA Market Research Service Providers Production Facilitation Equipment Provision DistributionExhibition Insurance Services Financial Services Post-productionFilm ProcessingArt Direction Original Production

136 136 … 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:

137 137 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:

138 138 South Africa’s diverse physical environment makes it an attractive location Source: Deloitte SA Market Research South Africa has become a favoured location for filmmakers keen to capitalise on its natural beauty. Physical Environment: 14 hours of sunlight during summer months. Weather and seasons that alternate with Europe and North America. 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. 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.

139 139 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%). Temporary staff constitute an important component of the AV workforce at 13%.

140 140 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:

141 141 A comparison of two locally produced movies shows a high degree of employee transformation, with most employees working as freelancers... 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). 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%. 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 Case Studies:

142 142 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

143 143 Several public and private sector organisations are providing training programmes to help address identified skills gaps Source: Deloitte SA Market Research Skills Development Initiatives: Responsible for administering skills development in the industry using the Skills Development Levy. Coordination of learnerships and mentorship programmes. Responsible for administering skills development in the industry using the Skills Development Levy. Coordination of learnerships and mentorship programmes. MAPPP SETA Public – Private Partnerships NFVF E.g. the MultiChoice and Department of Labour Film Skills Development Programme that provides internships for a hundred trainees. Offers bursaries for study at training institutions. Development of Unit Standards Financial support for training projects. Investigating the possibility of establishing a National Film School. Offers bursaries for study at training institutions. Development of Unit Standards Financial support for training projects. Investigating the possibility of establishing a National Film School. Private Initiatives E.g. the Audiovisual Entrepreneurs of Africa, which is a development programme for producers in Southern Africa. M-Net’s New Directions Scriptwriter and Director Development Programme. E.g. the Audiovisual Entrepreneurs of Africa, which is a development programme for producers in Southern Africa. 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.

144 144 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

145 145 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 Locally, perceptions are that the business environment is not conducive for the growth of SMMEs. 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%).

146 Gauteng AV Industry Overview Key Trends Industry Growth Drivers SWOT Analysis

147 Gauteng AV Industry Overview Key Trends Industry Growth Drivers SWOT Analysis

148 148 Gauteng is the growth engine of the country. Source: Deloitte Gauteng Market Research Strong economic growth is driving booming demand for entertainment in Gauteng … Economic Growth: Economic growth 0 1 2 3 4 5 6 20012002200320042005 Year y-o-y change South Africa Gauteng

149 149 Source: Deloitte Gauteng Market Research … as is the Province’s relatively rich and growing population Income Distribution: Gauteng is home to the wealthiest population. Population growth of 20% between 1996 and 2001. By 2010 or earlier, Gauteng will be the largest province by population. In 2001 500,000 people earned more than R300 000 a year.

150 150 Gauteng has the largest cinema audiences nationally, reflecting its strong movie-going culture … Average Cinema Attendance: Established cinema infrastructure, particularly in wealthy areas, is a key strength of the province. Source: Deloitte Gauteng Market Research Ster-Kinekor average Weekly Cinema Attendance (2006) 62 391 44 762 34 043 14 032 7 289 5 803 0 10 000 20 000 30 000 40 000 50 000 60 000 70 000 GautengKZNWestern Cape Eastern Cape Free StateLimpopo Number of seats sold

151 151 … but cinema facilities are concentrated in the wealthier northern suburbs of Johannesburg and Tshwane Cinema locations in Gauteng: There is a shift to the inner cities, making them excellent places to invest in cinema facilities. Source: GFC Spatial analysis Carlton Centre and Sterland doing well (Sterland Junction has experienced rapid growth)

152 152 The Gauteng audiovisual production industry achieved revenue of approximately R1,1 billion in 2006 … Gauteng AV Industry Revenue: 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. Audiovisual Industry Production* R 50m R 99m R 290m R 310m R 650m R 710m R 15m R 20m 0 250 500 750 1 000 1 250 20052006 Year Revenue (R m) Multimedia TV Commercials Film Source: Deloitte Gauteng Market Research

153 153 … and is generating a total of over R2 billion a year in economic activity due to multiplier effects Estimates of Economic Activity: Contribution to GDP is still relatively small but with ancillary industries could be larger. 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 Source: Deloitte Gauteng Market Research

154 154 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. Source: Focus interviews and Deloitte Gauteng Market Research As it is the home of the major broadcasters, Gauteng is the centre of the television industry.

155 155 Most popular South African TV shows are Gauteng-based 7 out of the top 10 SA TV shows are Gauteng-based Local content is consistently the most popular content on TV. TV Series Viewership 9.3 10.2 13.6 5 10 11.6 12 19 22 0102030 Egoli Survivor: Panama Live Lotto draw Days of our Lives Muvhango 7de Laan International Smackdown Izozo Connection Generations TV show AMPS Viewership Gauteng-based Other SA/International Source: Deloitte Gauteng Market Research

156 156 Commercials production in Gauteng is dominated by local production SA/International Servicing of foreign productions Locally produced % of Commercials produced in Gauteng Breakdown of Commercials Produced in Gauteng: Source: Deloitte Gauteng Market Research 353 commercials were produced in Gauteng compared to 545 elsewhere in the country. The average commercial has 46 freelance crew. On average, locally produced commercials cost R13.4m, compared to R13,1m for servicing of foreign commercials.

157 157 Gauteng accounts for the bulk of locally produced films Gauteng accounted for approximately 85% of all local film productions in 2006:  The Province is strong in the initial stages of the value chain (pre-production, production and post-production),  In other Provinces, particularly the Western Cape, Eastern Cape and KZN, servicing of international film productions is dominant. Gauteng does however provide post- production services for international film productions:  E.g. Blood Diamond, Catch a Fire, The Interpreter, The Flyer etc. Access to distribution channels remains a constraint for local filmmakers:  Alternate distribution channels for locally- produced content e.g. DVDs and cellphones, could address this issue in the future. Film-related activity in Gauteng: “It’s no use making shoes and then not having a shop to sell them in” - Producer Source: Deloitte Gauteng Market Research

158 Gauteng AV Industry Overview Key Trends Industry Growth Drivers SWOT Analysis

159 159 Gauteng is perceived as having strong technical skills, with easy access to both the wider South African and international skill pools Human Resources: Skills are key to the long-term survival of the industry thus skills development is crucial. Lack of clarity on the role of MAPPP-SETA Gaps exist and industry has yet to conduct a comprehensive skills audit Film schools are helping producing more of the skills needed There is a need for experienced staff in senior positions Skills in the TV and commercials sectors are world-class Source: Focus Interviews

160 160 Gauteng is strong in technical infrastructure, particularly in the Auckland Park-Randburg corridor Distribution of Technical Infrastructure: Source: GFC Spatial Analysis 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.

161 161 Gauteng’s public infrastructure is excellent, but rapid economic growth is putting pressure on the system Strong film-specific and public infrastructure is one of Gauteng’s greatest strengths. OR Tambo International handled 16m passengers last year Sandton City / Nelson Mandela Square is the largest retail space in the southern Hemisphere The N1 carries 14,000 cars an hour during morning rush 60% of all research and development takes place in the province Gautrain will link airport to Sandton, Rosebank and Tshwane Johannesburg alone has 9000km of road Public Infrastructure: Source: Deloitte Gauteng Market Research

162 162 Gauteng has a business environment that is conducive to the AV industry Key Statistics: The province is the heart of South African business and industry. Office and industrial space still amongst the cheapest in the world: In 2005, office rentals in London were R8500/m 2, compared to Johannesburg rates of R780/m 2. 78% of SA corporates are based in Johannesburg, Good logistics support - permits, accommodation, transportation, insurance, banking services etc, Johannesburg is the 8 th cheapest city to live in: 136 th out of 143 global cities. Source: Deloitte Gauteng Market Research

163 163 Safety and security however, have emerged as a key concern for the industry Safety and Security: Source: Deloitte Gauteng Market Research 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.

164 164 Film budgets in the province rely heavily on subsidies, incentives and soft loans Funding: Access to financing is a key constraint, both nationally and in Gauteng. 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. Source: Deloitte Gauteng Market Research

165 165 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

166 166 Title But filming is only a small part of the film-making process Gauteng has a good physical environment, not only for shooting of films but for post production as well 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). Physical Environment: Source: Deloitte Gauteng Market Research

167 167 Sound infrastructure and a conducive business environment rate as the most important factors for the local industry Lack of incentives and access to funding are highlighted as key weaknesses for the province. Industry Perception Survey Output: Source: Focus Interviews and Online Survey output No. of respondents = 33

168 Gauteng AV Industry Overview Key Trends Industry Growth Drivers SWOT Analysis

169 169 Strengths and Weaknesses: Strong business environment. Strong provincial economy leads to strong domestic demand for entertainment. Strong existing local film industry. Availability of TV infrastructure capacity e.g. studios, crews and support services. TV infrastructure can be expanded to film infrastructure. National tax incentives. TV and commercials production business expertise. Increased tourism profile. Strong business environment. Strong provincial economy leads to strong domestic demand for entertainment. Strong existing local film industry. Availability of TV infrastructure capacity e.g. studios, crews and support services. TV infrastructure can be expanded to film infrastructure. National tax incentives. TV and commercials production business expertise. Increased tourism profile. Strengths The Gauteng film industry can grow by leveraging its sound technical infrastructure and domination of the TV and local commercial market … Safety and security. ‘Gauteng’ is a weaker brand than ‘Cape Town’ which is widely known internationally. Lack of provincial incentives and funding. Lack of co-ordination between national, provincial and local agencies. Lack of distribution outlets for local filmmakers. Distance from major markets. Skills exist, but at busy times capacity is stretched. Safety and security. ‘Gauteng’ is a weaker brand than ‘Cape Town’ which is widely known internationally. Lack of provincial incentives and funding. Lack of co-ordination between national, provincial and local agencies. Lack of distribution outlets for local filmmakers. Distance from major markets. Skills exist, but at busy times capacity is stretched. Weaknesses … while overcoming perceptions around safety and more aggressively marketing the province.

170 170 SWOT: Low-cost destinations in South America and Eastern Europe. Digitisation requires capital investment and coordination; other locations may implement rapid digistisation quicker than Gauteng. Increased film activity in other provinces. Development of advanced post-production infrastructure in other provinces e.g. Dreamworld. Low-cost destinations in South America and Eastern Europe. Digitisation requires capital investment and coordination; other locations may implement rapid digistisation quicker than Gauteng. Increased film activity in other provinces. Development of advanced post-production infrastructure in other provinces e.g. Dreamworld. Threats Digitisation – province has advanced communications network and industry will benefit from reduced cost of filming. Hub for productions shooting in remote locations (particularly in Africa). Development of Gauteng specific AV policies. Favourable exchange rate. Development of technological expertise and infrastructure. 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. Digitisation – province has advanced communications network and industry will benefit from reduced cost of filming. Hub for productions shooting in remote locations (particularly in Africa). Development of Gauteng specific AV policies. Favourable exchange rate. Development of technological expertise and infrastructure. 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. Opportunities The industry must also act to grasp opportunities by focusing on creating a ‘film-friendly’ environment

171 171 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.

172 High-Level Strategic Recommendations Optimal Role of the GFC to best Position the Gauteng AV industry for Growth

173 173 A visionary strategy provides the platform for rapid growth Versus Incrementalism [One reason why companies stagnate] Incrementalism [Leads to stagnation] TIME GOAL Where we are now? Actions taken in response to circumstances Where can we be next year? Focus [One reason why companies grow] Vision [Leads to rapid growth] TIME GOAL Actions driven by strategy Where are we now? Vision of where we need to be five years from now “Incremental innovation” is the process of making a few things slightly better “Disruptive innovation” provides the opportunity to create something new and create explosive growth High-Impact Strategic Approaches: Source: Deloitte Gauteng Market Research

174 174 The principles of good strategy highlight the importance of government supporting activities rather than individual firms or projects Target productivity-enhancing “activities” instead of individual firms or sectors. Provide additional support for new activities, while existing ones can be assisted by removing regulatory or infrastructure-related obstacles. Promote an environment conducive to experimentation with products, production and distribution e.g. Innovation hubs. Reduce information gaps that may limit private-sector economic activity, while avoiding creating economic opportunities for some firms and not others. Avoid creating a form of corporate welfare. Incentives should be designed up front to be discontinued so that companies and the State do not come to depend on specific programmes. Maximise public accountability and transparency, which will help to ensure positive net economic benefits and provide clear mechanisms for discontinuing programmes that do not work. Take into account economic benefits and costs of interventions. Principles of Good Strategy: Source: Deloitte Gauteng Market Research

175 175 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

176 176 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. Source: GFC Business Plan (MEFS) 2007 – 2010 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.

177 177 To successfully execute its mandate, we recommend the GFC focus on five key areas to sustainably grow the industry Facilitate synergies between attracting international productions and growing the local industry Develop accessibility to Gauteng specific financial mechanisms e.g. a regional fund, Improve logistics support, Facilitate easy access to varied locations, Assist the establishment of state-of-the infrastructure, Support the development of technical expertise. Develop accessibility to Gauteng specific financial mechanisms e.g. a regional fund, Improve logistics support, Facilitate easy access to varied locations, Assist the establishment of state-of-the infrastructure, Support the development of technical expertise. Holistic packaging of Gauteng as a Location of Choice Attract local and foreign productions through incentives and availability of finance. Incentives should focus on building industry e.g. incentives for skills transfer, Facilitate the building of basic infrastructure for production, Support the training of below-the-line cast and crew, Develop studios, sound stages, recording studios etc, Encourage equity investments, Develop production clusters. Attract local and foreign productions through incentives and availability of finance. Incentives should focus on building industry e.g. incentives for skills transfer, Facilitate the building of basic infrastructure for production, Support the training of below-the-line cast and crew, Develop studios, sound stages, recording studios etc, Encourage equity investments, Develop production clusters. High-level Strategic Recommendations: 1 2 Industry benefits from greater coordination and integration, Ensure clarity on roles, Deliver according to national, regional and local needs. Industry benefits from greater coordination and integration, Ensure clarity on roles, Deliver according to national, regional and local needs. Lobby for greater national coordination and institutional reform 3

178 178 To meet its mandate, we recommend that the GFC focus on five key areas to sustainably grow the industry (cont.) Strategic Recommendations: Our recommendations highlight the need for the GFC to take a focused approach to stimulating activities that will benefit the film industry. Define the Strategic Role of the GFC Developing Industry Partnerships, Funding and incentives support, Training and development assistance, Lobbying, Monitoring and evaluation, 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. Developing Industry Partnerships, Funding and incentives support, Training and development assistance, Lobbying, Monitoring and evaluation, 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. 4 Explore Alternative Models for the Funding of GFC Long-term strategy to reduce dependency on government and provide value-added services to industry, For specific projects, leverage private funds rather than committing government money. Long-term strategy to reduce dependency on government and provide value-added services to industry, For specific projects, leverage private funds rather than committing government money. 5

179 179 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. The Gauteng Advantage: Availability of state-of-the-art technical infrastructure: Can help reduce production costs. Easily accessible and varied locations 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 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. To compete successfully and be a leading destination of choice, Gauteng needs to offer the industry a holistic package 1

180 180 Bearing in mind that the international industry has potential to generate high revenues within the province... 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 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 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... 2 Case Studies: Source: Deloitte Gauteng Market Research

181 181 Hybrid Approach Grow the International (Servicing) Industry Grow the Local AV Industry... sustainable growth in the province could be achieved by exploiting the synergies between the local and international AV industries High growth potential: Develop local AV industry and leverage strengths (e.g. post- production capacity) to attract big foreign players. Local industry benefits from increased revenue and better facilities (AusFilm model). Develop and support local industry through range of directed initiatives. Grow the service industry for foreign films; high but sporadic revenue. The optimal positioning for Gauteng may be to expand its local production market to service international productions as well. Industry Approach: Benefits of Foreign production: Once- off economic impact with potential spin-offs e.g. Hotel Rwanda (R200m) Benefits of Domestic production: Broad economic impact (multiplier of 2 – 2.5) e.g. Jozi H led to the creation of 500 jobs

182 182 The GFC would need to tailor its functions to meet the different needs of both the international and local industries 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. Industry Requirements: 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

183 183 Institutional Alignment: Significant areas of overlap exist between different institutions. An analysis of the provincial landscape suggests a lack of institutional capacity at local level, with overlap at national level GFCNFVF Metros and Municipalities Market as a location of choice Act as a centralised industry intelligence hub 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 High focus Neutral Low focus 3 Source: Deloitte Gauteng Market Research

184 184 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: 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. National and local government Industry Provincial government AV Industry DAC DTI NFVF Industry groups: IPO CPA DED OTHER DEPARTMENTS Strategies: ASGI-SA, Incentives, Microeconomic Development Strategy Strategy: Provincial Economic strategy Source: Deloitte Gauteng Market Research and Focus Interviews

185 185 An institutional structure that contains national, regional and local structures would benefit from greater co- ordination and integration … Proposed Institutional Structure: … as well as gaining from clarity on roles and the ability to deliver at the appropriate level. National Film Commission National Film Commission Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Local Film Office Regional Film Commission Regional Film Commission Regional Film Commission Regional Film Commission Regional Film Commission Regional Film Commission Local Film Office Local Film Office National e.g. NFVF? Regional e.g. Gauteng Local e.g. Ekhuruleni Supporting Agencies/Organisation

186 186 The GFC needs to play an increasingly strategic role in growing the provincial AV industry, even as it fulfils its stated mandate Proposed GFC Role: Best PracticeGFC Mandate 4 Industry Transformation Industry Intelligence Hub Monitoring and Evaluation Destination Marketing Strategic Industry Partnerships Funding and Incentives Training and Development Policy Development and Implementation Lobbying Logistics Support Audience Development Technology “Overlap”

187 187 This role however will need to evolve in line with the demands of its rapidly changing operating environment Evolving Role: Declining Box Office Attendance Changing business Models Shift in Production Funding Models Digitisation Actively build a screen culture in underserviced areas/demographics and support the development of alternative content delivery channels. Support the industry to develop new content delivery windows. Promote the development of a variety of funding models from both public and private sources. Facilitate the development of technical infrastructure and expertise as the industry becomes increasingly digitised and new technologies emerge. TRENDGFC RESPONSE / ROLE

188 188 Proposed Role of GFC: The GFC needs to strategically drive the creation of a film- friendly environment in Gauteng Source: Deloitte Best Practice Research Role of Film Commissions Technology Facilitate availabilty of state-of-the art technology to attract production and post-production acitvities Logistics Support Human Resources Support the development of skilled human resources Funding and Incentives Develop the local industry by attracting productions Lobbying Development of a Film Culture Industry Partnerships Marketing International - National Domestic - Provincial National GFC (Regional) Local Monitoring and Evaluation Policy Development

189 189 Though the GFC is fully government funded, it could consider other funding options to reduce its dependence on government grants Alternative GFC Revenue Model: However, given the GFC’s mandate, it is likely to remain primarily government funded in the short-term. 100% Public funding 100% Public funding 100% Private funding 100% Private funding GFC Increasing self-generation of funds and institutional funding 5% self-generation of funding e.g. fees for resource centre information 10% institutional funding e.g. IDC “Self-generated funds could be obtained by charging fees for services and … a fee-paying membership base” “Though self-generated funding is not viable at present, sales of permits or levies on movie tickets are a future option” “Public-private partnerships… could raise funds to be used for specific projects” “Self-generated funds could be obtained by charging fees for services and … a fee-paying membership base” 5 Source: Deloitte Gauteng Market Research and Focus Interviews

190 190 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: GFC has within its grasp the opportunity to make a meaningful contribution to the Province’s AV industry. 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.

191 Thank You!

192 Appendices I.Charters II.References III.Supporting Documentation

193 Appendices I.Charters II.References III.Supporting Documentation

194 194 We developed an overall project charter that outlined the project’s key objectives, activities and deliverables To acquire sound market intelligence on the local and international audio-visual markets: Comprehensive overview of the SA and Gauteng audio-visual industries Global trends, best practices and industry benchmarks To assess the competitiveness of the Gauteng audio-visual industry: SWOT and Critical Success Factors To make strategic recommendations to the GFC: Optimum positioning of the Gauteng audio-visual film industry Optimal role of the GFC Objectives Key research and analysis findings, including: Global trends, best practices and industry benchmarks Overview of the Gauteng and SA audio-visual markets Gauteng audio-visual industry sector competitiveness assessment High-level strategic recommendations: Optimum positioning of the Gauteng audio-visual film industry Optimal role of the GFC Deliverable Access to, and availability of, data: GFC documentation, benchmarking data etc Availability of GFC resources Support from GFC management to expedite decision making Sound planning and effective time management Integration of work streams Access to key stakeholders Critical Success Factors Jacques Stoltz, Senior Marketing Manager Project Sponsor Project Charter: Review existing client documentation and other available data: Identify gaps Analysis of the SA audio-visual market: Operating landscape Regulatory environment Incentives and Financing SWOT Analysis of the Gauteng audio-visual market: Market activity Market supply (facilities, skills, infrastructure, funding etc) Competitive positioning “As-Is” review of the GFC SWOT Review global trends, best practice and industry benchmarks: Competitor countries /destinations Other Film Commissions / Offices Critical success factors Prioritise and validate key issues and potential opportunities (Steercom) Consolidate findings and outcomes for submission to GFC Board Key Activities 1 x Project Director 1 x Project Manager 1 x 3 Consultants 2 x Subject Matter Experts (SME’s) Global Research Center (GRC) Support Project Resources (Deloitte)

195 195 Stream Charter: Gauteng Market Analysis To conduct a comprehensive overview of the Gauteng audio-visual market To assess the competitiveness of the Gauteng audio-visual market Identify key challenges and potential opportunities To conduct a strategic review of the GFC and its operations Role and value proposition Make strategic recommendations (high-level): Critical success factors for both the Gauteng audio-visiual industry and the GFC Objectives Deliverable Access to, and availability of, reliable statistical data Comparability of different sources of data Availability of GFC resources Sound planning and effective time management Integration with other work streams Access to key stakeholders Critical Success Factors Stream Charter: Develop work stream story board Develop issue based hypothesis to guide research on the Gauteng audio-visual industry Review existing client documentation and other available data Identify gaps Perform desktop research Identify industry players Conduct interviews with industry players Set up detailed questionnaires Review of information obtained Evaluate findings Analysis of the Gauteng audio-visual market Establish competitive positioning Evaluate GFC against similar bodies Evaluate findings against global best practice GFC “As-Is” analysis Develop detailed SWOT analysis Prioritise and validate key issues and potential opportunities Present insights from research to project team for review Integrate stream output into final project deliverable Key Activities 1 x Deloitte Consultant 2 x SME’s Stream Resources (Deloitte) Comprehensive overview of the Gauteng udio-visual industry Market activity and facilities Market demand and supply Competitive positioning Skills and resource availability Local industry expectations and requirements Key challenges and opportunities Overview of the GFC Mandate and role Structure Operations and activities Value proposition Key challenges and opportunities High-level strategic recommendations

196 196 Stream Charter: South Africa Market Analysis To conduct a comprehensive overview of the South African audio-visual market: Identify key challenges and potential threats Make high-level strategic recommendations How to leverage the strengths of, and opportunities within, the national audio-visual industry Objectives Deliverable Access to, and availability of, data Availability of GFC resources Sound planning and effective time management Integration with other work streams Access to key stakeholders Critical Success Factors Stream Charter: Develop work stream story board Develop issue based hypothesis to guide research on SA market Review of current information, including available information from GFC Identify gaps Identify industry players and similar bodies to GFC Conduct desktop research Design and conduct focus interviews Collate, evaluate and analyse findings Analyse the SA audio-visual market Establish the competitive framework on a national level Identify competitive positioning Analyse regulatory environment, incentive schemes and funding Develop detailed SWOT analysis Prioritise and validate key issues and potential opportunities Identify critical success factors Present insights from research to the project team for review Integrate stream output into final project deliverable Key Activities 1 x Deloitte Consultant 2 x SME’s Stream Resources (Deloitte) Comprehensive overview of the SA audio-visual industry. Current competitive framework in terms of skill and facilities Current complementary and competitive activities in SA Current level of demand in SA Current competitive positioning in the SA market Overview of sector competitiveness outlining key challenges and potential opportunities High-level strategic recommendations

197 197 Stream Charter: Best Practice To review global trends, best practices and industry benchmarks: Film Commissions/Offices Competitor countries and destinations To identify opportunities and challenges Make strategic recommendations (high-level): Critical success factors for both the Gauteng audio-visual industry and the GFC Objectives Global trends, best practices and industry benchmarks: Film Offices Audio-visual industries An overall assessment of factors to: Enable the GFO to be a leader in the audio-visual industry Make the Gauteng region a destination of choice Strategic recommendations (high- level) Deliverable Timely and comprehensive identification of data requirements Maintain constant contact with the GRC & BICS to ensure that relevant information is obtained Timely feedback and support from the GRC & BICS Access to, and availability of, local industry data Sound planning and effective time management Integration with other work streams Critical Success Factors Stream Charter: Develop work stream story board Develop issue based hypothesis to guide research on global trends, best practice and industry benchmarks Review existing client documentation and other available data: Identify gaps Draft research brief to be used by the GRC & BICS: Contact GRC & BICS and commission research Conduct desktop research Conduct focus interviews with key industry experts (DTT) Review information obtained: Identify best practice, trends and benchmarks Identify challenges and opportunities for the Gauteng Film Commission & Gauteng audio-visual industry Identify performance measures used by global: Film offices Audio-visual industries Identify critical success factors Present insights from research to the project team for review Integrate work stream output into final project deliverable Key Activities 1 x Deloitte Consultant 2 x SME’s GRC Support Stream Resources (Deloitte)

198 Appendices I.Charters II.References III.Supporting Documentation

199 199 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

200 200 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

201 201 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

202 202 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.orgwww.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.zawww.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, 3 rd 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.zawww.durbanfilmoffice.co.za References

203 203 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.comwww.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.comwww.findarticles.com 47.Financial Express Website www.financialexpress.com References

204 204 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

205 205 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

206 206 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

207 207 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.htmhttp://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.comwww.tenerifefilm.com 87. The Economist (2006): ‘Nollywood Dreams – Nigeria’s Film Industry, 2006’ 89. The Film Makers Guide to South Africa, 2007

208 208 References 90. The Times web article, ‘Joburg is World’s 8 th Cheapest City’, 20 th 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

209 Appendices I.Charters II.References III.Supporting Documentation

210 210 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

211 211 A number of other potential benchmark countries were also considered Comparator Countries: Gauteng aspires to establish a flourishing high quality audio-visual industry. 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. Source: Key GFC Stakeholders and Industry Experts

212 212 All the countries we reviewed provide support for funding and are focused on promoting their locations Funding of script development and production Input into skills development, investment, exports and R&D government policy development Support to screen culture development Promotion of use of digital platforms audio-visual archiving Funding of script development and production Input into skills development, investment, exports and R&D government policy development Support to screen culture development Promotion of use of digital platforms audio-visual archiving Australia (National) Promotion of the UK film industry in the global market Development of distinctive UK films Promote distribution and reach to more audiences Support appropriate training of talented youth Support to make people appreciate UK films and film making Development for access to cinema history and heritage Promotion of the UK film industry in the global market Development of distinctive UK films Promote distribution and reach to more audiences Support appropriate training of talented youth Support to make people appreciate UK films and film making Development for access to cinema history and heritage United Kingdom (National) Assistance with location selection and permits Post-production assistance Support for the acquisition of film resources Development of guidelines for filming in their areas Financial incentives Internships Liaison with communities and government Labour relations assistance...... Assistance with location selection and permits Post-production assistance Support for the acquisition of film resources Development of guidelines for filming in their areas Financial incentives Internships Liaison with communities and government Labour relations assistance...... United States (State) Promotion and development of film, audio-visual and multimedia production Promotion of Spain as a location for productions Coordination, cooperation and collaboration of activities of film commissions and offices operating in Spain Facilitating formal debates on the industry Promotion and development of film, audio-visual and multimedia production Promotion of Spain as a location for productions Coordination, cooperation and collaboration of activities of film commissions and offices operating in Spain Facilitating formal debates on the industry Spain (National) Promotion of the high quality domestic productions Promotion of the distribution of Mexican films nationally and internationally Facilitating contact of producers with government agencies that support production Advises foreign film producers on licenses, customs and import regulations, fiscal matters etc. Promotion of the high quality domestic productions Promotion of the distribution of Mexican films nationally and internationally Facilitating contact of producers with government agencies that support production Advises foreign film producers on licenses, customs and import regulations, fiscal matters etc. Mexico (National) Ireland (National) Different Roles of Film Commissions: Funds development and production of Irish films Location promotion Ensuring that Ireland is film friendly Partners with other government agencies to market, sale and distribute films and for training and development Creation of employment is a criterion for approval of applications for funds Funds development and production of Irish films Location promotion Ensuring that Ireland is film friendly Partners with other government agencies to market, sale and distribute films and for training and development Creation of employment is a criterion for approval of applications for funds Source: Deloitte Best Practice Research

213 213 Film Commissions typically have mandates that are developed by government in consultation with key industry stakeholders Minister of Sports and Arts and the Department of Communication, Information, Technology and Arts developed the mandate. Los Angeles Various representatives involved: The entertainment industry, Labour and trade, Local businesses, Civic and community bodies etc. Various representatives involved: The entertainment industry, Labour and trade, Local businesses, Civic and community bodies etc. Australia Source: Deloitte Best Practice Research Mandate Development:

214 214 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 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

215 215 Effective performance management, including monitoring and reporting, ensures accountability in Film Commission operations Accountability: It may be beneficial for the GFC to implement a service charter, to improve stakeholder perceptions around 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 consolidate the previously separate Service Charters of the AFC and the NFSA into one 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. 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. These Guidelines are intended to assist AFC-funded organizations to identify and implement better governance policies and procedures to fit their own needs and 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. AFC Corporate Governance Guidelines The AFC Has Developed a Service Charter to Instil Accountability Source: Deloitte Best Practice Research

216 216 Best-in-class Film Commissions typically operate within a clearly defined governance framework Governance Framework: AFC Australian Film Commission Governance Framework Australian Film Commission Governance Framework 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 measures that are consistent with the Department of Finance and Administration – Governance Arrangements for Australian Government Bodies (2005), the DCITA publication on General Guidance for Directors of Statutory Authorities (2004) and the Australian National Audit Office publications on Public Sector Governance. The AFC has established a number of governance practices and procedures to ensure it adheres to appropriate levels of accountability, disclosure and transparency. 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 measures that are consistent with the Department of Finance and Administration – Governance Arrangements for Australian Government Bodies (2005), the DCITA publication on General Guidance for Directors of Statutory Authorities (2004) and the Australian National Audit Office publications on Public Sector Governance. The AFC has established a number of governance practices and procedures to ensure it adheres to appropriate levels of accountability, disclosure and transparency. Corporate Governance Corporate Governance 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. The Commission is responsible for the governance practices of the AFC. To this end, Commissioners participate in ongoing corporate governance workshops. 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. The Commission is responsible for the governance practices of the AFC. To this end, Commissioners participate in ongoing corporate governance workshops. Commissioners Source: Deloitte Best Practice Research

217 217 Australia has a number of agencies that are dedicated to the audio-visual industry and supportive of the AFC Film Australia is one of the nation’s largest producers of television documentaries and educational programs, whose mission is to create an audio- visual record of Australian life. Film Australia produces programs under the National Interest Program, a contract with the Australian Government to devise, produce, distribute and market productions that deal with matters of national interest or illustrate and interpret aspects of Australian life. Film Australia is the executive producer on these productions. The AFTRS is the national centre for professional education and advanced training in film, broadcasting and interactive media for Australian citizens and permanent residents. A variety of full-time courses (mostly at postgraduate level) are conducted in Sydney and hundreds of short courses are conducted nationwide each year. AFTRS also offers online courses.  The ACTF is a national non- profit organization encouraging the development, production and dissemination of television programs, films and other audio-visual media for children, and the promotion of these programs in the community.  The FFC is the government’s principal agency for funding the production of Australian film and television programs. It invests in feature films, telemovies, mini-series and documentaries which have financial backing from the film and television marketplace, both domestic and international. The FFC’s share of returns from around the world are re-invested in production  The FFC also provides information on production, distribution and legal matters to applicants intending to seek funding and suggests advice be sought before negotiations begin with potential co- financing and distribution partners. Australian Film Television And Radio School (AFTRS) Australian Children’s Television Foundation (ACTF) Film Australia Film Finance Corporation Australia (FFC) Film Agencies Institutional Arrangements: Australia Source: Deloitte Best Practice Research

218 218 Institutional Arrangements: Australia Source: Deloitte Best Practice Research Australia has a number of agencies that are dedicated to the audio-visual industry and supportive of the AFC (cont.) These institutions complement each others roles and mandates. ScreenACT is the Australian Capital Territory (ACT) Office of Film, Television and Digital Media. ScreenACT aims to advance the capability and professionalism of these industry sectors in Canberra and the surrounding region, and promote the ACT as a filming location. The agency liaises with organizations and persons of interest to the industry sectors.  The FTO offers support for project development, production finance and industry and audience initiatives in New South Wales. Established and emerging talent is actively supported through initiatives such as the Aurora Script Workshops.  Industry and audience development grants encourage a sustainable industry, professional development and promote public interest in screen content as a n art form and medium of communication. A Regional Filming Fund exists to support filming outside the Sydney metropolitan region.  Film Victoria is a government agency that provides leadership and assistance for film, television and digital media production in Victoria. The agency develops and invests in both projects and people, and promotes Victoria as a centre for production nationally and internationally.  Film Victoria provides filmmakers with assistance and information on locations, permits immigration, customs, taxation, unions, studios and facilities. Two incentive funds are available to encourage film and television producers to bring their projects to Victoria. Film Victoria offers a range of programs to assist filmmakers with content creation, production investment and professional development.  It also supports cross-platform development between the traditional and new sectors in niche markets such as animation and game innovation. ScreenACT New South Wales Film and Television Office (FTO) Film Victoria Film Agencies

219 219 In Spain, there are various government and private related agencies that support the audio-visual industry Institutional Arrangements: Spain Source: Deloitte Best Practice Research Support, promote and plan Spanish audio- visual activities in the areas of production, distribution and screening To recover, restore, preserve, research and disseminate film heritage To contribute to the training of professionals in the different film disciplines To maintain relations with international and national bodies with similar purposes To co-operate with the autonomous communities in audio-visual arts Support, promote and plan Spanish audio- visual activities in the areas of production, distribution and screening To recover, restore, preserve, research and disseminate film heritage To contribute to the training of professionals in the different film disciplines To maintain relations with international and national bodies with similar purposes To co-operate with the autonomous communities in audio-visual arts Promote and develop the audio-visual production industry The promotion of Spain as a location for productions Coordination, cooperation and collaboration in activities developed by regional film commissions Facilitate formal debates on the industry Promote and develop the audio-visual production industry The promotion of Spain as a location for productions Coordination, cooperation and collaboration in activities developed by regional film commissions Facilitate formal debates on the industry Non-profit making organisation Created by the Andalusia Radio and Television Advises national and foreign producers regarding production logistics Promotes the Andalusia region Create and coordinate Film Commission regional offices in the Andalusian autonomous region Information on locations Liaison between production companies and government administration Non-profit making organisation Created by the Andalusia Radio and Television Advises national and foreign producers regarding production logistics Promotes the Andalusia region Create and coordinate Film Commission regional offices in the Andalusian autonomous region Information on locations Liaison between production companies and government administration The Film and Audio-visual Arts Institute National The Spain Film Commission National Andalusia Film Commission Regional Negotiate filming guidelines with city, town and district councils Manage a website Extend information on logistic services Process film permits Negotiate filming permit prices and conditions with city, town, district councils, churches and private individuals Promote locations Negotiate economic advantages (discounts, subsidies etc.) to attract audio-visual productions Negotiate filming guidelines with city, town and district councils Manage a website Extend information on logistic services Process film permits Negotiate filming permit prices and conditions with city, town, district councils, churches and private individuals Promote locations Negotiate economic advantages (discounts, subsidies etc.) to attract audio-visual productions Madrid Film Commission

220 220 In Spain, there are various government and private related agencies that support the audio-visual industry (cont.) Institutional Arrangements: Spain Source: Deloitte Best Practice Research Provides a wide range of free services to aid audio-visual production in Barcelona. Its services include: Free use of municipal locations Fee reduction in non-municipal spaces Processing of shooting permits Professional and industrial support Provides a wide range of free services to aid audio-visual production in Barcelona. Its services include: Free use of municipal locations Fee reduction in non-municipal spaces Processing of shooting permits Professional and industrial support Represents Galacia at the main audio-visual fairs and commercial missions abroad It is the reference point for information on policy of the Galician audio-visual industry It promotes an information line addressed to the Galician sector on aspects related to the international commercialisation Represents Galacia at the main audio-visual fairs and commercial missions abroad It is the reference point for information on policy of the Galician audio-visual industry It promotes an information line addressed to the Galician sector on aspects related to the international commercialisation Its main aim is to create a conducive environment for film and TV production companies Promotes the audio-visual industry in Jerez Its main aim is to create a conducive environment for film and TV production companies Promotes the audio-visual industry in Jerez Barcelona Plató Film Commission Council office Galicia Film Commission Regional Jerez Film Commission Council office Its main aim is to create a conducive environment for film and TV production companies It provides free services such as location scouting, processing of film shoot permits and professional support and advice Liaison between the local audio-visual industry and ancillary industries Its main aim is to create a conducive environment for film and TV production companies It provides free services such as location scouting, processing of film shoot permits and professional support and advice Liaison between the local audio-visual industry and ancillary industries Santiago de Compestela Film Commission Council office Promotes Tenerife abroad as a film location Facilitating obtaining of permits Liaison between foreign and local production and service companies Identification of commercial opportunities for local productions internationally Collaboration with other public institutions Promotes Tenerife abroad as a film location Facilitating obtaining of permits Liaison between foreign and local production and service companies Identification of commercial opportunities for local productions internationally Collaboration with other public institutions Tenerife Film Commission

221 221 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

222 222 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 addedImpact on employment = Initial demand x Gross Value Added Multiplier = $20m x 1.80 = $36m (approximately the contribution to GDP resulting from the initial $20m expenditure) = Initial demand x Employment Multiplier (adjusted for inflation) = 20 x 30.7 = 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.

223 223 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: MultiplierDirect Direct + Indirect Direct + Indirect + Induced Direct + Indirect + Induced + Government GNP0.50640.73540.92841.2558 Employment24.0135.6041.9656.91 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. The audio-visual industry can have a proven positive economic impact on the economy of a region or country (cont.) Economic Impact: Ireland

224 224 Some degree of transformation has occurred in the sector, for part time and full time employees Source: Commerical Producers Association (CPA) member data * Limited data available The equity ownership profile of production companies in the sector however has improved marginally over the last 3 years *. Employment Data * :

225 225 South Africa has a vibrant service industry catering to all aspects of the audio-visual industry … Service Providers: Value Chain Segment Small/ MediumLarge ProductionNumerous small production companies employing between 1-3 people Based in Gauteng: 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 ProductionProsound, The Audio Lab, The Facilities Factory Country-wide: Sasani, The Refinery Based in Cape Town: Condor Based in Gauteng: Blade and Pudding Distribution- Film and Video Film Resource Unit, Video VisionPrimedia, Johnnic Communications, United Independent Pictures (UIP) Exhibition -Cinema131 IndependentsSter-Kinekor (Primedia), Nu Metro (Johnnic) Exhibition - Video Retail and Rental United Independent PicturesSter-Kinekor Home Entertainment, Nu Metro Video Exhibition- Broadcasters SABC, M-Net, Etv Source: Deloitte SA Market Research

226 226 … and a variety of small to medium-sized fully equipped studio spaces Facility Audio Duplications7Equipment Hire - Grips12Outside Broadcasts26 Broadcast Facilities25Equipment Hire - Lighting47Post Production - Audio45 Broadcast Signal Distributors5Equipment Hire - Sound35Post Production - Facilities94 CD Duplications10Equipment Hire - Video27Post Production - Film33 Concert Sound Equipment10Film Laboratories4Post Production - Video75 Equipment27International Control Rooms2Radio Facilities4 Equipment Hire - Aerial Mounts5JIB Hire/Operators1Recording Studios59 Equipment Hire - audio-visual / Presentations 23Live Sound Recording8Recording Studios (Music)12 Equipment Hire - Camera45MPEG Encoding24Satellite Broadcasting30 Equipment Hire – Camera/Editing HD 1 MPEG Transfers - Internet Delivery Solutions 17Satellite News Gathering6 Equipment Hire - Camera Support12Music Video Production Facilities8Sound Studios34 Equipment Hire - Editing16Narrowcasting / Nichecasting6Studios / Studio Facilities71 Equipment Hire - Film17News Facilities8Video Duplications29 Equipment Hire - Generators19Optical Services3Video Streaming14 Facilities: Source: Deloitte SA Market Research

227 227 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….)

228 228 Gauteng’s strengths complement other regions in the country What can Gauteng offer the national industry? Gauteng should leverage off its strengths in TV, commercials and local film production. 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. “Everyone describes themselves as a film producer, but they make their money out of TV or ads” – TV executive

229 229 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: Question mark: High growth rate, but low market share Select a few and focus on growing market share Star: High growth, high market share Dog: Low growth, low market share Beware of expensive plans to fix dogs Cash cow: Low growth, but high market share Are often in relatively mature markets so avoid over-investing Source: Deloitte Gauteng Market Research

230 230 In Gauteng, TV and commercials are classic cash cows, whereas film is a ‘question mark’ BCG matrix for the Gauteng AV industry: Film Commercials TV Multimedia Source: Deloitte Gauteng Market Analysis

231 231 With the right strategy in place, ‘question marks’ have the potential to become cash cows or stars Film industry – Given its existing advantages (good technical infrastructure, conducive business environment and good skills base), Gauteng has the potential to grow its market share, Television – typical cash cow, and Gauteng should avoid over- investing in the industry as it is already growing near its potential, Commercials – also a cash cow, but Gauteng is losing market share as international commercial producers prefer Cape Town, New media / multimedia – the province’s existing strength in this area and the potential for explosive growth makes this the province’s star; it is still in early stages of development however. Differentiated strategy:

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