FILM FINANCING IN NIGERIA: OPPORTUNITIES AND CHALLENGES Dayo Ogunyemi 234 Media Partners prepared for the INFORMATION MEETING ON INTELLECTUAL PROPERTY FINANCING organized by the World Intellectual Property Organization (WIPO) Geneva, Switzerland March 10, 2009

Arguably, movies currently constitute Africa’s most valuable intellectual property products; The movie industry, driven primarily by Nigeria’s Nollywood, is the most active and valuable part of the internal knowledge economy in Africa today; Movie industry growth vastly outpaces that of the publishing, music, and software industries; It is therefore critical to Africa’s economic growth that its formal financial sector is able to engage productively with the movie industry. 1 FILM? IN AFRICA? WHY FILM FINANCE IS IMPORTANT

Nollywood is 3 rd largest film industry in the world, after Hollywood and Bollywood; In just over a decade and a half, Nollywood has grown from nothing to annual revenues estimated in the $200 - $300 million range; Nollywood was developed by filmmakers adopting disruptive technologies – digital filming and editing equipment. Innovation has paid off – while global movie industry is looking to digital film as its future, Nollywood is entirely based on it; Basic model is small-budget (typically under $150,000), quick turnaround (typically shooting schedule between 20 and 30 days), high volume. In recent years, growing attention to technical and aesthetic quality; Huge and growing global fan-base, with well-established star system for talent; Inspiration for small-budget digital movie making elsewhere on the continent – Riverwood (Kenya), Gollywood (Ghana). 2 …MEET NOLLYWOOD, NIGERIA’S FILM INDUSTRY

GLOBAL MOVIE INDUSTRY STRUCTURE The top three movie producing countries in the world by output are: The United States - “Hollywood” India - “Bollywood” Nigeria - “Nollywood” Globally, the movie industry typically has three main revenue prongs: Theatrical Exhibition Home Video Broadcast/Ancillary Of the three top movie industries, only Nollywood is wholly dependent on home video, which is sold through a semi-formal wholesale distribution network This structural difference have profound consequences for formal third-party finance for film in Nigeria 3

COMPARISON OF REVENUE SOURCES 4 HollywoodBollywoodNollywood

HOLLYWOOD vs. NOLLYWOOD: INDUSTRY STRUCTURE United States “Major” dominated studio system – large corporate producers and distributors like Universal, Sony Historically, active system of independent producers Well-defined revenue picture consisting of domestic and international exhibition, home video, pay TV, free-to-air broadcast windows Nigeria No major studios built around production Major distributors (known as marketers) who operate a semi-formal wholesale network Large numbers of independent/individual filmmakers Revenue picture almost entirely dependent on domestic home video sales

HOLLYWOOD vs. NOLLYWOOD: FILM FINANCING United States Major studios initiated and financed Independent productions: Equity financing Pre-sales Production loans (non-recourse, IP and contracts as collateral) Negative pick-up (major buys some or all rights to completed movie) Reducing risk: Completion Guarantee Errors & Omission Insurance Nigeria Marketer (distributor) initiated and financed Independent producers: Pick-up (Marketer buys completed movie in its entirety) Equity financing (self, friends & family) Personal loans (recourse, IP not accepted as contracts)

ELEMENTS FOR SUCCESSFUL FILM FINANCE Establish clear chain of title - adequate documentation of permissions and ownership for all of the intellectual property rights underlying a movie as well as key contractual relationships Efficacious registries for recording ownership and/or security interests in the completed movie – equity investors and debt providers need to be able to establish their claims to the economic value that a movie represents, even though it is an intangible asset. 7

KEYS TO IMPROVING NOLLYWOOD’S ACCESS TO FINANCE Developing and formalizing multiple revenue streams– exhibition, home video distribution, broadcast Establishing chain of title – documentation of ownership and contractual rights Enabling the recording of security interests and transfers of rights through registries linked to IP ownership database Increasing industry awareness and understanding on the part of financial institutions Introducing risk-reducing financial instruments 8