Film and video back in focus

Video and movie production has come through some recent lean times to be back offering growth opportunities. By JASON BAKER of IBISWorld.

By Jason Baker

Video and movie production has come through some recent lean times to be back offering growth opportunities.

The $1.8 billion film and video production industry has had a hard time over the past five years, but the mainstreaming of digital TV and multi-channeling, and growth of the internet, should present opportunities for growth over the next five years.

Recent industry performance

Industry revenue, 55% of which is earned in New South Wales, grew at an average annual rate of 0.8% over the five years to 2007-08. The main drivers of the limited growth were increased levels of government funding and incentives and more international film production in Australia.

But the inconsistent nature of foreign investment means that growth in the sector can be volatile. Research shows that, in 2006, there was a 35.8% decline in revenue growth due mainly to a reduced amount of foreign film production in Australia. An increase in foreign investment in 2007, however, saw revenues grow 61% the following year.

Industry outlook

IBISWorld forecasts the film and video production industry will grow at an average annual rate of 3.7% during the next five years.

Continuing growth will be sustained by more government financial support and policies encouraging more local and international investment, such as favourable tax treatment.

However, future revenue growth is dependent on strong local and international economic growth stimulating demand for film and video output.

The widespread introduction of digital television and multichanneling in Australia and increased competition between free-to-air and pay-TV, should generate demand for more production over the next few years. The continuing development of the internet will be another source of demand for film and video content.

The Free Trade Agreement between the US and Australia is expected to have a significant negative medium term effect on film productions because of the exemption of any “new media” from local content rules.

In the long term, the growth potential of film and video production is dependent on the availability of a flexible and multi-skilled workforce, access to production and post-production facilities and equipment, and establishing a track record of successful and profitable productions.

Key sensitivities

The key sensitivities affecting the performance of the film and video production industry include:
Downstream demand – film and video distribution. Significant demand for the services of this industry comes from the film and video distribution industry.
Downstream demand – free-to-air television services. Demand for the services of this industry comes from the TV industry, including from advertising agencies for commercial production.
Industry policy/legislation – film and video production. Government industry development/assistance policies and funding, including tax concessions and incentives, have a significant impact on the development of this industry.

Key success factors for operators in the industry:

• Access to quality personnel management. Being able to effectively manage people, across the many areas required for film production from catering to actors to directors.
• Access to multi-skilled and flexible workforce. Being able to recruit suitable and appropriate actors, at suitable cost, to assist with the film’s general public appeal.
• Having a high prior success rate (including completed contracts). Building a successful track record over time will make it easier to attract finance and investors.
• Having an effective performance monitoring system. Closely monitoring audience viewing habits and trends (that is, audience appeal) to ensure the film meets the market.
• Having links with suppliers. Developing over time links and networks of financiers, distributors and exhibitors and exploring co-production opportunities for film finance.
• Output is sold under contract – incorporate long-term sales contracts. Having a guaranteed pre-sales agreement with distributors and exhibitors, before production commences.
• Use of specialist equipment or facilities. Having access to high-quality production and post-production facilities and equipment, either through purchase, hire or lease.
• Effective cost controls. Having stringent cost controls in all areas to ensure that the film comes in within budget.
• Ready access to investment funding. Having strong links with government and private financiers, to assist with obtaining film finance.
• Establishment of export markets. Selling the film internationally, will assist with generating financial returns from any film.
• Production of goods currently favoured by the market. Selling the film rights in a variety of formats including to cinema, TV, pay-TV and video (rental and sell-through) to assist in making a financial return from the film.
• Having marketing expertise. The film promotional/marketing skills of distributors and having a plan for this before production commences.

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au