The film and video production industry is a high-risk venture for investors, with about one in every 15 films produced breaking even financially.
New Federal Government film incentives, including for TV productions, have been boosting industry growth recently. However, the film production revival relies on the availability of risk capital and investment funds, which have been drying up during the global financial crisis. Demand from film distributors (and to some extent exhibitors), network TV and pay-TV stations for film product is absolutely vital to industry performance. Similarly, demand from advertising agencies for commercial production is essential.
Despite expected industry revenue declines from 2007-08 to 2009-10, a renewed emphasis on major Australian feature films and drama production by free-to-air and pay-TV stations is evident. This is being assisted by attractive Federal Government incentives that provide a 40% rebate on costs for domestic film productions, 20% for domestic TV productions and 15% for foreign films. This is expected to drive industry revenue growth in 2010-11. The industry has recently experienced significant ownership changes, which have involved all major players except Village Roadshow Ltd.
On July 1, 2008, three former Federal Government film organisations were amalgamated into Screen Australia in an attempt to drive organisational and funding efficiencies and to improve service levels to the film and video production industry.
In 2010-11, the Film and Video Production industry is expected to generate revenue of $2.12 billion, up 2.3% for the year. Annualised growth for the five years to 2010-11 is estimated at 4.4%, which is largely due to a 37.3% jump in 2006-07. Film production activity is being assisted by the greater availability of risk film capital and the Federal Government film rebate scheme for film and TV productions. Industry revenue growth is therefore expected to continue in 2011-12, with a forecast 5.2% increase to $2.23 billion. This is forecast to grow further to $2.54 billion in 2015-16, at an annualised rate of 3.7%.
The film and video production industry will continue to grow in 2011-12. Industry revenue is expected to increase by 5.2% to $2.23 billion. The major influence on this industry’s performance to 2015-16 is the forecast robust domestic and international cyclical economic recovery, which is expected to strengthen from 2011-12 on. Greater availability of private and government finance for film productions is also expected to occur, which is linked to attractive film tax incentives.
Over the five years through 2015-16, industry revenue is forecast to increase at an annualised 3.7%. This growth will relate to a rise in both domestic and international film production as global economic conditions remain bright, supported by attractive government financing and incentives for the industry. These factors will attract higher levels of private investments funds. Industry growth will be assisted by other factors including the technological changes in pay-TV and digital TV services, podcasting and internet-streaming direct to TV. These factors will increase demand for film content.
Over the same period, industry employment is projected to increase by 0.6% a year to 17,223 people. This will be associated with the relatively solid rise in activity levels. IBISWorld expects a marginal rise in profit due to the general high-risk nature of the industry.
The Free Trade Agreement between the United States and Australia, which exempts any new media (digital pay-TV and multi-channelling by free to air networks) from local content rules, presents a threat to the future of this industry. It is expected that the agreement will have negative medium-term effects on local film production activity. New technology breakthroughs, including direct streaming of internet content to lounge room TV sets and full digital TV transmission, will occur. This will increase demand for visual content, which might not be sourced in Australia.
To attract investors to the film industry, Australian producers will need to continue to ensure commercial success by pre-selling films and establishing domestic and overseas distribution links. In particular, this involves the commercial and government TV stations, including digital TV services; pay-TV; video retailers in Australia; and commercial networks overseas.
Domestic and overseas distribution is tied to the pre-selling of films, as distributors will invest in production in order to ensure a constant flow of film products. By vertically-integrating the production and distribution aspects, the number of intermediaries that draw on box office takings is reduced and the degree of control over the product is increased. As this trend develops, the structure of the Australian industry will be similar to the overseas model where market power is concentrated in a small number of production companies that have a wide network of distribution links.
A blockbuster success is considered to be rare and just as likely to be produced by a small independent company as a large production house. It is unpredictable and cannot be relied upon in an assessment of the prospects for either end of the production spectrum. Independent films tend to have limited seasons compared with major feature films: short seasons in art house cinemas and campus screenings via specialised independent distributors. Therefore financial returns are limited for this kind of release. Support and investment for this area of production is likely to come from government organisations.
Australian film production is considered a two-tiered operation; larger, internationally linked companies are working at the top. These tend to make high-cost movies using the high quality film studios and expertise available in Australia. This is usually at a relatively low cost compared with US studios, which are assisted by significant federal and state government financial incentives. The local industry is also much smaller by comparison, making some internationally acclaimed movies for far less money (usually under $6 million each).
Some reduction in filmmaking costs is occurring due to the use of digital technology, which is expected to eventually halve production costs for certain films. Digital technology has allowed for entire film sets to be produced by computers and virtual actors can be created.
The availability of digital pay-TV services and multi-channelling by free-to-air TV operators is leading to a significant rise in channels and demand for new and expanded film productions. While some will be sourced internationally and from sports organisations, there is also expected to be rising demand for local productions, which will boost local film production activity levels.
These are some of the significant local challenges to be faced by the local film production industry in the next five years. As such, a restructuring of the local film industry is expected to occur, where many local companies form strategic alliances with larger international companies.
Robert Bryant is the general manager of business information firm IBISWorld.
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