Some see opportunity in global economic crisis

The Chinese call it a “financial tsunami,” but while Asia’s manufacturing and export industries have been drenched by bad news and many of their customers are underwater, parts of the film industry in Asia have so far felt little more than a gentle lapping at the edges of their business.

“My feelings are very mixed,” says John Chong, CEO of Hong Kong producer Media Asia. “While the economy is clearly not good, our industry has many favorable elements.

“Co-productions are going very well. In fact, we are now being approached by more overseas companies as (production) finance becomes harder in the U.S. and France.”

Though Hong Kong’s film biz is far from its peak of the 1980s, Crucindo Hung, new head of Hong Kong’s Motion Picture Industry Assn., also says that the financial turmoil has so far not proved very damaging. The number of pictures being made has not been cut, though budgets are being trimmed.

“We made 70 titles last year, just as we’ve made 60-70 for the last two or three years,” says Hung. “The mid-sized films are the ones now being hit, the ones with budgets of $5 million-$10 million, where much of the cost is the star salary.”

While the last few years have seen the arrival of more sophisticated film financing techniques such as gap and mezzanine finance and completion bonding, those products have remained relatively rare. Film funds have also appeared in the region, but most remain closely linked to the production house or studio that raised the coin and today provide them with a layer of fat. Indeed, many of the funds are still so new that only a few films have drawn down coin.

Singapore’s RGM, which sits atop a $400 million fund that it amassed before the tsunami struck, is now in advanced pre-production on “Point Break 2,” with production scheduled to start April 7. Sequel is a $35 million English-language production set to shoot in Indonesia with Hollywood-based Jan de Bont at the helm.

“Pre-sales and debt finance are obviously harder to do these days, but that gives us some leverage, more opportunities,” says RGM’s GM Stephen Clark. “As the studios look to reduce their own output they may work more with independent producers who have their own money. And they’ll be working on commercial films, not dramas, with names attached.”

Clark says that the global meltdown is an opportunity for Asia to attract foreign productions. “There is a growing appetite for making films in Asia because of a perceived reduction in production costs — that is particularly true on the TV side. People need to get series made for a price.”

Most films in Asia, however, are made for local or regional markets and still raise their budgets with a combination of equity and rights sales to Asian distributors and broadcasters. In a region where box office takings are stable or rising, and local films play well, that formula works nicely. China’s box office grew a whopping 27% last year to RMB4.22 billion ($622 million,) putting it into the top 10 world markets for the first time.

“(Hong Kong producers) are almost not thinking about the Hong Kong market any more. The China market is so important that we can recoup our costs from China alone,” says Hung.

The performance of “CJ7,” “Painted Skin,” and “Red Cliff” parts I and II proved that local movies are quite capable of overtaking Hollywood’s titans in China. “If You Are the One” recently toppled “Titanic’s” 12-year-old B.O. record. Smaller indie titles “Almost Perfect” and “Fit Lover” also beat expectations.

Astonishingly, too, film in China still seems to be capable of attracting new money, notably in the form of “angel” investors bringing coin from other sectors. Even the brutal stock market and property declines that the Middle Kingdom suffered failed, it seems, to have flushed out all the speculative money. Helmer and producer (“Warlords”) Peter Chan Ho-sun, who recently established his new Cinema Popular company in Beijing, reports last month being introduced to a new investor seeking to put $30 million to put into film. “It is easy to forget how big China really is,” says Chan.

Western banks such as Standard Chartered, which came to Asian film with a flourish three years ago, have learned to offer a wider portfolio of products than gap finance alone, which is perceived as too risky for the tastes of most Asian producers and studios. But China’s banks may also be looking at the sector. China Merchants Bank reportedly provided half of the $15 million budget for “Assembly” in 2006, while the Bank of Beijing provided a loan to “Painted Skin,” accepting the copyright as collateral.

China’s wealth syndrome is the direct opposite of South Korea, where several tidal waves of misery have broken over the movie industry.

Even before the global crisis, Korean film was being dragged under by declining exports, slowing box office and rising talent costs. The country was the only one in Asia where venture capital funds were active in movie financing, but the financial crisis has now driven nearly all of them out of the business and severely dented the finances of those companies that remain. The government has announced stimulus packages for just about every segment of the industry and, like state organizations in Europe, appears on course to become a significant investor in most pictures.

The state is unlikely to bankroll India’s film biz any time soon, despite the massive sector’s current feeling of seasickness.

The past year has revealed a worrying mismatch between the splashy showmen and the more sodden reality of inflated budgets and audience caution.

Driving the industry to dangerous new heights was a gaggle of multiplex construction and foreign investors. They were egged on by moguls intent on simultaneously extending their empires vertically, horizontally and overseas and seeking to lock in talent at seriously inflated prices. India got its first film fund in 2008 and there was competition between local completion bonders.

Holding the industry back, many of the promised ‘plexes still have not been built, many of the biggest star-driven movies flopped and the expanding TV sector failed to deliver a safety net. For part of the year, auds appeared to prefer televised cricket over movies.  

Now, ironically, just at the moment that “Slumdog Millionaire” is drawing global attention to India and spectacular end of year B.O. perfs by “Ghajini” and “Rab Ne Bana Di Jodi” show what Indian cinema is capable of, the 2009 outlook for Indian cinema is at its most murky.

Distribbers are expected to cut the number of releases as producers struggle to raise fresh capital, multiplex owners suffer lower occupancy rates and the studios see a decline in the value of cable, satellite and ancillary revenues.

Still, in Bollywood it pays to be optimistic, and accountants KPMG are forecasting a return to 9% annual growth in 2010.

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