Indonesia to Abolish Foreign Investment Restrictions on Film Business

Indonesia to Abolish Foreign Investment Restrictions
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Indonesia is set to abolish the multiple restrictions on foreign investment that have hindered development of its film industry.

The resource-rich, predominantly Muslim country is one of the largest in Asia, and has huge potential for development in many sectors.

In a bid to restart the stalling economy, President Joko Widodo on Thursday announced the partial or full removal of some 20 industries from the so-called “negative list.”

He specified the complete removal of foreign investment restrictions in film production, film distribution and cinema operation.

“Today’s revisions represent our largest opening to international investment in 10 years,” Trade Minister Tom Lembong told Reuters. “More international investment will bring more capital, more world-class expertise, more technologies to Indonesia. Domestic players must seize those opportunities.”

Hollywood and other foreign media companies have been unable to set up their own film distribution companies in the country due to the government-mandated restrictions, which may have been driven by monopoly protection reasons as much as by the oft-cited security concerns. Similarly, foreign companies have been unable to set up their own film production activities in the country.

As a result, the Indonesian film industry has failed to develop in line with either its population or economic potential. The country currently lacks any significant independent film distributors. Local producers generally double up and self-distribute their own movies. That adds to their costs and increases risks, forces which limit the volume of local productions.

Widodo’s planned de-restriction of the film industry, however, appears to come with a significant sting in the tail.

While theatrical exhibition will now be opened to foreign investment, the proposals also appear to introduce a new screening quota, which will require Indonesian cinemas to play local films for 60% of their available screening time.

The current restrictions on the exhibition sector have meant that cinema building – and, as a result, box office – have operated at levels that are massively out of line with other countries in the region. Despite a population of 256 million, Indonesia has perhaps 1,000 commercial cinema screens in operation.

For decades, the film industry has been largely dominated by the Cinema 21 Group, which operates the majority of the country’s commercial cinemas.

Through variously named affiliate companies, Group 21 is also the sub-distributor for movies from all six of the major Hollywood studios.

In recent years, two challengers have emerged in film exhibition: venture capital-backed chain Blitz Megaplex, and Cinemaxx, an offshoot of diversified conglomerate Lippo. The two chains have less than 100 screens each, and have so far failed to achieve the scale necessary to break open the distribution system.

South Korean giant CJ-CGV and its investment partner IKT acquired a combined 29.8% minority stake in Blitz in 2014, after they converted loans to the company into equity.

Those stakes have been questioned as they appeared to be in contravention of the “negative list” restrictions. The new ruling from Widodo could end that criticism and bring in further investment. On Feb. 5, CGV Blitz’ parent company Graha Layar Prima unveiled a $62 million rights issue, to repay debts and fund cinema building.

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