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Biz adapts to uncertain 2007

Strong imbalances exist in Korean film industry

It’s fashionable in South Korea to complain about the state of the film industry, despite 10 consecutive years of growth, a 60% local market share, generous governmental funding, and high levels of investment from the nation’s business conglomerates.

An excerpt from a local press report is telling in its understatement: “Only 20 Korean films managed to break the 2 million admissions mark ($14 million B.O.) in 2006.”

But the naysayers are correct in that strong imbalances exist in the industry that make film production a risky proposition even in the best of times. Now, all signs point to the likelihood of a slump in 2007.

The most immediate concerns are the after-effects of a production bubble that burst in late 2006. Amid surging investment from newly listed firms and outside investors, more than 100 mainstream features were made last year, in addition to large numbers of low-budget independent films. The result was an overly crowded release schedule with a few big winners and many losers.

“Most Korean films didn’t differentiate themselves well enough last year, and with one to three local films being released every week, how can they be competitive? It’s an unhealthy situation,” says Jung Soojin of MK Pictures’ international business team, which screens “Ice Bar” in Berlin’s Generation section.

Internet piracy and the weakness of South Korea’s ancillary markets compound the problem, as pics that fail in theaters virtually never recoup their costs through DVD or other release platforms. Most venture capital investors, having bled cash in 2006, have held on to their money for this year, resulting in a sharp drop in films’ opening production.

At the same time, the cost of releasing films continues to rise. Producers are referring to P&A spending as “out of control,” while labor costs are also set to rise in July, when a new agreement with South Korea’s first film labor union on overtime pay, insurance and other issues goes into effect.

Meanwhile, international sales revenues have taken a major hit from a deflating of the Korean Wave in Japan.

At the height of Japan’s interest in Korean films in 2005, local companies sold more than $60 million worth of product to Japanese buyers.

However, following a string of box office disappointments in Japan, that number fell back to earth with a total $10.4 million in 2006.

Other Asian markets also showed declining interest in Korean product, with the notable exception of Thailand, which rose 120% to $3.3 million.

Arguably the most crucial blow to the industry’s confidence has been the reduction of South Korea’s much-debated screen quota system, which last July was halved to 73 days per year.

Yet efforts by the Ministry of Culture & Tourism to reassure the industry with a massive financial support package have raised rather than alleviated concerns. If a planned ticket surcharge to provide funds for industry support goes into effect this summer, filmmakers will face the prospect of either raised admission prices or lower revenues.

Clearly, the industry’s problems do not lie with the local audience, which last year bought more than 100 million tickets for domestic films alone. However, viewers may have fewer strong titles to get excited about in 2007. Many films produced in last year’s production glut that failed to secure a release are skedded to open in early 2007, but concerns remain about overall quality.

Stars down

The industry’s leading “star directors” are mostly between projects at the moment, with Kim Jee-woon prepping an eclectic Manchuria-set Western for late 2007 or early 2008, and Park Chan-wook aiming to start shooting his hotly anticipated vampire pic “Evil Live,” starring Song Kang-ho, in the fall.

The biggest directorial names skedded for the first half of this year include “Oasis” helmer Lee Chang-dong with “Secret Sunshine,” and Hur Jin-ho with the drama “Happiness,” but neither will generate the level of hype stirred up by Bong Joon-ho’s “The Host” in mid-2006.

How the industry responds to toughened conditions in 2007 should impact greatly on its future performance.

Its two major studios, CJ Entertainment and Showbox, show no signs of slowing down. In mid-January, CJ announced its intention to maintain its level of investment in local cinema at $80 million-plus, in addition to boosting support for local independent films. It also is growing more active abroad, pursuing co-productions with China, Japan and the U.S.

“We hope to keep Korean cinema healthy, with various local and international initiatives,” says CJ Entertainment prexy Kim Joo-sung.

Meanwhile, international sales divisions are also adapting to changed circumstances, with interest growing in international co-productions and other cooperative business over straight sales.

Local focus

“If we take Japan as an example, the strides being made by the industry there have made Japanese viewers more focused on local films,” says Erica Nam, KM Culture’s head of international business.

“For the Korean film industry, it makes sense to pursue co-productions with Japan and increase our ties there.”

Indeed, some feel a slowdown might not be all bad news.

Lee Joo-ick, CEO of Boram Entertainment, notes, “There could be some benefits to a downturn, especially if it re-focuses minds on improving the quality of Korean films.”

Nonetheless, the next 12 months are expected to be a bumpy ride.

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