RIO DE JANEIRO — A look at the state of Brazilian film production reveals a tale of two industries.
It is an industry that currently has about 300 features in different stages of production, has doubled its annual number of pic releases since 2003, makes international kudo-winning pics (like Walter Salles and Daniela Thomas’ “Linha de passe”), is increasingly participating in international co-productions, and receives annual government incentives of about $90 million, not counting the coin from two additional incentives kicking in soon.
But it is also an industry that has continuously lost market share domestically, from 21.4% in 2003 to 11.6% in 2007 to just 6.9% in the January-July 2008 period, in spite of the continuous expansion of the exhibition circuit and Brazil’s overall favorable economic conditions.
While industry players, government authorities and analysts list a number of reasons for local pics’ underperformance, they seem to agree on one point: Existing incentives have led to the production of features that are mostly not designed for mainstream success. These incentives allow production companies and helmers to get paid during the production process, regardless of their pics’ commercial performances. The bulk of the features are designed for the arthouse and fest circuits, though there are impressive cases of successful commercial features, such as this year’s “My Name Ain’t Johnny,” from helmer Mauro Lima.
The good news is that governmental org National Cinema Agency (Ancine) is aware of the problem and has moved to introduce two new market-driven, incentive systems: the so-called Sector Fund and Article 3-A. Additionally, the Funcine system, a local version of France’s Sofica, is expected to expand.
According to Ancine president Manoel Rangel, the Sector Fund will be operational this year and has a stock of $56 million, raised during 2007 and 2008, to immediately invest. An additional $60.6 million will be available in 2009. The coin will initially be targeted at feature and indie TV programming production, as well as P&A costs.
The investment will be done in a variety of ways, including loans and the purchase of equity on companies and productions. In all cases, the new system will require a return on investments.
“The fact the Sector Fund is a refundable system will contribute to the film industry’s efficiency. Additionally, the money the fund will get back will allow other investments,” Rangel says. “There are currently just six or eight releases per year of Brazilian films designed to sell more than 1 million tickets. With the new incentive systems, we expect to have 10 to 12 such films per year.”
Article 3-A, which is in final regulatory stages, will primarily benefit indie TV programming producers. The incentive will allow localfree TV and pay TV nets to invest in Brazilian productions as part of their due tax on remittances from abroad. The nets will commission the shows with the incentive coin and then air them, says Rangel.
Carlos Eduardo Rodrigues, exec director of Globo Filmes, the theatrical arm of local giant broadcaster TV Globo, said Article 3-A will represent an additional coin influx of $12 million to $19 million per year to local indie producers. He added that TV Globo, which makes regular money remittances abroad to pay for sports rights, intends to use the tax break system.
“I believe broadcasters will use the incentives for the production of TV programming, such as animation and live action series and TV movies.”
Ancine is soon to release the new regs of the Funcine system. Created in 2001, it was only in 2005 that the system became operational. There are currently just three Funcine funds in operation, which analysts attributed to the film industry’s and the financial market’s lack of familiarity with the system. But the Funcine seems now ready to take off, as there are reportedly half a dozen companies prepared to launch their funds as soon as Ancine releases the new regs.
Launched in Oct. 2007, Funcine Lacan — Downtown Filmes is fully dedicated to fund the operations of Bruno Wainer’s indie distribution company, Downtown.
“Since 2000, the trouble with the Brazilian film industry has not been the lack of money. The trouble is how the money is spent. The motto should be: ‘less and better films,’ ” Wainer says.
According to local film marketing company Filme B, there are currently 75 completed Brazilian features waiting to be released. Most of these pics will likely have limited releases, and a significant number will only screen in fests.
“It is okay to make small films,” says vet helmer and producer Daniel Filho. “I will make one this year, ‘Piece Era,’ which will be distributed by Downtown. But people make films first, and then seek for a distributor, which is a mistake.
“But I believe this year’s fall in the market share served as an alert to filmmakers. For the next year, we will have more films with commercial potential.”
Funcine Lacan has raised $8.7 million from local investors that got a partial tax rebate. The fund used part of this coin to buy equity in three pic projects, all of them with commercial ambitions, as the aim is to make a profit. With the investments, Downtown gains Brazilian distribution rights. Additionally to “Piece Era,” which is lensing in November and due to open mid 2009, Downtown invested in Jose Alvarenga’s “Divan,” scheduled for a March release, and Sergio Rezende’s “Salve Geral,” lensing in November and scheduled for release in the second half of 2009.
Managed by Rio Bravo, RB Cinema 1 Funcine has assets of $11.3 million. The fund has created an international sales agent, Vereda Filmes, which has since Berlin 2007 sold about 600,000 Euros worth of Brazilian pic rights abroad, with Cao Hamburger’s “The Year My Parents Went on Vacation” as its best selling product. In a typical RB Cinema 1 operation, the fund buys equity in a pic or project, and Vereda distributes it abroad.
“The news is Vereda will distribute abroad ‘My Name Ain’t Johnny,’ ” said Vereda’s COO Katia Machado, stressing the fund does not have an equity in this specific pic.
Investimage 1 Funcine is among the funds soon to be deployed. According to Investimage’s CEO Thierry Perrone, the fund intends to raise over $18 million and to start investing in January. Perrone, who formerly worked for RB Cinema 1, said the fund will seek local pic projects with commercial potential in their initial stages. In a typical operation, the fund will invest between $600,000 and $900,000 to buy equity in a project, in association with a local distrib that will have the pic’s rights for the local market.
“The financial market requires good projects, good management practices and return to their investments. Production companies with business plans and films appealing to the public will profit,” Perrone forecasts.