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Indonesia Film Business Poised for Rebound as Country Allows Foreign Ownership

Indonesia’s stagnant media sector may get a shot in the arm after President Joko Widodo announced that the film industry would be taken off the so-called negative list of businesses in which foreign ownership was banned. The February proclamation removes barriers in film production, distribution and exhibition, and holds out the possibility of huge changes in those areas. But there are still questions to be answered before foreigners can make more money in a market of 255 million.

“This is a great, positive development for Indonesia. The lack of investment over the years has caused cinema to stagnate,” says Brian Riady, CEO of Cinemaxx, which has 150 screens in Indonesia.

For decades, the state allowed the film industry to be dominated by a single firm, claiming it was a matter of national security. Since the 1980s, Hollywood studios have released their titles through Group 21, which also operates the majority of the cinemas in the country, some 650 of the nation’s 1,100 — a per capita screen count that is one of the lowest of any middle-income country in the world.

Currently no one is able to give a reliable figure for the national box office; a pitiful $100 million is the rough estimate.

“The first thing (to be addressed) is (building) more screens, which everyone would welcome,” says Raam Punjabi, chairman of producer-exhibitor Multivision Pictures.

Gundo Susiarjo, an investor and co-founder of the Equator Film Expo, calls the paucity of screens “the biggest bottleneck” to growing an industry.

Since 2011, Indonesia has begun to evolve a more free-market policy around film. It has even talked of having 4,000 to 5,000 screens in operation by the next elections, in 2019. And newcomers have emerged on the exhibition scene.

“This is a great, positive development for Indonesia. The lack of investment has caused cinema to stagnate.”
Brian Riady

Two years ago, Lippo Group, a local conglomerate with interests that span real estate, newspapers and hospitals, launched the Cinemaxx circuit. Its 150 screens have caught up to Blitz, which entered the territory in 2006. Lippo’s stated aim is to have 2,000 screens at 300 locations in 10 years.

“We see the market growing to 5,000 to 6,000 screens over the next decade. Our 2,000 screens will not saturate the market,” Riady says.

South Korean conglomerate CJ entered Indonesia two years ago by supporting Blitz. Other contenders who may choose to enter the market include China’s Wanda, Korea’s Lotte, Malaysia’s Golden Screen and Mexico’s Cinepolis, already the No. 3 exhibitor in India.

“Today all new cinemas are being built in shopping malls,” says Riady, noting that although that places a physical limitation on growth, he doesn’t expect it to deter new companies that want to enter the exhibition market.

The potential rewards are juicy. Indonesia’s robust aviation, health and pay-TV industries — the last with 3.85 million subscribers at end of 2014, up from 1.3 million in 2011 — attest to a growing middle class. That’s why companies such as Haim Saban’s Saban Capital Group are making media investments in the country, and why CA Media, the Peter Chernin-Paul Aiello investment vehicle, is targeting Indonesia equally alongside India and China.

Indonesia by the Numbers
The country is now welcoming more foreign investment in the cinema sector.
225m Population of Indonesia
110,000 Number of screens in the country
650 Screens owned by film distribution entity Group 21
150 Screens owned by exhibitor Cinemaxx
$100m Rough estimate of Indonesia’s B.O.
2k Number of screens Cinemaxx aims to build within 10 years

But Punjabi says parts of the new law are unclear. “We must wait for the text,” he says. “One thing we have heard, but not confirmed, is that there could be a tax advantage of 30% if a foreign company partners with a local firm, instead of setting up a wholly foreign entity.”

A key question following the clearing of ownership barriers is the reaction of Hollywood studios. Will they stick with the trusted partner they know well — “(Group 21) gives good accounts,” one Hollywood executive previously told Variety about the company’s bookkeeping skills, even as the monopoly held back the sector’s growth due to lack of investment and competition — or take advantage of the new rules to set up their own distribution entities? Or might they enter into partnership with the local incumbents?

Another possible stumbling block for foreigners: quotas. While unveiling the new liberalization of the film biz, Widodo also reaffirmed that Indonesian cinemas must give 60% of their screen time to local films. While that law already exists, it has been largely ignored. The country has no distributor that handles local films, and the mostly low-budget movies don’t attract large audiences.

But there is a flicker of life in the locals: Films such as “The Raid” and its sequel earned worldwide distribution, while HBO Asia recently unveiled its first regional sci-fi series, “Halfworlds,” directed by Indonesia’s best-known helmer, Joko Anwar, whose “A Copy of My Mind” played Toronto and Venice.

“There is a question of momentum,” says Guillaume Catala, Susiarjo’s partner in the Expo. “It is going to take foreign investors some time to tune in and discover that Indonesia exists, is growing and is now ready for launch.”

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