Indonesia, Southeast Asia’s largest territory, remains a land of opportunity and challenges, a ScreenSingapore conference heard.

With a population of 261 million, but just 1,117 cinemas, the country is severely under-screened. And rural penetration remains a problem. Some 35% of screens are concentrated in the Greater Jakarta area. “The time is right to exploit the smaller towns and villages with more screens and lower ticket prices,” said Krishnan Rajagopalan, chief executive of Whacked Out Media and co-founder of streaming service Hooq.

Though local film production is abundant, with 120 Indonesian films set to release in 2018, budgets are low, with the majority produced for below $100,000. “What’s going to happen is a disruption in terms of quality,” said Rajagopalan. “Some 80% of the films don’t make their money back. Producers just push product out.” Rajagopalan said that for the scenario to improve, budgets, production values and stories have to rise.”

The state of independent cinema is even worse. Ifa Isfansyah, producer with Jogjakarta based Fourcolours film, said, “The numbers are not good for independent films. We must create a culture of cinema.”

The tax regime remains a cause of concern. Speaking about acquiring content for television, Hendy Lim, vice president at Indonesia Entertainment Group, said, “The tax is ridiculous. If I buy a movie from Hong Kong, with whom Indonesia has a tax treaty, the tax is 5%, but if I buy from an Indonesian company, it is 15%. If you want to encourage local content, how can you tax me higher than if buying from another country?”

On the other hand, the appetite for local content, at least on television, is voracious. The government has stipulated a quota of 80% for local content on TV, but in reality, broadcasters show 95%-100% local programming, Lim said.

Lim also welcomed the recent regulatory change that allows foreign companies 100% ownership of Indonesian entertainment businesses. The Blitz cinema group was acquired by Korea’s CJ CGV with plans to increase screens to 600 by 2020. Real estate giant Lippo Group operates the Cinemaxx chain and has ambitious plans to reach 2000 screens across 85 cities in the next decade.

The exhibition sector market leader remains Cinema 21, which own 75% of Indonesian cinemas. “Cinema 21 built their network organically,” said Lim. “But nowadays, to own a chain, you need to be strong in property, like Lippo.” According to Lim, Lippo is not extending the leases of Cinema 21 screens located on their properties and are replacing them with Cinemaxx cinemas.