Adventure Is Out There
Building on the theme of institutions driving success, this next section was inspired by the blowout theatrical gross of Jawan — the latest SRK and YRF blockbuster. The film cost $39m and has currently made over $80m in India and is on course to make roughly $120m. India’s recoup is roughly the same as ours — 30% — though theirs is more because their entertainment tax is eyewatering. Anyway with an expected gross of $120m, Jawan is on course to recoup its entire budget from cinema — or as close enough as makes no difference. Obviously not every film is a $100m grosser, but as you study the Indian market it is clear that the average blockbuster can comfortably recoup $15m to $20m for the producers — which is a pretty penny.
Now let’s come to Nigeria where the highest grossing film is currently Black Panther: Wakanda Forever which made roughly N1bn in cinemas. Using official rates that translates to roughly a gross of $2.2m USD. However, when you use the parallel rates at the time the film grossed roughly $1.5m. Currently the final producer share is roughly 30% which means that the maximum amount you can recoup from cinemas is somewhere in the region of $500k to $750k.
The numbers get even more stark when you leave the outliers and focus on the average blockbuster makes between N100m to N200m in Nigerian cinemas which is roughly $100k to $200k at current parallel market rates. Which means that the average recoup from cinema for a blockbuster is between $30k to $60k. Even if you double or triple the number of cinemas and assume that ticket prices and attendances hold, the landscape for producer profit share in Nigerian cinemas is grim. Which is why the primary driver of producer returns in this environment is currently streaming.
Which brings me to the next important thing about Jawan. The film has made over $20m outside of India including $12m+ in the US and is on course to become the second highest Indian film globally behind the monster that was Dangal. Indian films have increasingly travelled over the years as the Indian film stars and producers have made a concerted effort over the last two decades to increase their global theatrical footprint. For those of us who are interested in an increasing theatrical future that is the path that they are lighting for us. We must take advantage of already built global infrastructure to extend the reach of our theatrical universe as it is unlikely that we will see a bold new cinema building boom in Nigeria. There will be additions, but not enough to significantly transform the landscape. So just like in the streaming sector — adventure is out there.
My Kingdom for a Co-Production Treaty.
I just finished making my way through One Piece, the latest Netflix Global hit. As I’m not a big anime guy, it wasn’t really a title I was familiar with before the announcement of the adaptation. My anticipation for the show actually grew when I read the Netflix Social Impact Report. It turns out that One Piece was shot mainly in South Africa, the report went on to say that almost $80m of the shows budget was spent in SA. To put it in context, that is 4 times the total amount spent in Nigeria over a 5 year period. Just imagine the significant impact that spend had on the local film and television economy in SA. We talk a lot about building out the creative industry. Every government gives lip service to how much of a priority this is. However there is literally one thing the government should do: sign co-production treaties with major markets such as US, UK, Canada and South Africa. We can talk about other initiatives, and they are all good, but if you want global production dollars you have to sign co-production treaties that have tax advantages. I know it is a heavy lift, especially given the way our National Assembly works, but it is truly the only transformational thing the government can do for the sector. Everything else is on the edges. The problem is that the incentives are skewed. Any government will have to take short term pain, for something whose benefits will not be immediately apparent, and worse could potentially benefit the opposition party. In the absence of truly long term thinking government, what we need is an NLNG type situation, where the project is so big that its incentivizes the government to get their act together to pass the bills to bring it to life. Since that is unlikely to happen, let me continue to express hope that someone in the government of the day will get onboard this train regardless of when the benefits accrue. Look at the blue line, it took over ten years, and multiple administrations, but eventually it got done. The best time to start was yesterday, but I’ll take today. If we do start and complete, the long term effects will be so transformative that we’d look back and wonder what the sector looked like before it.
The Local Imperative
A few weeks ago, we discovered that only 10,000 people moved from Nigeria to Great Britain in the last year. This was obviously a shock as Great Britain is the one of the primary countries people Japa to. Similarly in the first half of 2023, roughly 10,000 Nigerians got their Canadian residency. If you put a weight on the UK and Canada, you could probably make a case that roughly a hundred thousand people migrate every year from Nigeria. Given that these are usually some of the most productive members of society (the talented tenth), this is obviously has a significant impact on us as a country. For the average individual in Nigeria the best thing you can probably do is to leave the country in search of a better life. It was true for the Irish a 100 years ago, and it is true for us today. However, given that there are over 100 million adults in Nigeria (give or take), leaving is clearly not a viable option for everyone. Nigeria has to work for the majority of Nigerians living here.
Similarly, the local entertainment industry needs to work for the people that live here. There are always going to be those that succeed globally — leading lights of the industry that blaze a trail. In a few years, the Nigerian Film and Television industry will most likely have their versions of Wiz, Burna, Davido, Rema, Tiwa, Arya, etc etc as we continue to integrate into the global media ecosystem. However, everyone isn’t moving to Hollywood. Most of us will remain local, so local has to work. The economics of the local industry must continue to improve to support an increasing number of practitioners and to enable them perform fulling, dignified and rewarding work.
There is an interesting set of incentives here, it makes sense for every individual practitioner to try to go global, whilst knowing that they may not succeed. The only way this circle is squared is via institutions. We must build big businesses that are able to drive the local economy and stop making it the responsibility of individuals to drive the economy. The best example here is doctors. It is not the responsibility of the individual doctor to make the health system work, however if enough big businesses emerge, and the economics improve, more and more doctors will be willing to give home a chance.
The onus is on people trying to build institutions to do the work. Like any export facing business, your role is to a long term view and use global integration is to augment local economics and build scale. That’s the only way you build transformational businesses.
Commeth the Hour, Commeth the Tax Man
As you would expect the Nigerian tax authorities are viewing the Nigerian Film and Television industry with renewed interest. Everyday you here of various tax authorities instituting entertainment tax forces, whose goal is to ensure that the sector pays its fair share. On the one hand, you can hardly blame them given all the economic activity currently going on in the space. On the other hand, the way they are gong about it, is causing a lot of understandable frustrations. As the sector is relatively specialized, the authorities have been trying to figure out the tax ramifications of the various goods and services supplied by the industry and the income earned by the practitioners. As a result, there have been tons of accusations of underreporting of income, and misclassification of revenue, fines, penalties and general antagonism everywhere. I’m sure everyone remembers Iyabo Ojo’s famous Instagram post. My hope/expectation is that all this will be resolved as the tax authorities gain increasing understanding about the Nigerian film industry. However, until then if you are operating in the sector, my advice is to invest in a good tax consultant. It will save you months and months of hassle.
Whilst the enthusiasm of the tax authorities can cause some angst, there is also a silver lining — institutionalization. The tax man expects you to be institutionalized, and so you have no choice but to comply. After all there is a target on your back, and the tax man isn’t going to hear “This is how we used to do”. There are broader benefits to institutionalization that far exceed keeping the tax man at bay. Giving that one of my missions in life is for our entertainment industry to birth big companies, I have to accept that this is a necessary step in our evolution.
The Final Frontier
This past September MIP Africa happened in Cape Town as per usual. And also as per usual, the biggest players at the event were Netflix, Amazon Prime and Showmax/DSTV. As you would expect, they all had big booths, did buzzy announcements, and made it clear that Africa is a priority for them. After all it makes sense, there are roughly 40 million PayTV subscribers in Africa and if you follow the rule of thumb that can translate to anywhere from 60 million to 100 million streaming subscribers. With the exception of Asia (mostly India), there’s nowhere else on the planet that has up to this number of potential subscribers up for grabs which makes sense as most other markets are maturing. However it would be foolish to look at the large addressable market and think that we have reached the Promised Land. As always the reality isn’t as straightforward and there are a few headwinds: Low ARPU. Steady not Explosive Subscriber growth. The 50 odd countries that are not Nigeria and SA are really small. Obviously every streamer is here because they believe they (and the others) will solve these problems in the long run and that the Promised Land will eventually be reached. However we should all think of the poor Producers and Filmmakers are having to make both creative and investment decisions during these uncertain times. We will bear a lot of the brunt of the ebbs and flows of the new market. Don’t pity us too much sha, because we are all here with the chance to build the industry of our dreams after all as the saying goes: “The final frontier is a canvas upon which we paint the story of our dreams, aspirations, and the legacy we leave for future generations”
