- Background — aka The Output of Procrastination
One of the things about inflection points is that they tend not to be obvious when you’re in one. It’s only when in hindsight when a pattern starts to emerge. And this is the case with the subject I’m about to write about in this long and fairly wonkish article.
I wasn’t really intending to blog about this, but I was doing some research that required me to review the box office reports over the past few years. Doing so made me realise that 2015 seems to be the inflection point for cinema going culture in Nigeria.
2. The Main Argument — aka Fun With Numbers
In 2015 the All Time Top Ten was a mixture of films from the previous few years, whilst in 2018 7 films released in 2018 broke into the Top 10 All Time.
The reason why I’m using the change in the all time top ten as a proxy for cinema growth is that the change in the All Time Top Ten in a given year is driven by the additions to the Top Ten from the films released in that year.
- In 2015: 3 films joined the all time top ten.
- In 2016: 6 films joined the all time top ten
- In 2017: 5 films joined the all time top ten
- In 2018: 7 films joined the all time top ten
Broadly when there is significant churn in a given year, it shows that the overall performance of the top films in that year is higher and thus it shows overall box office growth.
3. The Evidence — aka The Bad Math That Seems To Support The Argument
The other question is whether the growth is driven by adoption or other factors. Granted this is a subset of a moving set, however given the significant churn in the Top Ten every year your basic statistical analysis is useful in teasing this out.
Taking a 4 year view from 2015. You have a 250%+ overall growth rate with a 50% CAGR.
- Once you adjust for site count increase (site count increased by roughly 60% — from ~25 sites to ~40 sites )
- and pricing effect (Average Ticket Price (ATP) moved by 25% from about N750 to N1,000),
It is clear that two thirds of the growth is adoption and increased admissions per location. However it’s obvious that all three complemented and reinforced each other to achieve the performance that occurred over the past five years.
4. The Sustainability of the Growth — aka Is The Party Over?
Another question I’ve received recently is about the sustainability of this growth. My answer is that I expect the growth to continue and potentially accelerate over the next five years. Take 2019 — we are in May and two films have already entered the all time top ten — Avengers and Captain Marvel — and there are at least 6 films that have a shot of joining them — Lion King, Spiderman 2, Hobbes and Shaw, Jumanji 3, The new AY film and the new Ebonylife film. It’s unlikely that Black Panther will be dethroned in 2019, but I won’t bet against its record falling in 2020.
The reason for my considered “optimism” about the box office growth is that with Nigeria’s current demographics and macroeconomics, the country can comfortably accommodate 1,000 screens across 200 cinema locations over the next ten years.
It seems a lot using our current 200 screens and 50 odd locations however this expansion still works out to just 1 cinema location per a one million people catchment area over the next ten years with an addressable market of 50k to 100k within that million people. If our economy improves more than expected we’d even be in a position to double that number to 2,000 screens across 400 locations within the same time frame.
5. The Risks to Cinema — aka Uh Oh! Disruptive Technology Ahead! Starring — Streaming, Gaming, Augmented Reality, Virtual Reality,
Of course there is a view that streaming could significantly damage the cinema exhibition thesis, however given the recent performance of the MCU et al at the global box office, I have to keep hoping that there is a place for exhibition even into the next decade. The other significant threats obviously are gaming and VR, however it’s hard to model the effects of those on exhibition particularly in Africa.
6. The Investment Case — Aka We Gotsa Have The Money — Aka The Indonesian Dream
The final part of this story is investment. To achieve 1,000 screens across 200 sites it will cost roughly $300m over the ten years.
That’s a lot of money. Especially given the fact that the total investment over the previous ten years is less than $100m.
However, I want to believe that Nigeria will have the opportunity to be like Indonesia — whose cinema industry exploded in five years. Since the removal of the ban on foreign investment in their industry in 2015 they more than doubled their screen count from 1,200 to over the 2,500 projected by the end of 2019 and attracted investments of over $500m over that period as this article shows. Furthermore the initial investment spurt has catalysed the industry so much so that the Indonesians believe they can reach a total of 7,500 screens over the next decade.
Indonesia has shown us what is possible and the onus is on us to figure out how to achieve it. If we do, we won’t have to ask the question as to whether or not the Nigerian box office has peaked.
7. The Effect on Local Content — aka You Must Watch Our Feem
The other question that is often asked is what happens to local content when all this investment comes. Looking at the yearly top ten provides the answer:
Nigeria is likely to remain majority Hollywood, but local content will continue to take market share from Hollywood. Nigerian content grew from about 10% of box office in 2015 to 25% of box office in 2018. I expect that number to continue to grow as we add screens, I believe it will hit roughly 35% in the next 5 years. A similar thing happened in Indonesia — local content box office grew from 20% in 2015 to 35% in 2018 as shown in this article.
8. The Unintended Consequences aka We Need To Solve For Mid Budget Content
The bit we need to get better at is how to mitigate is the fact cinema returns increasingly accrue to the big films whilst the small to medium films struggle to compete with streaming and other forms of entertainment. The Nigerian film industry cannot survive if ten big films a year make tons of returns and everyone else is OYO. However cinema is not the best place to solve that problem as the audience wants what they want and it is impossible to compel viewership to any appreciable degree.
My view is that we need to figure out how to continue to develop alternative forms of distribution most likely via streaming and TV to enable the bulk of the programming to exist at scale. Right now Africa Magic and Iroko and to some extent Ebonylife are driving the majority of the programming and we need a lot more than they can fund. I figure that if we can improve the economics of TV and streaming such that those segments can spend $50m to $100m per year it will change everything — but that is a story for another day.
9. The Lazy Conclusion aka The Lazy Conclusion
Aiight, that’s me done.
Laters
