This article was published in Swa magazine’s March 2018 edition. Reviews of Ideosource Film Fund are also published in Big Circle — MetroTV. Here is the Indonesian version.
Ideosource Film Fund: Investing in Indonesian Filmmakers
Investing in Film Industry Ecosystem
I started subscribing to Hooq a few months ago, a streaming video application by Singtel, Sony Pictures Television, and Warner Bros. Jakarta’s congestion is no longer a problem, providing a good opportunity to watch Indonesian films that are not widely available on other channels. I started with films like Ca Bau Kan, Paper Boat, Soekarno, Garuda di Dadaku, and Ada Apa Dengan Cinta (AADC), among many others.
When watching Cek Toko Sebelah, a film by Ernest Prakasa, I felt the story closely mirrored my own life experiences. I also thoroughly enjoyed Kartini, which I consider Hanung Brahmantyo’s best work. I have fallen in love with Indonesian films.
With our experience at Ideosource Venture Capital focusing on technology investment, the question is whether films are an investable and scalable industry?
Film Market Size
Referring to the MPAA’s annual report, Indonesia is the 15th biggest market with USD 300 million in ticket sales for Hollywood movies. Considering the population and economic growth of Indonesia, we should have a much larger market potential.
Filmindonesia.or.id provides information on the Indonesian film market. Learning from the top 15 highest-grossing Indonesian films, the lowest ticket sales were in 2010 with 8 million tickets, while 2016 was the best year with 30 million tickets sold. Cross-referencing this data, if the average ticket price is USD 2.5, then the market size for Indonesian films is around USD 75 million. Thus, Indonesian movies have a 20% market share of the total industry.
The number of imported films ranges from 200 to 275 per year, compared to the ever-increasing number of Indonesian films, which now reaches 120 per year. This shows that we have no supply problems. However, with a 30% share of the total films, ticket sales for each Indonesian movie are still lower than for Hollywood movies.
Box Office Analysis
Looking at Indonesia’s box office, there is a 4-year hit cycle. According to a friend in the industry, developing a good story requires at least one year in addition to the production timeline. This 4-year cycle was due to Miles Films releasing their major films every four years; this happened in 2008 with Laskar Pelangi and in 2016 with Ada Apa Dengan Cinta 2, but did not happen in 2012. However, this cycle has changed. In 2017, the number of tickets sold reached 41 million, an increase from 35 million in 2016.
If there is a major film hit, it can pull the entire film industry’s viewership. Watching an Indonesian movie is like a reunion: sometimes you forget about them, but once you meet, you want to see them more often.
Falcon Pictures became the dominant player, starting with Comic 8, followed by Warkop DKI Reborn and My Stupid Boss. They use famous actors, stand-up comedians, and/or proven intellectual properties, either from old movies or novels, and transform them into new unique characters like Reza Rahadian in My Stupid Boss and Abimana Aryasatya as Dono in Warkop DKI Reborn.
From a budget allocation perspective, producers often allocate 10–20% of the budget for marketing. Compared to Hollywood, major movie studios have an annual marketing budget that is shared based on the market potential of the films they market that year. They equally divide the marketing and production budgets. With this marketing and distribution support, they are able to maximize the market potential of each movie.
There are four genres that have proven to have consistent markets: Comedy, Drama, Horror, and Muslim Drama. In the past 10 years, the number of tickets sold for the comedy genre is 57 million, with 55 movies in the list of the top 15 highest-grossing films of the year. Drama is the second most proven genre with 35 million tickets and 41 films, followed by Horror with 33 million tickets and 46 movies, and Muslim Drama with 22 million tickets and 20 movies, respectively.
Biopics & History, using famous personalities and historical figures, have also attracted audiences, with the most successful film to date being Habibie & Ainun. The diversity genre, which showcases Indonesian diversity, also has its own market with films like Laskar Pelangi. Other genres such as Action, Thriller, Children’s Drama, Adventure, and Musical are underrepresented. Action and Musical films require at least two years of development due to the time required for preparation and rehearsal.
From a portfolio management perspective, investments in proven genres need to be made consistently, and some investment should be allocated to underrepresented genres.
Film Industry Value Chain
On the supply side, film industry players are quite fragmented. Established players like Starvision, Soraya, Rapi Films, and MD Entertainment have proven capable of consistent film production using an investment portfolio strategy that combines smaller-budget and high-budget movies. This model provides stable results in terms of the number of viewers and revenue. Falcon Pictures has introduced a new formula that proves the Indonesian film market can still grow significantly. Screenplay Films and Legacy Pictures are capable of producing quality new movies. KG Production and Mizan have adapted numerous intellectual properties (IPs) from novels into big-screen productions, often collaborating with other production companies. Lifelike Pictures is partnering with 20th Century Fox, investing heavily in Wiro Sableng, which will be released in 2018.
13 Entertainment, Falcon Pictures, and Multivision have acquired many IPs from old movies. They restore and digitize these films and then sell them as part of libraries to cable TV channels and OTT (over-the-top) platforms like Hooq.
21 Cinemas dominate 80% of the total screens in Indonesia. Bearing the theater operational costs, they require films to have mass audience appeal. If a film does not perform well at the box office, it is taken down immediately. With 21’s distribution power, there is no need for a local distribution company. Currently, producers negotiate directly with 21 to secure the number of screens. Small-budget films from independent production houses get 30–50 screens, and since they lack strong marketing strategies, most only last for 1–2 weeks in theaters.
Strong films such as AADC2 initially got 180 screens, competing against Captain America: Civil War, which got 500 screens. Due to market demand, AADC2 was able to get additional screens, surpassing Captain America. This indicates that if an Indonesian film has strong production and marketing, it is more relevant to local audiences. Many people watch the film more than once, first individually, then in “watching together” sessions, which is a unique habit of Indonesian audiences.
From a commercial perspective, 21 Cinemas have the option of showing Hollywood movies with more consistent quality or Indonesian films that, despite local relevance, lack consistent quality and marketing. Indonesian producers end up limiting the production budget to manage investment risks, ultimately sacrificing quality. This creates a vicious cycle. If there is film investment that finances the production and marketing of films in a balanced way, more Indonesian films will have better quality. This will create market stability because the audience will consistently get quality films.
The existence of cinemas in Indonesia is still far from ideal. Most cinemas are located in malls, where a family needs to spend at least USD 15 to 35 to eat, watch a movie, buy popcorn, etc. This does not match the spending capacity of the Indonesian middle class, which is USD 8 to 15. We need cinemas targeted at the large middle-class population to expand distribution.
OTT platforms like Netflix face challenges from Hooq, iFlix, Genflix, and Mox, which offer more local content. Netflix will continue targeting the high-end market, while platforms with strong local content will target the middle-class market. AADC2 and Dear Nathan have evidently become dominant content on Hooq compared to imported films.
Online ticket sales through GoTix have contributed significantly to CGV and Cinemaxx. 21 Cinemas are also preparing a breakthrough for online ticket distribution. In China, 90% of ticket sales are online, allowing tickets for movies with very strong IPs to be bought well in advance before the screening.
In the film industry ecosystem, support from marketing and publishing agencies has played an important role in maximizing publicity and revenue from other channels. In addition, film festivals, organizations, and education play crucial roles in supporting the entire ecosystem.
To answer the original question, the film industry is investable if we approach it as a portfolio investment and scalable if we invest in the entire ecosystem.
Investment Risk Management
Investing is essentially about managing risk. Of the 120 films screened in 2017, only 11 films reached more than 1 million ticket sales. With an average ticket price of USD 2.5, the total revenue is USD 25 million. Producers earn 50% of the revenue, or around USD 12.5 million. From a risk perspective, if we invest in individual films, we need to invest in 11 films to achieve one jackpot that earns more than 1 million viewers. For individual investors, it would be very risky to invest in just one film. Investing simultaneously in 10 films is a good risk management strategy because getting one movie jackpot will cover all of our losses from less-performing movies.
Film Selection
Since its inception in 2018, Ideosource Film Fund has invested in several movies, such as Kulari Ke Pantai from Miles Film, Aruna & Lidahnya from Palari Films, and Keluarga Cemara from Visinema.
Ideosource Film Fund
Ideosource Film Fund (IFF) is an investment fund focusing on financing Indonesian films. Through collaboration with acclaimed producers, investors have access to the benefits generated by the film industry. The IFF is set to invest in selected film portfolios as well as in the film industry ecosystem.
