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Investors might want to buy tickets to Indonesia

It’s not Bollywood yet, but Indonesia could be germinating Asia’s next big film scene. After years of stifled growth and censorship, new cinemas are opening across the vast Southeast Asian archipelago at a rapid clip thanks to large cash investments. 

Ronald W. Chan (Bloomberg)
Mon, April 8, 2019

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Investors might want to buy tickets to Indonesia film projector on a wooden background with dramatic lighting (Shutterstock/Fer Gregory)

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t’s not Bollywood yet, but Indonesia could be germinating Asia’s next big film scene. After years of stifled growth and censorship, new cinemas are opening across the vast Southeast Asian archipelago at a rapid clip thanks to large cash investments. Meanwhile, international filmmakers are setting up operations. With local production houses and cinema owners taking their companies public, investors might want to pay attention.

While movies have been produced in Indonesia since the 1920s, early efforts were unpopular with local audiences. Japanese occupiers during World War II banned film production and, in later years, only films approved by the government made it to the screen. As a result, most Indonesian movies in the 1950s and ’60s were lackluster and dogmatic. The 1980s saw the release of successful films such as “Pintar Pintar Bodoh” (1982) and “Tjoet Nja’Dhien” (1988), the first Indonesian movie to be screened at the Cannes Film Festival. But independent filmmaking slumped again in the 1990s and early 2000s.

Then, in 2015, President Joko Widodo announced an initiative to grow Indonesia’s “creative economy” in a bid to wean his country off its dependence on dwindling natural resources such as gas, crude oil and timber. The government has since lifted restrictions on foreign investment in local film production, leading to international corporations such as South Korea’s Lotte Cinema Co. Ltd. and Hollywood’s Twentieth Century Fox to invest in movie productions locally. The first collaboration between Fox and a local production house resulted in last year’s “Wiro Sableng 212,” (212 Warrior) which earned a respectable $3 million at the box office. It’s unclear if or when Fox will work on another Indonesian project.

Read also: 'Wiro Sableng' wins Best Movie award at IBOMA 2019

Additionally, producer Mario Kassar of “Terminator” and “Total Recall” fame recently completed the sci-fi action flick “Foxtrot Six” alongside Indonesian director Randy Korompis. With a $5 million-dollar budget, the movie is the most expensive ever to be produced in Indonesia. By contrast, in today’s dollars and accounting for inflation, the budget for 1984’s “Terminator” cost approximately $15 million. Early (mostly Indonesian) reviews for “Foxtrot Six” have been positive, though it’s too early to tell how it will perform at international box offices.

In the four years since the ban on foreign involvement in film production was lifted, locally produced movies have also slowly increased their presence in the market from 20 percent in 2015 to roughly 35 percent today. Movies featuring local actors have grown in popularity throughout Indonesia, giving producers greater incentive to shoot such films. Local venture-capital firm Ideosource recently announced that it had invested $3.6 million in 10 movie projects through 2019 and plans to raise another $15 million, signaling the firm’s belief that a successful movie can turn a profit quicker than a startup.

MD Pictures Tbk PT, one of Indonesia’s largest film companies, went public in August 2018 and raised $19 million at its IPO. With a 24 percent market share of the audience for locally produced films, MD Pictures is now poised to attract well-known actors and secure deals with other industry participants. At the same time, it’s important to remember that the film industry is under attack globally from online video-streaming services, meaning MD Pictures and other companies must create stellar programming to win over consumers.

Besides movie productions, fresh cash infusions are fueling the spread of movie theaters across the country. Cinema 21, the country’s largest movie theater owner-operator, has expanded to over 1,000 locations since 2015, helped in large part by a 3.5 trillion rupiah ($244 million) investment by GIC Pte. Ltd., Singapore’s sovereign wealth fund. The country’s second-largest owner-operator, CGV Cinema, has 321 movie theaters with plans for expansion as well.

Analysts predict that the number of cinemas scattered across Indonesia will grow in the next decade from 1,700 to 7,500. Though competition is increasing, operators don’t seem to be engaging in price wars yet, with the average ticket price only increasing from 35,000 rupiah in 2016 to 38,000 rupiah ($2.67) in 2017. 

As filmmakers grow in sophistication and attract the budgets for more polished movies, business should thrive. Indonesia is the world’s fourth most populous country, with nearly 141 million of its 264 million citizens set to enter the middle class by 2020. That’s a lot of eyeballs to win.

 

Ronald W. Chan is the founder and CIO of Chartwell Capital in Hong Kong. He is the author of “The Value Investors” and “Behind the Berkshire Hathaway Curtain.”

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