Lebanese film industry struggles to find financing
When M Media's Chairman Eli Khoury described the recent success of Bil Nesbeh La Bokra Chou? (What About Tomorrow?) as "phenomenal", he was right, from the perspective of the Lebanese market. With gross ticket sales of more than $1.3 million in local theaters, according to online reporting service Box Office Mojo, it is the highest grossing film of the year as of April 2016 (the latest available data). Based on the same website, in the past decade, there have been 10 movies (five of which are Lebanese) to break the $1 million mark. One filmmaker that has stood out with her international triumphs is Nadine Labaki, whose film Caramel, on a budget of $1.6 million, achieved an international gross box office result of $13 million. Her next film, Where do we go from here?, had a much larger budget of $6.7 million and earned more than $2 million in Lebanon alone. But Labaki's films are the exception, not the rule. The reality is that most filmmakers leave no stone unturned as they search for the necessary funds to see a project through development, from production to distribution.
And yet movie production is on the rise. "I don't know if it's a wave, but there is something happening. There's popular films, there's documentaries, arthouse films, radical films, films in between, and we keep receiving projects. This is amazing. That wasn't the case when I started working [in 2010]," says Myriam Sassine, a producer at Abbout Productions.
Although there are conflicting sources of information and gathering data on the sector poses quite a challenge, according to the non-profit entity Fondation Liban Cinema (FLC), the number of feature films, including any documentaries or works of fiction running longer than 40 minutes, being produced in Lebanon jumped from four in 2004 to 31 in 2014, with the most significant growth after 2010. The investment value in these 31 films in dollar amount is anyone's guess, as the figures presented by the two most 'reliable' sources available are 150 percent apart ($13 million and $32 million).
One encouraging sign was the memorandum of understanding (MOU) signed by the FLC and the Investment Development Authority of Lebanon (IDAL) in March 2015, which has added the media sector as a whole and film in particular to IDAL's mandate of bringing investment to the country. "IDAL was not aware of this mission that [it] could fulfill and now [it] realized that the media sector is a good field to support... That's why now with IDAL we are trying to finance more promotion and presence of Lebanese cinema abroad," says FLC President Maya de Freige, adding that another MOU signed this year with Minister of Culture Raymond Araiji will also benefit the cinema industry. The significance of IDAL's support is the 100 percent tax exemption on corporate profits for up to 10 years, provided certain requirements are met. Tax exemption was something the FLC and others had been trying to achieve through a draft law submitted to Parliament in 2014.
The second positive indication is that Banque du Liban (BDL), Lebanon's central bank, has started to move. As the banking sector has been driving the Lebanese economy in various industries (see banking overview page 20), BDL has been increasingly concerned with bolstering the knowledge economy, notably through Circular 331, which includes digital media - online video platforms such as Cinemoz and M Media have already made use of it. And on April 6, 2016, the central bank took an important step in supporting the arts with the release of Intermediate Circular 416, which subsidizes loans of up to $3 million by banks and financial institutions for the production of movies, television series and documentaries, as well as theater plays. The loan is set for a maximum of 16 years and is based on the condition that at least 90 percent of the work is carried out in Lebanon. The central bank Governor Riad Salameh announced in a statement on May 12 at the Arab Economic Forum that he is committed to supporting film and the arts, which can contribute to job growth in the creative economy. He further stated that a total of $100 million in loan guarantees had been made available at the low interest rate of 1 percent.
Circular 416 has opened banks' doors to producers in need of liquidity. "For example, [a fund granted by] the Centre national du cinéma et de l'image animée (CNC) would give you 100,000 euros but would pay you in installments, and sometimes you need the money right now to do the film. You know you will get it, so you can get it right now [with the bank loan]. With such a circular we can now access the money and just pay 1 percent interest, which is not big," says Abbout Productions' Sassine.
Weighing the options
The idea of a bank loan isn't always attractive to film producers, however. Some industry players argue that in the current market, their prospects on return aren't that good, even if they have 16 years, which means they would much rather receive "soft money" or grants instead of taking on a debt.
The other side of the coin here is the equity financing, which seems to be a model that could suit film, according to Blominvest General Manager Fadi Osseiran: "For me, the movie industry should rely mostly on the equity because it's risky, and it fits very well with the private equity concept because private equity is a risky business." He then continues with the analogy, saying, "If you put money into one idea, that might be a flop, or you might put in money and it turns out to be the Facebook of this world. The amount of ideas like Facebook has been tremendous; few of them survived and most of them did not. But if you have put money in all of them, you make it. This is because one will cover all the other failures."
What he is referring to is the need to invest in a portfolio of films in order to distribute the risk. This means investing in one prolific production house or studio that has a number of projects lined up and the phenomenal success of one would, hopefully, make up for all the underperformers. Gabriel Chamoun, chief executive officer of The Talkies, the production company behind the feature film Ghadi, is working on setting up such a studio: "The idea is to create a studio and the studio will be producing many different forms of content: some feature films, some TV series [and] some digital series. So the investment risk will be spread over many projects and we will have the size and leverage which will allow us to negotiate better terms with the various partners involved in the distribution chain. We will even have leverage to reduce production cost and to improve our revenue flow."
For the moment, no such studios exist in Lebanon, and according to what investment managers are saying, it seems unlikely that private equity funds would consider the financing of movies, based on the risks and costs considered. The concept of investing in films as a business is also relatively unfamiliar territory here. "Most of the demand is not from investors. Mostly producers go to investors and they have to pitch for that," explains Osseiran.
The question remains, if not from banks or venture capitalists, where do producers in Lebanon go in order to get financing? When it comes to independent films, one road oft taken is applying for grants from funds in Lebanon and the region (or even beyond), such as the Arab Fund for Arts and Culture (AFAC). Since it started in 2007, AFAC has promoted various artistic fields in the Arab region, including cinema, through short- and long-term programs. The documentary program, for instance, is in its fourth year with a yearly budget of $300,000 and has supported around 35 projects that address "political and social realities in the Arab region," says Rima Mismar, deputy director and film programs manager at AFAC. Then there is the general cinema grant, which includes all kinds of films - documentary, fiction, shorts, animation and experimental - that is given to "between 15 and 18 projects per year" with a total budget of $400,000. According to Mismar, individual grants range between $5,000 and $50,000, but the average grant is $30,000 per project. This amount will get a producer started, but certainly not cover a major feature film production, so why stop there? Often you will find a single movie being supported by multiple funds and institutions.
There are just a handful of funds in the Arab region, a couple of notable ones being the Doha Film Institute and Enjaaz, the funding arm of the Dubai International Film Festival. But these funds generally don't receive a financial return on their investment. "We don't hold any rights to any of the films that we support. We only ask for a sentence [of acknowledgement] to be placed at the beginning and end of their film," says Mismar. Funds are thus dependent on fundraising and donations from a variety of institutions and philanthropic individuals to stay afloat, which is why unfortunately they don't always last. On April 19, Screen Institute Beirut, a local fund, announced that it would temporarily not be able to allocate any more funds due to a lack of resources.
Another way of securing funds from abroad is through co-production. Lebanon and France signed an agreement in March 2000 that encourages exchanges and co-productions between the two nations in the cinema industry. According to the Euromed Audiovisual III report on Lebanon published in 2013, 37 percent of all Lebanese co-productions in the period between 2006 and 2011 were with France. The United Arab Emirates came in second, with 20 percent, and all other countries were in single digits.
These co-productions do, however, come with strings attached. Among other things, the French-Lebanese co-production agreement states that "the minority co-producer's contribution shall involve an effective technical and/or artistic participation that is equal to no less than 20 percent of the total budget." Even when it is possible to meet all the conditions, the competition is fierce. "The actual situation is that when you go [for co-production], everyone knocks on the same door. We just all knock on European doors," says film producer Diane Aractingi, adding that the amount of money you bring to the table has sway over the final decision.
Other financing options include going to private investors directly (what Osseiran alluded to earlier), often achieved with the help of personal connections, and seeking sponsorships from corporate institutions. This can manifest itself in the form of product placements in the sponsored film. But according to Abbout Productions' Sassine, it is mainly the "popular" commercial films that rely on such methods. "[Sponsors] want the films to be seen and sometimes our films struggle to be seen, so they wouldn't put much money to have their products in them," elaborates Sassine. She then adds that the independent filmmakers they work with would feel "awkward" about inserting sponsored content.
When all else fails, a work of passion that lacks the funding may be able to reduce its human resource costs. "We work quite regularly with some people, so when they know a film is more fragile than another they are most of the time willing to accommodate us with their salaries, or they give in services and enter as co-producers, so there is a kind of [bargaining]. This works when they like the project," says Sassine.
A broken chain
One of the most talked-about challenges in the industry is the gap between producers and distributors. From a story concept to the silver screen, there is a multi-stage process that involves a whole range of individuals, from producer to cast and crew, to distributor and exhibitor (the theater owner). "You have all the [players], but they're all on their own islands; you need to start building canals between them and those canals are distribution canals - it's a value chain. So if everyone does their job on the chain, you can have a healthy, flourishing industry," says Karim Safieddine, founder of online platform Cinemoz and a distributor.
The domestic market is small to begin with, making it hard to return on investment in Lebanese theaters, not to mention the fact that foreign films take the lion's share of admissions. Based on data that the Euromed Audiovisual III report collected for the year 2010 (prior to the latest production boom), Lebanese films took less than 1 percent of all box office revenues. "We really need to have public support in the fight that is held between producers and distributors because when it comes to the theater, we don't have the distribution budget. In the US, in the studios [distribution] is 30 percent of your budget, so we can't afford this at our level. Whatever we put in terms of distribution can never compete with the studios and Hollywood and what's signed in Cannes," says producer Aractingi.
Distribution costs can run high, between the marketing of the film and the renting of theaters, which sets you back around $500 per screen, according to Mohamed Fathallah, who is both a distributor and producer. Depending on the film, Fathallah will invest anywhere between $10,000 and more than $1 million to acquire the distribution rights for a region-wide release, and the ticket sales are split roughly 50-50 between distributor and exhibitor. In Fathallah's experience, however, when it comes to Lebanese films, producers tend to bypass the distributor: "Producers in the region like to be in control and for them it's more a way to maximize on their profits because a sales agent is going to take a certain cut of the revenue."
Fathallah argues that distributors are more aware of the commercial side of the business - and thus producers would benefit from their input from early on in the production process - and have strategies for when is the best time to release a film. For example, in the Middle East region the month of Ramadan has an interesting role to play. Considered a "dead month" for the cinema sector, particularly in summer, when only the 10pm show is left, theaters release the minor movies during this month. The action-packed blockbusters and long-awaited films, such as the upcoming Finding Dory, are scheduled to be released in time for Eid weekend.
The public sector's contribution to the film industry as a whole has been quite insignificant, in the view of many. The Ministry of Tourism has been taking baby steps through promoting the industry at Cannes (see Cannes story page 74). Culture Minister Araiji told Executive that the yearly budget for the film sector was 256 million Lebanese lira ($170,000) and called it "a shame". When it comes to giving grants to filmmakers, the National Film Commission of the Ministry of Culture is the entity entrusted with that responsibility, and divides a meagre budget of around $100,000 among 10 to 15 projects each year, according to a 2015 film industry report published by IDAL. Compare this to what some of the other countries in the region are offering. Aractingi, who researched the topic for a presentation, discovered that "in Tunisia you can get up to $150,000 per film" and that even the Palestinian territories received more funding. There are some who argue that government support is not the make-it-or-break-it factor, or indeed should not be expected to arrive any sooner than Godot, and say it falls rather on the shoulders of corporates to boost the sector, but for the most part producers would welcome the financial assistance.
© Executive 2016