Due Date: By 10:00 am on December 13th
Words: 2,000 words or less (up to 3 exhibits)
To: H.E. Dr. Ali bin Tamim (Director General, Abu Dhabi Media)
From: Michael Garin (Chief Executive Officer, Image Nation)
Date: December 14, 2017
Re:
In light of the recent developments taking place across the Kingdom of Saudi Arabia, and following Monday’s announcement by H.R.H Crown Prince Mohammed Bin Salman to terminate the longstanding 35-year ban on commercial cinemas across the country, I wish to take this opportunity to propose a renewed partnership between Image Nation Abu Dhabi and the Middle East Broadcasting Center (MBC’s) television and film production arm – O3 Productions. This proposed collaboration with O3 Productions is centered around the joint financing and production of a new slate of films serving both regional and international audiences, with a set production timeline starting in 2019.
Since Image Nation’s inception in 2008, our business model has relied heavily on revolving development funds from the government of Abu Dhabi and strong partnerships with international producers and top global/regional production companies. These partnerships have enabled us to successfully release 25 films – generating over $1.8 billion in box-office revenues – placing us amongst the leading film and entertainment companies across the Middle East and North Africa (MENA) (see Exhibit 1). Following through and being able to deliver on our mandate to promote economic and cultural development, by nurturing and developing the local talent and film industry in the United Arab Emirates (UAE), the next natural move would be to form a long-term strategic alliance with the region's largest distribution and production platform, MBC. Not only will this allow us to create synergies across businesses, but it will also help us deliver on our blockbuster strategy through streamlining operations and cost efficiency where in turn we will impart our expertise and experience in the international film arena – mutually benefiting both parties. Allow me to explain…
Monetizing local content remains a challenge – despite growing from a smaller base, the MENA media market is set to grow at 7.5% CAGR reaching an estimated $35+ billion in revenues by 2020 – making it the 2nd fastest growing region in the world behind Africa and ahead of the Asia-Pacific region (1). While still limited, local (Arabic) content is winning when it comes to content preferences and is slowly becoming more available across multiple platforms. With over 20 official film festivals and competitions emerging across the Gulf Cooperation Council (GCC) between 2004 to 2017, significant efforts have been made to develop, nurture and promote local talent and film production (2). However, due to the fact that that films in the MENA region remain largely under-screened, the majority of media revenues has been driven by television advertising, as the industry itself still battles significant challenges in the production, financing and distribution of independent films. Moreover, due to its large expatriate base (90% of the 9.54 million population), the dominance of western content from US majors within the UAE has made it increasingly difficult for film producers and independent companies, including Image Nation Abu Dhabi, to create a sustainable presence capturing market share (through wide-releases) and recouping production costs (3).
Opportunity to capitalize on an untapped film market – as the second largest Arab state, Saudi Arabia provides the ideal market for local content to be king due to strong government support and a large native population of 32.55 million (4). Building on the Crown Prince’s efforts to promote social change, and in hopes of promoting cultural understanding by reshaping the country’s austere image through the introduction of existing Saudi talent to local, regional and global audiences, the Saudi General Culture Authority has committed over $10 billion to the local development of its film industry (5). Moreover, a 35% cash rebate for local production spending and 50% rebate on employed Saudi labor, offered through the Saudi Film Council, makes for one of the most attractive production incentive programs globally (6). Coupled with a large youth population, 70% of which are under the age of 30, the overnight emergence of a significant movie-goer market with large disposable incomes has prompted a mad dash of regional and international exhibitors looking to profit from this overnight untapped market opportunity which is estimated to be valued at $1 billion by 2021 (7). With over 300 cinemas and 2000 screens expected to be built across the country, Saudi Arabia is well positioned to be among the top 10 film markets by 2030 (8).
White-space opportunity meets low-risk micro-budget business model – due to the relatively smaller size of this market when compared to the 60,000 cinema screens offered in China, the blockbuster model contradicts market localization for world-wide tentpole movies e.g. Crazy Rich Asians (9). Furthermore, due to the aforementioned competition by western content distributors and the high-risk and costly nature of quality film production, it will take a few years for the required infrastructure to be developed and meaningful theatrical revenue to be generated by local/regional production houses and independent filmmakers. As such, we will seek to adopt a ‘Blumhouse Model’ by which decision making will be based on protecting production cost structures – allowing us to engage in volume-driven deals to further drive down production costs (see Exhibit 2). By leveraging our existing relationships with Hollywood producers like Steven Schneider (Paranormal Activity) and Roy Lee (The Ring), Image Nation Abu Dhabi is well positioned to help develop Saudi talent and jointly produce a slate of high-concept, low-budget comedy/drama/horror films that appeal to local, regional and international markets (10).
Maximize distribution reach and diversify revenue streams – with majority ownership and strong financial backing by the Saudi Arabian government, MBC with its 27+ years of experience, has grown to become the largest multi-channel network in the Arab world. Holding a portfolio of over 11 channels (7 of which are launched in HD) as well as the first free Video-on-Demand (VOD) platform in the region offering prime-time show programming, a partnership with MBC provides us with a unique opportunity to reach a wider audience by gaining access to its already well established distribution reach – allowing us to maximize and share in downstream revenues generated through successful content creation from both our international (Image Nation) and local/joint (Image Nation Abu Dhabi) production divisions (see Exhibit 3). While theatrical revenues in the short-term may be limited, by further deepening our relationship through co-financing and production agreements with MBC, Image Nation Abu Dhabi will be able mitigate development and production risk, and establish a variety of risk/reward profiles through horizontal diversification i.e. producing TV shows and other forms of media, all while utilizing established relationships with superstar talent to draw viewership across various distribution channels. Additionally, as more international subscription streaming services e.g. Netflix, Iflix etc. make their way to the region and look to increase their local content offering, we will be able to provide existing and new local content IP to expand our international viewership base and ensure a more stable revenue stream.
Leverage existing brand equity to attract and develop superstar talent – with little commissioned content and limited screen capacity (only 374 screens in the UAE), the region has been notorious for producer-financed content (11). Due to economic instability, pre-financing has becoming difficult and with their inability to monetize through wide theatrical releases, local producers have demanded high minimum guarantees in order to recoup production costs and finance personal projects. Through the provision of wider monetizable distribution channels and by consistently delivering successful content, this partnership will create value for existing but underutilized creative talent – allowing us to drive-down upfront costs and generate quicker and larger returns to our shareholders. By leveraging our proven track-record, quality production capability within the full-length feature film space as well as our established relationships with major international production houses and talent, we will also be able to attract and retain superstar talent. Moreover, through MBC’s online platforms and channels, we plan to draw on a wealth of data generated to analyze and predict viewership potential of original ideas, and produce content that appeal to a wider regional audience thereby maximizing both our own and our partners’ revenue potential.
The internationalization of our business is clearly reflected by the emergence of a number of new countries, including Saudi Arabia, as significant film markets. While we have been able to use profits earned through Image Nation International to finance the growth of Emirati talent and the overall film industry, the costly high-risk high-reward nature of creating profitable film assets/IP for a small UAE audience has made it increasingly difficult to self-sustain and grow our business. Furthermore, over the next few years we expect our local theatrical revenues to further decrease as screen capacity develops and Saudi moviegoers begin heading to screens closer to home – further signifying the importance of establishing a presence in Saudi Arabia early on by strengthening our relationship with O3 Productions and MBC.
Anecdotally, I often like to consider MBC as the longstanding, well entrenched and famous restaurant with all of the required state-of-the-art equipment in place, and O3 productions as the award-winning, Arabic Michelin Star chef who brings his/her expertise and own ingredients to the table to produce a unique, locally/internationally sought-after dish sought out by customers around the world. This will enable us to develop our own ‘Peter Jackson’ model, and draw a critical mass of international audiences and talent to the region. Moreover, this exciting opportunity will allow both Saudi Arabia and the UAE to build a dynamic film and content industry ecosystem in the region, and embark on a new chapter in cinematic history by showcasing its rich-culture and talent, and using storytelling as a vehicle to promote cross-cultural understanding between the Middle East and the rest of the world.
Exhibit 1
Sources:
(1) https://www.pwc.com/gx/en/industries/tmt/media/outlook.html
(2) https://books.google.com/books?id=DsV1DwAAQBAJ&pg=PT205&lpg=PT205&dq=why+mbc+partner+with+image+nation&source=bl&ots=08UaNIm9sJ&sig=N6DC8Rx68ePMXCDNjAJ0jBqgv2Q&hl=en&sa=X&ved=2ahUKEwjdp9Xj6uPeAhXqQ98KHS6GBe44HhDoATADegQIBhAB#v=onepage&q=why%20mbc%20partner%20with%20image%20nation&f=false
(3) http://worldpopulationreview.com/countries/united-arab-emirates-population/
(4) https://www.statista.com/statistics/262467/total-population-of-saudi-arabia/
(5) http://www.filmjournal.com/features/cinema-renaissance-saudi-arabia-welcomes-movies-and-has-vision-future
(6) https://www.screendaily.com/news/saudi-arabia-launches-35-cash-rebate-for-international-productions/5129176.article
(7) https://www.naseba.com/content-hub/article/5-reasons-youth-will-revolutionise-saudi-arabias-economy/
(8) https://www.hollywoodreporter.com/news/saudi-arabias-billion-dollar-gift-film-world-1068192
(9) http://www.xinhuanet.com/english/2017-11/27/c_136782445.htm
(10) https://variety.com/2017/film/global/image-nation-abu-dhabi-pacts-with-u-s-producers-roy-leesteven-schneider-1202426796/
(11) https://www.statista.com/statistics/591132/number-cinema-screens-middle-east-africa/
Look at this to add to the list.
https://variety.com/2017/film/global/image-nation-abu-dhabi-pacts-with-u-s-producers-roy-leesteven-schneider-1202426796/
https://imagenationabudhabi.com/en/media-center/press-releases/2017/mbc-group-and-image-nation-abu-dhabi-announce-film-and-television-production-partnership/
O3, Image Nation Abu Dhabi To Co-Finance Saudi Film Slate: Cannes
https://variety.com/2018/film/news/chris-fenton-in-negotiations-to-head-massive-saudi-arabia-film-initiative-exclusive-1202730030/