Soft Money, Cold Cash: Money Shopping for Animated Feature Films — Part 2: Asian Territories

Read about where to look for financing in non-Asian territories in Soft Money and Cold Cash Money Shopping for Animated Feature Films Part 1.

China

The modestly budgeted ($1.44 million) Little Soldier Zhang Ga is the first modern Chinese animated feature and the first to be entirely funded from private investment. Students and faculty from the Beijing Film Academy (BFA), where enrolment has risen from 50 to 600 students in two years, are contributing to keeping costs down.

As with India, growth of the animation industry in the worlds most populated country is likely to result from broadcaster demand. State-owned CCTV, for example, one of the oldest, has 11 channels covering more than 90% of the 1.3 billion population. The government has announced the creation of several animation channels.

Warner Bros. Pictures also recently announced the creation of a joint venture in Beijing, Warner China Film Corp. in collaboration with state-owned exclusive importer/export of films, the China Film Group, and the nations largest private film/TV company, the Hengdian Group (annual revenue US$1 billion.) According to Variety, the new company will develop, invest in, produce, market and distribute Chinese-language features, telefilms and animation with budgets in the US $1.5-$6 million range (for films.) One of the first projects under consideration is a Chinese-language animated feature. Warner Intl. Cinemas has also started building multiplexes here.

Hong Kong

(www.fso-tela.gov.hk/film_guarantee_fund.cfm)

For a period of about 20 years, the city-state of Hong Kong, with approximately six million people, regularly produced more films per year than virtually any western country, was second only to the United States in film export and dominated the east Asian market. The industry was never subsidized, existing entirely on an explicitly commercial basis. Films were made because of a love for film and an enthusiastic paying public.

Among the changes with Hong Kongs reintegration back into China (for the anecdote, only foreign affairs and defense are affected, otherwise its business as usual), however, the US$6.5 million Film Guarantee Fund (FGF) was introduced in 2003, administered by the Film Services Office of the Television and Entertainment Licensing Authority. A minimum of 19 films will be guaranteed at any one time. To be eligible, companies must be creditworthy and have produced at least three films in the 10 year period between 1992 and 2001 for commercial theatrical release in Hong Kong. For newly formed companies with no track record, the same experience of the producer or the director of the film will count. A completion bond must be in place before applying, production must not have begun, only one loan per film per company is possible and the production company cannot be related in any way to the local participating lending institution (PLI).

Curiously, the theme or content of the film will not be questioned. At least 50% of above-the-line talent must be permanent Hong Kong residents, 30% of the budget must be covered out-of-pocket by the production company for films under US$1 million or a minimum of US$290,000 for films over US$1 million. Loans cannot exceed 70% of the budget for films under US$1 million or US$675,000 for those over US$1 million and the FGF guarantees only 50% of the loan, a maximum of 35% of the budget or US$338,000, whichever is less. The Fund and the PLI are repaid from first penny and any losses come out of the producers equity. The production company has to assign all of the rights of receivables of the film to and arrange a charge over all copyrights in favor of the PLI until the loan has been repaid.

In spite of this incentive, look for investment to come from television series co-producers like Digital Content Development Corp. (DCDC), whose success with Butt-Ugly Martians led to US$10 million DragonBlade, Hong Kongs first CGI feature. Imagi International Holdings, the studio DreamWorks picked to do Father of the Pride, is in development on another CGI feature, reportedly for more than US$20 million. The company was born out of the sale of Boto International, one of the worlds largest manufacturers of artificial Christmas trees! In 2002, Boto sold off most of its manufacturing operations to an entity held by the Carlyle Group, an American private-equity firm, for US$136 million. Imagi also has another feature in the works for Japanese toymaker Bandai.

Watch for the much-anticipated Thru the Moebius Strip, too, from Global Digital Creations (GDC) and Monkey King from Jade Dynasty Publications and Shanghai Media Group.

India

While Mumbais Bollywood in the north produces approximately 1,000 live-action films annually (and Bangalores IT industry in the south has become a magnet for U.S. investment), the Indian animation industry, properly speaking, is relatively new in spite of the existing 70-odd Indian animation studios. Indian venture capitalists, however, who currently invest about US$20 million per year into the half billion dollar animation industry, are looking to double that amount by next year as expectations rise. Industry growth is estimated to increase fourfold over the next three years to US$2 billion.

One of the Oscar qualifiers for best animated feature film, 2D/3D The Legend of Buddha, says a lot about the financing, evolution and the future of the Indian feature animation industry. Blazeway, a U.S.-based company specializing in the business of content distribution and marketing across various media including but not limited to Internet, theater, television & digital media and of providing technology services to various clients for deployments of products over the internet is the marketing partner for Pentamedia and handles the entire marketing and operations of Numtv.com (www.numtv.com) in the U.S.

Numtv.com is one of the worlds largest web casting portals, currently offering 13 live Indian TV channels, more than 200 films, radio, stage and print for Indians scattered around the world. Numtv.com is part of Chennai-based Pentamedia Graphics Ltd., whose principal activity is developing computer software for multimedia and webcasting services. This software is used to create animation and special effects for theatre, home video, television and PC. It also develops interactive CD titles, computer-based tutorials and corporate presentations. Pentamedia has operations in the U.S., Singapore, Mauritius, Malaysia and the Philippines with an annual turnover of around US$90 million.

Its clients have included Warner Bros., DreamWorks, TLC Entertainment and CBS. PMG has been ranked number three globally behind Disney and Pixar on the PTI (people, technology, infrastructure) index produced by the Robi Roncarelli report, a well-known industry journal. Pentamedias previous animation movies include Son of Alladin and Sinbad Beyond the Veil of Mists, Pandavas The Five Warriors and Alibaba and the 40 Thieves. Son of Alladin and Alibaba were also Oscar-qualifiers. It bought a company called Animasia International in Singapore (and its Philippines subsidiary Kingdom Animasia) in 1999, where the $6.3 million The Legend of Buddha was entirely animated, co-produced with the Singapore Economic Development Board. In March of 2000, Digital Domain announced that it had negotiated a $5 million films production deal with Pentamedia, an Indian software powerhouse, to further develop new projects.

Real investment is liable to come from the TV stations, too, where more people are in front of their TV sets every night than there are people in the United States. Zee Television, the largest media company in India with 20 channels and 60 million viewers, also produces animated series and films through Padmalaya Telefilms and animation facility Zee Institute of Creative Arts (ZICA), a training institute specializing in animation. Indias first mixed 2D/live action feature film, called The Queen of Fortunes, was created by ZICA.

Doordarshan, a public broadcaster, operates 23 channels reaching more than 89% of Indias billion-plus population or 890 million people. (If every viewer contributed one Lincoln penny, that would be US$8.9 million!) Mumbais UTV recently announced a US$25 million film fund, Film Fund India Ltd., and the creation of an international film distribution network with offices in London, Toronto and Los Angeles. UTV Toons, a subsidiary, is the largest animation company in India with over 700 artists.

Japan

Recent legislation liberalizing the creation of film funds and the South Korean example has resulted in the creation of several new funds in Japan. For example, Kadokawa Pictures (a Kadokawa Group subsidiary) announced the creation of one of the first, Japan Film Fund (among the partners, Mizuho Bank and games company Konami), with US$32 million and hopes to raise up to US$180 million in the future. Nomura Trust & Banking and U.K. content provider Future Planet set up another fund for institutional investors with US$7.27 million. The Shochiku Fund, from Japans oldest film studio/distributor, also with Mizuho (where individuals can invest as little as US$900), was set up to produce five 2D and CGI animated films and TV projects per year.

Another fund for straight-to-DVD titles, also for individuals (with an investment as low as $460) and representing US$2.18 million, has been created by Rakuten Securities, the financial company for Rakuten Inc., which owns and operates Japans largest online shopping portal. Rakuten Ichiba, offers over six million items from more than 13,941 contracted retailers and service providers, an online bookstore, an online hotel reservation service and a mobile phone catalogue-shopping service.

For anime fans, its practically unbearable: Miyazakis Howls Moving Castle, Mamoru Oshiis Ghost in the Shell 2: Innocence and Akira director Katsuhiro Otomos US$22 million Steamboy, 10 years in the making.

Philippines

The Philippines has no subsidies to speak of, but has a longstanding tradition of American-style animation, a well-developed infrastructure and North American investment. Philippines Animation Studio, Inc. (PASI), which recently went public, is reported to be preparing a raft of animation features.

Russia

As part of a three-year plan, Russia abolished tax incentives because of abuses, but increased state funds for filmmaking 50% in 2003. This years budget is an estimated US$47.6 million. Cinema is high priority for the government, particularly childrens films.

Founded in 1999 by one of Russias most successful live-action producers, Sergei Selyanov, CTBs Melnitsa Animation in St. Petersburg started privately funded Little Longnose in 2000 and released it in 2003, the first animated feature produced in Russia in almost 40 years. The studio employs more than 100 people and not only does its own films but also subcontracts for 2D, 3D, cutouts, etc. for international partners. It has launched its own distribution company, Nashe Kino, with Neva Film, one of Russias largest dubbing/post-production facilities.

Argus International just released two other animated features the US$4 million Nutcracker and the Mouse King with Germanys MC One studio, Russian animations largest international co-production to date, and the US$3.5 million Neznaika and Barrabass (25% funded by broadcaster Channel One and 50% state-funded.)

Alyesha Popovich and Tugarin the Snake, Melnitsas next feature, premiers on December 23, 2004 throughout Russia.

Singapore

(www.sedb.com/edbcorp/sg/en_uk/index/startups/startupfinance/startup_ente...)

Singapore is allocating US$200 million over five years to develop film production. Producers who reside in Singapore and who have companies incorporated there, with at least 30% local ownership, can receive up to US$250,000 per film and US$500,000 for co-productions with foreign partners.

Funded in part by the governments Economic Development Board and Creative Technology Ltd., as well as local investment firm Stardust, lifelong anime fan George Lucas just set up his second digital animation studio here, Lucasfilm Animation Singapore. What else is there to say?

South Korea

In the past four years, South Koreas film funds have raised an estimated US$500 million and the South Korean government is currently considering a proposal that would give substantial tax breaks to entertainment companies, on the condition that they plow a part of their earnings back into film development and production. Up to 30% could be deducted from taxable income but would have to be spent within the next three to five years.

South Korea is trying to shake its reputation as a work-for-hire industry and has recently produced a spate of homegrown feature films. Oscar-qualifier $12 million 2D/3D Sky Blue (aka Wonderful Days) from Samsung Venture Investments and Tinhouse/Maxmedia/Masquerade Films is the latest in a line of impressive fare that includes 2004 Annecy Film Festival grand prize winner Oseam directed by Sung Baek-Yeob, 2002 grand prize winner My Beautiful Girl, Mari by Seong-kang Lee and Hammerboy by An Taekun.

Nelson Shin of Akom Productions (one of the oldest of the 200 existing Korean studios), who designed the light saber fight scene in the original Star Wars, directed The Transformers animated movie and My Little Pony and whose company has animated on The Simpsons, also recently debuted his US$6 million, seven-years-in-the making Empress Chung, made in part with North Korean animators he met at Annecy years ago.

Thailand

Thailand governmental agency, the Software Industry Promotion Agency (SIPA) is investing US$25 million in seven local animation firms to co-produce 10 projects, with at least US$765,000 going into each film.

The 54-year-old Thai media powerhouse, Kantana Group, is preparing an animated feature, Khuan Kluay, which it hopes will be the first from Thailand to be released simultaneously throughout Asia. American and Thai alumni of Walt Disney, Blue Sky, Cartoon Network, Fox Television and Pixar are involved in the Kantana Animation production. The US$2.5 million film is being made with the support of the Ministry of Information and Communication Technology, providing 30% of the budget, tax incentives for imported software and paying for promotion of the film.

Taiwan

(www.gio.gov.tw/taiwan-website/7-av/film_industry/mframes_eg.htm)

In 2002, Taiwans government authorized a $1.1 billion plan to stimulate the animation industry, already a $4 billion industry, and hopes to double that amount by 2008. The $1.1 billion is part of a six-year high technology investment plan that will favor local production of original animated and digital motion pictures as well as R&D.

Wang Film is in production on two animated features, Monkey King and The Story of Grandpa Lin Wang, which received US$500,000 and US $300,000 respectively in government funding. Digimax, a major Taipei-based post/FX house is also planning three CGI feature films to be produced over the next five years with local animation and family-entertainment firm The Gotham Group. As much as 45% of the estimated combined budget of US$50 million will come from the government.

Shop Till Ya Stop

With approximately 200 feature films ever made in the history of animation, it is encouraging that no less than 55 European films are in pre-, production or post-production at the present time and another 10-20 from Asia and the rest of the world. That amounts to approximately 65-75 animated feature films in the works worldwide, not including the boom in the United States. Sources of financing are multiplying rapidly, amounts increasing and the talent is available as a result of big studio downsizing, individual ambition, the digital revolution and a host of other reasons, not the least of which is demand. And films are getting cheaper, believe it or not, and people are getting smarter, spending smarter. Almost everywhere.

Heres the Oscars list again: Disney/Pixars The Incredibles, Disneys Home on the Range and Disneys Teachers Pet; DreamWorks Shrek 2, Shark Tale and Ghost in the Shell 2: Innocence; Paramounts The SpongeBob SquarePants Movie; Polar Express and Cliffords Really Big Movie (also distributed by WB); Masquerade Films Sky Blue; and Blazeways The Legend of Buddha.

Special thanks to Bill Allen of Baker Street, U.K., for his help with the moving sands of U.K. film financing.

Chris Panzners film and television career spans 25 years. He recently created writing company Power Lines and production/distribution company Eye & Ear. He has also been known to wear white slacks after September 1st, an industry-recognized fashion fox paw.