Filmmakers seek cost cuts to secure profits

Korean filmmakers are initiating a campaign to slash production costs to improve profitability amid growing concerns over a slump plaguing a domestic film industry hurt by intensifying competition both at home and abroad.

Filmmakers, led by the Korea Film Producers' Association, are poised to launch a movement to lower the average film's production cost to 3 billion won ($3.24 million), down from the current 5 billion won, in an effort to ensure profitability.

The move comes in response to criticism that production costs for Korean films are way too high, making it difficult to turn a profit, which in turn undercuts the competitiveness of local films against foreign blockbusters.

According to government statistics, mainstream Korean films cost about 5 billion won to produce and need to sell 2 million tickets to reach the break-even point. But many Korean films now struggle to sell 1 million tickets, leading to losses that discourage further investment in the sector.

Given that Korean films account for about 60 percent of the entire movie market, the maximum amount of revenue local filmmakers can generate is 234 billion won. But with the average production cost at 5 billion won and the number of films made estimated at 70 annually, the break-even point is 350 billion won, indicating a serious gap in revenue.

In other words, Korean filmmakers are pouring 350 billion won into the market, but their share is limited at 234 billion won. Unless they cut costs extensively, the outlook remains grim for local movie producers and investors.

Another factor that drives Korean filmmakers to take action is the noticeable weakness of Korean films in recent months. Even high-profile actors do not help their films make a profit. For instance, "The Show Must Go on" failed to sell 1 million tickets, even though it stars Song Kang-ho, a top-rated Korean actor, best known for his role in "The Host".

Cha Seung-jae, an influential Korean film producer and also head of the Korea Film Producers' Association, told local media that the group will promote the cost-cutting campaign.

The question is which part of production costs should be cut first. The initial target is likely to be the contract paid to top stars. There has been a debate over the bloated cost structure thanks largely to excessive profit-sharing demands by several leading actors.

The problem is that small producers have no leverage in negotiations with such stars, and they are most likely to meet the demands of the stars as long as they sign on to the projects, with cost-cutting measures to take place elsewhere.

Until recently, low-paying production staff members were forced to bear the cost-cutting burden through even lower salaries. But producers and the union of film production staff recently struck a deal to set a minimum wage for filmmaking laborers, which has increased the average cost a notch.

The latest move by producers and filmmakers, meanwhile, reflects the deepening trouble facing the local film industry. Only a couple of years ago, Korean filmmakers boasted a fast-growing domestic market as well as award-winning films featuring innovative storylines and techniques.

The industry hit a peak in March 2006 when the total share of Korean films in the domestic market reached 71.8 percent, staving off challenges from big-budget Hollywood movies. But in March this year, that share plunged to 27.6 percent, suggesting local films are losing their competitiveness, and experts and critics are blaming the slump on the distorted production cost structure. Exports also plummeted 68 percent in 2006.

By Yang Sung-jin