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Filmmakers offer investors starring role

2004/03/17 Source

Movie companies shine spotlight on stock markets, online sales

Unable to gain access to investors by traditional means, Korean filmmakers are rewriting the script to give stock traders and cyber fans starring roles.

The industry currently generates an estimated 700 billion won ($605 million) per year, which is meager compared to Hollywood where a single project may cost more than $100 million.

But with current blockbusters "Silmido" and "Taegukgi" streaking through attendance levels, filmmakers and analysts say the local movie industry has proven that it can produce movies with tremendous commercial value.

"Movies are not yet a driving economic force, but it has the potential to become just that in coming years", said Ko Jung-min, chief researcher at Samsung Economic Research Institute.

For many filmmakers, access to the local stock markets is not possible because they lack enough equity to meet requirements.

However, Myung Films Co. and KangJeGyu Films, ranking No. 2 and No. 3 in the Korean movie industry, figured out the back door is better than standing in line waiting for a handout to enter.

They joined hands last month to merge with Seshin Buffalo Co., an industrial toolmaker that spun off from Seshin Co. on Jan. 16. Together, the threesome created MK Buffalo Co., set to be officially launched next month.

More importantly, Seshin Buffalo is a publicly traded firm, meaning automatic access to the Korea Stock Exchange for the two filmmakers.

Best alternative

"Some may disapprove of the way we entered the market, but we see it as the best possible alternative considering that the chances of getting listed were pretty dim for us", says Park Jin-gyu of Myung Films.

MK Buffalo plans to finance movies at its newly installed filmmaking division with the profit generated by Seshin Buffalo.

"The marriage of a manufacturing arm and a filmmaker is not exactly desirable, but considering the overall effect, which is reliable funding, MK Buffalo may be on to something", said Kim Mi-hyun, a researcher at state-run Korea Film Commission.

The desire for adequate and stable funding has always been there, but filmmakers became more earnest in recent years amid what some call the "renaissance" of the Korean cinema.

Over the past few years, Korean films took off at both home and abroad, raking in record sales within and garnering rave international reviews from overseas.

In February, Korean-made movies enjoyed a market share of 82.5 percent, an all-time level that broke the record set just a month earlier, said IM Pictures Corp., a film-investment firm.

And last Saturday, director Kang Je-gyu of KangJeGyu Films, who was the mastermind behind Korea's first blockbuster "Shiri" in 1999, broke the 10-million record set by "Silmido" this year with his $13 million Korean War epic "Taegukgi".

At last month's American Film Market in the United States, "Taegukgi" also rang up $500,000 from overseas distribution deals.

With the public keen on sharing the glory, filmmakers hope to attract as many investors as they can to finance better movies that generate bigger revenues. This would keep investors happy and the money rolling in, says Sidus, the biggest Korean filmmaker.

Sidus created box office hits like "Singles" and "Memories of Murder" last year and was voluntarily bought out by SecuriCorp. Inc, a local security technology provider, for 4 billion won last month.

Under its new parent, Sidus plans to launch movies via multimedia channels provided by SecuriCorp., but at prices lower than rival companies thanks to its film rights.

According to Sidus spokesman Roh Jong-yoon, out of the registered 1,500 filmmakers, most are ghost companies, with only about 300 or so actually making movies.

Worse still, out of the 300, only the top 30 churn out the hits

The domestic movies that do draw audiences get an extra boost from the government's screen quota, which requires theaters to run Korean movies for a minimum 106 days a year.

Cyber investment

Hoping to gain better access, the U.S. film industry has pressed for a repeal of the quota system. The local entertainment industry, however, believes the market is not yet mature enough to be fully exposed.

Riding on the recent unprecedented success, the desire to become movie moguls has spread among ordinary movie fans, namely through on-line funds.

Although the Internet is not yet a frequent investment tool due to the lack of any guarantees on principle investment or legal protection, both movie lovers and even the casual investor are showing a growing interest.

"Happy End" (1999), a movie about a devastating extramarital affair that eventually leads to murder, was the first to tempt investors in the cyber world.

Produced by Myung Films, the film attracted 100 million won ($86,000)in funds, about 10 percent of the total production cost. Investors walked away with a 45 percent profit rate after taxes.

Last year, the company raised another 2 billion won on-line to help finance "A Good Lawyer's Wife", a film that won an invitation to the 2003 Venice International Film Festival. Critics were happy, and so were investors who saw an average profit rate of 67 percent after taxes.

While on-line funds go for a quick profit, newly emerging brick-and-mortar entertainment funds are in for the longer term, says fund managers.

One example is BiNext HiTec, a firm promoting start-ups. It recently formed a 10 billion won ($8.3 million) fund to invest in homemade films, supplying 1.5 billion won. State-run Small Business Corp. and Korea Film Commission pitched in 3 billion won and 2.5 billion won, respectively, while KD Media contributed the remaining 3.5 billion won.

Although it won't realize any profits in the near future, BiNext predicted that movies made with bigger budgets were bound to come back as huge returns in the long run.

The fundamental weakness of the market, coupled with the inherent risks of the film industry must first be addressed, market experts say.

While filmmakers complain about the tight regulations barring their way to the stock market, the KSE and Kosdaq argue that the entrance qualifications are among the lowest in the world.

"In terms of global standards, we rank at the bottom", says Cho Hwee-sik of the Kosdaq registration team. He added that it would be unfair for other industries if movie companies were given the special treatment based on the recent success.

Clashing views

The over-the-counter market currently stipulates a return on equity ratio of over 10 percent, ordinary profits in the latest fiscal year, and a minimum equity of 1 billion won for companies seeking entrance.

These are actually strengthened prerequisites following a series of scandals that stained the market in 2000-2002. Since then, many circumspect investors have avoided the stock market.

The film industry calls the authorities "backward", saying they are blind to the powerful potential of local movies.

"So movie exports still make up less than 1 percent of exports. What the government needs to understand is that the figures aren't everything. It must see the potential of the market", said Roh of Sidus.

He campaigned for more benefits to successful filmmakers, such as tax breaks and exemption from military duty to help retain valuable workers.

The next few years will be crucial for the industry, Roh said, stressing the efforts from this point on would decide whether homemade movies will make it big time, or just sit in local theaters.

Kim Ji-hyun

Source :

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