Quota-led regulation will stifle whatever growth potential the South African entertainment sector can offer, says Sifiso Skenjana.
On the tail end of 2020 government came out with a proposal as part of the "Draft White Paper on Audio and Audio-Visual Content Services Policy Framework" which detailed the need for foreign over-the-top (OTT) players such as Netflix, including locals like ShowMax, to be subject to local content quotas (up to a maximum of 30%) for internet streaming services. This, they argue is in pursuit of promoting local content, culture and languages.
I have in the past reflected on the fine line between economic nationalism and economic protectionism and the perilous path of following the latter. The former emphasises that that to build localised capacity and industry level we need to incubate the industry so as to get it at the critical level of scale and competitiveness, both locally and globally; the latter looks at measures such as tariffs, quotas and taxes as a mechanism to discourage the wide-scale import of foreign goods (in this case streaming content) in favour of local goods – we also refer to this as import substitution.
The challenge of this approach is that it fails to recognise a few things:
- the formula for attracting investment is explained in the creation of a conducive environment for business to take place, easily, fairly and competitively;
- that economic localisation can be achieved through smarter and well-thought-out mechanisms that are more impactful as well as sustainable; and
- that often, these radical approaches are designed to respond to market failures – and the question is whether the real market failure is well understood – if there even such a failure.
We are not the only ones – baseless herd mentality in action
However complex the problem of local industry development may seem, it seems that regulators globally have found quotas to be an easy way out of a complex issue, which has been articulated to have dire consequences for long-term localised economic and sector development. Countries like Australia have imposed quotas in various formats from as far back as the 1960s and recently tabled a media green paper that was making proposals for quotas to be applied to Netflix, because they also have 55% local-content quotas applied to them.
Again, it is clear that the focus point is not on the substantive benefit of quotas, but rather putting the OTT players on an even regulatory playing field irrespective of whether such a regulatory framework carries any merit.
WG Bere in his 2008 PhD thesis Urban Grooves: The Performance of Politics in Zimbabwe's Hip Hop Music argued that local content quotas do not exempt local musicians from including elements of international music, nor do they guarantee that local music will preserve national identity or accurately reflect it – yet they continue to find prominence of policymaking across the globe.
Brazil, on the other side of the globe, imposes tax on its free-to-air broadcasters for foreign context with a quota imposition of 80%. Closer to our borders, Namibia has also tried a 20% quota on all broadcasting networks and has reportedly still struggled to find success in it.
Open for business
Foreign direct investment in the sector often comes in the form of co-productions, services for hire, content commissioning and content purchases, studio investments, etc. In addition, opportunities for mergers and acquisitions may also arise where local enterprises show investment value for potential suitors.
What, then, is the environment that becomes conducive for foreign-led investment to take place? Oluwayemisi Adebola Abisuga Oyekunle and Mziwoxolo Sirayi, in their 2018 paper The role of creative industries as a driver for a sustainable economy: a case of South Africa, found that, indeed, the creative industries were positive contributors to sustainable economic growth and that a total of 56 companies invested in creative industry clusters in SA between January 2003 and September 2014. The top-10 companies reported a combined total of 15 projects (24.6% of projects), 13.4% of jobs created and 13.7% of total invested capital over the period.
The UK in 2019 outpaced the US in terms of greenfield foreign direct investment (FDI) projects into motion pictures and recording studio sub-sectors, with roughly three quarters of that spend coming from OTT players like Netflix and Amazon – this according to the fDi Market 2019 report. What is clear is that FDI can take place even in Covid-19 impact market contexts - as long the market is conducive for it as well as the commercials on those deals make sense from a return on investment point of view.
True localisation misses and hits
A critical case study to engage with is the 16 years of existence of the Media Development and Diversity Agency (MDDA), a public-private partnership style statutory development agency that was established in 2003 to promote and ensure media development and diversity. MDDA has to date spent in excess of R500 million to fund community broadcasting, print and social programme production, research development, training and development programmes.
There are a number of challenges it has faced that have become a hinderance to it delivering against its mandate. The thinking is right, but the implementation model has fallen short of its ambition. The thinking behind the development of local content is right, but the quotas as a delivery mechanism will fall very short of achieving these sought after localised developmental goals.
On the other hand, we have seen a local success in the development of local content that was not driven by quotas. Many of the local broadcasters have played a critical non legislated role in driving local content development. From the SABC in its heyday with shows like Emzini Wezintsizwa, Velaphi, Lesilo, etc., while e.tv did well with Backstage, Scandal, etc.
MultiChoice is also playing a pivotal role in both stimulating local investments in building capacity and a skills base to produce high-quality content like we saw in shows such as The Wild, Rockville, etc., and additional investment into grassroot sports in soccer, netball, rugby, among others. Simply, we can do development without quotas and the evidence is there.
So what's this noise about the OTT players? Netflix, for example, has faced staunch local content competition in markets like India where Disney + Hotstar has captured the market, playing as much as 69% of its catalogue in local content, while Netflix only achieves 10% as of February 2021 - according to Ampera Analysis. In Turkey, they also launched Acun Ilicali's Acun Medya, which owns local television channels in Turkey under the TV8 brand, launched Exxen as recently as January 2021 with a local content value proposition - and they have also now outpaced Netflix in their local market.
Simply, this means that the consumer is king and the market will respond to the prevailing market demand dynamics.
There is no market failure in this space in South Africa and quota-led regulation will stifle whatever growth potential this sector can offer. It is critical that we engage more robustly with regulatory proposals and seek the ones that will truly drive local development and support the aspirations of the national development plan in its articulation of localisation as a core developmental imperative for the South African economy.
Sifiso Skenjana is the chief economist at IQbusiness. Follow him on Twitter: @sifiso_skenjana