Blockbuster potential: The film industry’s success continues following international recognition

In recent years the Mexican film industry has seen strong growth. The year 2013 was especially good for the industry, with a record 99 commercial releases and two box-office blockbusters. This growth has been in large part fuelled by incentives. As Mexican productions gain increasing international recognition, some are calling it “a new renaissance” in Mexican cinema.

PRODUCTION BOOM: The past two years have seen productions boom. According to the Mexican Film Institute (Instituto Mexicano de Cinematografía (IMCINE), Mexico produced an average of 70 feature films a year from 2007 to 2011. In 2012, there were 112 (67 of them released), and in 2013 there were 126 even before counting the360 short films produced. International co-productions jumped from five in 2007 to 23 in 2012.

Movie attendance increased by 11% in 2012, reaching some 228m, generating MXN10.67bn ($829m) in box-office revenue and landing Mexico among the world’s five biggest markets. In 2013, it rose by another 20m. Though domestic productions have historically attracted few Mexican viewers – average attendance of Mexican films from 2003 to 2012 was 10.9m – in 2013 they made up 12% of total attendance, a six-year high. In 2012 Mexican films had attracted 10.9m viewers and earned MXN471m ($36.6m), less than in 2011.

Indeed, 2013 was a recording-breaking year in many ways. Alongside the 99 commercial releases, foreign shoots also increased, with Mexico attracting around 160 productions in film, TV and commercials. The number of tickets sold reached 257m and box office earnings totalled $903m. For the first time, two local productions entered the top 10 most-watched movies in Mexico. The comedy No Se Aceptan Devoluciones, released in the US with the title Instructions Not which sold 5.2m tickets and generated MXN162.5m ($12.6m). It also became the highest-grossing Spanish-language movie in the US, earning more than $50m. The second local production to make the top 10 was We are the Nobles (Nosotros Los Nobles), also a comedy, which grossed more than MXN350m ($27.2m) at the local box office, making it the sixth-largest-netting movie. The trend could see domestic movies increase their share of the Hollywood-dominated market.

Meanwhile, international recognition for Mexican films also rose in 2013, with Mexican productions gaining 70 awards on the international festival circuit including Cannes, Locarno, Toronto and San Sebastián. In 2014 Mexican director Alfonso Cuarón won the Oscar for best director for the movie Gravity, a first in the country’s long cinematic history.

GOVERNMENT INCENTIVES: Since 2006 growth in national productions has been fuelled by a combination of state-financed film funds and tax breaks. The government allocates $70m annually to film projects, which are distributed to entities such as the Fund for Quality Cinematographic Productions (Fondo para la Producción Cinematográfica de Calidad, FOPROCINE) and the Film Investment Stimulus Fund (Fondo de Inversión y Estímulos al Cine, FIDECINE). FOPROCINE provides financial assistance to local production companies for the production and post-production of fiction, documentary and animation feature films. Foreign filmmakers can also apply, provided they have resided in Mexico for two years and have been involved in the film industry during that time. FIDECINE provides financial support for the production, postproduction, distribution and screening of fiction or animation feature films produced locally through capital risk and credit schemes. Filmmakers are not eligible for both FOPROCINE and FIDECINE at the same time, but they can be combined with a third incentive, Estímulo Fiscal a Proyectos de Inversión en la Producción y Distribución Cinematográfica Nacional (EFICINE) 189, which was previously known as EFICINE 226.

EFICINE 226, a private capital fund managed by the Mexican Film Institute (IMCINE), was first introduced in 2006 and supports production, co-production as well as distribution of locally produced films. The incentive consists of a tax credit equivalent to the amount invested in the project up to a maximum of MXN20m ($1.5m) for production, and MXN2m ($155,400) for distribution. In 2013 the maximum amount granted per year increased from MXN500m ($38.9m) to MXN650m ($50.5m) (MXN600m [$46.6m] for production and MXN50m [$3.9m] for promotion). To apply for the incentive, 70% of the crew must be Mexican and 70% of the production filmed in national territory.

In March 2010 the government also began the High Impact Film and Audiovisual Programme (ProAV Fund), which offers a cash reimbursement of up to 17.5% of production expenses. Any film or audiovisual project that takes place in Mexico during the pre-production and post-production phases, and which invests a minimum of MXN40m ($3.1m) during its development and production phases and/or MXN10m ($777,000) on post-production is eligible. This also applies to video games and animation projects investing a minimum of MXN10m ($777,000). A combination of both reaching a minimum of MXN40m ($3.1m) is also be eligible.

Government support in film production has increased significantly from 2007, when 59% of films received government support, to 2011, when this reached 81%. In 2012 it fell to 63%, reflecting increased amounts of private capital in the industry.

FOREIGN PRODUCTIONS: Foreign productions are also eligible for 0% value added tax, provided the project is registered with the Ministry of Finance through a Mexican company legally established in Mexico.

In 2013 Mexico attracted around 160 foreign productions. Besides these incentives, foreign productions are drawn to Mexico for its wide range of scenarios, from desert, to jungle, forest, mountains and beaches. Moreover, Mexico’s attractiveness also lies in its relatively simple procedures to get film permits, which are required only from local authorities, as well as savings on Customs brokers and duties. Since Mexico is on the list of ATA carnet countries, production companies are allowed to temporarily bring in merchandise such as film equipment without paying duties.

FACILITIES: Another advantage is Mexico’s developed studio infrastructure. Baja Studios, one of the largest in the country, has one of the world’s largest aquatic installations, while the Churubusco studio in Mexico City has warehouses, sound stages, and its own lab and post-production facilities. In the summer of 2013 plans for a new complex were announced outside of San Miguel de Allende. Construction of the MXN200m ($15.5m) complex is scheduled to begin in 2014 and will be completed in 2016.

Financed with both public and private funds, the complex, known as Fabrica GIFF, will span more than 11m sq metres and will have the capacity to house a $50m film, according to Sarah Hoch, former Guanajuato state film commissioner.

DOMESTIC MARKET: Alejandro Ramírez, the CEO of Cinépolis, told OBG, “In recent years the sector has registered steady growth thanks to the establishment of bigger and better movie theatres, coupled with an increase in the population’s purchasing power.” According to IMCINE, in 2012 there were 5303 screens in the country. Because some areas are saturated, movie chains are now expanding to small cities.

In fact, the market may be reaching maturity. Ramírez told OBG, “As a result of this expansion, the market is now reaching maturity. The slowdown in the construction of malls has also slowed down the expansion of movie theatres since they are much less frequently being built on their own.” Despite more moviegoers and a sizeable domestic market, there is still a significant gap in ticket prices compared to the US, which has meant lower profits for the local industry. According to Cinépolis, there is still a significant difference in ticket prices with markets such as the US, which has average ticket prices of $8, compared to $3.50 in Mexico.

CHALLENGES: The proliferation of pirated movies as well as the increase in the availability of at-home entertainment are some of the challenges the industry faces, which are forcing companies to diversify their offerings. “The regulatory framework has improved significantly, thanks to a breakthrough in 2010. Since then piracy is prosecuted ex-officio and not by lawsuit. Authorities must proactively pursue this crime without waiting for a complaint to be filed. This has increased police activity to try to contain piracy, leading to an unprecedented number of sentences,” Ramírez said. As for production, one challenge is maintaining a balance in the promotion of quality award-winning films and commercial films with a higher return on investment potential. Big distribution firms are backing mainly commercial movies with high revenue potential.

In the short term the availability of government incentives should continue to fuel growth in local productions as well as attract foreign productions. The next year will also determine if the trend of Mexican films gaining a bigger share of the local market is one to stay.