BRAZIL Corner: João Daniel Tikhomiroff – On the Intricacies of the Brazilian Audiovisual Market
In the first article of Portada's new feature Brazil Corner, Sao Paulo, Brazil, based journalist Carla Ponte interviews João Daniel Tikhomiroff, one of the top producers and filmmakers in Brazil. Tikhomiroff is founder and partner of Mixer, a Brazilian production company.
THE BACKGROUND: With a prolonged political crisis, an economy struggling to overcome a long recession and endless scandals feeding an almost chaotic circle, Brazil has certainly provided an amazing collection of stories to writers and content producers. Nevertheless, the Brazilian entertainment sector has been growing at a high rate. Ancine, the agency that regulates the Audiovisual market in Brazil - reported that in recent years – 2007 to 2014 – the Audiovisual sector grew almost 9% per year. In 2014 the sector had an overall size of US $7.9 billion. The figures for 2015 and 2016 have not been reported yet, but some analysts suggest an average growth of 2% per year, which is still higher than most sectors of the Brazilian economy.
An institutional factor that explains the growth of the Brazilian Audiovisual sector is the Incentive Law that supports TV and cinema productions as well as by the implementation of national content quotas on Pay TV. These quotas were activated at the end of 2011 and require international channels to display 3 and a half hours per week of local content during primetime. The Pay TV sector is facing a lot of pressure by a decrease of subscriptions - after a huge jump from 5 million in 2007 to 20 million in 2014 – and also by the growth of VOD and OTT services, which are growing in number of offers and subscribers everywhere in the world, including Brazil. What to expect for 2017? Will the Brazilian Audiovisual sector keep growing despite the country’s economy? How to break the chain and be less dependent on government support?
João Daniel Tikhomiroff (photo) answers the below and more questions in Portada’s Brazil Corner. Tikhomiroff is the most awarded publicity director in Latin America, with 41 Cannes Lions, and 10 years ago migrated to the Entertainment world to found Mixer, which ranks the top 5 Brazilian Production Houses with an internationally awarded portfolio.
Brazil Corner - Your agency Mixer opens 2017 with the release of the film “Os Saltimbancos Trapalhões - Rumo a Hollywood” directed by you; your company is also producing another season of “O Negócio" for HBO Latin America - the first Brazilian series to reach a fourth season on the channel; you just got the renewal of the series “A Garota da Moto" for SBT - Open TV Network ; besides various non-fiction productions for multiple channels of Discovery Networks, including large realities as “Desafio Celebridade". What share of the business does content production account for at Mixer? Is advertising still essential to pay the bills, even in this period of crisis in the advertising market?
JDT - Mixer's revenue structure still needs the advertising market to pay its bills. But Entertainment - both content and branded - already represents 50% of our revenues. We closed 2016 with a 50/50 advertising/content revenue split. And, until very recently, the ratio was 60/40 (60% Advertising - 40% Entertainment). According to our business plan, in 2017, Entertainment should surpass 55%.
Brazil Corner - And what is the company's main strategy for content production?
JDT - We take great care with the structure. Mixer is the only Brazilian production house with its own development team, ie permanent writers (chief writers and writers who develop). And that is on both fronts, both in the fiction and non-fiction entertainment space. This structure that is part of our DNA, because our aim was always to be a content producer which develops, and owns content and not merely provides service. Mixer was born with the goal of being a producer that, in fact, has its identity, its brand recognized through the work we create, develop and produce.
Brazil Corner - Ancine - Agency that regulates the Audiovisual market in Brazil - reported that despite the country plunged into economic recession, the Audiovisual sector grew on average 8% per year. This growth rate is largely explained by tax incentive laws. How can you overcome this dependence of the sector's growth on tax incentives.?
JDT - "There are two issues here. The first is that tax incentive are key in any country that wants to create a new industry. And this goes for any activity, not only for audiovisual sector. The automobile industry always had tax incentives to set up plants in several states. And don’t forget that the United States also has state tax incentive, which is very strong in the production of TV series. In most American series, about 30% to 40% of the cost of production comes from tax incentive state laws. This happens in California, Florida and many other states. In addition, it is important to remember that when the TV entertainment industry was born in the United States, the US Congress passed a law that prohibited the channels to produce their own content. This law required that 100% of the content would be produced by independent producers or studios. And I'm talking about the Open TV channels in the decade of the 1940s and later, Pay TV in the United States, was born in a similar way to the current situation in Brazil, where content is produced by independent producers.
Tax incentive are key in any country that wants to create a new industry.
Brazil Corner - It would be a legislation in the mode of Law 12.485 / 11, the so-called Cable Law, which came into force near the end of 2011 and which among other rules, requires international channels to display 3 and a half hours per week of local content in primetime.
JDT - "In Brazil we have a tiny share... and in the United States, the production process for TV in the forties started with a quota of 100% in Open TV channels. And that American law lasted 50 years. Only in the 1990s, the law was abolished by Bill Clinton, saying he believed that from that moment, the entertainment market was already mature and able to self-regulate. But nothing would prevent that, in case the reverse phenomenon is observed, a new request be presented to Congress to revive the law again. In the United States, this law helped regulate and create a way of doing business between channel, creators-writers and producers that lasted for decades. In other words, a relationship that has matured to the point of creating an audiovisual industry that is an economic powerhouse. So when we talk about Brazil and Latin America, we are still in our infancy. Because, in Brazil specifically, our content production for TV began in the opposite way compared to the U.S. As there was no law, it was considered best to follow a verticalization of production in Open TV with almost all content being produced internally. For Pay TV it was a semi-verticalized process, with several projects done internally, but, at the same time, opening a loophole for partnerships with independent producers for more specific projects, such as series and reality shows, because they had the know how and the financial savvy. That is how Brazilian independent production was born. We got our first break, obviously, with the mechanisms of Tax Incentive Laws and also the so-called Cable Law that prescribes compliance with Brazilian content quotas. And this quota is very small compared to other countries like France, Spain, Canada.
Brazil Corner - But how do you create other mechanisms and business models so that the independent production can be structured by creating a parallel dynamic to the stimulus already guaranteed by Law?
JDT - "There are several business models that can be followed. The first and the most obvious is to work with original content. Original productions for channels or platforms that do not use incentive laws and pay 100% of the production, but the channel owns the content. Mixer produced the series “O Negócio" for HBO Latin America under this model and the channel invests a lot more. The value per episode is much higher (than compared to projects linked to incentive laws) because the channel wants to achieve a standard of quality that guarantees the export of this product to other countries."
Brazil Corner - And what does the independent producer get from this business model, since in exchange for this investment the channel retains the rights of the work?
JDT - "First, the producer has the opportunity to produce at a very high quality level, showing that it is capable of producing a series with a quality level on par with other international series and can be broadcasted in any other countries. And another very important point for the producer is that we make our mark on the international scene as a player able to compete in the top markets. Therefore, the business model based on producing original and exclusive content for the networks opens the door to the international market, both for the producer and for all professionals involved in the series. And this is extremely healthy and desirable in this maturation process of our audiovisual market."
Brazil Corner - The series “O Negócio" was even mentioned in BuzzFeed as one of the 26 non-American series that deserve to be followed. It is a series that could be sold as a format, but in this case the rights belong to HBO. Does Mixer have other products of your property that it can be turned into international formats?
JDT - "Yes, since our DNA lies in the development of content, we have series both fiction and non-fiction with good chances to catch on as formats in the international market. The youth series "Julie e os Fantasmas" is an example. It was a co-production with Nickelodeon, including a 2011 parallel airing in Open TV channel BAND (TV Bandeirantes Network) and caught the attention of some countries. Italy aired with dubbing on TV. And since the series was also among the five nominated to International Kids Awards, it won a high international profile and we are reaping the results now. We are currently in talks with players in the US to sell the format. And in this case, the business model can be a mere sale format, or may include an artistic supervision with monitoring by our head writer, who headed the development of the Bible production and the format and general director of the series, in an exchange with the professionals who will be in charge of the work abroad. And also in the youth genre, we have another series in pre-production that has everything to become a format model. We cannot yet disclose the channel, but it is a business model using incentive laws to gain the funds, as "Julie e os Fantasmas", providing that Mixer keep the rights of the work. That is, the channel has distribution rights, but in the case of format sales it is one more product that we can sell freely and reap new rewards later."
Branded entertainment and product placement are still a misnomer in Brazil.
Brazil Corner - In this business model, we have witnessed a growing trend of brand positioning in reality shows and other non-fiction programs that sponsor productions. However, in fiction productions for Pay TV, product placement is rare. Why has this practice, already proven successful in the United States, has not grown in Brazil?
JDT - "The use of product placement on Open TV helps fund telenovelas, series and other entertainment programs, generating a fundamental income stream for the channel. However, on Pay TV, the vacuum starts by the lack of a structure in the networks which relates to advertisers. The producers don’t have contact with the advertising community. So, it is important that the channels have executives that focus on seeking opportunities to place products in the productions in partnership with independent producers."
Brazil Corner - This already happens in non-fiction programs. Pay TV network have departments focused on this business, but this is not the case for fiction content. Do you think that in Brazil brands are open to invest in branded content and product placement?
JDT - "Very little. In the United States, no marketing professional thinks of doing marketing and advertising of their products without considering product placement and branded entertainment. In Brazil there is still a classic mentality that is vested more in traditional advertising. And the marketing people are still not fully convinced in branded entertainment From the point of view of creation and production, it is essential as a business model because it brings resources to production. It is a win-win relationship. At the same time it helps finance series and audiovisual products in general, the brands presence also helps to promote the products of the advertiser. Undoubtedly, this a business model that is hardly in practice in Brazil. In Argentina, the use of product placement is already more widespread both in series and in cinema. In Mexico, Chile, and Colombia as well. But it is in fact a business model still little common in the Latin American market. A loss of opportunity from all perspectives: the advertiser, the network and the producer."
CHECK OUT: The second part of this interview: Brazil Corner: João Daniel Tikhomiroff – On Branded Entertainment, New Financing Models and More. (Part 2) .