The Struggling Market for Independent Films in Mexico

With the value of the Mexican peso falling more than 18% in 2015 and another 6.6% in January 2016, IFTA Research saw it as an important time to take a closer look at the Mexican market to evaluate how the current state of the country, its currency devaluation, as well as that of neighboring currencies, and worried investors are affecting acquisitions and revenues of independent films.

Despite the weakening currency, the Mexican economy grew by 2.3% in 2015 and is projected to grow 3% in both 2016 and 2017. However, this growth is not felt by companies conducting international business. The exchange rate is causing problems for importers who buy products in U.S. currency. The Mexican entertainment industry is facing challenges as buyers and exhibitors scurry to pay fees and contracts in U.S. dollars. 

In this region of the world, most titles are sold through Pan Latin American all rights deals, then split and sub-licensed to the various territories. Mexico is the largest of the sub-licensed territories in Latin America, typically accounting for 40% of the deal value. A weaker peso forces Mexican buyers to acquire at lower prices, depleting the value of the Mexican portion of a Pan Latin America deal and therefore lowering the price of the deal overall.

Independent titles struggled in the theatrical sector even before the currency devaluation. Action/adventure films by U.S. major studios dominated the Mexico 2014 box office taking in 73% of the revenue. U.S. and international independent titles accounted for the most releases but generated just 17% of the box office.

Piracy and the loss of a DVD market are additional challenges faced by the entire entertainment industry in Mexico. Piracy continues to cripple the Mexican market, striking the home video market the hardest. The DVD rental business is almost nonexistent. While DVD rentals remain strong in some parts of Latin America, the majority of what little DVD business remains in Mexico is sell-through.

Over the air television remains very popular with almost 42% of television households (5.3 million homes) exclusively consuming terrestrial TV. Most free television programming includes local films, major studio blockbusters and content produced by the broadcasters themselves, such as telenovelas. As television networks’ budgets are slashed by the weakened peso, little foreign independent product can be found on free television. Free television is dominated by local broadcasters Televisa and TV Azteca, who together hold 95% of commercial TV licenses and a 90% audience share. Both companies are self-producing more content in the local currency to save money on international acquisitions. 

Pay TV subscriptions have seen a steady growth and are projected to continue to rise. Satellite is the dominant mode of delivery with a 55% Pay TV market share while cable accounts for 44%. In all of Latin America, Mexico is the only territory to successfully carve out premium pay television channels for higher subscription rates. Most premium offerings are cinematic channels owned by local telecoms and U.S. major studios. Pay and Premium television remains one of the stronger markets for independent films in Mexico.

The nation has the strongest online market of Latin America accounting for 45.6% of the territory’s OTT/VOD subscriptions. Netflix dominates most of the online market due to its early launch in the country. Almost half of all 5 million Netflix subscribers in Latin America are Mexican. Other successful online platforms are SVOD services owned by local telecommunications companies. SVOD platforms account for 70% of VOD market revenue. Competition continues to increase in the SVOD sector and many services acquire independent films, especially U.S. and European titles, in the hopes of attracting more subscribers.

Independents have long struggled in the theatrical sector in Mexico and continue to do so. However, they have managed to adjust to the near extinct DVD market through opportunities in the television and online markets. While the devaluation of the Mexican peso is further disrupting the market for independent films, the emergence of new SVOD services over time will present more prospects for independent content in the digital market.

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