The Commercial Producers Association this week released the results of its seventh annual CPA Survey which defines and measures the size and scope of the South African television commercial production sector.

The survey, which is conducted every year on the CPA’s behalf by Johannesburg based research company, Evolutions Research Solutions, produced some revealing results on the current state of the industry.

Although the survey indicates slight industry growth in the period under review: May 2010 to April 2011, the research highlights certain concerns and challenges faced by the sector. Industry leaders are concerned by the fact that the industry appears to be in a stagnant phase and growth has slowed considerably since the prosperous 1990’s and more recently the early 2000’s when the CPA commissioned the first survey in 2004.

The director based industry, which is active mainly in Johannesburg and services the local advertising community, remains stable with an increase in the number of commercials produced. However turnover has increased in value with a lower percentage than cost of sales increases. This indicates that more commercials were produced for a higher turnover but with increasing costs. In spite of the increase in commercials and turnover the significant increase in cost of sales would have had a negative impact on the industry. Should this trend continue the margin of profitability could decrease to such an extent that director based companies may struggle to maintain standards and service, a challenge which is shared by crew, suppliers, post houses and talent agents.

The service sector, based primarily in Cape Town, saw an improvement in turnover and more commercials were produced while cost of sales increased with a lower percentage than turnover indicating more controlled increases and a greater willingness by suppliers to assist in containing costs. The concern in the service sector is low growth and a failure to mature sufficiently to ensure future sustainability in a very competitive market.

Producers believe this stagnation is occurring due to a combination of factors which include escalating costs, increased competition, an unpredictable exchange rate and a lack of support from local government.

The sector of the industry which has been hardest hit this year is the small but prestigious international agency work that is awarded to South African director based companies. This has dropped off by almost 50% in the last year indicating that the international demand for South African directors has decreased and that South Africa is no longer viewed as an attractive option by international agencies looking to produce commercials abroad. Producers servicing this market speculate that the reasons behind this are the bleak financial situation in Europe and the US and the willingness of foreign production companies and well-known international directors to accommodate lower budgets. South African production companies are spending less on marketing their directors internationally as they consolidate in the comparatively stable local market and the drop off has also been attributed to South Africa’s lacklustre performances at Cannes and at other international awards. Producers are in agreement that the industry needs to increase its creative output in order to win back international work.

The 29 participants in this year’s survey reported that they produced a total of 640 commercials in 1376 shoot days (an average of 2.15 shoot days per commercial) and that, of these, 219 commercials were shot in high definition. The total turnover generated for all commercial productions was R854 064 007.03 and it is estimated that the total industry size for the year under review was R1 260 064 007.03 From a cost perspective, the survey reveals the impact of rising production costs on the industry. In 2005, the average turnover per commercial was R 818 802.22. This figure increased to R1 349 531.48 in 2011, an increase of almost 65% which far exceeds the rate of inflation over the same period. Labour costs remain the largest production expense (38%) followed by equipment hire (16%), art department & construction costs (13%) and post production (10%). The balance is made up by a combination of costs which include vehicle hire, catering, studio rental, stock & processing, location hire, insurance and general production expenses.

All sections of the budget constituted the same (or slightly lower) percentage as those recorded in last year’s survey with the exception of crew remuneration which grew by 3% to 32% indicating that crew working on commercials worked more and were paid more in the last year. With 162 additional shoot days recorded in 2010/2011, the survey demonstrates that the commercial sector is creating more employment, specifically in the Western Cape, but that inflation in this category is compromising the sustainability of other suppliers and placing additional pressure on an already insecure base.

Through tracking a core group of production companies which have participated in consecutive surveys, it can be concluded that when compared to the results of 2009/2010, a moderate to low impact combination of negative signs include no change in the average turnover per commercial while the average number of shoot days per commercial was slightly higher and the average expenditure per commercial increased by 5%.

While the commercial production sector remains relatively stable in 2011, there are a number of warning signs which must be heeded and managed by both production companies and their suppliers to ensure that the delicate balance is maintained. The future health of the industry depends on it!