The ip coalition report I

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Aside from providing the country international recognition, the movie industry is also significant to the local economy. In 2000, it was estimated that the film business employed 130,000 people, 65.4% of which are in the film making and theatrical sub sector, 19.2% in video distribution, and 15.4% engaged in cable services provision. During the same year, it was estimated that the annual payroll expended in the business was PhP9.72 billion, while the industry's estimated total tax contribution amounted to PhP3.5 billion (Sazon, Eduardo D. 2000)37.

he government has been perceived to be one of the sectors that benefit most from the development and expansion of the film making business. It receives 30% amusement tax, 10% VAT, and 10% withholding tax from the theatrical proceeds, in addition to the 30% amusement tax and 10% VAT on video distribution. Furthermore, a 10% VAT is also paid by cable service providers.

According to the report of the Film Ratings Board on the Local Film Industry (undated), the estimated amusement taxes collected from Filipino films shown in Metro Manila have been decreasing. From P215 million worth of taxes in 1997, the collection declined by 16.7% in 1998. The government income slightly climbed, by 2.2% in 1999, but the value again dropped by 9.3% the following year. By 2001, only P147 million tax income was collected (Table 11).

his decreasing tax collection trend may primarily be attributed to the dwindling number of local films produced in recent years. As presented in Figure 7, the production of local films has been slashed by more than 50% from 1997-2003.

Several factors may explain the declining trend in the local movie production. One is the high cost of film production and the low turn-overs. In 1997, the average cost of producing a movie was P9 million. Of the local movies produced in that year, only 10% made money, 41% broke even, while 70% did not fare well in the market. It is said that in order to break even, “ a P9 million movie must gross 342% of production costs, or P30,802,139. For every additional peso earned, only P0.21 goes back to the producer for distribution and operation cost” (Sazon, Eduardo D., 2000). Hence, film production has not been very lucrative for investors.

Video Piracy

Another reason for the decline in movie production is the widespread occurrence of video piracy in the country. Like in the recording industry, piracy is a threat to the movie/film business. With the improvements in image copying, IPR infringement has become a relatively easy task. Without the burden of the fixed costs, pirating entails minimal or only the marginal costs of production.

ideo piracy in the Philippines exhibited a decreasing trend since 1998 up to the present (Figure 8). The highest decline was registered in 2000-2001, at 10.6 percentage points, while the lowest drop was recorded at 1.2 percentage points, in 1999-2000. The IPC38 estimates cover piracy of movies through the video cassette and optical disc media. Note that video piracy rates started to drop the year the Intellectual Property Code of the Philippines was enacted, which was in 1998. However, extensive investigation of this association will be developed in later sections of the paper.

The IIPA39 estimated that the motion picture piracy in the country has been constant at 65% for four consecutive years, from 1996-1999. It climbed to 70% in 2000, and further rose by 10.0 percentage points the following year. The 2002 estimates remained at 80%, while the 2003 rate climbed to 89%.40 These estimates cover the entire motion picture business, including video, television and cable, and public performance.

The proliferation of piracy in the Philippines was encouraged by the change in the Filipinos' movie watching preference during the early 90's. As substitutes, movie theater watching has slowly been replaced by home video viewing. According to the National Statistics Office (1994 Functional Literacy, Education and Mass Media Survey, FLEMMS), exposure of the public to movie theaters has decreased by 4.6% in 1994 from the 1989 figures. In contrast, video tape exposure increased by 2.4% during the same period. This placed video tape (7th position) ahead of movies (8th) in the 1994 ranking of the mass media forms that Filipinos patronize.

As home video watching became popular, so did the unit sales of appliances for video viewing. From Table 12 it can be observed that in 1997 and 1998, VHS unit sales increased by 15.6% and 1.5%, respectively. However, it dropped slightly, by 3.2% in 1999, as the VCD player was introduced in the market. The declining trend in the VHS volume sales continued until 2001, as the VCD player sales prospered. But due to the fast development in technology, a new medium of video viewing was presented to the market in 2002, which is the DVD player. Unit sales of the DVD player reached 41,900 during the year. As expected, VCD player unit sales started to drop during the same year, from 238,500 in 2001 to 194,300 in 2002, and will be expected to lose popularity as the DVD player gains an audience. The pattern of movie video medium is also expected to follow this trend as the preference of movie watchers change from video cassette tape, to VCD, and eventually to DVD. This hypothesis is supported by the 2003 figures, wherein VHS unit sales dropped to 1,150 and VCD to 93,400. Conversely, DVD unit sales shot up to120,800 during the said year.

Due to the apparent shift from movie watching to home viewing, one would expect that video distribution will thrive as a business. However, according to the statistics provided by VIVA Video Inc., the number of registered video establishments was affected by piracy as they started to dwindle in 1994. From the 6,402 figure, it declined by 45.3% to 3,500 in 1998.

It is evident that video piracy does not only affect film production, but the industry as a whole. It affects the theatre revenues, the video manufacturing and distribution business, and the actual movie production.

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