So yesterday was the commissioning of the Lagos State Rice Processing Mill by the Governor of Lagos State. It was tied to the Agricultural Transformation Agenda of the current administration, and the move to domesticate the rice industry in Nigeria. Currently around 50% of the rice consumed in Nigeria is imported, and rice is on the list of products to be banned in the near future. So this 20,000 MT Rice processing factory is a step in the right direction, both for Lagos State and for the country. I probably would have thought no more than that, but then the article paraphrased part of Governor Fashola's speech. It went something like this:

"He appealed to the the Federal Government to help the state in its quest for increased production by allocating to it farmland around Ogun River Basin."

That made by "investment" sense start to tingle. So I decided to look a little closer. The Lagos State Rice Mill can process about 20,000MT/ annum, which makes it a small/medium plant. About 250 hectares of land under cultivation to produce rice to feed the plant. A few minutes with google later, I know that the Nigerian yield for rice is about 2.5MT/ hectare, and that you can plant two crops in a year. I break out my trusty excel to discover what these pieces of information mean for the plant:

The plant is expected to operate at a capacity utilization of 6.3% all things being equal. Now I don't care where you are in the world, but a capacity utilization of 6.3% is not good.

There is another assumption being made, that the existing rice being grown in Nigeria is being used in the existing rice mills. If the assumption is not true and they are able to get rice paddy from other rice farms in Nigeria then the situation may not be as dire. So they may be higher than 6.3% utilization. There are also plans to increase the land under cultivation to 500 hectares, which will boost utilization to 12.5% (which is still pretty bad). However, Fashola's plea for more land more than sort of implies that they are worried about utilization and that there is limited access to land.

I don't know what break-even is, but the way to make tons of money on a processing plant is to have 100% utilization. Which means that they have to have access to 4,000 hectares of land to grow rice. This is not a lot of land as far as farming is concerned, but this is Lagos where land it as a premium.  I'm sure they could even do a deal with Ogun State to get the land if the Federal Government doesn't play ball. The other option is to increase the yields on the rice. Don't ask me how feasible this is, I'm not into agriculture. Anyway, if they raise yields to the global average yield of 4 then they only need 2,500 hectares to get that money spinning 100% utilization.  However the point is that they built the plant without securing the land that would produce enough rice to give them 100% utilization.

However don't go screaming white elephant quite yet. The fact that they didn't secure land before hand doesn't  mean that the rice mill is doomed to fail. The Ministry of Agriculture is  planning to aggressively cultivate rice production in Nigeria, with of mill clusters all across the nation, alongside the farms to support them. So even if they have to get the paddy transported to Lagos, eventually there will be excess paddy for them to use. Look at it this way, there are over 2 million hectares of land yet to be cultivated that can be used for rice production, some of it will eventually swing their way.

This basically means that the mill will likely be successful... eventually. It will probably make losses for a few years, as it ramps up capacity, but the general increase in cultivation will save it. As they say in the VC game, "you have to survive long enough to be lucky". And this  "if you build it they will come" approach pretty much bets on that strategy.

The moral of this story kids is that only governments and rich people with money to burn are allowed to build processing plants without locking down their raw material supply. They can make a risky as hell $5m - $10m investment, throw another $2m - $3m at it, and eventually have the business become worth $50m and be hailed as geniuses... you cannot.

Laters

Introduction
In 2009 I wrote a post about Nollywood economics titled Nollynomics. The central thesis of the post is that the quality of nollywood movies is directly linked to the economics of Nollywood. Most of what I wrote still holds up today, especially about quality and piracy. However, I underestimated the effect Multichoice's Africa Magic would have on the industry. So this is an update mostly about the Africa Magic effect, and about what that can tell you about the coming streaming revolution.

Africa Magic
Here is what I said about Africa Magic in 2009

"The international and tv rights (think Africa Magic) do not impact the numbers because most people treat it as jara these days, especially since the tv rights are apparently stingy..."


That was the way rights holders (think marketers) thought about Africa Magic in 2009. However in 2012, they don't think the same way. Here is the headline of a recent article in Vanguard: Movie Marketers declare war against Africa Magic, others. The marketers feel that Africa Magic decided to "drink their milkshake" and as such have reacted accordingly. Here is a quote from the article from a statement made by the marketers association:

"I declare while standing on the mandate given to me by those under my care that from the 1st day of May 2012, any movie capable of being released through our conventional distribution channel will not be assigned to any broadcast station. But on the other hand, any movie up for broadcast will not be distributed through our channels.”

So they have basically resorted to blackmail. You have to choose whether to go through the marketers or through Africa Magic. Since Africa Magic pays a pittance for the broadcast rights, you can imagine which side most content owners will chose. The top tier movies are rarely shown on Africa Magic as it is (Anchor Baby & co) so this is purely targeted at the mid-list movies that are Africa Magic's bread and butter.

Africa Magic Economics
Between 2008/9 and 2012, Africa Magic became a major way people consumed Nigerian movies. Due to the compensation systems that Africa Magic put in place (and that TV generally has), the content creators were unable to benefit from the boom in broadcast revenue. Africa Magic may have increased the license payments to content creators, but the bulk of the value was still captured by them.

In 2008/9 Multichoice (the platform that carries Africa Magic) apparently had about 250,000 subscribers and reached about 2.5 million people (give or take). The fact that Africa Magic paid practically nothing for content was irrelevant as they didn't have enough viewers to affect the demand for vcds.

Today Multichoice has grown to about 1 million subscribers, and reaches about 8-10 million people. They are still paying a relative pittance for the content, however the growth of Multichoice, partially (or majorly) fuelled by Africa Magic, has put a significant dent in the market for vcds.

So to use hypothetical numerical examples this is what the marketers say the rise of Africa Magic has done to midlist movie titles over the last few years:

In 2008/2009 Film costs N100. Africa Magic gives you N2, and you make N200. You don't care about Africa Magic in this scenario.

In 20011/12. Film costs N150. Africa Magic gives you N5 or N10. However, now you make N100. So now you think Africa Magic is to blame, (well them and the pirates but my last Nollynomics post shows why pirates are not to blame).

Marketer Strategy
So what do you do as a marketer who sees the above numbers? You are in a small and fragmented industry, Africa Magic has massive clout and can determine pricing. It is simple really, you form a union and agitate. Basically threaten to go on strike. Due to the absurdity of (and inability to police) the ban, I'm guessing that this current stance is purely a negotiation strategy. They are trying to get more money from Africa Magic. They believe that since Africa Magic's success is dependent on their movies they should get a larger share of the cake.Unfortunately for them Africa Magic also know this vulnerability and are moving to diversify hence this action as outlined in the sponsored release on Bella Naija.

Optimal Strategy
The marketers have the right idea, but they are going about it completely the wrong way. They do need to protect the vcd revenue, but not by banning broadcast. The should do two things, one of which may be illegal, and Africa Magic should do one other thing.

1) Establish Release Windows: Get their members to only sell the broadcast rights to Multichoice after the dvd has been released for 3-6 months, that way the broadcast rights do not hurt sales. Similar to what the big studios do internationally

2) Sell Rights Collectively: Rather than use the union to ban broadcast rights, everybody in the union should pool their rights and sell them collectively. Collective right selling is the reason why the Premier League, NBA, NFL etc earn so much money from TV rights. To collectively sell rights, you effectively form cartels, which could be illegal without the special dispensation that sports teams get. Just ask Apple and the book publishers. However, it is for the Nigerian Broadcast Commission to make a ruling, and I have a sneaking suspicion that they are unlikely to side with Africa Magic... at least for now.

3) Africa Magic should show adverts: The additional advert revenue should enable them to offer (and afford) higher rights fees. They should treat Africa Magic like a basic cable channel ala TNT and Comedy Central.

So these three things will allow the marketers to maximize revenue from vcds, and then maximize revenue from broadcast rights and also increase the earnings potential for Africa Magic. So it is a win-win for both parties. Higher revenue for marketers sort of leads to higher quality movies, which leads to increased subscribers for Africa Magic, which also leads to higher broadcast rights: a veritable virtuous cycle.

Streaming Economics
Streaming is where broadcast was in 2008/9 for almost similar reasons. There is no real broadband in Nigeria, and as such selling the streaming rights to Nollywood movies doesn't really impact Nigerian viewership or sales. Streaming rights are currently seen as an international issue, and since marketers (and other content holders) get very little from international it is seen as jara. However if the ISPs and GSM networks continue to build out data networks, you can almost expect the marketers to come out in a few years saying that streaming is the tool of Satan.

I actually expect the marketers to be more successful in capturing the value from streaming than they were from broadcast, because with streaming it is a lot easier to calculate how many people viewed your content and thus eventually demand to be compensated accordingly. A pure streaming company as a result is effectively unsustainable.

Take Iroko Partners, the leading streaming site for Nollywood movies with a library of over 4,000 movies (according to an interview the MD did with Techloy).  Iroko Partners currently pays about $15,000 for the rights (according to another interview I cannot find). Judging by the page views (slightly under 3 million per month) and revenue growth, there is a strong argument to make that they are underpaying for content. Or from their perspective, able to purchase content at attractive prices.

However as mentioned above, eventually the content owners will try to take the profits Iroko (and other copycat streaming sites) will make.  Basically what happened to Netflix (who just reported a loss) will eventually happen to Iroko if they remain a purely streaming business. Here is a succinct explanation of the issue that Netflix is facing (and that Iroko will face) by Felix Salmon


"Rather, Netflix’s problem is with... its “old partners”. There is a stream of money coming from Netflix’s subscribers, and Netflix is competing with its “partners” for that money. The studios have learned that Netflix will pay astonishing sums for streaming rights — orders of magnitude more than it ever paid for DVDs. And while Netflix used to be able to rent out a DVD hundreds of times after buying it once, under the streaming contracts it has to pay the studios every time a movie or TV show is streamed.
This is why I’m fundamentally pessimistic when it comes to Netflix’s prospects: any time that Netflix builds up a profit margin, the studios will simply raise their prices until that margin disappears. Netflix needs the studios more than the studios need Netflix: no one’s going to subscribe to Netflix for Lilyhammer and Arrested Development alone [original content]. And while HBO has managed to build up a good business by producing original content, Netflix really doesn’t want to be HBO, it wants to be much bigger than that. It wants to be a one-stop shop for video content, rather than a single channel among hundreds.
The problem is that if you’re a one-stop shop, then you have limited negotiating power to tell any given studio that you won’t pay their price. Netflix’s subscribers are, ultimately, paying for the content, not for the pipe. And so it stands to reason that Netflix’s revenue stream will go the people making the content rather than to Netflix itself."

Simply creating your own content isn't the way to break this cycle as that just raises the cost of content acquisition. So rather than paying $15,000 to stream a movie, you pay $50,000 - $100,000 to make it. That is not a place they want to end up unless... they can parley this inefficiency in the market to build a content creation and distribution company. In that case the worm will not turn on them.

I have a sneaking feeling that Iroko is trying to re-invent itself as a distributor in Nigeria and is positioning to become Nigeria's first "major studio." After all you don't raise N1 billion ($8 million) simply to perfect your streaming algorithms or buy servers (especially from a VC fund with $8 billion).

Conclusion
The first phase of Nollywood was dominated by the "marketers". They used their power as the only distribution channel to keep costs and by extension quality down. This approach fuelled Nollywood to its phenomenal growth in the late nineties and noughties.  However the rise of the "blockbuster" Nollywood movie, and Africa Magic, has weakened the marketers. The marketers are fighting back and the outcome will determine the next phase of growth in the industry.

If new players are going to emerge, the second phase of growth cannot rely on the marketers for funding. The new revenue models will have to be robust enough to bear the cost of production and make an acceptable profit. Effectively Nigeria has to institutionalize and establish its own studio system, either through marketer consolidation or external investment into the sector (or both I suppose). There is a $2 - $5 billion industry at stake and in the immortal words of Brian Moore "it's up for grabs now"

A lawyer friend of mine recently told me that in a recently amended criminal prosecution Act the law was changed to allow for a similar asset forfeiture statute that obtains in other countries. Simply put, this puts the onus on the accused to prove that an asset belongs to him/her, if his/her apparent income does not match. If s/he can't prove it, the state is allowed to confiscate the asset.

For example, a civil servant who earns N200,000 a month, recently buys a flat in Ikoyi worth N200 million. Unless the civil servant comes from a rich family, or just won the lottery it is unlikely that he purchased the flat legally. In the old days the onus was on the prosecutor to prove that the civil servant stole the money to buy the flat, however these days the onus is the civil servant to prove that s/he legally obtained the funds s/he used to buy the property.

I remember a few years ago when the former head of EFFC Mrs. Waziri put forth a bill to pass such a law. All the lawmakers spoke in favour of the law, however when it came to vote they all voted against the bill. It was a voice vote, so you couldn't tell who voted what.

Anyway, it seems that EFCC is putting the new law to good use, and have already gone after the Civil Servants involved in the Pension Scam. http://www.vanguardngr.com/2012/03/n4-56bn-pension-scam-efcc-seizes-shuaibus-property/

While things like this, and the evidence act amendment allowing electronic information, and the personal income tax act amendment do not excuse the relative inertia of the GEJ administration, it does show that there are people thinking about the good of the country in there.

Laters

Intro
Well we are back with your top ten for 2011. Normally it's the first post of the year, but I decided to switch it up a little bit this year, and give it to you second. You know how we roll in 2012. So a quick overview of the way this works. This is a list of the top ten viewed posts in 2011. If I had a few wags commenting (which I don't) they'll tell me that it's not very accurate as most people read my blog on the main page, or through their reader, but it's all we've got, and it gives me a chance to opine on my own posts. My kind of definition of a win-win. I suppose the other thing to say is that I have excluded but monthly archives pages and the top ten posts from consideration. I mean a top ten full of top ten posts pretty much defeats the purpose. So having managed to include an alliteration, I will say that my work here in the intro is done. On to the posts.

10. More Subsidy Thoughts
This was a post that I initially did during the subsidy removal debate. The post was done prior to the removal of subsidy, and before the rise of Occupy Nigeria. It still represents my views on the whole subsidy thing. I didn't think the big bang model could work politically, and later events proved me right. The post came during the tail end of 2011, and so it's pretty cool that it just snuck in there under the line.

9. On Chipping In
This is an almost bog-standard relationship theory post, saved by the fact that I wasn't the one that came up with it. While I managed to avoid its senior, more obnoxious brother (retoasting) I must freely admit that I fell afoul (rarely) of the chipping in phenomenon. However as I said in the post, it's generally a state of affairs that everybody is happy with. It is still another 2011 post, which either shows people don't read my blog anymore or that 2011 was a good writing year. I'm voting for the latter.

8. Nigeria Discussion Series
So this one got more popular from 2010, rising 2 places to 8. It seems that political snazzy still draws 'em in. It is still well worth a read, and while financial services as a whole are taking a beating, it's clear that the pension funds are one of the main success stories of that sector. I really should do an updated opportunity set and see if the predictive power is as good in 5 years.

7. On Levirate Marriage
This one dropped a few places from 5 to 7. It's a post about what I think about women being forced to marry their husband's brothers (or relations). While I know that there are worse things in the world, our culture's loves of infantalizing our women, is a pet peeve for me. This is just one instance of it. I shall probably do a post about the theme in general later this year. See that's the top ten working for ya: generating post ideas anyhow.

6. Money Matters #1
This is another 2011 piece that made it. I really like this one. It was inspired by one of my colleagues who was also a Pastor that ran a singles fellowship. It is about one of the real problems that faces a dual income couple in Nigeria. For anyone who is keeping score: it is another dilemma created cos of patriarchy :) Of course it was supposed to be the first of a series, but you know how that turned out. I shall try and post the other case studies, if I dig them out. Wow, look two more posts. At my old posting rates that's 4 months of posts right there. hey I kid i kid. (kinda)

5. The Sex Thing Always Gets in The Way
This one is truly a surprise. Its the second 2010 post in here, however it wasn't even in the top ten last year. Granted it popped up in October, and so maybe it couldn't build enough page views to crack into the top ten, but given a year it's pushed its way to the top. I suppose I can now retract the statement that I wasn't on point in the second half of 2010 :D. Anyway, on to the post. It's about platonic friends of opposite sexes. I've pretty much had the same view for a while, and it is clearly on my mind cos I have blogged about it twice before this post (Something I whine about). Anyway enjoy. (P.S. I saw When Harry Met Sally recently, and it was still awesome)

4. On Your Kneels
Ahh we were reminiscing about the go-go days in banking in the noughties just the other day. We were wondering if they will ever come again. As life is cyclical, I'm sure they will, but here's hoping they won't send anyone on their kneels every again :)

3. Prelude to a Fraud
Snazzy the investigative journalist. I suppose this takes on a bit of added colour with the news that James Ibori has pleaded guilty for fraud in a London court. As an aside, my favourite bit of the whole thing is that she proved that it was indeed this James Ibori that was the criminal. :D Anyway enjoy a discussion of this possibly potential attempt to defraud the people of the Niger Delta. Though I am now indeed curious as to know what happened to the Niger Delta Power Holding Project :)

2. The Accidental Girlfriend
This post clearly touched a nerve. It's the highest post and the fourth 2011 post in the list. (I guess people really don't read my back issues anymore :p) It's a bit of a ramble, and not as well written as the obvious no. 1 (well obvious to past readers), but it's a fun one. To be honest, it's obvious that she was trying to jump ship but waiting until she found a suitable boy, but to see her jedi mind trick herself into thinking it was all ok, was a thing of beauty

1. Hot Girl Syndrome
"Aaaand the winner and still champion..." Yessir, Hot Girl Syndrome retained it's crown as the most popular post of 2011. I'm sure it has family and friends it wants to thank for this stunning yet completely expected triumph. I should probably get over this post, and try and one up it but hey what can I say. It's a damn good one. In the (slightly amended) words of Sally Field "You like it. You really like it"

Conclusion
And there you have it. Your top ten posts for 2011. I suppose the most awesome thing about it is that Sunday Corper 2 has finally dropped out of the top ten. I am doing a mental happy dance about that :D So there were 4 posts from 2011, 2 from 2010, none from 2009, one from 2008 and 3 from 2007. Clearly I was on some kind of fire in 2007. Ah the inspiration of relative youth. So as per normal, here are the links to the past top tens 2010, 2009, 2008, 2007 Let's all have a great and more fruitful (bloggingwise) 2012 y'all

So once again I am here in the nick of time to drop a post before the month runs out. Sometimes I feel like I should just let this at least once a month thing go, but a four year streak is nothing to be sniffed at. I also notice that I am close to my 300th post. This is my 291st to be exact.

I started out with a bang. I mean I did my first 100 posts from October 2006 - June 2007 basically 8 months cos I started blogging at the end of October.

The second 100 was done from June 2007 to July 2008, and so just over a year. It would have been done sooner, but I slowed down in the last few months. It took me 5 months to do the last 15 posts.

So since July 2008 I have written a just under 90 posts, this is just sad sha. The shame has come and gone so, I shan't even try and defend myself any more.

Anyway, on to the next.

I have been looking over analytics for the last year and nobody reads my blog enough to make the post worth a lot, but still I am a creature of habit and by the end of the week you my last few readers shall get the top ten post of 2011.

Enjoy

Update: it's even worse than I thought. There are only 276 published posts. So I am a long ways away from 300


Update 2: New Year's Resolution: Reach 300 posts by the end of June


Update 3: Reach 300 posts by the end of the year: Let's not be too eager eh :D