Should success at any price be celebrated? Because when it comes to cinema in Indonesia it is hard to escape accusations that ‘success’ is linked to unsavory business practices, tax evasion, rent seeking, crony capitalism and corporations tainted by links to the world’s most corrupt dictatorship. At least according to most of the resources we could find during our research for this post.
Last week the CineAsia 2014 “Distributor of the Year” award was handed out to Indonesian film distribution company Cinema 21 Group. The award was introduced and handed over by Imax’s Andrew Cripps and received by the company’s Founder and Chairman Benny Suherman, as well as Harris Lasmana (Vice Chairman) and Suryo Suherman (President), and Sacheen Lasmana (Vice President).
The original press release published in FJI announced the award’s recipient with the headline ‘CineAsia to salute Indonesian distributor Cinema 21’ stated:
“Cinema 21’s progressive and amazing growth over the past couple of decades has made them the leading distributor and cinema exhibitor in Indonesia,” stated Robert Sunshine, co-managing director of CineAsia.
Cinema 21 Group started as a film distribution company in 1969, and since 1991 has been the distributor for all major Hollywood films in Indonesia. In 1977, the group expanded into the cinema exhibition business, making Cinema 21 the largest cinema chain in Indonesia.
So what’s wrong with celebrating success? When that ‘success’ is built on a nepotistic monopoly, links to a late genocidal dictator and involved an embezzler and fugitive wanted by Interpol, then the definition of “success” starts to become strained.
The timing of this award might also be seen as poor, coming as it does a year after the success of multi-award winning documentary “The Act of Killing” and just after Indonesia got its first president without ties to its brutal political past. Our research into Indonesia’s motion picture exhibition took us back in time to Cinema 21’s early days.
Benny, Bambang and Sudwikatmono
Cinema 21 was indeed set up 1969, but the press release offers just the most cursory and airbrushed corporate history version of the Cinema 21 organisation.
The founders were Benny Suherman and his brother Bambang Sutrisno together with Sudwikatmono, the cousin of then President Suharto who had seized power in a military coup four years earlier. We wondered why Bambang or Sudwikatmono weren’t mentioned or honoured as the founders of Cinema 21?
Could it be because Bambang fled Indonesia and is now wanted by Interpol? Bambang Sutrisno embezzled Rp1.5 trillion [USD $128 million] from Bank Surya for which he was convicted of in absentia in 1999 and sentenced to life imprisonment. He fled to neighbouring Singapore where he is safely hiding with little fear of extradition.
What about Benny Suherman? From our initial Google search it sounded like he would have a pretty swanky home to put up his award in. The Jakarta Globe lists him as one of the 150 richest Indonesians – falling just outside the Top 100 in the most recent ranking. Here is his profile in full (with added emphasis):
108. $285 million
Benny Suherman (66)
Studio 21 Group
It’s no secret that cinema chain Group 21 continues to lead the market. Founder Sudwikatmono, who died in 2010, left management of the business to partner Benny Suherman. Benny was immediately faced with accusations that the cinema chain enjoyed a near- monopoly though arrangements with three film importers and had failed to pay taxes amounting to Rp300 billion [USD $25 million]. Strict limits were put on imported films, but conditions have now returned to normal, albeit with the emergence of competitor BlitzMegaplex in 2006, now only a minor irritant. Founded in 1987, Group 21 runs 122 theaters across Indonesia and launched Indonesia’s first IMAX theater last year. Benny himself now prefers to take a back seat, with Group 21 now run by Harris Lesmana.
We were a little taken aback that a major media outlet within the country would list Suhreman among the richest Indonesians while at the same time nonchalantly tarring him as an anti-competitive tax dodger.
Yet, the real success of Group 21 was mainly down to Sudwikatmono and his family’s ties to the late President/dictator Suharto.
Sudwikatmono, Suharto and KKN
According to the BBC “former President Suharto of Indonesia tops the all-time corruption league table,” as ranked in a report by Transparency International, which estimate that he looted USD $15-$35 billion in his 31 years of rule. It is reported that figure applies to Suharto and his extended family, which also includes his cousin Sudwikatmono.
As many news sources and documentaries have detailed, Indonesia’s economy under Suharto was based on corruption, collusion, and nepotism (known in Indonesian as “Korupsi, Kolusi, dan Nepotisme”, or KKN for short), principally involving Suharto’s children but also his extended family.
Here is what the Washington Post had to say about Sudwikatmono in 1998 when Suharto was finally forced to resign.
Suharto’s half brother, Sudwikatmono, is into banking, monopolizes movies here through his control of the import of films and all the theater chains, and has a variety of restaurants, supermarkets and hotels… The blatant use of the family connection to win a commanding slice of the national economy has made the Suharto relatives the object of widespread hatred – more so, it seems, than Suharto himself.
According to many, Suharto pushed the better known President Marcos of the Philippines into distant second when it came to corruption. But as well as being the epitome of crony capitalism, it’s hard to ignore the evidence that Suharto was responsible for the death of over half a million alleged “communists” when he came to power (documented chillingly in the Oscar-nominated The Act of Killing), as well as the brutal repression of East Timor where over 100,000 people died before it gained independence from Indonesia’s repressive rule.
But that was a long time ago and Sudwikatmono died in 2011 having sold his stake to Benny. Benny subsequently had a falling out with Bambang, who is not involved with Cinema 21 anyway. So why not “salute” the company for its “progressive and amazing growth over the past couple of decades”?
After all, “since 1991 [it] has been the distributor for all major Hollywood films in Indonesia.” Hollywood studios obviously like them a lot, as shown by the video taped congratulations from the President of Distribution of Warner Bros Pictures International, Veronika Kwan Vandenberg, shown just before the trophy was presented. Surely that has to be worth an award?
‘How Cinema 21 group does business in Indonesia’
The above is the headline from a Jakarta Post article from 2002, i.e. falling well within the ‘past couple of decades’ that CineAsia was ‘saluting’. The piece was written by Abdul Salam Taba of the School of Economics, University of Newcastle, Australia.
At the time cinemas that were competing with the Cineplex 21 chain were closing down, one by one, as documented by Indonesia’s non-governmental organization (NGO) Monopoly Watch.
Echoing many allegations that the 21 group, the country’s only major film distributor and exhibitor, has unfairly been ruining competing businesses, the NGO accused the business group of running a monopoly.
Having done investigations in five cities — in Jakarta, Bogor, Bekasi, Depok and Surabaya (East Java) — the NGO reported their findings to the antimonopoly watch-dog Business Competition Supervisory Commission (KPPU) last Friday.
The number of cinemas in Indonesia has been reduced from 2,314 in 1989 to 1,280 in 1998 since the group, which owns the country’s only major Cineplex chain, took control of the importation of Hollywood films.
The three companies in the group — PT Camilla Internusa Film, PT Satrya Perkasa Esthetika Film and PT Nusantara Film — run under one big company PT Subentra Nusantara Films which is largely owned by former president Soeharto’s relative Sudwikatmono. And the group is only one of many examples of nepotism by the country’s former dictatorial ruler.
Since the three companies listed above are also affiliated with all major film studios in the U.S., they hold exclusive distribution rights for the imported films. Due to this practice, film theaters outside the group would have to wait until all 21 Cineplex got their turn to screen the films. This had the affect of turning every non-Cinema 21 theatre into a second run house.
“As a result, other cinemas got low admission rates as they only had old movies to be shown,” Samuel said.
The NGO reported that out of 178 film screens in the capital, 102 of them are owned by the 21 group.
The group will also not show films in their Cineplex if the movie had been shown before in theaters outside their group.
According to the NGO, the group did not only obstruct other film theaters business but also hampered the revival of the local film industry.
Samuel said that local film producers did not have the bargaining power in negotiations to screen their films at the 21 Cineplex cinemas.
After digging some of this information up we wondered if it was right to ‘salute’ a company that built its business on allegedly abusive monopolistic practices and rent seeking born out of crony capitalism? Wouldn’t such practices have hurt both Hollywood studios (who could have gotten better revenues if their films had been shown in more cinemas), other cinemas (prevented from showing first-run Hollywood films) and even local film makers?
To call this “progressive and amazing growth” might understandably upset the cinema operators who saw their businesses crippled or killed off by this alleged monopolistic abuse. According to the Jakarta Post what was really being applauded at CineAsia was:
The 21 network has nation-wide outlets and also controls the distribution rights of imported and box-office films. Economically, the 21 network becomes the market leader in the cinema industry in Indonesia and at the same time it can ‘dictate’ the market and do whatever it wishes to non-Cinema 21 owners.
As a result, non-Cinema 21 owners find it difficult either to develop their businesses or are forced to declare bankruptcy.
As a market leader in the cinema business, the 21 network can set the ticket prices unilaterally, based merely on rent seeking, without having to take market equilibrium into consideration.
The result is economic concentration which hampers fair, efficient and effective business competition.
These accusations against the Cinema 21 Group weren’t isolated. From what we discovered they surface time and time again.
Seven years later (2009) the KPPU delivered its preliminary findings from the latest such investigation. By this stage Cineplex 21 was enjoying an astonishing 74.9% market share. The article’s headline was a model of understatements: ‘Healthier competition needed in film business‘.
The Business Competition Supervisory Commission’s (KPPU) preliminary investigation found movie producers were overly dependent on the country’s largest cinema network, Cineplex 21, as a result of an alleged lack of healthy competition.
According to the KPPU, Cineplex 21, which is owned by PT Nusantara Sejahtera Raya (NSR), an affiliate of diversified business conglomerate Subentra Group, will cast movies out of its network if film producers provide copies to other distribution networks.
So why was CineAsia “saluting” what is politely called a ‘lack of healthy competition’ as ‘progressive and amazing’? Given all the evidence we uncovered it would seem that the selection committee of CineAsia was badly advised in selecting Cinema 21 Group for such honours.
We are not a ‘monopoly’ – we are simply ‘dominant’.
We wondered, did anything change as a result of the many investigations and KPPU’s preliminary findings? It would seem not, because by 2011 Cineplex 21 was back in the spotlight, this time also over tax evasion.
Jakarta Globe’s article is headlined ‘Cineplex 21 Admits Cosy Links To Film Importers‘ (and it is worth quoting at length):
Cineplex 21 has acknowledged it is affiliated with three film importers previously banned by the government from bringing foreign films into the country, but the Indonesian film giant is rejecting accusations that they are monopolizing the industry.
Camila Internusa Film and Satrya Perkasa Esthetika Film, which used to import Hollywood blockbusters, were banned from doing so by the Finance Ministry in March pending payment of Rp 22 billion ($2.6 million) in back taxes and interest.
A resolution of the controversy over import duties and royalties in June absolved Camila and Satrya’s back taxes issues.
A third distributor, Amero Mitra Film, paid Rp 9 billion in back taxes in May and has resumed importation.
In an exclusive interview with the Jakarta Globe on Thursday, Anitio, a director of Cineplex 21, acknowledged that all three importers were affiliated with the Indonesian cinema giant.
“Legally, the owners of Cineplex 21 and the importers have no relation, but we have always acknowledged we are close to them and we admitted that to KPPU in 2002,” he said, referring to the Business Competition Supervisory Commission.
Another distributor, Omega Film, was not legally related to Cineplex 21 according to Anitio, but then admitted that it was set up by Ajay Fulwani, who is a nephew of Harris Lesmana, one of Group 21’s owners and one of the individuals who was on stage to get the award last week. Some might call that nepotism.
In Cineplex 21’s defense, the company points out it has been investigated several times but cleared of monopoly practices, and they publicly claim to merely be a ‘dominant’ market player.
They also did not want to pay the taxes they owed, saying “We do not have the ability to pay those taxes,” which seems ironic coming from a company co-owned by one of Indonesia’s wealthiest individuals.
A (Small) Challenger Emerges
By 2011, however, there was less fear in taking on Cineplex 21, perhaps because Sudwikatmono was gone (literally and physically) and the continuous investigations were starting to take a toll on a company that appears to have enjoyed a near-monopolistic control of both distribution and exhibition in Indonesia.
Once again however a report of “unfair business practices” landed on the desk of the KPPU, this one initiated by Blitz Megaplex. Here is what the Jakarta Globe had to say about the latest accusations of ‘alleged monopoly‘.
The regulator, also known as the KPPU, said it had received a report from PT Graha Layar Prima, operator of Blitz Megaplex, claiming that cinema giant Group 21, along with four distributors and six film production companies, had long been in control of the distribution of movies, especially domestic films. The KPPU has invited GLP and Group 21 to provide information for the regulator’s investigation on Thursday.
Based on the report, the strict control of distribution by Group 21 and its affiliates had made it difficult for rival cinemas to gain easy access to local movies.
With its immense market share, Group 21 has strong leverage over movie producers to keep films off rivals’ screens. According to the Indonesian Association of Movie Entrepreneurs (GPBSI), Group 21 controls 67.6 percent of cinemas in the country, and 76.9 percent of the screens. GLP claims that through May, Blitz has only been able to show 17 domestic films out of 42.
Group 21 is facing possible charges over its domination of movie distribution, colluding with film importers and distributors, lack of transparency in its working contracts, and having had the same board of directors from Group 21 presiding over two of its units, PT Camila Internusa Film and PT Satrya Perkasa Esthetika Film.
The Economist weighed in on the issue the same year (2011) during the blockade on importing Hollywood films as long as taxes remained unpaid. The editorial is titled ‘Last of the big-screen baddies‘:
Indonesia is still plagued by corruption, red tape and rent-seeking, but its politics are so fluid that it is difficult for tycoons to lock down permanent gains, says Hal Hill, an expert at the Australian National University.
In the cinema business, however, the wave of liberalisation has been slow to arrive. The three largest film importers, which between them control the local distribution rights to all Hollywood blockbusters, are all part of Group 21, which also owns the country’s dominant cinema chain, Cineplex 21. It had the market almost to itself until 2006, when a new chain, Blitz Megaplex, began opening screens in shopping malls. In 2009 Blitz complained to the KPPU about Group 21’s dominance of distribution and the impact of this on rival cinemas, but the case was dismissed for lack of evidence. Today, Group 21, which declined to talk about the case, still controls more than 500 of Indonesia’s 600-odd screens.
The Economist’s recommendation is “instead of simply taxing the company [i.e. Cineplex 21] more, it would be better if the authorities could find a way of giving its rivals a better chance at competing.” Giving out an award is perhaps not what The Economist had in mind.
By 2013 the Financial Times weighed in by stating ‘Indonesia in frame for cinema shake-up‘ and doesn’t mince its words.
The [Riady] family’s Lippo group is planning to open its first cinema next year and roll out hundreds more screens as it tries to break the stranglehold of Cinema 21, which gained a monopoly on Hollywood film distribution during the Suharto dictatorship.
Media executives say that while Cinema 21, which has nearly 600 of the country’s 700 screens, no longer has a legal monopoly, its tight grip on distribution has held back the industry.
Indonesia still has fewer screens than neighbouring Malaysia despite boasting a population almost 10 times as large at 250m people.
Is it right to “salute” a company that the one of the world’s leading financial papers calls a “monopoly” whose “tight grip on distribution has held back” the cinema industry in Indonesia?
Third Time Award
We were even more surprised to learn this was not the first time CineAsia handed out awards to Cineplex 21.
Suherman was already honored as CineAsia Exhibitor of the Year in 1996 and Lasmana received the CineAsia Lifetime Achievement Award in 2003 “for his contributions to the Indonesian cinema industry.” So, based on everything we were able to learn about Cinema 21, the awards were given to those that helped reduce by almost half the number of cinemas in Indonesia from 2,314 in 1989 to 1,280 in 1998, thus making the country one of the most under-screened in South East Asia.
That is not how Film Journal saw it in its article (‘Pacific groundbreaker: Cinema 21 Group conquers Indonesia‘), saluting Cinema 21 ahead of the awards show this year.
The fairytale-like success of Cinema 21 Group is of course not merely a romantic rags-to-riches story, but instead is grounded in the hard work, diligence and devotion of its top executives and about 6,000 staff countrywide.
But what makes the timing of the award for Cinema 21 so awkward was the recent announcement by Indonesia’s Constitutional Court of President-elect Joko (‘Jokowi’) Widodo’s victory. This clears the last hurdle for Jokowi to assume office in October, following a challenge by his election opponent, the former army general Prabowo Subianto. Jokowi’s election makes him the first clear break with the corrupt (not to say murderous) past of the Suharto era.
Thus to answer our original question, it would seem giving an award, or “salute”, to a company born out of crony capitalism, which has achieved success only through exploiting its de-facto monopoly and at the expense of not just its rivals but its country’s cinema industry as a whole… well that just doesn’t seem like a good idea.
Whoever nominated Cinema 21 Group to CineAsia for honours should probably watch the “Act of Killing”, not just a story of genocide, but also a story of ‘preman’ (gangsters) and their ties to the ‘bioskop’ (cinema) business.[youtube]http://www.youtube.com/watch?v=j4ZT6Qc_fmE[/youtube]