No. 5, Fall/Winter2000

Special Issue:
The Arab World

The Media Free Zone: An Egyptian Media Production City Finesse

Egypt's much-touted Media Free Zone comes with a big bill—and some unanswered questions, reports TBS Cairo Correspondent Heba Kandil

The Egyptian Media Production City (EMPC), inaugurated five years ago, was envisioned to be the "Hollywood of the East." This ultimate "producers' paradise" is located at Sixth of October City, 10 km from the pyramids of Giza and 30 km from downtown Cairo, and occupies an area of two million square meters. Grandiose plans drew up three complexes housing 29 studios equipped with cutting-edge technology, ten cinematic outdoor shooting areas, a five-star hotel, a conference center, theaters, cinemas, a shopping mall and an amusement park. Nothing was left to covet and officials were singing merry tunes.

About four hundred million dollars later, the tune changed from "how to rival the studios of the West" to "how to foot such a stiff bill." That question was thrust upon Abdel Rahman Hafez when he became chairman of EMPC two years ago. After a quick look at financial reports, it was easy to see why the city wasn't generating any income: most of the indoor studio and production service construction was incomplete, with only a few facilities operational, like the amusement park Magic Land and the outdoor shooting areas.

A quick solution was to convert the existent but unused storage areas into studios and build small temporary studios, and producers started to get the hang of working in those conditions. But two years later, the financial outcome remained dismal. A large part of construction was still unfinished. Out of three complexes housing 29 studios, only one is complete and operational, the Mubarak Studio Complex B—and the income trickling in from the working studios is significantly too small to register any real progress.

Dismayed but not dissuaded, officials looked for other sources of investment. Early this year they targeted the 3.4-km area between the Media Production City and the Nilesat earth station and declared it Egypt's Media Free Zone. Now new private satellite TV stations would benefit from tax exemptions and customs under the investment law #8 of 1997. Benefits for investors also include the resources and facilities of Media Production City: the studios, labs for editing and post-production, and human resources--technicians, actors, anchors, and TV personalities.

Today, officials are preoccupied with ironing out the final logistical creases regarding the Media Free Zone before any TV station operates from there. However, Nilesat facilities in the zone are already being used in different ways by such different users as Orbit, Video Cairo Sat, and Al-Jazeera. While law #8 has been in effect for a number of years and has governed other free zones in Egypt such as Port Said, this is the first time it has been applied to the media business, which, professionals will tell you, is like comparing apples and oranges.

In assessing the set of issues that were arising, and subsequently modifying the rules, the government has delegated employees from the General Investment Authority to supervise the implementation of the Free Zones Law #8. Investment Authority representatives along with some EMPC shareholders comprise the Media Free Zone Board. Although the board hasn't voted the chairman in yet, members feel it'll probably be the chairman of the Investment Authority. The Investment Authority itself moved offices into the zone in October and is still in the process of organizing themselves.

Some of these issues could be clearly pinpointed from the start, such as the customs tax. An example scenario asks: upon leaving the zone with a tape of a recorded program, how is the customs tax applied? Is the $15 tape itself taxed, or is the $50,000 episode on it taxed? How can the percentage be determined and by which official? For instance, a worker could leave the zone taking with him an empty tape, get taxed only on that, then record the episode's signal at the zone's gateway via a receiving satellite dish worth $1,000 and operated from a car battery.

For many media professionals, it's apparent that the Investment Authority is clueless as to how go about its business. Because their experience extends to the industry sector, the cement sector, and shipping, but never media, they are anxious to meet with the professionals who will work with them and talk about their needs and how to best modify the laws.

But for Abdul Fattah El Tohami, the CEO of EMPC, none of these issues pose serious problems. He says that the opportunity for EMPC to play a backbone role in the Media Free Zone (along with Nilesat, CNE and NCN) is one that he and EMPC welcome wholeheartedly. "This should greatly enhance the opportunity of EMPC to serve the regional and global broadcasting and entertainment industry, because the Media Free Zone will provide so many attractive benefits that will reduce costs for video and film production. We are just beginning to promote our facilities in Europe, America, and the Far East. What all this means is that all of the equipment and facilities that we will be bringing in to EMPC will be exempt from customs, and our clients will be exempt from taxes as well as customs."

But what about such an unresolved issue as determining custom duties on a master videotape containing an expensive production undertaken at EMPC facilities in the Media Free Zone? El Tohami says that "as long as the production is intended for a company or network outside of Egypt there will be no customs duty."

That would seem to be fairly obvious if the production was uplinked to a satellite and downlinked to whoever produced the product, but what if the producer wanted to physically carry his expensively produced video out of the Media Free Zone? El Tohami says the same rule applies whether it leaves the zone by uplink or physically.

He also suggested a similar differentiation in the area of censorship, that the Egyptian production code that is particularly sensitive in the areas of religion and sex would not be applied to a product of the zone that is not to be shown in Egypt. (Presumably if that product ever were to re-enter the Egyptian market as film for cinemas or video for Egyptian television channels the ordinary Egyptian moral code would then apply.) "If it is not to be shown in Egypt we will not concern ourselves; we have a very specific function to serve the broadcasting and entertainment industries from all over the world; the code is a strictly Egyptian, not a Media Free Zone, concern."

El Tohami is obviously concerned with the realistic requirements for an effective commercial operation that weren't a consideration among Egyptian stock market players when EMPC stock went public earlier this year. According to Video Cairo Sat's Nader Gohar, "investors badly assessed the real value of the stock; they flocked to the bourse based on the advertisements, not on economic studies. There were none. What happened? EMPC's main shareholder is ERTU, a big information power, and all the attention that the ERTU lavished on the EMPC stock launch inflated the price. But now the value of EMPC stock has fallen by 50%, and that again may just be a reaction to the initial euphoria, and still not particularly reflecting real value in an operation with such a significant investment and investor behind it."

Despite the bureaucratic obstacles, some stations have begun production activities, preparing and waiting for the day when they can transmit their channels. Both Orbit and Al-Jazeera have already established their presence in the city. While Orbit is already producing some of its programs, Al-Jazeera is waiting for some renovations, like turning the drama set into a news one.

Another entity that has made its presence known is Video Cairo Sat, having set up a representative office in the zone this summer. VCS is the private Egyptian tele-services company owned by brothers Mohammed and Nader Gohar, and for the past 15 years has been serving other stations and foreign news agencies.

VCS, which used to microwave to the Maadi Gedida Satellite Park for uplinking to various satellites, has recently been transmitting video generated by its Cairo clients to Nilesat via a fiber-optic connection from VCS's headquarters downtown to the Nilesat Transmission and Operations Center in the Media Free Zone; from there it is uplinked to Nilesat and downlinked to the client. Thus VCS is in compliance with the regulations governing the uplinking of television signals from Egypt.

As a teleport, VCS acts as a distributor of satellite signals, downlinking a signal from a certain satellite and uplinking it to another satellite. Such a service gives satellite channels having a limited footprint the ability to increase their viewership. While VCS was already engaged in distributing occasional feeds (one to four hours for a particular news event), they were unable to perform permanent feeds (for example, downlinking the Turkish satellite channel from Turksat and uplinking it to a satellite with a footprint in the United States and Latin America). This was due to restrictions placed by the Egyptian Telecommunications Law.

Operating in the Media Free Zone and consequently under new rules, VCS plans to be involved in both permanent and occasional feeds. The new communication law, media experts note, will draw its content from the International Telecommunication Union. An ITU conference will convene in Egypt in 2001. In the past, Egypt didn't abide by all declarations of the ITU.

VCS's enthusiasm extends to another new venture, this time one that is relatively new to the company: the launching of a news channel, Cairo Sat News (CSN). "There is a huge gap to be filled," says Nader Gohar. "We intend to launch a strong newscast targeting the average Egyptian viewer." According to Gohar, the channel will focus on live broadcasts and breaking news events. Those don't necessarily have to be political or economic in nature; in his opinion, the audience is equally interested in the opening of actor Adel Imam's latest films as much as the convening of the next G7 meeting. Initially, the station will broadcast for eight hours before increasing its transmission to 24 hours of live news coverage and programming. CNS, which will uplink on Nilesat, Arabsat, and Eutelsat, will be free-to-air.

"We're counting upon advertisement-based revenue," says Nader Gohar. But even he is quick to concede that the costs of operating a TV station for one year boils down to $24 million. To try and cover that cost from advertisements alone isn't feasible. Gohar is hoping that the government will relent and allow private terrestrial transmission, after it "gets used to and comfortable with" private satellite transmission. "Will Egypt TV permit someone else to share the market with them?" Gohar asks. "That's what we're waiting to find out."

When the final details and regulations are hammered out and TV stations move in to operate, Gohar still foresees a huge dent in the budget. The whole of ERTU and private stations here in the region cannot possibly make use of EMPC's 29 studios. The supply is greater than the demand. Outsiders must rent such facilities. An aggressive marketing plan undertaken by a large multinational company is the only way. So far, "marketing" has been through word of mouth and personal contacts in various countries—not quite enough to reach the right people in the industry. TBS