An interesting counterfactual

Start by thinking about the US movie industry. Now take away copyright protection - the government gives up on trying to police it. Next, get rid of most of the country's movie theatres so that the one place where the industry can most securely monetize content is gone. Next, cut per capita income to about $1000. And, get rid of most of the infrastructure that's complementary to the film industry. Finally, make sure that there's no government support of the industry to make up for all the other problems.

There'd be no movie industry at all, right?

Except Nigeria's already there and producing more films per capita than the average for developed countries. Olufunmilayo Arewa documents Nollywood's success.

The rise of the film sector in Nigeria runs counter to existing trends in the film sector in which developing countries, which produce 1.2 films per million inhabitant annually, lag developed countries, which produce 6.3 films per million inhabitants annually.¹⁷³ At current Nollywood production levels, Nigeria produces approximately 6.7 films per million inhabitants annually.¹⁷⁴ Bridging the developing country film production gap remains challenging, particularly because the optimal ways to create domestic film industries remain elusive in many instances. Prior to the proliferation of Nollywood films, at least one commentator suggested that government takeover of the film industry would be the only means by which Nigeria could develop a film industry.¹⁷⁵ 

Notably, although many countries have sought to incentivize particular types of film production through direct government funding, subsidies, or film protection schemas involving film quotas,¹⁷⁶ many of these industries have not been commercially viable in the absence of subsidies or other support schemes. In contrast, Nollywood has created significant volume of local video film content with virtually no government involvement or subsidies. The success of Nollywood may in many respects be attributable to a lack of government involvement and its decentralized nature, which has permitted Nollywood participants to be highly entrepreneurial, adaptive and innovative. Nollywood now may employ as many as 200,000 people directly with estimates of indirect employment as high as 1 million.¹⁷⁷ The market-driven Nollywood approach is less costly than existing models of film production and distribution and may offer a new model for developing countries that wish to develop domestic film industries. [emphasis added; number does seem high, Nigeria population about 158 million...]

Arewa says Nollywood succeeded, in part, because very lax copyright enforcement meant Nollywood films enjoyed early broad distribution, building demand for later works. Now that the brand has been established, more secure property rights could be useful. And, copyright enforcement has stepped up a bit; Arewa quotes the following:

Industry officials and government agencies have started paying closer attention to piracy, but so far there hasn’t been much of an effect. A recent police raid on a well-known DVD-copying operation resulted in a brief confrontation between police and piracy-ring leaders. The pirates stood their ground and burned a police truck, then went back to work making knock-off Nollywood copies. The only repercussion for the offenders? A bill for the damage to the police vehicle.²¹²

Films are low-budget, usually financed by friends and family, and distributed on DVD through informal networks. They don't earn much, and even with copyright, vendors couldn't charge more than the $2-4 they charge per disc: consumers couldn't afford it. But better protection would now yield higher returns through increased legitimate distribution.

Arewa sensibly suggests a few potential channels, like capitalizing on pirate distribution networks through in-film product placement and advertisement, where other alternatives like moving from informal to formal business environments and strengthening intellectual property protection might not be feasible. The lessons probably apply more broadly.

Update: Cowen previously pointed to more on Nollywood and online distribution of Nollywood films: Nollywood plus Netflix = profit.