Four years ago, Jason Njoku sat down with his old friend Bastian Gotter and told him about an investment opportunity in Nigeria, a precious resource that was sitting there, just waiting to be exploited: movies. Despite their crude quality and cruder distribution system, Nigerian films are wildly popular in Africa, yet they are dirt cheap to acquire and distribute. Njoku proposed buying the rights and streaming the films online. He only needed some money to get started. "I was thinking, This sounds like one of those emails," Gotter says--the kind from a princeling who promises you easy riches as soon as you give him your bank account number.
Most investors wouldn't dare venture onto the continent, for all the obvious reasons: instability, corruption, rampant piracy, substandard infrastructure. Njoku, in fact, was nearly as nervous as his friend. "It was like, Danger, danger, this is pretty crazy," he recalls. But he and Gotter ignored the perils and created Iroko Partners , one of the first successes of Nigeria's embryonic tech scene--a startup that aspires to be Africa's Netflix, but without red envelopes, or real competitors.
By the time I first met him in 2011, at his cramped and sweaty Lagos headquarters, Njoku (pronounced in-JOKE-oo), a burly, boastful 32-year-old, had become the talk of Nollywood, Nigeria's movie industry. His office, decorated with giant photos of Nollywood stars, was crowded with young employees at flat-screen computers, busily assembling a database of the site's offerings, titles such as Campus Girls and Lord of the Game. As we talked, an assistant interrupted frequently and handed Njoku stacks of videos, and he would scribble out a check or produce a wad of Nigerian bank notes: content acquisition, African style. He was buying up entire catalogs from local movie producers. "Under a very thin veil of creativity, it's about 'I need to get my money,'" Njoku said. "We will shout, we will scream, we will have arguments. But there are deals to be done."
Indeed there are, and Njoku isn't the only one trying to make them. The poorest continent lags the rest of the world by every measure of development, but to a brave and growing band of tech entrepreneurs, it represents a last frontier. Internet access is expanding rapidly in Africa, especially in Nigeria, which, along with the country's oil-fueled economic growth, has made it a destination for investment. The technology sector is also drawing strength from a recession-driven influx of young returnees with Nigerian roots like Njoku, who was born in Britain. As local technology entrepreneur Ayo Alli says, "Things are moving very fast in Lagos."
Given the difficulty of obtaining reliable financial information of any kind in Africa, it's hard to know exactly how much money Nollywood generates. In 2011, the World Bank came up with an estimate of $500 million in annual legal revenue--a tiny sum compared to the $16 billion that the bank said Hollywood contributes to the California economy in a year, but enough to make the movie industry Nigeria's fourth-largest economic sector. Yet the report also estimated that distribution failures and piracy were costing Nollywood hundreds of millions a year in revenues, consigning the country's moviemakers to a vicious circle of low budgets and artistic frustration.
Njoku says he knows how to fix this problem. Raised by a single mother in a council flat in southeast London (he never knew his father), Njoku dresses like a techie and talks like a character in a Guy Ritchie film. He left London to study chemistry at the University of Manchester, where he shared a flat with Gotter, a classmate from Germany. "I've never met someone with such infinite belief in himself," Gotter says. Gotter went on to help Njoku with a few of his early enterprises, including a party-promotion venture in nightclubs and a magazine called Brash, which touted itself as "Manchester's quintessential guide to frolicking and fashion." After the magazine died, Njoku started a network of blogs intended to appeal to upwardly mobile professionals; it had the misfortune to launch the week that Lehman Brothers collapsed. Njoku was forced to move back into his mother's apartment. "It was largely acknowledged," he says now, "that I was an absolute, complete failure."
But defeat led to a revelation. Njoku says he noticed a change in his mother's television viewing habits. When he was growing up, she mostly watched British soaps; now she was avidly consuming entertainment from her home country--Nollywood movies. During the 2000s, the Nigerian industry had exploded, becoming the largest in the world measured by number of releases. The films, which are produced almost exclusively for the video market, feature histrionic acting and overwrought plots involving infidelity, murder, and witchcraft. "My first impulse was 'These production values are just terrible,'" Njoku says.
When he looked past the melodrama and the poor quality, Njoku recognized a business opportunity. The Nigerian video distribution system is incredibly inefficient. It starts at a rambunctious outdoor market on the fringes of Lagos called Alaba, where so-called marketers--wholesaler dealers who sometimes double as movie financiers--sell discs in bulk to a network of regional traders. They, in turn, pass the discs through the supply chain until they end up with street-corner hawkers, who retail them for the equivalent of a dollar or two. The discs his mother watched arrive at London's African groceries in overstuffed suitcases or via a rudimentary overseas rights market controlled by small-time DVD merchants.
Outside of Africa, though, Nollywood releases were often hard to find, so movie fans in the overseas diaspora had taken to sharing movies on YouTube, chopping them into 10-minute increments to get around time limits the service then imposed. The uploads violated copyright, but no one in Nollywood was complaining, because YouTube didn't reach their African consumers. Poking around, Njoku could see that the unauthorized streams were getting tens of thousands of views. He wondered: What if he served this audience, but legally, and sold ads against the content? That's when he persuaded Gotter to give him a few hundred pounds, and he flew to Lagos to search for movie producers.
Despite his parentage, Njoku had visited Nigeria only a few times. As a newcomer, he was stunned when he wandered into Alaba market. It was an entertainment bazaar, its stalls piled high with both Nigerian movies and pirated American films and TV shows. Early on, he learned that Nollywood is a close-knit business--"lots of brothers and cousins and people who come from the same village," Njoku says. As word spread that he was paying cash for content, marketers started showing up at his office, carrying shoeboxes and plastic bags filled with Nollywood classics. He presented himself as a friend, not a competitor, because his audience was abroad. Even more important, he could offer them another revenue stream in a world of rampant piracy, where new releases are knocked off almost immediately, rendering them almost worthless within weeks or even days. It's often hard to tell the genuine discs from the bootlegs, and they are priced comparably, because legal content must sell cheap if it wants to compete. As a consequence, the idea of a long-tail business had never occurred to anyone at Alaba. Njoku was able to acquire 200 titles, paying marketers between $100 and $1,000 a title for licenses of varying duration. He launched a website called Nollywood Love and struck a content partnership with YouTube, which hosted his streams and inserted commercials into them, giving Njoku a murkily defined cut of the ad revenue.
To get bigger, Njoku needed real money. He got a break in 2011, when technology writer Sarah Lacy visited Njoku and produced a hair-raising account of his interactions with the volatile Alaba crowd for the blog TechCrunch. Shortly afterward, Njoku heard from Nazar Yasin, an executive at multibillion-dollar hedge-fund firm Tiger Global Management. Tiger Global invested primarily in technology--it was an early backer of Facebook--and it was looking for opportunities in Africa. The hedge fund's team visited Njoku's Lagos headquarters and liked what they saw. The result was an $8 million financing round, which also included the Swedish investment firm Kinnevik. Njoku used around $5 million of the money to amass the rights to some 5,000 films--what the company claims is "the largest legally assembled library on planet Earth" of Nollywood content.
Not everyone in Lagos sees Iroko's strategy as benevolent. "They bleed us white!" shouts Paul Obazele, a veteran actor and producer, when I ask him about Njoku's website. Like many on the creative side of Nollywood, he equates all video streaming with piracy. And while Obazele speaks in Nollywood-style hyperbole, he points out a real conflict. Nigerian law is ambiguous about who retains ownership of a movie's copyright--the producers who created the film or the marketers who financed it--though as a practical matter the financiers usually end up holding the master copy and thus control of the film. Most Nigerian movie deals are oral agreements anyway; an academic described the industry to me as "Hollywood without contracts." As a result, producers and financiers can, and often do, make competing claims on the same intellectual property, with little chance for legal redress.
Many Nollywood tycoons started out by selling black-market copies of Hollywood releases; shooting their own movies was simply an inexpensive way to acquire fresh content. Legitimate marketers also produce a continual flood of new titles in an attempt to outmaneuver pirates. But though original fare now represents the lion's share of Alaba's business, the legal and illegal markets still coexist.
Within Nigeria, disputes about rights are usually handled informally, through cash payments or muscle, but in the developed world, legitimacy, ironically enough, brings legal hassles. So before it acquires a movie, Iroko requires the seller to produce proof that he owns the copyright, and it videotapes the transaction, just in case things end up in court. "We try as much as possible to document as much as possible," says Tope Lucas, Iroko's Lagos-based attorney. She recalls one impostor who went so far as to splice his name into a movie's opening credits as executive producer. The company busted him, and Lucas contends that Iroko has dealt with only a handful of infringement claims.
Nollywood insiders are skeptical that Njoku can catch every fraudulent assertion of ownership, given the industry's careless standards and the country's endemic corruption. "They take the cash, and they sign something," says one entertainment industry investor. "But where's the chain of title?" Njoku says his rights are unassailable, and he has been aggressive in defending them. He began by trying to remove unauthorized clips from YouTube and other sites, filing notices under the Digital Millennium Copyright Act (DMCA). When a competitor started a copycat website called irokotvmovies.com, Njoku filed a complaint with the UN's World Intellectual Property Organization, which shut down the site for trademark infringement. And last year, he brought a suit in U.S. federal court alleging that a Nigerian living in Georgia was illegally streaming movies owned by Iroko. (The competitor claims he had obtained rights to the content.) Njoku says that his targets have retaliated with dirty tricks, such as filing spurious DMCA notices, causing problems with his web hosts and occasionally disabling Iroko's ads.
At the same time, Njoku was struggling with YouTube, his distribution partner. Although his site generated 150 million views in 2011 and $1.3 million in advertising, Njoku felt that YouTube executives treated him with indifference, and he was annoyed by the heightened scrutiny of any transaction involving a Nigerian IP address. So last year, he decided to build his own platform. The move was daring. Going it alone meant Iroko would have to give up YouTube's built-in audience and replace infrastructure that Google had provided for free. The company refuses to disclose its page views or revenue as a stand-alone site, but Gotter does say that storing movies in the cloud brought new back-end costs of more than $1 million a year.
Still, the gamble could pay off if Njoku can expand his reach in Africa. Around 90% of Iroko's traffic today comes from the estimated 30 million African emigrants spread throughout the world. Njoku aims to reverse that proportion. The obstacle, as usual, is infrastructure. Only a tiny fraction of consumers in Africa have broadband connections, or their own computers, for that matter; many rely on Internet cafes. And the pipes to carry the video streams back to Africa from overseas, where Iroko has its servers, aren't yet robust enough for heavy traffic.
Yet the history of the Internet in the developed world suggests the rewards go to companies that position themselves when the technology is still impractical. And Njoku feels the trends are in his favor. A study by McKinsey & Co. estimates that the number of Internet users in sub-Saharan Africa has more than doubled since 2008, to 118 million. Telecom companies are also investing billions to bring undersea fiber-optic cables ashore, with capacity expected to triple or quadruple soon, so streaming videos stored abroad should become more feasible.
Along with the move toward self-reliance, Iroko has shifted from a free-content business model to a subscription-based hybrid. "The industry cannot be built on free. People need to pay," Njoku tells me, sounding every bit the content entrepreneur, as we have lunch on the Lower East Side in New York. His new site still has thousands of free titles but offers a Netflix-style premium option for $5 a month, giving users access to first-run movies. The company has opened offices in Johannesburg, New York, and London; for the moment, at least, the developed world is where the money is--Iroko's venture capital and customer base alike.
Njoku is now hurrying to adapt to new channels. Just as Africans leapfrogged landlines--65% are mobile subscribers--most experts expect them to skip over PCs and consume video exclusively via mobile. Last April, Nigeria's dominant cell phone service, the South African giant MTN, began promoting an Android app called Afrinolly, which directs users to free movie streams on YouTube and other sites. Njoku says Afrinolly has infuriated his partners, the marketers, who make nothing from the arrangement and are discovering that their consumers are loath to pay for content that they can find for free.
His response? The threat of another lawsuit. He accuses Afrinolly of "illegally building their business on our content." (Afrinolly declined to comment on the claim.) Njoku says he is only protecting the interests of the industry, which cannot continue to produce the content he relies on without the revenue it generates primarily from physical sales. That sentiment hasn't kept him from experimenting with iPhone and iPad apps, which are still in development, as well as launching a platform for Nokia devices. If Iroko's future is in Africa, it's also in mobile, meaning that someday soon Njoku, too, will be competing with the anarchic marketplace of Alaba.
Three years after arriving in Lagos, an outsider in all but name, Njoku is now a Nollywood mogul. In August, he married actress Mary Remmy, star of the hit comedy Blackberry Babes, and he talks of expanding the Iroko brand into in-flight movies, satellite television, music, and other forms of entertainment. "No one is close to being our equal in Africa," Njoku says. During our lunch, when I casually mention his Netflix model, he corrects me. He's now thinking bigger.
"Viacom," he says. "We love content, and we want to figure out the best ways to do it. The Internet is just the easiest." He feels no need, anymore, to apologize for being an African company. "They always paint us with a guilty Nigerian brush, so we have to say, just look at our numbers," Njoku says. "What happens if a billion people come online? What happens to our numbers then?"
[Photographs by Jonathan Torgovnik; Geoffrey Ellis (video market)]