TOKYO — Japan is the world’s second-largest film market, with a total B.O. in 2007 of $1.98 billion on 163.2 million admissions. Also, the Japanese biz released 407 theatrical titles last year, out of a total of 810. Of these local pics, 29 earned $10 million or more at the B.O., compared with only 22 foreign titles — 18 released by Hollywood majors — that hit this mark.

All is not going swimmingly for the Japanese biz, however, particularly for the dozens of small- to mid-sized indie distribs, who must fight tooth and nail for a static number of arthouse screens while trying to scrape out a profit from a slowly shrinking DVD market. (Last year, earnings from sell-through DVDs fell 2.3%, and from DVD rentals 1.4%.)

“About 70 new Japanese features ended up on the shelves last year, unable to find a screen — there are serious bottlenecks in the film distribution system here,” says Hirobumi Doi, prexy of Japan Digital Contents Trust, a leading film fund manager.

The average production cost for Japanese commercial pics is about $3 million to $3.5 million, usually supplied by consortiums consisting of a distributor, TV network, ad agency and other media companies.

“(Producers) can usually raise all the financing they need from these sorts of consortiums — they don’t have to go outside the country,” says Takashi Uchiyama, director of Visual Industry Promotion Organization (VIPO), an industry org that promotes Japanese content abroad. “They can also recoup nearly all their money domestically, so they aren’t very internationally oriented.”

The Japanese government, beginning with the powerful Ministry of Economy, Trade and Industry (METI) is actively promoting Japanese content abroad. For the 2008 fiscal year the government has appropriated $42.2 million for content-related programs. Of this coin, $6 million is going for pic production and $17 million for the Japan Intl. Contents Festival (CoFesta). An umbrella org launched last year, CoFesta coordinates content-related events held in the fall, with the centerpiece being the Tokyo Intl. Film Festival and the concurrently held TIFFCOM market.

Even so, government support for the biz, including tax and other incentives for foreign producers, is still lacking, Doi admits. “It’s hard to see the government doing much more than it is already,” he says. “Parliament won’t pass the needed legislation.”

Private backing for production from local film funds is available, however. Most funds are one-shots, set up for a single pic or project, though some fund outfits such as JDC, which launched in 1998, are in it for the long term and serve a variety of clients. One of the biggest, JDC funds, started in April 2006, plans to raise $46 million for a slate of 20 pics for indie producer and distrib Cinequanon.

Among the pics already produced with the fund is “Hula Girls,” a dramedy set in the 1960s about a mining town trying to pull itself out of the economic dumps by starting a hula troupe. Based on a true story, the pic was a hard sell to mainstream media companies, who thought its subject matter too downbeat, but Cinequanon manage to make it with JDC coin — and the pic scored a solid $14 million at the B.O. in 2006. “We could balance the risk with other films on the fund slate,” Doi says. “It’s an easy concept for investors to understand.”

JAPAN STATS

FILM FINANCE AT A GLANCE

Total film production spend in 2007: N/A

Total B.O. for Japanese pics 2007: $946 million (407 films released)

Top Japanese film: “Hero” ($81.5 million)

INCENTIVES

Japan does not offer financial or tax incentives to foreign producers. Production assistance is available through the 100 members of the Japan Film Promotion Council, an umbrella org for film commissions throughout Japan.

WEB

Japan Film Promotion Council: film-com.jp/en/fc.html

Japan Location Market: j-lm.com

B.O. STATS

Top film: “Pirates of the Caribbean: At World’s End,” $109 million

Total B.O. in dollars: $1.984 billion

Total number of releases: 810

PICKUPS

“Nim’s Island,” Kadokawa Pictures

“Running With Arnold,” Shochiku

“Rain Fall,” Sony Pictures Japan

“The Reader,” Showgate

“Mongol,” Toei