The Australian Film Industry –Where Now

                                                      

Background

In 2006 the Federal Government instigated a review of the Australian Film Industry. The review was conducted in private by anonymous officials of the Department of Communications, Information Technology and the Arts (DCITA). The only published document associated with the review at any stage of its proceedings was an early issues paper released by DCITA which sought to identify relevant matters of interest. Submissions were called for from interested persons and parties.

 

It was generally believed that something had to be done. According to Geoff Brown of the Screen Producers Association of Australia (SPAA) ‘private investment in TV and film production has collapsed and new systems are needed to help our industry.’ Whether or not private investment collapsed, there has not been any diminution of numbers of feature films produced. Film-makers are taking advantage of the new digital technologies to make more films albeit with lower production costs. This output is not seen by representatives of the ‘industry’ as an acceptable alternative. Their focus is on ensuring the greatest amount of investment to ensure reasonable standards of living for their members. That’s not unreasonable.

 

Over eighty submissions to the Review were lodged (including one from Bruce Hodsdon and myself[1]). Those who did so received an acknowledgement and later a request for permission for the submission to be posted on the internet. In the period following the date for receiving submissions no public hearings were held, no Green or White Paper was issued, no speech was made by any Government Minister and no public presentation of options was made by a Minister or official. The Review was conducted in a public cone of silence. It is apparent that certain industry people were privy to discussions with Ministers and others about the matters under consideration. The director Baz Luhrman for instance recently said he had been discussing industry support with the Government for more than a year.

 

Just prior to the 2007/2008 Federal Budget announcement, Government sources started leaking information to the media suggesting that there would be a new film financing mechanism, that the Federal Government’s administrative arrangements to support the film industry would be re-jigged and a new single agency created to administer all current activity in the sector. This was generally and straightforwardly reported as fact and little analysis was offered.

 

On 9 May two Ministers, Senators Brandis and Coonan issued joint statements which advised that there was to be an amount of $282.9 million allocated to film production over a number of years. The key part of this would be a Producer’s Rebate, a new tax incentive. In brief, all eligible films will receive a rebate of their qualifying Australian production expenditure (QAPE). Senator Brandis described it as ‘a big incentive for Australia’s best talent to make the blockbuster Australian stories that can showcase our production to the world.’

 

The details

In a separate sheet issued by DCITA details of the Producer Rebate were given. According to DCITA the rebate will apply to expenditure on eligible projects which must be assessed and certified by the Film Finance Corporation (FFC) as a ‘qualifying Australian film’. A project must be assessed and certified by the FFC in two stages, provisional and final. Provisional Certification is made once financing and distribution arrangements, ‘including guaranteed Australian distribution’ are completed.[2] Sources of financing and ownership of copyright will no longer be a specific factor in investment.[3]

 

To obtain the rebate, a ‘final certificate’ will be required following completion of production. The issuing of that final certificate will take place after audited accounts have been submitted to the FFC and QAPE[4] has been substantiated[5].

 

Further detail was provided in the Treasury’s Budget Paper Number 2 which contained the following table:

 

Screen media support package

Expense ($m)
	2007-08	2008-09	2009-10	2010-11
Australian Taxation Office	65.0	75.0	90.0	90.0
Australian Screen Authority	-	11.0	1.2	-3.5
Australian Film, Television and Radio School	-	3.0	3.1	3.1
Australian Film Commission	-	-	-	-
Department of Communications, Information Technology and the Arts	-	-	-	-
Film Australia Limited	-	-	-	-
Total	65.0	89.0	94.2	89.6
Related revenue ($m)
Australian Taxation Office	-	11.0	22.0	22.0

 

The Treasury paper also noted that to be eligible for the rebate, productions will be required to meet criteria, including creative control by Australians. A requirement not mentioned in the Coonan/Brandis statement.

 

Treasury also provided more details regarding the new administrative arrangements that would commence from 1 July 2008 when the Australian Film Commission (AFC), Film Finance Corporation Australia (FFC) and Film Australia Limited (FAL) will be merged into a new, single agency – the Australian Screen Authority (ASA).

The new agency will be responsible for administering most Government support to the screen media industry, achieving a more strategic approach to film funding in Australia, removing overlaps in functions and providing administrative efficiencies.

The Government will provide funding directly to the new ASA, comprising the current estimated funding for the AFC, FFC and FAL, and additional funding of $8.7 million over three years from 2008-09. Funding of $6.2 million over three years from 2008-09 will be re-allocated from the existing AFC to the AFTRS with the transfer of the research and statistics function. Any efficiencies from the merger will be used by the ASA for increased support for the industry. The expenditure element of that decision is most interesting. The Federal Government’s coffers are now so flush with funds that it cant be bothered trying to save the odd few million on the administrative efficiencies that should take place when agencies are merged. There must be Department of Finance officials crying in their beer that such lax times are upon us.

The reaction

‘Stunning’ said Baz Luhrman, immediately seeming to take a little credit for the changes. The Australian Screen Directors Association was similarly enthusiastic. The general tenor was, as noted by Urban Cinefile, ‘guarded optimism’[6]. Some were a little circumspect. Geoff Brown of SPAA said: “Theoretically the new approach should put producers in the box seat when it comes to raising private investment for film and television productions…They can lever investment off the back of the substantial equity that the rebate delivers to them and manoeuvre to take best advantage of intellectual property ownership.”[7] The Media Entertainment and Arts Alliance said that the abolition of 10BA would do little to attract private investment.

 

Brown was similarly ‘guarded’ in this respect. “Without the 10BA co-investments[8] the rebate may only deliver marginal gains to the producer. All the upside from the rebate will be traded off to attract investors who will not be able to get the traditional tax break on 10BA. They will be asking for much more. It’s likely that the high net worth individual (the conventional 10BA investor) will depart the scene to be replaced by equity investors expecting a capital guarantee on their investment and returns of 15% plus, regardless of the film’s performance’.

 

Some confirmation of Brown’s view, privately echoed by other producers, may be found from an announcement from one Australian company clearly seeking first mover advantage. To coincide with its attendance at the recently concluded Cannes Film Festival, the International Film Group announced it is to launch a major new film financing initiative. IFG has released a statement that said that following the Australian Government's announcement of an overhaul of film funding it will offer a multi-million dollar financing and cashflow facility which will enable producers to access the incentives as part of their production funding. IFG, will initially concentrate on Australia and New Zealand as filming destinations, but has teamed up with Caradoc Media Finance in London both to facilitate deal-making and to extend the financing model to other territories. IFG announced that it is in a position ‘to strategise pre-sale discounting and gap finance.’ Since IFG’s announcement Gary Maddox has reported in the SMH, perhaps apocryphally, that foreigners are rewriting scripts and giving characters names “like Kylie” in the hope films qualify for the rebate. Maddox based this on advice from the producer/director Robert Connolly who, on return from Cannes, said “I literally met people who were repurposing (sic) thriller scripts they’d written so they could be set in Australia.”

 

The total to be expended

Treasury has estimated that the tax expenditures involved in the provision of the rebate will cost the revenue some $289 million over the years estimated. This is net after a saving on the current 10BA tax expenditures. The amount suggests that production of feature films costing more than $1million might easily double. The figures are not capped but the amount spent will effectively be capped by the capacity of the industry, most particular the gatekeepers (see below) in the distribution and exhibition sector, to take up the opportunities available. Whether for instance those actively involved or seeking to become so involved will need to employ more people to vet scripts and make judgments will be an interesting matter to observe. At present these judgments are made by a very small number of people.

 

First niggles

Feature films, according to paragraph two of the DCITA sheet, ‘will require a guaranteed cinema release’. In a later paragraph under the heading ‘Provisional Certificate’ it states that applications can be made ‘once financing and distribution arrangements, including guaranteed Australian distribution (my bold) are completed’ [9] I assume as well that the FFC already has rules about Australian contributions and the points that each key person earns in order for the film to be given full status for rebate eligibility.

 

Low Budgets and Innovation

There is a further level of administrative detail also introduced. Minimum expenditure thresholds will apply. To qualify for the 40% rebate, an amount of at least $1 million of QAPE must be undertaken.

 

As a matter of interest in this bright digital age it may be that anywhere between half and three quarters of the feature-length films made in Australia over coming years wont participate in the rebate scheme because they will in fact cost less than $1 million. Presumably these films will still attract investment from some government sources, benevolent relatives and the like. Any such private investors will not qualify for the tax break. If, say, 20 such films are made each year then the additional cost to the taxpayer of the rebate could be lno more than $8 million. The administration costs of the scheme would however rise exponentially. None of these films would be likely to have an advance guarantee of theatrical release even though a smaller number will eventually achieve that. There will thus be an even deeper divide created between those films which will jump through the bureaucratic hoops of expenditure, a guaranteed theatrical release and Australian creative control and those that don’t. The latter will be condemned to be less attractive as investments but inevitably some among them will attract more critical support and more lasting attention.

 

One small independent producer who makes films with budgets of less than a million advised that even before the new arrangements he was already joining the growing numbers who are doing their own funding, by a combination of deferrals, credit cards, grants and sponsorships. He didn’t plan to change as there was no incentive to do so.  “Doing it this way, we end up owning 100% of equity – and we save time and hassles because we don’t have to deal with the bureaucracy.  Our budgets are lower too without FFC funding, because we don’t have to pay for a lot of overheads that they require in every budget. Besides, it’s much less stressful – and more creatively exciting – to work on one’s own.” That’s not for everyone.

 

Gatekeepers

The new system has enshrined the role of the private sector gatekeepers who currently ultimately decide which films are to be financed. It may also be that a merry-go round of approvals and permissions will continue to occur. Government or private funding bodies will be supplying letters of comfort to producers indicating future support if a distributor agrees to ‘guarantee cinema release’. Distributors will agree to put up money (and get credits as Executive Producers) if they know that other funding will follow. Something of this kind occurs now with the FFC’s funding arrangements which generally require that a feature film have a distributor on board before it gets its FFC funding.

 

Given that the same gate-keeping system will operate the question is whether the new rebate will be sufficient incentive for distributors in particular to seek to take any further advantage and increase the total level of investment and the total number of feature films made in Australia. The question has to be asked just how many Australian films can be given the go ahead in these circumstances[10]. Distributors have a finite capacity to launch films given the cost and effort involved in the creation of marketing campaigns and launches of new films from scratch. (Importing films also involves importing advertising material, trailers, etc. The investment in design, marketing, launch costs, prints and advertising undertaken by a distributor for even say a 25 print national release is still going to be in the order of several hundred thousand dollars. In such circumstances it is hard to see a market for more than twenty new films to be launched in this way. Inertia and the subservient position of the local subsidiary ensure that very mediocre films fill all those screens on all those multiplexes. A risk averse local office of a US major is unlikely to want to do more than a (token) couple of Australian films a year at best. Each of the Australian companies, whether large or small would be unlikely to have or want to have the capacity to handle more than say three or four films each. As is noted elsewhere promotion, marketing and distribution expenditure is not eligible for the 40% rebate.

 

If it is the Government and the industry’s intention that more films, say thirty, are to be so treated then, beyond the situation of finding private companies prepared to put up the launch costs[11], the risk also arises that there will most likely again occur the bunching of new releases prior to the annual AFI Awards and the inevitable claims that that many are eating into each other’s market. It is a largely insoluble problem.[12]

 

The small independent producer mentioned above also commented on the question of the gatekeepers and said that requiring distributor commitment is a very narrow channel for a producer to follow.  “Remember Priscilla?  No distributor commitment on that one (it was privately funded), and then sold for a motza after completion.  Strictly Ballroom had no distributor commitment despite years of trying. Distributor commitment will limit the industry to very safe genre films. Why does the government keep insisting on external gatekeepers (distributors, broadcasters) who have agendas that are possibly and probably contrary to the philosophy behind any arts policy?  The FFC, AFC and most (if not all) of the state agencies have made two or three people at the ABC and SBS the gatekeepers for 100% of documentary funding in Australia.”

The ALP reaction

Interesting questions await for an incoming government that will have the responsibility to manage the detail of the changes, including personnel changes, through to July 1 2008. Labor has not formulated any new film industry policy for some time thus has a clean slate to work on. On the day of the 2007/2008 Federal Budget, the Arts spokesman Peter Garrett issued a media release which said that ‘Tonight’s Budget is make or break time for the Australian film and television industry. Further support and genuine reform are desperately needed to ensure certainty for the film industry and potential investors” Needless to say nobody took any notice. On the day after the Budget announcement Garrett conceded the Government had ‘finally moved’ to provide the film industry with ‘urgently required support’ which ‘gives hope that this industry can now bloom’. Not a big contribution to what is admittedly a minor area of debate, especially when you have the Government on the run over another far more important climate change.

 

The Future

You would like to think that some in the ALP are interested in higher things like a quality film industry. Garrett could for instance still some attention on the new administrative arrangements that propose that almost all Federal film-related matters are now to be put together in a new super agency that will be a regulator, a certifier, a producer, an investor, a cultural arbiter and a conservator. It is an agency whose purposes have great similarities to the French Centre National de Cinematographe which has taken sixty years to evolve into what it now is. Our equivalent body will come into being from 1 July 2008. Whether we are mature or experienced enough to allow all of these matters to come under one person, an industry czar, will be a question of interest especially as I’m sure that the Howard Government will move to make an appointment of that person before it logs off for the next election. No point in leaving a job for a sympathetic boy or girl unfilled and ripe for whomever follows to appoint its own boy or girl.

 

Labor might also at least undertake to examine the package, review it and offer to direct the administrative savings to some specific areas of activity where we are clearly falling short, especially low budget and innovatory film production rather than simply leave the allocation of these savings to the czar or his underlings. The application of funding to some of best film-makers who work at the cutting edge might do more to liven up film production than any amount of investment in movies which need strategised pre-sale discounting, gap finance or ‘repurposing” to get the nod. Labor might also give consideration, in these years of Government largesse whether the associated abolition of 10BA, especially given the modest savings it produces, needs further examination. To the inevitable riposte that the industry cant have it both ways the answer might be “Why not”.

 

My small independent producer also requests some further tinkering by the bureaucrats themselves. Plaintively he asks why all the eggs have been placed in the rebate basket, an act which already sees international producers looking for safe investment returns appearing like hungry turkeys at a film industry cage made up of currently crippled grasshoppers. “Why for instance cannot the FFC not simply allow private investors to have some form of priority in recoupment.   If it were permitted and were actively encouraged, it would have opened the doors to a lot of private investment for the industry and would have cost the FFC very little, if anything (in that the FFC’s investment in any single production would be reduced and more films would get up).”

 

There is still plenty to debate.

 

Geoff Gardner

29 May 2007