The Australian government reviews its tax concessions to independent film production

The following article appeared in Crikey on March 4th:

The federal government has just finished a review of federal film financing arrangements — and given itself a rather large pat on the back. The result is an endorsement of film financing arrangements in which more and more taxpayers money is being given to Hollywood studios.

Confirming Sir Humphrey Appleby’s famous principle that you should “never commission an inquiry without knowing the outcome first”, the federal Arts Department’s 2010 Review of the Australian Independent Screen Production Sector makes a series of rosy findings about the state of the sector and the effectiveness of the government’s Australian Screen Production Incentive, a large tax refund to film producers.

More money is certainly leaving Treasury coffers: the report states that “in the three years since the introduction of the Australian Screen Production Incentive, the government has provided $412.1 million in support through the tax system, compared to $136.7 million in the three years before the package.”

But delve further into the report, and all sorts of questions start to pop up. First and foremost is the crucial question of whether those extra taxpayer dollars are really stimulating an upswing in domestic production across the board, or merely co-financing large Hollywood studio films such as Happy Feet 2 and Australia.

Arts Minister Simon Crean trumpeted the review’s findings. “The boost in government funding is a great achievement and contributing to the viability of the local film production industry,” he announced in a media release.

“Although it’s still early days, the increase in activity, particularly the production of Australian large budget films, such as Baz Luhrmann’sAustralia and George Miller’s Happy Feet 2, and the box office performance of films such as Tomorrow, When the War Beganshows the government support for the sector is having a significant impact.”

In fact, a close reading of the review suggests that the effect of the new funding arrangements is far less positive than the minister and the department claim. Much of the extra money — $169 million, in fact — has gone to foreign movie studios in the form of international production subsidies, though that’s not a fact that the review chose to highlight. But despite this, levels of foreign production in Australia have actually been falling, as the strengthening Aussie dollar and strong competition from other countries and locations have made the foreign production incentives less attractive.

More private investment has been attracted to Australian feature films, however, and more films are being made. Despite this, the domestic box office takings of Australian feature films has risen only slightly, from 3.8% between 2005-2007 to 4.4% in 2008-2010. That’s better than the subterranean levels of 2004, but still worse than the performance of Australian features in the early 2000s — let alone the 1990s.

As for television, the report found that while drama budgets had increased, total hours for Australian-produced adult television drama had remained steady. The reason? Television production is driven by local content quotas. To quote the report, “Australian television production levels remain stable over time and are closely linked to requirements under the Australian Content Standard.” In other words, the television networks are receiving more taxpayers money to produce drama that they are required to by the regulations. It’s a nice deal if you can get it.

Most of the money continues to flow to the big productions, such as Luhrmann’s upcoming Great Gatsby. These are loved by the industry, as they provide lots of employment for local casts and crew. But the review points out that a large part of the Australian screen sector is made up of small companies, many of which produce documentaries. These smaller firms have struggled to access the tax refunds, owing to high production thresholds. Features and documentaries made for less than $1 million or $250,000 respectively are ineligible for the offset, ruling out a large swathe of the independent sector.

Yet the review thinks this is a good thing, as it precludes the low-budget and arthouse features and documentaries that would be unlikely to make a return in any case. “Lowering the offset threshold for feature films to ensure access for emerging producers would to an extent alter the intent of the offset,” it says, “from one encouraging commercially focused features, to one that includes films less likely to be market and box office driven.”

The review confirms a subtle shift in Australian screen funding priorities away from backing emerging film-makers and new voices and towards big budget, Hollywood-financed productions. This may result in bigger box offices for bigger-budget Australian films — or it may not. The federal government’s last effort at supporting commercial film finance was the Film Film Corporation, a 20-year initiative that acted as a for-profit investor in feature production. The FFC lost more than a billion dollars in that time-frame, booking investment returns of negative 80%.

The new policy gets around this problem by simply giving tax refunds to big producers, regardless of how much money their film eventually makes. And it’s uncapped and open-ended: the bigger the budget of the film, the larger the taxpayer contribution.

Advertisements

Strong Aussie dollar hammers Australian screen production

Pop star Rihanna in uniform on the shoot of Peter Berg's Battleship. The big-budget movie was scheduled for production in Australia but was moved to Louisiana owing to the strong Australilan dollar and attractive production subsidies from the US state.

When Alex Burns and I set out to examine the past two decades of Australian screen policy, we concluded that the biggest influence on the success or failure of the Australian film industry was macro-economic factors like currency fluctuations – and not the perceived quality of Australian writers or directors.

You can read that paper – “Boom and Bust in Australian Screen Policy: 10BA, the Film Finance Corporation and Hollywood’s ‘Race to the Bottom‘” in the August issue of Media International Australia, reposted by Alex in proof version here.

Recent developments have only reinforced our findings. Yesterday, for instance, the Australian Financial Review published a feature-length article about the serious trouble posed for that the export-intensive parts of Australian screen industry by the strong Australian dollar, which briefly reached parity with the US dollar last week.

You can’t read the AFR article (by Brook Turner, entitled ‘Dollar dampens local film production’) online, so I’ve transcribed important sections below:

 

 

 

For the first  time in decades there are no major American films being made in Australia, and none in the pipeline, a clear sign of the devastation the dollar has wrought on a $2.3 billion business.

NSW hasn’t had had a major US  film since Wolverine wrapped at Fox Studios in mid-2008, Victoria since Don’t Be Afraid of the Dark in September last year, Queensland since Narnia last November. The Sunshine State is hanging in thanks to local production and Steven Spielberg’s 13-part, $150-million TV dinosaur epic Terra Nova. But there are fears that may go the way of films such as Green Lantern and Battleship, which migrated back to the US with their $US150 million budgets ass the dollar rose, as estimated $200 million loss to the Australian industry.

“This is unprecedented”, Ausfilm’s chief operating officer Tracey Vieira, said this week from Los Angeles, where she has the job of enticing US production to Australia. “We have always had a good momentum of production inquiry about filming in Australia; I’ve never been in a position where we haven’t had a US production that is seriously considering Australia. And there’s nothing in sight.”

Ausfilm hass asked the federal government to at least double Australia’s production offset – a 15% tax rebate on local expenditure on foreign films – to bring it into line with North American, UK and European competitors as part of the government’s independent film sector review, due later this year.

The article reinforces the problems faced by Australia’s screen industry, which features anaemic levels of locally-financed production and is heavily reliant on “runaway production” from Hollywood studios. As we pointed out in the paper, Australia’s foreign-financed production is highly vulnerable to currency fluctuations and “race to the bottom” competition from other jurisdictions offering their own generous production subsidies.

The Liberal Party’s arts policy

Well, it’s four days after the Australian election and we still don’t know who will form government.

Over at the ABC’s website, I’ve published my general thoughts about the election wash-up, which I won’t repeat here.

But, given the Liberal Party remains quite likely to form the next Australian government, it might be worth having a look at their arts policy. (I had a look at Labor’s arts policy last week). This post was written in the last week of the campaign, but I didn’t quite get around to posting it.

The Liberal Party of Australia does, finally, have an arts policy. In 2007, it didn’t actually release one, although George Brandis did issue a ringing defence of the Howard Government’s arts policies in a speech to the National Press Club.

The Liberal Party’s arts policy was launched in the last week of the campaign at Jupiters Casino on the Gold Coast by Stephen Ciobo. It’s narrow and targeted at the screen industry and regional arts, but that doesn’t mean it’s not a significant engagement with those areas.

Regional arts organisations have long been the poor cousins of the big-city cultural institutions (which it must be said, got a very good run from the Howard Government), and cater to audiences that are desperately under-served for the kinds of cultural experiences that those who live in inner-city Sydney or Melbourne enjoy. The policy promises $10 million for regional galleries to buy Australian work, plus $3.85 million for the Regional Art Fund, and nearly $10 million for regional touring and exhibitions.

The Screen Producers Association is delighted with the screen announcements, including a $60 million “temporary” production subsidy that will top up existing commercial investment in mid-tier feature films with budgets in the $7-30 million range. That doesn’t sound like big money in Hollywood terms, but it effectively cuts out most Australian indie features, who have budgets in the $1 to $5 million range. Television apparently misses out.

Ciobo claims that the loans “will be recouped by the Commonwealth in line with the industry’s standard recoupment schedule,” but the dismal history of Australian government film investment suggests that most of this money will never return to Treasury coffers. Similarly, Ciobo’s claims that the new production subsidy will create 18 features and 1100 jobs must be taken with a grain of salt – the figures come from the Screen Producers Association itself.

A proposal to extend HECS-style loans to classical musicians is an innovative proposal that will help aspiring instrumentalists to acquire their very expensive trade tools. Again, however, questions must be asked as to why students of mainly classical music institutions get to benefit from such a scheme, while the practitioners of artforms that enjoy far more support in the free market, such as pop and rock, miss out. Much like the screen subsidy, it sounds a bit like picking winners to me.

None of the arts lobbyists have mentioned it, but the real difference between the major parties’ arts policies may well be Australia’s mooted National Broadband Network. As Marcus Westbury and myself have been trying to point out for some time now, the NBN is in fact a significant piece of cultural infrastructure. As readers here will be well aware, cultural content is already one of the most significant aspects of internet traffic, and this is only likely to grow as bandwidth allows Australians to access much faster video streaming, game playing and other forms of cultural expression and interaction. Labor’s NBN is the largest investment in cultural infrastructure ever announced by an Australian government.

All in all, the Liberals have at least got on the scoreboard in arts and cultural policy, even if they trail by some margin the party with the most comprehensive policy in this sphere: The Greens.

What’s the real reason Australian films aren’t popular?

It’s the AFI awards this week, so I’m celebrating with a series of posts about Australian screen policy.

If you’ve been reading tis blog, or following the apparently endless troubles of the Australian film industry, you’ll be well aware of the continuing angst about the supposed unpopularity of Australian features.

This makes the release of the latest Screen Australia report, Australian Films in the Marketplace: Analysis of Release Strategies and Box Office Performance, all the more interesting. A close reading shows that, pound-for-pound, Australian films punch above their weight. The big problem is not that audiences don’t want to see them, it’s actually that they don’t get to see them, at least not in the multiplexes anyway. Let’s drill into the figures and see if we can find out why.

The report analyses nearly 1400 films released in Australia and looks at how many screens they showed on, and their comparative box office takings. The results? Most Australian films receive only limited distribution. 82% are released on less than 100 screens, and 39% are released on less than 20! This segment of the market accounts for only 11% of total box office takings, so even though Australian films do quite well on the screens they show on (taking roughly similar median box offices to British and US films, though below the French), they are generally confined to the ghetto of arthouse and independent cinemas.

At the blockbuster end of the market, it’s a sorry tale. In the period of the study (2005-2009), only two Australian films screened on more than 400 screens.: Australia and Happy Feet. These did well, both grossing more than $30 million, above the median figure for films in this category.

It’s worth pointing out that Australian producers don’t determine what shows in the multiplexes, distributors and exhibitors do. And they’re clearly not buying Australian films for these wide releases. That’s not surprising, because in this market segment Australian films are competing against the massive production budgets, A-list star power and marketing juggernauts of the Hollywood studios.  After all, the production and marketing budget of just one blockbuster film like Transformers or Pirates of the Caribbean 3 comfortably exceeds the entire production slate of Australian films (only $128 million in 2007-08).

Moral of the story? Australian films simply can’t compete in the multiplexes – there’s not enough production and especially marketing money.

Screen Australia is responding to this market reality by moving up-market, indicating to the industry that it wants to fund fewer, bigger budget productions. But is this the right strategy? I don’t think it is, for reasons I’ll explore tomorrow.

Can governments pick cultural winners? The FFC’s 20 years of “commercial” film funding in Australia

Film Finance Corporation of Australia, total investment versus recoupment, 1988-2008. Source: FFC 2007-08 Annual Report

One of the key themes  of Richard Caves’ 2000 cultural economics monograph, Creative Industries: Contracts between art and commerce is his detailed exploration of the idea that “nobody knows.”

The quote comes from Hollywood screenwriter William Goldman, who famously opined that when it comes to the entertainment industry, “Nobody knows anything.”  (Goldman, by the way, also penned the line “Follow the money” in All The President’s Men – a phrase that doesn’t appear in Carl Bernstein or Bob Woodward’s notes or articles).

If high-powered Hollywood moguls struggle to predict the successes and failures of the films they finance and produce, how well do Australian screen bureaucrats do?

Not very well, if figures from Australia’s Film Finance Corporation are any guide. The FFC, an Australian government film agency, existed for 20 years between 1988 and 2008 before being amalgamated into Screen Australia last year. Unlike arts funding bodies in this country, the FFC was specifically set up to finance film and telelvision projects along commercial lines. As film critic Lynden Barber points out, “FFC production funding was triggered when a project reached a minimum level of pre-sales from mostly private sources.”

The FFC acted as a kind of automatic co-investor. If a producer could arrange seed capital for a promising screen project, the FFC would then top up this private investment with government funding. This meant it acted as a public-sector but commercial investor, taking a cut of the intellectual property and box office returns of projects it financed. In other words, the agency didn’t just hand out money: it actually recouped returns on its investments.

The problem was, these returns were meagre. Over two decades, the agency supported 1165 productions and spent $1.345 billion (these figures are from the FFC’s final Annual Report in 2007-08). Many were critical successes and some of them even won Oscars.  But only a few made money. The FFC states in its “20 years” brochure that this investment translated into a total screen production value of $2.872 billion, a multiplier of roughly two. But total recoupment to the FFC was a paltry $274.2 million. That’s an astonishing cumulative return of -80%.

No wonder Barber points out that “many of the failures of the local industry have been the result of commercial misjudgments — not only by the federal and state funding agencies, but also by private investors, distributors and filmmakers.”

What’s new in the International Journal of Cultural Policy: Parker and Parenta on Australian film policy

I’ve been busy lately with my NEAF ethics application, but after emailing that off to Elaine earlier this week I thought I’d spend some time today on some close reading of a recent journal article on Australian film policy. In doing so, we might be able to draw out some of what I think are the antinomies between the way academics and practitioners write about cultural policy in Australia.   Continue reading

Tina Kaufman begs the question on Screen Australia

Those of you who read my essay on Australian culture at NewMatilda.com will know I’ve got a keen interest in Australia’s evolving screen policy controversy.

Now Tina Kaufman at Inside Story has a long feature that covers the birth pains of the new body, Screen Australia, that has replaced the AFC and FFC. Kaufman covers some of the same territory I travelled, including the Schembri controversy,  as well as examining the specific controversies emerging over Screen Australia’s decision to curtail short film funding and support for so-called “emerging” film-makers.

Unfortunately, Kaufman’s article is a disappointingly shallow analysis that rounds up what the various mainstream critics think, only to  dismiss them. This paragraph gives you an idea, as Kaufman complains about a lack of substance in media  criticism of Australian film-making, without offering any herself:

So what are we to make of all this? Probably not very much. It’s really just another, if more extensive, episode of what has been a rather regular event, the media getting stuck into Australian films and filmmaking. It would be more valuable if the debate reached some sound and achievable conclusions, but it never really does. So many years, so much money, so many highs, and recently, so many more lows – this must indicate that the whole business is a lot more complex and much harder to get right than what seems to come through much of the commentary: “You are making the wrong kind of movies!”

Near the end of Kaufman’s article, she finally finds the question she should have begun with:

A number of the films the commentators have labelled “dark and depressing” and therefore not worth seeing, have actually been good films and well worth seeing – so why didn’t they reach an audience?

For a more nuanced analysis of exactly this problem, see Robert Miller and Robert Connolly.