Co-productions: flexing the international muscle
At this year’s MIPCOM, Screen Australia launched new International Co-Production Program Guidelines. Holding Redlich’s Sonia Borella looks at the changes and what they mean for producers considering official co-production projects.
The federal agency chose one of the industry’s most cosmopolitan events to launch its new International Co-Production Program Guidelines (the “New Guidelines”), perhaps making a statement on the importance it places on the program and the changes that are now in place.
A review of Screen Australia’s guidelines applying to Australia’s international co-production program (the “program”) was requested by, in particular, Ausfilm and SPAA.
Screen Australia responded to the requests by conducting a comprehensive review of the guidelines applying to the program (the “Old Guidelines”). As part of this review, Screen Australia consulted with the industry and sought advice on what changes it would be permitted to make given it is necessarily limited by the terms of the “co-production arrangements” (that is, each treaty and memorandum of understanding (“MOU”)) with which Australia is a party with another government or government agency.
The New Guidelines were preceded by draft New Guidelines issued by Screen Australia on 17 June 2010 (the “Draft Guidelines”). There were some significant changes made as a result of Screen Australia’s further industry consultation and its receipt of further advice on the Draft Guidelines.
WHAT’S CHANGED?
The New Guidelines are more user-friendly than the Old Guidelines and they contain summaries of the key differences between the various treaties and MOUs, making it easier for producers looking at various potential co-producing countries to compare the key differences.
The New Guidelines clarify some of the concepts that were contained in the Old Guidelines. For example, a question often asked under the Old Guidelines was the meaning of the requirement that “[t]he Australian producer must retain a share in the co-production copyright”. The New Guidelines clarify that “[t]his refers to copyright in the finished film, not copyright in any underlying work”.
The main changes introduced by the New Guidelines are:
- for some limited treaties and MOUs, the ability of a writer from outside the co-producing countries to contribute to the screenplay;
- clarification of the leeway permitted between the proportion of the total budget raised by the Australian co-producer as compared to the proportion of the budget spent on Australian elements of the project;
- revisions to the points test used by Screen Australia to assess the proportion of the Australian creative contribution; and
- the option of a producer to apply for a non-binding “letter of preliminary compliance” prior to securing finance (and applying for provisional approval of official co-production status).
In addition, a producer now has the option to apply at the same time for both provisional approval of official co-production status and provisional certification for the producer offset and, once the project is completed, both final approval of official co-production status and final certification for the producer offset.
THE WRITER DILEMMA
The New Guidelines provide that “[s]ubject to the terms of the relevant co-production arrangement, a writer who is a national of a non-party country can contribute to the screenplay, provided that the person is not a credited writer of the screenplay (as that term is understood by the Australian Writers’ Guild or equivalent organisation)”.
After having introduced a similar formulation in the Draft Guidelines, this change initially appeared a significant change to the Old Guidelines which provided that the screenplay “and all drafts of it” must be written by a national or permanent resident of one of the co-producing countries.
However, the New Guidelines proceed to state that the only co-production arrangements which currently permit this flexibility are those with Ireland, Israel, New Zealand and France, and then only where the “competent authorities” (being the government agencies which administer the international co-production program in each co-producing country) agree for this flexibility to apply to any particular project.
Accordingly, it continues to be the case that producers considering whether to produce a project as an official co-production will need to consider, as an important preliminary consideration, whether there has been a writer of a draft of the script who is not a national or permanent resident of the co-producing countries and, if so, whether that will make the project ineligible as an official co-production with Australia.
‘REASONABLE’ SPEND
The New Guidelines clarify the requirement of the Old Guidelines that the percentage of the total budget contributed by the Australian co-producer must be equivalent to the percentage of the total budget spent on Australian elements of the project.
The New Guidelines provide that the “proportion” of the total budget “raised by” the Australian co-producer must be “reasonably similar” to the proportion of the total budget spent on Australian elements of the project. The New Guidelines define “reasonably similar” in this context as the proportion of the total budget spent on Australian elements of the project being up to 5 per cent less or up to 15 per cent more than the proportion of the total budget raised by the Australian co-producer. As such, and as set out in the New Guidelines, if, for example, the Australian co-producer raised 60 per cent of the total budget, at least 55 per cent but no more than 75 per cent of the total budget must be spent on Australian elements of the project.
THE POINTS TEST
The New Guidelines provide that the proportion of the total budget raised by the Australian co-producer must be “reasonably similar” to the proportion of the Australian creative contribution (assessed by Screen Australia by application of the points test), and the New Guidelines maintain the plus or minus 5 per cent leeway from the Old Guidelines. As such, and as set out in the New Guidelines, if, for example, the Australian co-producer raised 60 per cent of the total budget, the proportion of the points allocated to the Australian co-producer (which are now referred to as “Australian Qualifying Points” or “AQP”) must be between 55 per cent and 65 per cent.
However, the New Guidelines introduce significant flexibility in the points test.
Although there are still 3 separate points tests (one for feature films and television drama, one for documentary, and one for animation), there are more points included in the test for feature films and television drama (15 instead of 12) and the test for animations (13 instead of 12), and each of the points tests have been revised in what creative roles may be allocated points.
For example, for feature films and television drama, the costume designer, script editor, sound designer, underlying work and/or VFX supervisor may now be allocated points.
Further, instead of the creative roles in each points test always being counted in determining the AQP, each points test now includes a number of specific creative roles which are “compulsory” or always counted in determining the AQP and a number of specific creative roles which are “discretionary” or from which a producer may make a selection in determining the AQP.
For example, for feature films and television drama:
• Compulsory points are:
Writer 2
Director 2
DoP 1
Editor/Picture Editor 1
Cast (four principal roles) 4
• Discretionary points from which a producer must select 5 creative roles are:
Composer 1
Costume Designer 1
Production Designer 1
Script Editor 1
Sound Designer 1
Underlying work 1
VFX Supervisor 1
Other senior key role specific to the film such as choreographer, special make-up design etc. 1
The New Guidelines do, however, provide Screen Australia with the ability not to accept a producer’s selected discretionary point if it “does not consider the role to be a key creative role” which presumably means that, in the context of the particular project, Screen Australia does not consider the role to be a key creative role. An example may be where commercial music is used for almost all of the music for a particular project, and the discretionary point for a composer is selected by the producer.
Further, the New Guidelines also require that, where a feature film or television drama is a majority Australian project, one out of the four cast roles must be filled by an Australian national or permanent resident. This requirement was not in the Draft Guidelines, but resulted from Screen Australia’s further industry consultation process at the request of the MEAA which argued in a release to its members that the change from a 12 to 15 points test for feature films and television drama, but maintaining 4 compulsory points for cast roles, means “that Australian performers will only strictly be required to be involved in a co-production if there is more than 80 per cent Australian finance”. The MEAA also argued in that same release to its members that the change from a 12 to 13 points test for animation, and the change from 3 to 2 points for voice cast roles, means “that an Australian voice cast will only be required at 90 per cent Australian finance”. As a result, the points test for animation includes 3 compulsory points for voice cast, although the New Guidelines maintain a 13 points test for animation, as was set out in the Draft Guidelines, by allowing a producer to select 4 instead of 5 discretionary points.
PRELIMINARY COMPLIANCE
The New Guidelines now make it possible for a producer to apply for a “letter of preliminary compliance” from Screen Australia prior to securing finance (and applying for provisional approval of official co-production status).
A “letter of preliminary compliance” is a non-binding letter from Screen Australia intended to assist a producer in demonstrating to potential financiers that a project will qualify as an official co-production.
The New Guidelines state that a producer may seek such a letter where there is a “broad indication” of:
- the budget or at least a budget “topsheet”;
- the proportion of the budget that will be raised by each co-producer;
- the proportion of the budget which will be spent by each co-producer; and
- which creative roles will be filled by nationals or residents of each country.
There is a fee of $275 (including GST) payable with an application for a letter of preliminary compliance.
SO WHAT DOES IT ALL MEAN?
The New Guidelines are a positive and welcome step in achieving greater flexibility, which will make the complex task of putting together an official co-production somewhat easier for producers, increasing the ability of Australian co-producers to be involved in official co-production projects which is in the interest of the entire industry. Hopefully, this is ahead of more treaties and more flexibility in the treaties, both of which are ultimately matters for the government.
Sonia Borella is a partner, specialising in media and entertainment and corporate law, at Holding Redlich, and has advised on numerous bilateral and trilateral official international co-productions. This article follows Sonia’s article in Encore (“United Nations of Film”, February 2009) regarding Australia’s International Co-Production Program.
While all this business of which coproducer “raises” the money is a nice label … in practice, it’s nonsense.
Apart from coproduction country “rebates/tax offsets”, “government investment”, “investor tax breaks etc”….
(where there is some legitimacy about who “rasied that money” and how and where the money should be spent – since those govt incentives have a country-specific-purpose)
… in the large part – every other piece of the budget finance is typically “raised” by both coproducers who work as a team, and have been doing so for some years.
Sometimes a finance lead comes off, other times the leads fall over.
But in the end, the job of the “team” is to raise the whole budget.
This whole mindset of “who raises what” and “where it may be spent” is so archaic, outdated and out of touch with the reality of the marketplace.
By way of example … if a UK coproducer happens to find an equity investor who is incidentally based in AU – then who raised that money ?
the UK coproducer who found it? or
the AU coproducer who very likely will do all the meetings?
Chances are – both coproducers will be on the contract..
It’s not like there are 10BA or Section48 style tax breaks for investors any more, which could validly link local investment to a territory.
Similarly – for foreign investment or MGs.
Who owns those ? Can they be split as required ?
If your UK coproducer found them, but the investment is needed to cover the AU spend … are we Aussies going to say “sorry, we cant accept your investment because it was my coproducer who found you, and since I didnt – I’m can’t use your money to make the film!”
If the Studio/Distributor offering the MG is based in one of the coproduction countries … does that mean all of that MG must be attributed to that copro country?
… and maybe you can split things up … but try finding that in the “rules” …
All these “red-tape rules” do nothing to facilitate filmmakers getting their films made.
Why not simplify and say:
Any government incentives must be spent in the copro country which provided them, then how the coproducers divide up the rest of the finance they co-raise … is their own business ‘provided’ the spend “in” each country and/or “on” each countries elements, doesn’t fall below a minimum threshold.
Then points match whatever the spend split with some margin of flexibility eg 10%.
Then there are all the issues of the budget itself …
Has nobody at Screen Australia yet created an A-Z budget for coproductions that includes exchange rates, exchange margins, spend split, and qualifying spend for each copro country ?
Trying to work out exactly what the spend split is, without all these isnt easy.
The A-Z budget on the Screen Australia site certainly doesn’t do any of this.
(not to mention that it is riddled with formula errors)
If they want one with all the bells and whistles – only too happy to consult for them.
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