Industry review published: Offset results, “positive”

The Government has published the long-awaited review of the independent screen production sector, highlighting its level of investment and the areas of opportunity to improve the effectiveness of the existing offsets, but avoiding any clear recommendations.

“The Government has committed to working with the sector to respond to the Review. In particular I’m keen to hear more from the sector about its strategies for improving audience engagement and attracting additional private financing,” said Minister for the Arts Simon Crean.

Crean said Government investment had increased three-fold in the three years since the introduction of the Australian Screen Production Incentive (Producer, Location and PDV offsets), from $136.7 to $412.1m.

According to the Minister, the Producer Offset is encouraging domestic feature film production, with an 88 percent increase in total production expenditure ($265m in 2009/10) compared to the five year pre-Offset average ($141m). The Offset has provided $267m in rebates, from its inception in 2008 to the end of 2010 – however, details about what projects have received such rebates, and the amounts they have been able to claim remain a mystery due to tax secrecy laws; a large percentage of this amount is likely to have gone to Australia, Knowing and Legend of the Guardians.

Crean also said the Government “acknowledges the impact of the exchange rate on the Location and PDV offsets of 15 per cent currently available to overseas productions”. These offsets have received $67m.

In terms of the Producer Offset, the review found that reducing the threshold to $500,000 could be beneficial:

Reducing the threshold of both feature films and single-episode programs to $500 000 could provide an opportunity for lower budget filmmakers to access different distribution and revenue streams, such as online distribution or digital downloads.
A reduction in the threshold would seem to be at odds with the original intent of the Producer Offset to encourage larger budget production, but would help to respond to demands for more online Australian content in the context of the rollout of the National Broadband Network.
Given the low numbers of short-form animation productions that have received the offset, it does appear that the threshold may be too high for typical productions in this sector.

The acquittal of the Offset was also addressed, if not very enthusiastically:

Operating within the tax system has some limitations, such as the additional costs to producers associated with the timing of the offset payments. Timing of payments may also lead to bunching of productions close to the end of the financial year.

These issues were considered when the offset was introduced and the Government took the position that such concerns were outweighed by the benefits provided through the security of the tax system.
There are opportunities to simplify the operation of the Producer Offset by making changes to the definition of QAPE, though this will require legislative amendment.

The review looked at Screen Australia and SPAA’s opposing models for encouraging production of medium-budget films. SPAA has been pushing for a Producer/Distributor Fund, while the federal agency is requesting additional funding to lift its current investment cap of $2.5m per project. The review didn’t favour the agency, indicating that the philosophy and strategy behind the Producer Offset mean there should be little or no direct investment from Screen Australia on medium-budget categories.

Industry agrees that medium-budget films, unlike the large-budget films financed within the Hollywood system, will require some direct government investment.
It remains an important objective of the Producer Offset that films in the medium-budget category should be able to demonstrate commercial potential (including international appeal) and therefore  attract sufficient private investment with little or no direct investment from Screen Australia.

As for the Location and PDV Offsets, the review refers to industry requests to increase the incentives from 15 to 30 percent, or ‘peg’ it to the value of the Australian dollar.  It doesn’t make any recommendations on the matter:

The two proposals to counter the recent decline in offshore large-budget production with the greatest support are: to either increase the rebate level to 30 per cent; or to introduce a rebate level range starting at 15 per cent and rising to 30 per cent, pegged to the value of the Australian dollar against the US dollar.

These are the main findings:

• Government support for the film industry is at its highest level ever. 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.
• The strong uptake of the Producer Offset alone has provided $266.63 million in indirect Government support to the end of 2010, and the Location and Post, Digital and Visual Effects Offsets have provided $67 million in support.
• In 2009–10 Screen Australia provided $61 million in support through production investments.
• Early signs show that the Producer Offset is encouraging domestic feature film production, with total production expenditure in 2009–10 of $265 million representing an 88 per cent increase above the five-year pre-Producer Offset average.
• In 2009–10, total production expenditure in Australia was a record $731 million, well above the five-year pre-Producer Offset average of $547 million.
• The Producer Offset is encouraging increasing interest in Australia as a co-production partner. Between 1986 and 1999 there was an average of three co-productions per year; from mid-1999 it increased to seven, and in the three years after the introduction of the Producer Offset, 23 co-productions have been made or are in progress.
• Production companies are becoming more focused on market and audience needs. Since the introduction of the Producer Offset the average share of the local box office has increased.
• There are indications that the Producer Offset is having a solid impact on television production. From 2007–08 to 2009–10, total Australian television drama expenditure averaged $295 million, some 35 per cent above the five-yearly Pre-Offset average of $218 million.
• The industry expressed concern about some aspects of the Producer Offset. The main concern related to the timing of payments through the tax system. In addition, the administrative burden in applying for the offset was raised, especially for non-feature documentary productions.
• It is too early to know whether the Producer Offset is encouraging greater private investment. Early signs are positive, especially in light of the global financial crisis.
• Some agreed indicators have been developed for use in tracking industry development towards a more competitive and sustainable sector.
• While the Government’s international film tax offsets attract large-budget offshore productions to Australia, the evidence indicates that the success of the Location and PDV Offsets is closely related to global financial circumstances, the exchange rate and competition from incentives available in other countries.
• There was strong sector support for greater transparency of Producer Offset decisions; they currently remain bound by tax secrecy laws.
• The sector strongly advocated the continuation of the Australian Bureau of Statistics service industry survey.

There were 78 submissions to the review, as well as focus groups with 79 producers and service providers, to supplement the information in the submissions.

The full report is available here.