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PRODUCER OFFSET: A SERIOUSLY MISGUIDED STRATEGY

Producer Evan English wants the film industry to look very closely at the Producer Offset introduced by the previous Government in the 2007 Budget, claiming it will damage the grass roots of Australian filmmaking. In the interests of debate, we publish his essay and invite your comment (see right hand column).

The recently introduced Producer Offset has been the subject of much up-beat sales technique. It is “an extraordinary result” says Baz. “A move that will empower producers” says David Court [Director, Centre for Screen Business, AFTRS]. It “will increase the value of production”, offers “flexibility in financing” and “new ways of doing business” says the Centre for Screen Business. It is “the most generous rebate scheme in the world” we are told, providing “a real opportunity for producers to retain a substantial equity in their productions and build stable and sustainable production companies” (Sen. Brandeis, past Minister for Arts). The specter of Australians basking on the yachts of Cannes harbour has been raised in what is painted as a brand new, brilliant dawn for the Australian film industry.

But there are fundamental and crucial points not being addressed here.

One: That the Offset is intended as REPLACING the FFC style funding streams as the primary method of financing Australian films, not as an addition to them.

Two: That at 30% funding (after deductions) of the Budget, it can only be useful, by itself, for high Budget projects with established stars and creatives, which is exactly what its stated intention is: to “up-scale the level of production”.

Three: This NEW STRATEGY is to produce (necessarily fewer) bigger budget films that appeal to the international market, turning the entire Australian film industry into a mainstream minor division of Hollywood, and this at the virtual elimination of the low budget end – the Australian film industry as it’s always been known – with all the serious consequence that entails. (Low budget is herein taken to be budgets of up to $7 million, high or “top-end” as $20 million plus)

Installing the Offset alone, as the primary method of financing Australian film production does not constitute a recipe for a balanced and dynamic industry with a long-term future. It is an illogical strategy flying in the face of international film business reality that can only lead up a blind alley or, worse, to collapse.

Consider the evidence.

The previous Minister for the Arts, Sen. George Brandeis – the highest authority we have on the aim of the policy - stated in a press release on May 9, 2007:
“Funding for the individual agencies will be maintained in 2007-08. However the introduction of the new Producer’s Rebate will significantly lessen the call on direct funding from the (new Australian Screen) Authority over time”.

“Government agencies (will have) the ability to provide supplementary support to the Rebate in exceptional cases, or to support other productions of strong cultural significance…” (my added emphasis)

Senator Coonan in a press release on May 28, 2007:
"Funding for the ASA from 2008-09 and beyond will reflect the progressive uptake of the new Producer Offset which will become the primary source of funding for projects with commercial potential”
The most senior of Government officials make it clear the intention is to replace the FFC style funding mechanisms (and objectives) - to be deployed only in “exceptional cases” (ie. very rarely) - with the Offset. (Also the view held by insiders to the Government- Film industry discussions that hatched this plan, now wishing to remain anonymous).

Peter Garrett, by the way, the Minister responsible now standing, gave his support to the Offset scheme, hoping “it can generate significant levels of new production”. He also told a producer colleague in a meeting on the Offset proposal, that he considered the film industry was “over subsidised relative to the other arts”. So don’t expect an easy change of policy with this new government.

The facts of this new reality (it is policy, not a proposal) must be stared in the eye.

The approximately 30%* (see below) of Budget funding the Offset represents (after way too harsh restrictions on qualifying expenditure, cost of borrowing and that no lender is going to lend 100% of Offset amount) is a very good thing for all film production, particularly because it is automatic (after meeting ‘Significant Australian Content’ criteria), but it is absolutely insufficient to underpin the vast bulk of Australian films seeking finance. Recall that the FFC ‘Market Door’ at 45% funding was not sufficiently attractive to investors and resulted in the ‘Evaluation Door’ at 60% (plus up-front on paper commitment).

(*A producer colleague has just prepared an Offset claim on a completed film and the Offset amount equated to 29% of the Budget. And, one might wonder how holding 30% or 29% of Equity, whilst a wonderful concept, can build “sustainable businesses” when the vast majority of Australian films won’t ever see the blue-sky of profit? Thirty percent of nothing remains nothing. Offset, or not).

The Offset, by itself, at 30% funding is really only relevant and useful to a high end production with established creatives and talent on-board (without marketable ‘elements’ it is simply not attractive enough). It could be very helpful in developing a mainstream commercial strand in the Australian film industry, which is indeed what its stated intention is:
“This rate (40%), regardless of the size of the film, will be a big incentive for Australia’s best talent to make the blockbuster Australian stories that can showcase our culture to the world” (Sen Brandeis, Minister for Arts, Press Release May 9, 2007).

“The rebate will step up the scale of the films that will be made in this country. I think it will also strongly encourage those directors working overseas to come back and make stories here” (Brian Rosen, FFC).

It is, in my opinion, a very sound idea to try and develop a top-end in the Australian film industry. One that has sorely needed artistic and commercial international ambition, that attempts to reverse the dire effects of the brain drain, for it can bring about the transformation of a humble, ever precarious cottage industry into a dynamic one operating on all production levels (capable of serving its many required functions: cultural and artistic alongside commercial) with a genuine long-term future.

"money begets money"

It is a fact of the film business that money begets money. Hollywood would rather make ten $80 million films than 200 $4 million films, because they know that is a much better model to make money. The reason is economy of scale. Studios and bigger budget films command much better deals in every territory and ancillary market. They can pre-sell them based on elements alone and so protect their bottom line. Most $4 million films would be lucky to return 25% of budget to investors, whereas a dog of an $80 million film will have probably 80% of its budget covered in pre-sales and output deals. Meanwhile, the potential for profit – and far bigger profit - is much greater with bigger spends.

An Australian film industry that had a component of higher spends that reasonably regularly turned profit (it’s, at best, one in ten) and made international splash would reflect well upon the nation and on the entirety of the film industry (i.e. make it a little easier to finance lower budget product). It would greatly assist in creating a real industry with a ladder of artistic and commercial opportunity. As it currently stands, once people have earned their stripes in the Australian ‘film training school’ they head off (have no option but) to play with the big boys, earn profit for others, in what is a constant process of decapitation (losing with their experience and knowledge, all they are able to generate for others). It is a farcical way to run a business that condemns the local industry to a perpetual vulnerable, pauper existence.

Whilst the development of a top end in the Australian film industry can make a much needed contribution to the creation of a long term viable industry, it is extremely problematic, if not outright folly, to try and reshape the entire industry as a top end outfit, as some lowly division of Hollywood making (wanna be) blockbusters.

While much has been made of the Offset being “uncapped”, the total expenditure on film in this country is not. The projections for total Government spend on film (and TV) remain at their previous insufficient level of circa $80 million per year. It’s also been made abundantly clear that “direct funding” mechanisms are to be “significantly” reduced as the Offset is taken up. It is therefore, unavoidable, that as more big budget films capable of exploiting the Offset (with ‘elements’ on board) get rolling under this scheme, the less funds will be available for all other forms of production.

Promoters of the ‘Offset’ and some in the production community continue to take refuge in the “exceptional” cases clause that’s to be maintained in “direct funding”. As if this will allow film production to continue as per usual (or even grow, as some incredibly try to offer!). Well, the simple mathematics (and written statements of the policymakers) do not support this position. A much reduced ”direct funding” is to be the exclusive province of “projects of national cultural significance “ – a quote from Sen Coonan, who goes on to nominate “documentaries, children’s programs, new producer’s work and indigenous content” in this limited and restricted worthy of the worthy category (Press release, 29 May 2007).

" not just a new financing tool"

The Offset is not just a new financing tool, installing it as the primary method of financing film is a strategy to re-shape the entire Australian industry. To “up-scale the level of production” to bigger budget films with ‘commercial appeal’ and greatly reduce the production of low budget films – currently, indeed always, the substance of the Australian film industry.

This has a set of very serious consequences that are not being addressed. The low-end of the film industry would necessarily shrink very dramatically – with all its already precarious livelihoods – if not just fade to black. Australians would see less of themselves and in the variety of their depiction (as would the world beyond). The crucial function the film industry serves for a smaller nation of combating the rampaging domination of (the most banal of) American ‘stories’, ‘culture’ and ‘values’ (by promoting some of their own) would be largely lost. And it would hugely limit the uptake and turnover of talent in the industry so that, ultimately, there would be no talent or creatives able to attract international finance, Offset or not.

It is testament to the short sighted, illogical nature of this strategy that it fails to recognise that Weir, Beresford, Noyce, Baz, big Russ, Naomi, our Nic – the entire A team – cut their teeth on a whole bunch of modest, low budget Australian films that (mostly) nobody much wanted to watch, didn’t see the light of international day, or make a brass razoo. This is the way of the film world: the ‘gold’ only rises after much has been tediously shuffled through the pan. You stop the ‘shuffling’, there never can be any gold. It is extremely simple from a business structure perspective: you cut away the bottom rungs of the ladder and the ladder falls over.

And here’s another fact to face: Every film industry in the world, except the USA and India, is hugely subsidised and, save the occasional ‘breakout’, audiences do not flock to see them. Still, all those governments of every political persuasion continue to subsidise because it’s widely recognised that many benefits accrue, domestically and internationally, from film production. In addition, a vast number of ventures have been raised around the world intended to compete with or emulate Hollywood and all of them have failed. So, endeavouring to apply the whip hand of ’market principles’ (as the Offset alone strategy attempts to do) has been proven over time and wide geography to be in vain and, actually, beside the point.

It’s also true that the subsidised Australian film industry can readily be seen as a resounding success. Its film output, while clearly uneven, has earned much international respect for its different view of the world. And the extraordinary breadth of international A-list talent, creatives and technicians it has produced is second to none. The major reason for that success is surely that those people have been able to hone their skills and prove their worth in the fertile training ground of the Australian film industry – something not as available in the USA. So, if Howard and Rudd were the ‘responsible economic managers’ savvy to the ‘realities of international business’ they claim to be, they would be billing Hollywood for a couple of hundred mill on an annual basis for talent development and so end the problems of film industry subsidy in this country.

The Offset is a wonderful addition to our film-financing armoury, but installing it as the effectively sole and primary method of financing film in Australia, is a very flawed strategy producing a long list of negative outcomes.

What is actually required to make the film industry viable and successful on a long-term basis is to develop a balanced industry that has the potential to mount low, medium and high budget films that serve cultural, artistic, nation promoting, entertaining and commercial ends, one which has the constant talent uptake and turnover essential to the dynamism and future of any industry.

"to create a diverse range of sources of finance for a diverse body of product."

The answer is to create a diverse range of sources of finance for a diverse body of product. This must include a long-term commitment by the Government to generous funding for the FFC style funding streams for low and mid-level budget films; the Offset to aid all levels of production and particularly the development of a top-end; and the reintroduction of tax incentives to diversify and de-centralise finance sources. (There’s alarming talk that what remains of FFC style funding – the exceptional cultural product - will only be via ‘Evaluation’ and not any ‘Market’ door).

Total funding clearly needs to be increased to underpin all the levels of production that are required to make a viable industry with a future and thought needs to be given as to how that pie is divided.

A “consultation period” has been mooted in the first half of 2008 upon the Offset and the new Australian Screen Authority. That must be a vigorous and informed debate not mis-guided rapture (and mind numbing accounting detail). The installation of the Offset as THE method of financing film in this country is Government and Industry POLICY, not a proposal, so the horse has bolted. The work here is to try and quickly correct the situation and avoid damage. The film industry must recognise the Offset alone strategy for the peril it is. It must rapidly turn its attention to vigorously lobbying for the financial support capable of creating a balanced and viable film industry, one that is sustainable on a long-term basis with realistic hope for a dynamic, successful future.

Action!

Published: February 21, 2008

 

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Evan English

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