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
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
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
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,
“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
The facts of this new reality (it is policy, not a proposal) must be stared in
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,
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
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
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.
Published: February 21, 2008
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