Top Menu

Film Industry Benefits: Smoke and Mirrors?

wellywoodatwhatpirceThe Government has just increased the film industry rebate to 25% to secure production of the Avatar films for New Zealand. Is this good economic management or politicians thinking big and being star struck by Hollywood spin?

The Government’s own advice suggests the latter. According to Treasury the current scheme (a rebate of 15%) was found to cost more than the benefit it created. Even under the most favourable assumptions they could conjure up, any benefit was small. This dud result was put down to King Kong costing more than expected, without which the benefit for the subsidies to date would apparently have been slightly positive. But who’s to say there won’t be another monkey on our back like Kong? Not everything that Jackson and Cameron have touched has turned to gold.

The Government’s response to this advice was rather counterintuitive: make the rebate larger. As Treasury pointed out, if you take a scheme that is barely working and make it more generous, you will make a worse loss.

How can the Government justify throwing other people’s money at businesses without any apparent benefits? Lets start by exploding a couple of the myths:

This is a rebate, without it the money wouldn’t be spent here– absolutely correct, but how many other global businesses are in the same situation and would invest here if the taxpayer coughed up $125m? The only way to find out is to hold an auction – we’ll give you $125m, let us know what you’ll do for New Zealand? At least such a process would be contestable rather than the Prime Minister pontificating from on high that film is where it’s at. In the light of a contrary view from his advisers, not only is that overly cocksure but it reeks of Muldoonist Think Big at its worst.

The film industry creates jobs – again so do all businesses. If people weren’t working in film, they would do something else. Subsidising film leads to us having more qualified people in this industry than we actually need, which will mean we need to keep subsidising to provide them with jobs… and so on. Some of us remember the protected local vehicle assembly industry where each job was calculated to cost consumers $1 million. Subsidies in any industry only ever delay facing up to economic reality and meanwhile create a workforce of dependents.

Government Ministers didn’t stoop to using any of these justifications, as they know how weak that reasoning is. They conjured up a new fantasy – producing film is different because the industry creates wider ‘spillover’ benefits that we can’t measure. Here is our PM:

“So you know, with The Hobbits [sic] there was obviously tourism spinoffs. Avatar’s probably more about talking about and promoting ourselves as a high-tech environment…”

One wonders why Mr Key bothers to spend $35m every year on getting advice from Treasury at all. Although they can be difficult to measure, the tourism impacts of Lord of the Rings were already included in the evaluation mentioned above that he rebutted. So remove those from the Avatar analysis and replace with economic benefit multipliers from the apparent enhanced “tech rep” that the PM knows and nobody else does – and ipso facto we have picked a winner.

Mr Key must think we all came down in the last shower if he expects anyone to believe that assertion. And his Economic Development Minister Steven Joyce (who with his boss’s help suddenly experienced an epiphany and turned from opposing further subsidies to backing this deal) waffled on just as vacantly:

“Every now and again we have to put our hand up . . . to show that we are worthy of the attention of the world.”

As it stands we are spending $125m million on the Avatar films in exchange for a premiere and a section on New Zealand in the DVD box set. Do people even watch DVDs any more? Maybe we should have asked for a promo on the videotape version of the movie. At the very least we should be negotiating an equity stake so that the country rebate decreases if the film is a true international hit. This would at least give the subsidy a chance of turning up positive benefits for the country. This is the approach that the Government has announced for NZ based films – but was so desperate to keep in with Hollywood, dropped as a condition for the international ones too.

There is no doubt that this deal is great for Wellington, the Wairarapa which is now the playground of the Wellywood elite and all those sucking on the taxpayer largesse. But the fact remains the decision has no defensible rationale, it’s a politician taking a punt with public money. The ghost of Sir Robert has returned.

  • Chaz Harris

    Even if the tourism impact has been accounted for, what of things like ARANZ who became a massive medical technology leader after their 3D scanner prototype was spotted by Weta when they were making LOTR here? http://www.nzte.govt.nz/en/news-and-media/features/healing-technology-aranz-medical/

    There are far reaching impacts on NZ business and seemingly unrelated industries that Treasury cannot as easily measure. There is so much short-sighted thinking around this kind of thing it drives me nuts, and hopefully with a mechanism for IP creation springing up around this advisory board as well, we have an opportunity to create a self-sustaining industry that will not require a race to the bottom.

    The biggest myth of all is that taxpayers are paying for the rebates, the crown is refunding money that is already spent here in order to create offshore investment opportunities – the taxpayer is not giving money up front to fund movies.

    In the short term, it’s better than nothing at all while we build a system for supporting commercial projects being developed here – it still blows my mind the NZFC never thought or someone at least didn’t think it was important to invest in that area outside their cultural mandate ten years ago. Had that happened, we would never have needed to compete and had this dependency on offshore shows.

    • http://garethsworld.com/ Geoff Simmons

      Hi Chaz – the same arguments could be made by any industry, particularly those that export. Why don’t we give them all a 25% tax rebate? There might be some industries that give a greater return than film. In fact, why do we bother charging businesses tax at all?

      • Chaz Harris

        Your piece was just badly written and ill-informed regardless of if we think other industries should get financial aid or not – I’m sure some do. The fact is though that offshore NZ is world famous for three things: tourism, technology and film. To keep that reputation and increase economic growth in that area takes ongoing investment over a long time period. Many areas do get help and investment from the government to attract offshore deals already – it’s just that film is more visible and reported on – unfortunately under the belief and notion that taxpayers are funding movies which is simply a bunch of fictional nonsense.

  • Poe

    Gareth, you are clearly unaware of several key factors about how the Screen Sector in New Zealand works.

    For instance, do you know that nearly all local productions – television commercials, music videos, local drama, animation and TV shows – are often produced at heavily discounted rates compared to their international counterparts? That means that the local screen industry works at we call “New Zealand rates” on those projects. That means our film industry SUBSIDIZES local programming due to an unspoken understanding that there will be never enough money in the local market to actually cover the real costs of producing local content for our screens and even for our airwaves.

    As a result, the companies that provide all the invaluable service and equipment for our local industries to use to make local content rely on foreign productions, who pay our crews at full international rates, to supplement their income and keep their very expensive businesses afloat. The reason why New Zealand television, New Zealand cinema and even New Zealand music has become so cutting edge over the last ten years is largely due to the fact that the people who produce this content have upskilled on big foreign/Hollywood productions and use those productions to pay their bills while remaining in New Zealand to contribute to the local sector at discounted rates.

    You are also unaware of how much large foreign productions drive growth within New Zealand’s on R&D and technology sectors. As Chaz Harris mentions ARANZ, there is also MASSIVE Software who are a leading global company developing artificial intelligence package solutions, there is INFINITY – a NZ born augmented-reality development company who are one of the world’s cutting edge designers of AR media and products, there is Grinding Gear Games who created “Path Of Exile” which has been voted just this month as the Best PC Game of the year and whose production staff incorporated people and facilities who acquired their skills working in the screen sector including voice actors, digital artists and motion-capture technology first introduced by LORD OF THE RINGS and AVATAR and the list goes on and on. Filmmaking is a technology industry and technology is never exclusive to one field, particularly if it is developed by the country hosting the shoot as it often is in New Zealand’s case.

    Your comment about the DVD’s and “videotapes” are facetious and only further illustrates your lack of knowledge regarding this issue. The promotional materials produced for THE HOBBIT films, paid for by Warners, have had a large presence on YouTube and other online platforms, appear on Blu-Ray and DVD (for which the sales for collectible films with large fan-bases like AVATAR and THE HOBBIT are still strong) and have been repackaged by Tourism NZ and by Warners marketing for television broadcast in the US and other territories. Subsidiary products like Air New Zealand’s HOBBIT in-flight safety video was a major viral phenomenon and boosted the exposure of the company significantly.

    Nobody in the film industry who has any amount of long-term experience disagrees that the tax incentives are a stop-gap to a bigger problem down the track. But the problem is that no government – Labour, National, left or right – has listened to the industry over the last 15 years as people predicted the bottom falling out of the LORD OF THE RINGS boom because of the fact that we have no culture or infrastructure to support commercially-viable, internationally-aimed, IP like the sort of films Peter Jackson has been producing since the mid 1990′s. Our priority towards cultural representation for film and television has seen us take many victories in critics circles and major film festivals, but never any financial returns. Some of New Zealand’s most famous films are box office bombs which have yet to recoup pure profit even five or ten years down the track. We’ve been saying this for years but nobody has bothered to listen, instead choosing to bathe in the glorious victory of film festival awards and our own smug sense of cultural superiority at making class-A art with no profit margin.

    If we had bothered to invest, ten years ago, into an industry that shelters the development of important art as well as commercially viable film and TV content that was made exclusively for the overseas market, the screen sector would arguably be more sustainable today. It has taken a crisis of this magnitude for people to stop and wonder why, despite our fame and successes, the market at large – including New Zealand’s own citizens – still don’t want to watch our content. But rectifying this will cost money. Even Peter Jackson had his first five film projects partially financed and supported with tax payer money. If you want to make more Peter Jacksons who are self-sufficient, then the tax payer will have to pay for it and because we delayed in this process it will cost more now than it might have back then.

    If you just don’t care about NZ screen content, then that’s fine, but wear your heart on your sleeve rather than hiding behind the presumption that having a unique NZ entertainment culture is just ‘bad economics’. It’s always economics if our entertainment industry is an island of its own, refusing to interact and battle with foreign culture and foreign industry. The real “smoke and mirrors”, that you refer to, turns out to be a large section of the New Zealand public and New Zealand government that pretends to completely understand how the screen and entertainment industry works and can make judgement calls on matters beyond their realm of experience while taking no interest or account of the damage that can be caused to the economic and cultural climate of the country because of it.

    Your comments are demonstrative how many people, like yourself, are part of the problem because they don’t take the time to consult with the actual industry and gain real insight into one of New Zealand’s smallest, yet most powerful and effective sectors in its recent history.

    • http://garethsworld.com/ Geoff Simmons

      I have responded to Chaz’s points below.

      We currently subsidise our local industry through NZ on Air. Do we need to spend more? Are you saying we would have no local industry without the international crowd? Or simply that quality would fall? If that is the real rationale for this then lets be up front and transparent with how we are spending our money.

      Many industries have technological spillover benefits. Many industries have great stories. I’m sure they would all like a rebate too.

      Yes, the comments about the DVD were facetious. And the Hobbit and LOTR tourism benefits were picked up by the evaluation. I struggle to see how Avatar will drive tourism in the same way – even Key agrees with that.

      Thanks for your anecdote about making the industry sustainable. You have pointed out the political economy problems with subsidising industries. Govt’s tend to stuff this up and resort to short term solutions, which is exactly the point we are making. Where is the plan for self sufficiency? The dependency is getting worse.

      You want us to consult with the film industry before we comment. Should we consult with every industry to see what they would do with a 25% rebate as well?

      • Poe

        To ensure that the local industry doesn’t collapse into a low-quality service industry supplied by eager and increasingly untrained hobbyists, we do have to spend more. NZOnAir isn’t enough to sustain the crews, technicians, facilities and talent to ensure we’re still making ‘quality’ screen products (for any given value of ‘quality’ considering we’ve had several TV shows cancelled this year and people still complain that our local content ‘sucks’).

        A small example: NZOnAir coughs out between $6,000-$10,000 NZD to make a music video for a single artist. The actual hire costs for equipment, operators, technicians, creatives and expertise is closer to $80-100K NZD per music video. That’s not an inflation, that’s the actual running cost for every person and piece of machinery required. But we have a thing in New Zealand called “music video rates”, where the technicians and artists willingly give up their time, energy and gear to work on music videos at a token price because its investing back into an industry that may result in work in the future, plus music videos are shot in 1-2 days so it’s regarded to be ‘light, fun work’ that can at least cover basic operation or maintenance cost for gear or paying the rent for the week (sometimes). This is normal and this is how it’s been for decades. Every New Zealand music video you see on television or the Internet is made a huge loss to almost everyone who worked on it, but its seen as an ethical and holistic investment back into nurturing our cultural capital. Now imagine the same situation, but without the high-end cameras, the high-end gear, the technical experience, the know-how, the skills learned on giant blockbuster films because these people aren’t around any more. Imagine all this work now being done by film students who then have no high-end skills to pass onto the next generation after them. The upward spiral that NZ screen industries have experience reverses itself.

        As for being up and transparent about how we are spending our money, it’s not just the screen industry that suffers from this lack of clarity, but the screen industry suffers the most from its self-generated sense of glamour, mystique and distorted narratives that the public have taken onboard, misinformed by the depiction of screen industries in other countries such as the UK, Australia and Hollywood. Every country is different in how its screen industry works and ours is all the more unique because of our small population, our diminishing public funding for local content and our highly technically proficient skill-base and infrastructure.

        You can argue indefinitely about the merits of a rebate system, but ultimately comparisons are disingenuous to the reality of the situation. If fossil fuel exploration companies said “we want a rebate or we’ll go elsewhere” and they actually could do that and NZ had no infrastructure to do their own exploration efficiently and the cost of building that infrastructure would be enormous and the hit to the economy would be palpable in the interim, THEN you have a comparison that you can use to judge the screen industry.

        This has never been a case of the screen sector saying “give us a rebate, we want the cushy jobs and big money everyone else is getting”. This has been the screen sector (and not necessarily represented by the government departments involved in screen production) saying “we told you this was coming for years and you didn’t listen and now we’re stuck between three terrible choices; compete internationally with tax incentives, flood enormous amounts of tax payer money directly into the sector to grow it at incredibly high risk or let the whole thing collapse. There is no fourth choice.” The government made its choice, at the cost of literally going back on its word, possibly because they realized even putting double the amount of rebate money spent on AVATAR into the local industry wouldn’t be enough to turn it around in time for the next election.

        The next step in the chain is for everyone to acknowledge (as the industry already does) that this solution is a mere stop-gap. We’re back to where we were before crisis point, now waiting to see what will happen next to grow the sector and make it self-sustaining (to whatever level is feasible) and commercially profitable. If New Zealand does nothing to address this, we’ll be back here again in a few years from now saying “we told you so and now we’re stuck – again – between three terrible choices.”

        Nobody disagrees that self-sufficiency should be the ultimate goal. Even the nay-sayers in the industry who dismissed notions about a ‘commercial NZ film industry’ ten or fifteen years ago are coming around to the idea that we need more than just the NZFC-brand of filmmaking and the TVNZ-brand of TV production in this country. In some ways we’re lucky in that web IP – although not very high in terms financial returns – is not as regulated and is easier for startups to forge their own path without development assistance. TV and film can’t do that, the entry costs are too high and the risk is unmanageable at the low-end of the spectrum. We have no investiture culture in New Zealand for screen entertainment, no mechanisms to connect companies with screen IP to venture capital and financing as other countries do, which seems a little backwards given that we have such a strong brand presence for our filmmaking expertise. These are problems that have been raised again and again since the boom in the 90′s and which became more urgent with every passing year, but there was no mandate or imperative to resolve them.

        At least, not until this crisis hit.

        “Should we consult with every industry to see what they would do with a 25% rebate as well?”

        I think you may have either made a typo with this comment or have missed a fundamental concept. The New Zealand screen industry doesn’t have a say on what they would do with a 25% rebate. We don’t receive the rebate at all or experience any benefits from it bar the fact that it attracts projects that keep us employed.

        What we HAVE been saying since – within the industry – as early as 2005 is that the tax incentive game is going to be the next big boom industry for film production and if New Zealand doesn’t either become self-reliant or competitive with its incentives, we will be in very big trouble when we lose foreign film, television and advertising production jobs to more competitive territories. Ironically, the July assessment of the Large Screen Production Fund, done without major direct industry consultation and representation, said that raising tax incentives would not be needed to sustain our film sector. History, as it turns out, has shown who was right with their forecast.

        If you want transparency and honesty about the realities of the film and television industry, then you HAVE to consult the industry directly in this particular case. The government-funded departments for the screen sector are also its gate-keepers, meaning they hold all the keys and guard all the doors and can only tell you their perspective of the sector from their very secure point of view. And they have spent years telling the public that “commercially viable IP” is an impossible dream because they tried it and failed. The reality is the opposite; there was never enough money, resources or time allocated to develop IP and find the content creators who could come up with those goods (let alone find the people who could recognize good IP from bad, which is a separate issue altogether). Talk to any producer or filmmaker in the last ten-fifteen years and they will give you the same story: there isn’t enough money and what money exists disappears down the same old sinkholes. To even out the playing field for developing IP (under tax payer money or governmental supervision) requires very different regulation and lots more capital than what has been invested so far. On this note, even Peter Jackson agrees that we’re not spreading our base wide enough to build the structure of our self-supporting industry.

        It’s really quite simple and, like many things in managing a country, comes down to priorities. If you treasure the fact that we have a screen sector, then you have to do something productive and tactically cunning to save it. If you don’t watch TV or film and don’t care for our music industry or for New Zealand having any screen presence in the culture of the world, then by all means there is no mandate for you to care about the industry. As a screen industry worker, I can whole-heartedly say that letting NZ’s film and TV industry shrivel up and die IS a viable option, it’s just a mean-spirited and defeatist one and countermands the purpose of having a government in the first place.

        The tax incentive has passed and it has saved the jobs of tens of thousands of people over the next few years. The problem now is to break up the victory parties and remind everyone that the problem that got us into this mess still exists: NZ’s screen IP has little-to-no commercial value because we have no commercial IP development infrastructure and this needs to change and that change may be costly. You can either fix it, or you can let the next government deal with it, but either way we will be back in this position again before long.

        At the end of the day, it will always come down to one simple concept: “We told you so.”

        • Chaz Harris

          THIS. A THOUSAND TIMES THIS!!!!!

      • Ferand Peek

        The dependancy may be getting worse, however that doesn’t change the hard fact that the big budget film industry here is competing with the tax rebates of other countries. And due to the nature of film, where each project is temporary and also completely mobile, the money will always trend towards where it is cheapest.
        Other industries may love a 25% tax break (and maybe do more with it) but do they need it to even exist at an international level?
        Most industries are nowhere near as mobile. Nor do they compete for projects in quite the same way as we do for a large film (or at least none I can think of).
        There are many things that seem to me unique in the problem that is a sustainable film industry in a small country.

        If there was a hypothetical massive international internet technology project on offer (to go ahead only if it could win a 25% tax break) maybe there is a discussion to be had that it should get it too, but I don’t see any… and these films aren’t hypothetical.

        Another thing to think about is that every western country (except the US) has some kind of national film funding. There’s a reason they need it and a reason they do it. And yes, as Poe argues there are distortions that develop because of it when they favour cultural priorities over commercial.

        We could throw it all out and get the industry to try and compete with the US market of 300 million + and producers incubated and supported by being part of the richest economy in the world and 100 years of studio development but I don’t really think we would do too well without a little support.

        • Poe

          Here, here, Ferand. The cost for building globally competitive IP could be huge…or it could be manageable and sensible with the right kind of mentorship and resources assigned to it. But as you and I both know, most of those mentors don’t reside in this country and some of the best ones…would probably rather make their own IP then teach.

          As cynical as I am about the notion of a Screen Advisory Board, this is the sort of area where people like James Cameron and John Landau could especially be useful for. I doubt they’ll have the time between producing 3 feature films, but it’s that level of industry expertise (along with say individuals from the Peter Jackson camp) that would be required to lurch a commercial screen IP industry into life, especially if it is coupled with access to the resource and people network that these high powered individuals move around in.

  • Matt Beavan

    Hi Gareth,

    Sorry, this the second time I have to disagree with you! Could you please explain exactly where the costs lie? As far as far as I can tell, most of it is from the loss of taxable worker income. I really am struggling with this, please help!

    Also, how do you counter paragraph 45 of the cabinet paper?

    “The risk of doing nothing is that New Zealand would lose skills and infrastructure that would be hard to replace and adversely affect our ability to generate New Zealand-owned IP”
    http://beehive.govt.nz/sites/all/files/Screen_Production_Incentives_Cabinet_Paper.pdf

    Kindest Regards,

    matt.

  • mark

    I think these politicians love being responsible for making these films. They can look back and say “I was responsible for this”. Bit like Trevor Mallard and the Americas Cup. It doesnt make any economic sense. We dont even get a share of the profits these billion dollar blockbusters make. Why is this film making the chosen industry that we need to subsidise? Youd think Peter Jackson and James Cameron could raise their own finance for these movies. The taxpayer has aided in their fortunes perhaps they could give something back and stop bludging of us. Remember when Jackson was on TV crying over the fact that our actors wanted fairer conditions. Politicians were on board again and changed legislation to accommodate them. What will our next subsidy be 40%,50% or more. The bigger this business gets the harder its going to be when our politicians finally work it out the tax payers are getting screwed and scrap this subsidy.