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On The Demonisation Of Film And TV Subsidies

Yesterday’s big winner at the Oscars was Chinese-American director Chloe Zhao and her film Nomadland…. And Weta Digital happens to be listed here among the post-production facilities that have been working on Zhao’s next film, the mega-budget Marvel blockbuster Eternals, due to be released on November 5, 2021. ( More on that below.) That news is just another useful reminder of how New Zealand’s 20 year history of film subsidies has laid a strong foundation for the industry. As a consequence, our FX houses are now capable of freely competing for work on the global stage, within the most technologically advanced realm of the entertainment industry.

Not that you’d know it, given the recent negative coverage here of the subsidies likely to be paid to Amazon for its decision to shoot its mega - budget Lord of the Rings television series in this country. Repeatedly, the subsidy scheme for major film and TV projects has been portrayed as a handout by the NZ taxpayer, this time to one of the biggest companies in the world etc etc. Well, it isn’t a giveaway. It is a hard won bargain for reasons I’ve explained at length here before.

Much of it comes down to a matter of simple arithmetic. At most, the taxpayer pays back 25% of the production costs already spent in this country. As a rebate, it differs significantly from the classic tax incentives that underpinned the LOTR films. And it also means that we get 75% of the gigantic spend on the Lord of the Rings TV production upfront. That’s before we factor in the multiplier benefits that the production will offer us in terms of job creation, upskilling, technological innovation, and increased tourism. No wonder there is intense competition between countries, as they vie to attract such projects to their shores.

It might also be worth keeping in mind that New Zealand’s film subsidies are pitched at the low end of the global deals on offer. We offer only a 20% basic production cost rebate on projects up to $NZ500 million, with an extra 5% for productions of exceptional value to the NZ economy. Compare this to the section 481 tax breaks offered to film and TV productions by Ireland, a country of comparable size.

Since 2008, Ireland has steadily raised its offerings from 28% to 32% to the current 37% incentive, on productions that need to spend at least 250,000 euros within Ireland, or just under $NZ420,000. Ireland stipulates a maximum payout of 70 million euros (roughly $NZ120 million) per project, and as an added enticement, it is even willing to offer a 90% subsidy up front, as an interim payment. Yet clearly, Ireland still thinks it is getting a really good deal, because it has kept on raising the level of its incentives. In states like South Australia, Australia’s film incentives are also considerably larger than what New Zealand has on offer.

How come we continue to succeed, regardless? Put it down to our track record. New Zealand has created a reasonable but not fulsome rate of subsidies, has expert crews, offers stellar post-production and props facilities, and can point to a variety of striking locations within easy reach. So would major productions come here without the subsidies? No, they wouldn’t. Moreover, the OIA discoveries initiated by Stuff’s Thomas Coughlan suggest that New Zealand has driven a hard bargain with Amazon on the Lord of the Rings television series. For example :in order to secure the maximum tourism benefits, we have pressed Amazon to concede that New Zealand will provide the only locations used by the production to represent Middle Earth:

There would effectively be two deals: one for the series as a whole, and one for each season that was produced in New Zealand. A decision paper….shows officials were worried about losing New Zealand’s “exclusivity”. If other countries were used as locations for the series, could New Zealand lose its claim to be the real world Middle-Earth?

For those who have complained in the past that these major film production deals have unduly favoured Wellington, this one looks geographically diverse, and will be offering regional benefits to our struggling tourism sector:

Waikato, Queenstown, and West Auckland were considered for locations, the [MBIE ]paper said. About 51,000 hotels or apartments would be used during the production, 76,000 cars would be hired and about 90 per cent of the crew would come from New Zealand, and 20 per cent of the lead and supporting cast.

All of which sounds like a truly terrible “giveaway” huh? Yeah right. To the diehard critics of the film subsidy scheme though, we shouldn’t on principle be using the tax system to help our struggling tourism sector – even though that’s exactly what government has done since Covid first hit…This began with (but was not limited to) a $400 million plus package for tourism in last year’s Budget, which got rolled out in the shape of grant schemes not dissimilar to the film production grants – in that they will go to those recipients that can prove major and sustainable economic benefits. Amusingly, the government has been lambasted for not doing more of this sort of thing to help out our tourism operators. Such assistance, it seems, becomes sinful only when it comes in the shape of film production rebates rather than as straight tourism handouts.

Other fish to fry

The MBIE negotiators on the Amazon deal did not stop at the tourism spinoffs. Thankfully, and in the subsequent light of what Covid has done to tourism, MBIE had already sought access to Amazon’s expertise in other areas as well:

Officials wanted something different. They wanted a foot in the door with not just Amazon Studios, the TV and film arm, but other Amazon companies, particularly in the tech side of things.

Access to some of Amazon’s tech secrets? Sounds great! Such examples of reciprocity, I suggest, are of more consequence to this country than whether a couple of Amazon executives got taken out to dinner at fancy restaurants in Auckland, or whether MBIE Minister Stuart Nash did or didn’t read beforehand Treasury’s reliably antiquated ideas about how film subsidies are wrong in principle, no matter how well they work in the real world. What Treasury thinks of such schemes is entirely predictable. As we saw in 2018 (see the Werewolf link above) no amount of independent peer reviews of the value of film subsides will convince Treasury otherwise. Not surprisingly, no one seems to have even bothered to ask Treasury this time for its views on the merits of the Amazon deal.

Footnote One: The LOTR television deal with Amazon could well be worth “hundreds of millions of dollars of dollars to one of the world’s biggest companies” But that would be the outcome only if the series runs – as expected – for several seasons, and only if Amazon steadily pumps close to a billion dollars into the New Zealand economy. IMO, such an outcome would not be a Very Bad Thing. The rebates would be also sustainable, since they would be spread over several years. When the grants are paid out over the course of several years, as I pointed out in 2018, the large project film subsidy scheme ends up costing roughly what we spend annually on high performance sport:

If, as recently mooted….in the NZ Herald, the grant scheme involved has cost New Zealand $NZ575 million in subsidies paid out over the past eight years (my emphasis) (a) to Hollywood and (b) to “the Wellington-dominated film industry” then IMO this still looks like a real bargain. It is for instance, considerably less than the $NZ639 million we’ve just spent on the temporary refit of two of our ANZAC frigates. Also, we spent $NZ700 million over the same period purely on Sport New Zealand, as Deborah Hill Cone pointed out this week in the same newspaper, and have just allocated $NZ100 million to the [2021] America’s Cup defence. At a rate of $70 million a year over the past eight years, the film subsidies barely exceed the $62 million annually that we spend on subsidizing high performance sport. Will those sports subsidies deliver comparable economic benefits and skills transfers? Probably not.

Footnote Two: Unfortunately, the film subsidy scheme has evolved into the laziest target of “investigative” journalism. Cite the gross figure, portray it as a give-away to fat cats, ignore the reciprocal benefits to this country, claim (with no supporting evidence) that other sectors similarly favoured would magically deliver the same results, and then portray the poor taxpayer as the loser thanks to the government being taken to the cleaners. Hardly any of which is true. Yet it is an attractive fantasy. Boo to the fat cats, yay for the little guy. Plus Hollywood. Unbeatable.

Meanwhile, other countries look on enviously at our skills (a) in attracting these major projects, with lesser subsidies than they offer, and (b) in spreading the largesse around. Here’s Ireland lamenting their lot in this 2016 paper, back when they were offering 32% subsidies on production costs, a rate they’ve since upped by an extra five percent:

Ireland is currently not fully capitalising on the tourism opportunity presented by film and television. Many examples exist internationally in which film producers and tourism agencies form symbiotic relationships in which both industries benefit, the most notable example being New Zealand.

Footnote Three: Should we simply scrap the film subsidies and see what happens? Three years ago and now, that approach is still somehow being mooted by the likes of economist Eric Crampton:

The past fortnight has seen a fresh round of mutterings that the production grants that currently underpin the New Zealand film industry are a sin against market purity that we can do, and should do, without. Besides, the subsidies can be made to look not all that rewarding, provided you tweak the economic models hard enough.

And besides:

It isn’t hard to spot the aspirational goal involved. On market principle, shouldn’t New Zealand go cold turkey, axe the film subsidies on offer to Hollywood studios and see what happens next? Even if, on the available evidence, what would happen next would be a smoking crater where our film industry used to be? That wouldn’t make a lot of sense, given that we simultaneously say we’re trying to foster a modern, IP-driven, value-added digital economy. For the past decade, the film industry has been one of the few success stories along that path. No doubt, scrapping the film subsidies would create a level playing field for everyone. Problem being, that field would be barren.

Footnote Four: Blah blah blah. Hey, what we really want to know is what Chloe Zhao’s next film is all about. Well, just as Amazon’s LOTR TV series is set in an era that predates the characters and the events that we know from The War of the Ring, the storyline of Eternals predates much of what we know of the Marvel Cinematic Universe, aka the MCU.

Basically, the Eternals are god-like beings that since the mists of time, have been locked in battle with a race of monstrous Deviants who have evolved from their creators, the Celestials. At any one time, 100 immortal Eternals are embedded in human civilisation, which they protect (usually incognito) from the Deviants. Oddly, the gifts and the burdens of immortality play out in the tales that comprise both the early Silmarillion phases of LOTR, and in this ancient corner of the MCU.

How will these early events/conflicts relate to subsequent MCU myth cycles, and especially to the likes of Thor and Loki, who - reportedly – seem to have been almost the only major MCU characters left standing after Avengers: Endgame. In both Eternals and the LOTR TV series, the reliance on Norse mythology for the storylines and general ambience looks like becoming increasingly obvious. One advantage Zhao has is that Eternals belongs to a relatively neglected zone of the MCU, which will give her freer rein to improvise than would otherwise have been the case. Basically..if she pleases her art film audience, chances are she will inflame the MCU geeks. And vice versa.

Why? Sure, she has been hired to tweak the MCU with her own artistic sensibility (much as Taika Waititi was with his Thor movie) and reportedly, she is a Marvel geek from way back. Yet even so, Zhao will still have to satisfy the fanboy/genre expectations that permeate the MCU, for better and for worse. Famously a couple of years ago, Martin Scorsese expressed a very dim view of the MCU. In his opinion, the MCU films were more like amusement parks than like movies as he had always known them. According to Scorsese, the MCI multiplex blockbusters were also feeding a downward spiral in movie attendance for anything other than MCU films.

On the Eternals project, Zhao has relinquished several of the tasks – from the screenplay to the editing – that she strictly controlled on The Rider and on Nomadland, which was admittedly, an adapted screenplay. Zhao has now belatedly added herself to the script-writing team on this new movie. It will be interesting to see just how much of her singular vision survives the experience. Like Terrence Malick did, Zhao has made her name with two excellent and utterly distinctive early features. Malick then went into self-imposed exile for 20 years. Rather than repeat herself, Zhao has dived into the MCU instead. We can only wish her the best of luck.

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