Submission 92 FOX STUDIOS

Fox Studios Australia’s submission to the House Standing Committee on Communications and the Arts Inquiry into Factors Contributing to the Growth and Sustainability of the Australian Film and Television Industry

Overview

20th Century Fox appreciates the opportunity to respond to the House Standing Committee on Communications and the Arts Inquiry into the factors contributing to the growth and sustainability of the Australian film and television industry. Film and TV production is a global business, but 20th Century Fox is extremely proud to be a vital member of the Australian arts community. Moreover, it has proven to be excellent business to further align and integrate ourselves with all of the talent and creativity that is bursting out of Australia.

We are extremely proud of our presence in Australia and our contributions to truly make - a .

The Fox Studios Lot not only provides the critical infrastructure for major international productions, these productions are also attracted to the ecosystem on the Fox campus of cutting edge businesses across the creative, digital and knowledge sectors which employs over 2,500 people directly and has become a global centre of excellence. situated on the Fox campus is a great example of this.

The Studio has attracted over $2B historically in production from the US and UK and increasingly from China and India since 1999 and helped establish Australia and NSW as the Creative/Digital industries Hub. Economically Deloitte estimates the sector contributes $3B in GDP contribution and over 22,000 jobs.

For more comprehensive comments on this inquiry, 20th Century Fox would like to direct you to the submission by the Australian Film & TV Bodies. This paper will discuss, more in depth, the current production incentive scheme of Australia, and how implementing a globally competitive incentive scheme is essential to the continued growth of Australian creative industries.

A competitive production incentive scheme is simply smart policy and produces a wide range of benefits, not just for production companies, but for sowing the seeds of a vibrant creative class, and maybe most importantly, sustaining and creating high value jobs and substantial tax revenues for the Australian Tax office.

Fox Studios Australia Pty Ltd ABN 43 081 056 653 FSA#7, 38 Driver Avenue, Moore Park NSW 2021 Australia Phone, +61 2 9383 4200 Fax. +61 9383 4007 foxstudiosaustralia.com Submission 92

The Federal Government currently offers the following incentives:

1. Post, Digital and Visual Effects (PDV) Offset is a 30% refundable tax offset (rebate) for Qualifying PDV Expenditure incurred in relation to post-production, digital and visual effects work completed in Australia; 2. Location Offset is a 16.5% refundable tax offset (rebate) for filming in Australia calculated on Qualifying Australian Production Expenditure (QAPE); and 3. Producer Offset provides a refundable tax offset (rebate) at 40% for producers of Australian feature films, television and other projects on Qualifying Australian Production Expenditure (QAPE).

One of the main concerns of the current policy is its ad-hoc nature. It remains fairly unclear how and when productions will become eligible. A high quality film or TV production requires a vast amount of planning and preparation. Making the 30% Location Offset a consistent and defined policy will allow, and strongly encourage, Fox to make Australia its preferred production location. Without a consistent policy, Australia will have a more difficult time competing. Fox would also like to reiterate the three recommendations of the submission by the Australian Film & TV Bodies:

Recommendations to make Australian production incentive scheme more competitive

1. Increase the Location Offset to 30%;

2. Remove the restriction that prohibits the use of both the Location Offset and the PDV Offset by the same film enabling projects to be filmed and also have the post-production done in Australia; and

3. Clarify that productions commissioned by streaming services are also eligible for Location Offset and PDV Offset incentives.

Overview of Global Production Schemes

It stands to reason that if production incentive schemes were poor policy, fewer countries and jurisdictions would implement them. However, as we continue to see, the opposite is true. More countries are establishing production incentives as a way to bolster local creative industries, promote their tourism sector, and also as a genuine catalyst for economic growth.

Countries/Jurisdictions that have recently introduced production incentives Country/Jurisdiction Year Incentive Announced Tax credit/offset rate UAE / Abu Dhabi1 2012 30% Spain 2015 15%-35% Morocco 2016 20% Georgia 2016 25% Romania 2016 25% Serbia 2016 20%

1 Attracted large productions such as Fast and Furious 7, : Force Awakens, and War Machine

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Thailand 2016 15%-20% Qingdao (China) 2016 40% Ukraine 2016 25% Finland 2016 25% Poland 2017 25%

Countries and jurisdictions that have had productive incentives continue to see the value and economic benefits of these rebates, and have increased the rate.

Countries/Jurisdictions that have increased their tax credit/location offset rates2 Tax credit/offset rate Country/Jurisdiction Delta (Δ%) 2006 2016 Australia 12.5% 16.5% Increase 4% New Zealand 12.5% 20%-25% Increase 7.5%-12.5% United Kingdom 16% 25% Increase 9% Ireland 20% 32% Increase 12% 20% 30% Increase 10% France3 20% 30% Increase 10% Italy4 25% 25% Increase availability5 Ontario (CA) 18% 21.5% (37% labour) Increase 3.5% Plus labour British Columbia (CA) 18% 43% (labour) Increase labour 25% Quebec (CA) 20% 20% (37% labour) Increase labour % Louisiana (USA) 10%-20% 30% Increase 10%-20% Georgia (USA) 9%-12% 30% Increase 18%-21%

Without a doubt, streaming services and digital distribution have altered the entertainment landscape. As well-heeled technology companies and services better understand the value of high quality content, they are investing serious money in production. As an example, it has been widely reported that streaming giant Netflix plans to spend US$ 6 billion on content in 20176, and their production for Marco Polo chose to shoot in Malaysia as opposed to Australia, mainly due to their 30% rebate. For Australia to continue to compete, it is important to clarify that production incentives are available to these services.

Some high profile series appearing on streaming services Title Service Location Production Costs Marco Polo Netflix Malaysia $9 million / episode The Get Down Netflix New York $120 million / 10 episodes Grand Tour Amazon Prime Various $4.5 million/episode House of Cards Netflix Maryland $100 million / first 26 episodes

2 This chart is simplified to illustrate that countries continue to increase their schemes, and is not intended to comprehensively demonstrate the different characteristics of each program. 3 France introduced its program in 2009 4 Italy introduced its program in 2008 5 Italy’s scheme has been expanded to include foreign productions, a greater QAPE, and TV productions. 6 http://www.afr.com/news/steve-ciobo-in-talks-with-netflix-hollywood-to-film-more-tv-in-australia-20170130-gu1a5z

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To further illustrate how incentive schemes and tax rebates directly impact productions, the recent Fox film, The Martian,was slated to film in Australia. Unfortunately, the film was not able to utliize the rebates, and instead, the movie was shot in , Hungary.

It has been widely reported that the film’s star, Matt Damon, commented on this fact "we were going to shoot The Martian here (Australia) but we couldn't get the rebate. We were too late to get the deal so we shot in Budapest” and was even looking at houses at Bondi Beach7. This was no minor film, with a production budget well exceeding US $100 million8. This hopefully serves a pretty stark example of an opportunity lost for Australia, its creative industries, and its economy.

Other countries see the value of film production incentives, tax rebates and location offsets, and this has led to increased global competition for global film and TV productions. For Australia’s local production industries to continue to thrive it needs to improve its production incentives.

Benefits of Incentives

There have been numerous studies to assess the economic impact of production incentives and rebates, and the studies consistently show that production incentives equal smart policy.

Previous research conducted by the Australian Bureau of Statistics showed that the creative industries have a higher net benefit than many traditional industries. Every job created in the film and television industry supports 3.57 jobs in other industries and every $1 of turnover creates turnover of $3.52 in other industries.

Economic impact studies on tax rebates from other markets Country/Jurisdiction Additional GDP Jobs Additional tax revenues United Kingdom (film)9 For £1 of tax relief , £12.49 of Supported 39,800 For £1 of tax relief, £3.74 in tax value add full time jobs revenue United Kingdom (TV)10 For £1 of tax relief , £8.31 of value Supported 8,300 For £1 of tax relief, £2.48 in tax add full time jobs revenue New York11 $6.9B increase in economic 28,900 jobs For $1 of tax relief, $US2.23 in tax spending revenue California12 $3.8B in economic output 20,000 jobs For $1 of tax relief, $US1.13 in tax revenue South Africa13 n/a 17,000 jobs For R1 of tax relief, R2.00 in tax revenue

7 http://www.smh.com.au/entertainment/movies/jason-bournes-matt-damon-reveals-the-martian-was-almost-shot-in-australia-20160703- gpxpau.html 8 http://www.boxofficemojo.com/movies/?id=scott2016.htm 9 Olsberg SPI, Economic Contribution of the UK’s Film, High-End TV, Video Game, and Animation Programming Sectors, (February 2015),

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Maybe the most important data point is from a PriceWaterhouseCoopers study titled “Australia's Location and POV Offset Incentives Economic Impact Study”. This study was prepared for Ausfilm and its findings showed just how important a competitive incentive scheme is.

The study was designed to analyse the strengths and weakness of Australian economic development policy relating to the film and television production industry. Also, most importantly it was to develop alternative scenarios to the then existing Location Offset policy and identify 'other non-financial benefits of attracting overseas film production' to Australia.

The main findings showed that the Location Offset is crucial to production planning and investment

 The current offset rate of 15% is too low to compete in the current market according to 100 percent of interviewees (Note: this survey was conducted before the increase to 16.5%)

 All of the alternative incentive scenarios modeled result in a positive net impact on national income

 Increasing the Location Offset rate is THE factor which has the largest individual impact on the economic outcome

Other Benefits of Incentives

TV and film production has proven to be a great promotional tool for Australia and a boon for the tourism industries.

There is no doubt that the increased production has unleashed and capitalised on the creativity of Australians. Unlocking this creativity is essential not only for growing the entertainment industry, but also for Australians to thrive in the digital economy. In many ways content creation is at the top of the value chain of the digital economy. Empowering young Australians to be creative is an essential but challenging task. One of the best policy solutions to do this is by attracting world-class productions through world-leading incentives.

Without sounding trite, there is a great quote by Maya Angelou that may do a better job describing how creative productions can establish a powerful positive feedback loop. Ms. Angelou put it thusly; "you can't use up creativity. The more you use, the more you have."

Recent examples Fox TV and film properties filmed in international locations

Fox feature films and production location:

• A Good Day to Die Hard – Hungary. Released in February 2013 • The Book Thief – Germany. Released in November 2013 • Secret Life of Walter Mitty – Iceland. Released in December 2013 • X-Men Days of Future Past – Montreal, Canada. Released in May 2014 • Dawn Planet of the Apes – British Columbia, Canada. Released in July 2014 • Night at the Museum 3 – British Columbia, Canada and the UK. Released in December 2014 • Exodus – Spain and the UK. Released in December 2014

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• Spy – Hungary. Released in June 2015 • Agent 47 – Germany / Singapore / Canada. Released in August 2015 • Deadpool – British Columbia, Canada. Released in February 2016 • X-Men Apocalypse – Montreal, Canada. Released in May 2016 • Miss Peregrine's Home for Peculiar Children – U.K., Belgium. Released September 2016 • Logan - Georgia. Released in March 2017 • War for the Planet of the Apes – British Columbia, Canada. Set for release in July 2017 • Red Sparrow – Hungary. Set for release in November 2017 • Predator – British Columbia, Canada. Set for release in 2017/18

The aggregate production spend on theses 16 Fox films is over US $ 1.7 billion for an average of spend of roughly US $ 100 million per film.

Fox major television shows and production location:

• Homeland Season 4 – South Africa. 12 episodes aired in 2014 • Tyrant Season 1 – Morocco / Turkey. 10 episodes aired in 2014 • Legends Season 1 – Czech Republic / U.K. 10 episodes aired in 2014 • 24 Live Another Day – U.K. 24 episodes aired in 2014 • Bastard Executioner – U.K. / Wales. 10 episodes aired September 2015 • Legends Season 2 – Czech Republic / U.K. 10 episodes aired in 2015 • Homeland Season 5 – Germany. 12 episodes aired in 2015 • Minority Report – British Columbia, Canada. 10 episodes aired in 2015 • Tyrant Season 2– Hungary. 12 episodes aired in 2015 • Tyrant Season 3 – Hungary. 10 episodes for airing in 2016 • Clan of the Cave Bear – South Africa. 10 episodes for airing in 2016 • X-Files– British Columbia, Canada. 6 episodes for airing starting January 2016 • Homeland Season 6 – New York and Morocco. 12 episodes aired in 2017 • Legion Season 1 – British Columbia, Canada. 8 episodes aired in 2017

The total number of episodes filmed in the locations for these Fox shows is 156 at an average production cost of approximately US $3 million per show. The total spend in other words for these television productions shot in these overseas locations was roughly US $450 million.

This list of Fox films and high television shows above is not exhaustive but indicative, and meant to give a feel for the extent to which our productions flow to jurisdictions with incentive programs of 25% -32% qualified expenditures.

This list of Fox films and high television shows above is not exhaustive but indicative, and meant to give a feel for the extent to which our productions flow to jurisdictions with incentive programs of 25% -32% qualified expenditures.

Conclusion

The sector locally is facing issues. It has become increasingly competitive and is highly prized by many other international jurisdictions (as outlined earlier) given the huge economic and cultural benefits it delivers. The risk is our infrastructure is being undermined with the potential loss of talent and jobs, of companies and losing our global leadership position to other territories and the huge export driver that

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it has been for Australia. If we lose it, it will be difficult to rebuild and get back. It will move on and anchor in the jurisdictions listed given the certainty they provide with regards to government policy and the competitiveness of their policies.

Jobs that are highly skilled, highly valuable and highly mobile and fueling the services economy reflect the nature of what the future employment landscape is evolving into given the technology and the jobs of the future. It’s also a critical constituency for Government; entrepreneurs, small businesses, high skill high value individuals.

Whilst International productions can be considered as project work and perceived as transient, it’s the pipeline of production that delivers the continuum of employment and industry activity that gives the sector vibrancy and fuels and nourishes our world leading ecosystem of industry we have in Australia.

The consequences we are seeing of Australia’s uncompetitive policies is that industry is overlooking and bypassing Australia and our perception internationally is becoming negative. It’s becoming a competitive problem. The productions will still go ahead and the talent and the companies will follow the work offshore.

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Appendix A: Full list of Fox films and TV series from 2015-2018 with production incentives

Slate Year Title Locations w/ Credit >16% Film/TV FY15 Alvin 4 Georgia Film FY15 Deadpool BC, Quebec Film FY15 Independence Day: Resurgence New Mexico, BC, Ontario, Quebec Film FY15 Joy Massachusetts, New York Film FY15 Keeping Up With The Joneses Georgia Film FY15 Mike & Dave Need Wedding Dates Hawaii Film FY15 Miss Peregrine's Home for Peculiar Children UK, BC Film FY15 Paper Towns New York State Film FY15 The Martian Hungary, UK, Quebec Film FY15 The Scorch Trials New Mexico Film FY15 American Horror Story 4 Louisiana TV FY15 Americans, The (Season 3) New York TV FY15 Empire (Season 1) Illinois TV FY15 Homeland (Season 4) South Africa TV FY15 Sleepy Hollow (Season 2) North Carolina TV FY15 Tyrant (Season 2) Hungary TV FY16 Alien: Covenant Australia, New Zealand Film FY16 Battle of the Sexes California Film FY16 Gifted Georgia Film FY16 Hidden Figures Georgia Film FY16 Logan Louisiana, New Mexico Film FY16 Maze Runner: The Death Cure South Africa, BC Film FY16 My Cousin Rachel UK, Italy Film FY16 Snatched Hawaii Film FY16 War for the Planet of the Apes Canada Film FY16 Why Him? California Film FY16 American Crime Story (Season 1) California TV FY16 American Horror Story 5 California TV FY16 Empire (Season 2) Illinois TV FY16 Legends (Season 2) Czech Republic, UK TV FY16 Outcast (Season 1) New York State TV FY16 Rosewood (Season 1) California TV FY16 Salem (Season 3) Louisiana TV FY16 Scream Queens (Season 1) Louisiana TV FY16 Sleepy Hollow (Season 3) Georgia TV FY16 The Americans (Season 4) New York State TV FY16 Tyrant (Season 3) Hungary TV FY17 Battle Angel Texas Film FY17 Can You Ever Forgive Me New York Film FY17 Deadpool 2 BC Film FY17 Diary of a Wimpy Kid 4 Georgia Film FY17 Goodbye Christopher Robin UK Film FY17 Murder on the Orient Express UK Film FY17 Predator BC Film FY17 Red Sparrow Hungary Film FY17 Simon v. The Homo Sapiens Agenda Georgia Film

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Slate Year Title Locations w/ Credit >16% Film/TV FY17 The Darkest Minds Georgia, BC, Qubec Film FY17 The Empty Man Illinois Film FY17 The Greatest Showman on Earth New York, Quebec Film FY17 The Mountain Between Us BC, Quebec Film FY17 Underwater Louisiana Film FY17 X‐Men 7 Quebec Film FY17 American Horror Story 6 California TV FY17 APB (Season 1) Illinois TV FY17 Chance (Season 1) California TV FY17 Empire (Season 3) Illinois TV FY17 Exorcist (Season 1) Illinois TV FY17 Homeland (Season 6) New York State TV FY17 Pitch California TV FY17 Rosewood (Season 2) California TV FY17 Scream Queens (Season 2) California TV FY17 Seven Seconds New York State TV FY17 Sleepy Hollow (Season 4) Georgia TV FY17 Star (Season 1) Georgia TV FY17 The Americans (Season 5) New York State TV FY17 This is Us California TV FY18 Avatar Sequels New Zealand Film FY18 Bohemian Rhapsody UK Film

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Appendix B:

Creative sector fills UK coffers as money pours into film and TV production14 Combined TV, film and music industry grew almost 11% in second half of 2016, underpinned by digitally savvy UK consumers By: Mark Sweeney March 4, 2017

At a time when the British economy is looking for leadership, step forward Darth Vader, Adele and Queen Victoria. One of the reasons GDP growth has stayed robust since the EU referendum is the UK’s creative sector, which has produced buoyant box office receipts thanks to Star Wars, healthy sales of Adele’s latest album and global demand for homegrown TV productions such as Victoria.

The combined UK film, TV and music industry boomed in the second half of last year, growing almost 11% compared with the previous six months, according to government figures. In December alone, the film sector accounted for half of all growth in the key services sector – which accounts for 80% of the British economy – because of box-office takings from UK-made Rogue One: A Star Wars Story and JK Rowling’s Fantastic Beasts and Where to Find Them.

The TV production industry is enjoying a golden age of investment, with deep-pocketed new arrivals such as Netflix pouring money into big-budget shows including £100m royal series The Crown.

This success is underpinned by a digital-savvy UK whose embrace of new TV and film services saw streaming and downloads of films and TV shows pass sales of DVDs and Blu-ray discs for the first time last year.

“The UK’s creative economy stands tall on the world stage,” James Murdoch, chief executive of , said last week.

Here is a breakdown of the performance of the UK’s creative economy.

Film

Last year’s three biggest grossing films in the UK– Rogue One, Fantastic Beasts and Bridget Jones’s Baby – helped drive a near-record box office take with ticket sales of almost £1.3bn. All three were shot in the UK, reflecting the ongoing boom in the film production industry.

The industry has flourished over the past decade, following the introduction of a 25% tax break for foreign film-makers, mostly exploited by Hollywood studios that have shot blockbusters in the UK. This has ensured that new films funded by US money such as Star Wars: The Last Jedi, Ridley Scott’s Alien Covenant and Christopher Nolan’s Dunkirk were made in the UK.

Last year, a record £1.6bn was spent on film production in the UK, a 13% year-on-year rise, according to the British Film Institute. Of that, £1.35bn was “inward investment” from mostly US studios, an 18%

14 https://www.theguardian.com/business/2017/mar/04/creative-industry-fills-uk-coffers-tv-film-music

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increase on 2015, looking to take advantage of tax breaks and the country’s abundance of off-screen and on-screen talent – from special effects specialists to actors.

“As far as the UK economy and Treasury are concerned, it is a great success story,” said Ivan Dunleavy, chief executive of the parent company of Pinewood and Shepperton studios, which hosted Rogue One.

He said: “Our role as major piece of [film and TV production] infrastucture is to keep responding to the growing demand. We brought on stream a whole load of extra capacity on 1 July last year ... we are already having to think about further expansion plans at Pinewood and Shepperton.”

TV The arrival of Netflix and Amazon, whose shows have included Outlander and The Collection in the UK, and a film industry-style tax break for glossy shows costing at least £1m an episode has given a huge boost to the television production industry.

The BFI says the figure for inward production investment has nearly doubled from £252m in 2013 to a record of almost £500m last year.

There were 36 productions of high-end TV shows last year, an 11% rise in total spend to £477.8m. The budgets from mostly US companies accounted for 65% of all investment in high-end TV production in the UK, as Netflix and Amazon joined the likes of long-established players like HBO, which has made Game of Thrones in Northern Ireland since 2010.

“These platforms are buying for a global audience and commissioning ambitious, high-quality shows,” said Jane Turton, chief executive of All3Media, maker of programmes including Midsomer Murders, Shameless and Skins. “UK talent – be it writers, producers, cast, directors – are incredibly well-placed to respond.”

The industry is also undergoing an export boom, benefiting from sales to international broadcasters of UK-made shows Downton Abbey, Victoria, Poldark and The Night Manager to Top Gear, Sherlock and Come Dine With Me. Further income is generated by selling the rights for local versions of hit formats such as X Factor and The Voice.

Sales of UK made shows internationally rose 10% to a record £1.3bn last year, with sales to China rising 40% and the biggest market for British fare – the US – climbing 16% according to Pact, the trade body for independent TV producers.

Music After years of declining CD sales and the threat of piracy, the music industry is back in fine health.

“In terms of recorded music it is very simple, growth is all being driven by streaming,” said industry analyst Mark Mulligan. “Next year, streaming will overtake [the value] of CD [sales] for the first time. We have finally got to the stage where streaming is growing strongly enough to offset the decline in legacy formats.”

Last year, 45bn audio streams were served in the UK by players such as Spotify, Apple, Deezer and Tidal, an increase of 68% year-on-year, according to music industry body the BPI.

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In terms of value, streaming jumped 65% to £418m, just behind physical sales of £475m, as digital services kept the total music market in growth up 4.6% to £1.1bn, according to the Entertainment Retailers Association.

The popularity of physical formats continues to decline: CD sales fell 13%, despite the surprising the resurgent record market, which hit a 25-year high last year led by David Bowie’s final album Blackstar.

The UK live music scene is also in fine fettle showing 37% growth from £662m to £904m between 2012 and 2015, according to UK Music.

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