Submission 92 FOX STUDIOS AUSTRALIA 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 Sydney - a City of Film. 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. Animal Logic 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, Star Wars: Force Awakens, and War Machine 2 | P a g e Submission 92 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% Hungary 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 3 | P a g e Submission 92 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 Budapest, 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-