New Zealand and Film Subsidies

 

 

Tim Allan

 

Country: New Zealand

 

Policy: Film Subsidies

 

Client: The New Zealand Film Commission

Introduction

Hollywood has become a symbol for the United States since the early 1900s. However in the past several years’ industry jobs have been steadily flowing overseas. Competition between American artists versus their international equivalent have led to workers either losing their jobs entirely or being forced to relocate abroad. Though there are many countries caught up in the current film industry competition I chose to study New Zealand. Why? Because despite attempts by the United Kingdom, Canada, and India, New Zealand continues to dominate the visual effects industry.

The visual effects industry is responsible for creating some of the most memorable moments in recent films. It was digital artists who created the amazingly lifelike tiger in the Oscar winning Life of Pi, or completely convincing alien world’s in the also Oscar winning Avatar. The ability to render photorealistic imagery is on a scale never seen before. New Zealand’s largest twin film production companies are called WETA Workshop and WETA Digital. WETA stands for Wingnut Entertainment Technical Allusions. WETA Workshop employs many different skill sets including prop makers; make up artists, costume designers, concept artists, lighting technicians, etc. WETA Digital is made up of sound designers, sound mixers, color graders and visual effects artists. The companies became famous in 2001 when the Lord of the Rings: The Fellowship of the Ring was released to worldwide audiences. This was the first film in a whole trilogy that ultimately grossed over 2 billion dollars internationally and won 16 Oscars (BoxOfficeMojo). A major part of the attraction to the series was the breathtaking visual effects featured in each film. Giant monsters attacked our heroes. Magnificent armies did battle. And ultimately good triumphed over evil. Since 2003 when the last Lord of the Rings movie was released, New Zealand has become a major tourist destination for movie fans hoping to wander among the hills and forests that they saw in the films. It also put WETA Workshop and WETA Digital on the map.

Recently New Zealand has been the production home for blockbusters such as the new Hobbit trilogy, as well as Avatar, a film that aside from having groundbreaking visual effects, ended up grossing over $2.7 billion dollars internationally (BoxOfficeMojo). So why did Fox Studios, the company producing the film, decide to ship the entire cast and crew all the way to New Zealand? The answer is simple. Money. “Avatar, the most expensive movie ever made, was propped up by a $45 million [dollar] subsidy from Kiwi Tax payers” (Nippert). There is a financial policy that New Zealand has been employing to assure that production companies will continue to call upon them. This policy is the act of paying massive subsidies to film companies that will attract clients such as Fox Studios or Paramount Pictures. In 2010 alone, New Zealand taxpayers “paid out almost $200 million in cash grants to makers of big-budget films” (Churchouse).

The role of subsidies, while growing to be fairly common in the film industry is not without their fair share of critics. Daniel Lay of VFX Soldier blog describes subsidies as “incredibly damaging to the [film] industry” in California (Lay). “The expectation is that you have to keep moving around and chasing your job” (Lay). Another major problem is that as soon as the money stops, so does the business relationship. New Zealand is not building branches to other companies through loyalty but is rather being held hostage for money. The Economic Development Minister of New Zealand, Gerry Brownlee admitted as such when he said it was “unlikely the productions would have decided to film in New Zealand if the grants had not been available” (Churchouse). He is almost certainly correct. The only reason New Zealand appears to be winning the game is because they are willing to pay the largest amount when it comes to subsidies. In other words, “WETA Digital is only as good as their latest competitive subsidy” (Lay).

Some have called film grants in New Zealand “excessive” and one wonders how long into the future they will be able to continue to afford it (Churchouse). Of course that really depends on how well the films do in the international marketplace and how the world economies are doing as a whole. As Lay notes, if the global economy suffers another recession and countries are forced to cut subsidies between “health care, education, and film production”, which one do you think they will choose (Lay)? While we can all agree that paying these massive subsidies may boost a country’s economy by securing more jobs, it may not be worth the cost of cutting some other vitally needed program.

Blogger Rob Anderson writes “The yardstick by which the Lord of the Rings brought tourists to New Zealand can simply not be extrapolated out to every other film project” (Anderson). “What would the long term benefit be if instead of taking $125 million from tax payers to subsidy blockbusters, the New Zealand government invested $125 million in education scholarships for advanced science and medicine to people who guarantee to stay and work in New Zealand for a minimum of 5-10 years?” (Anderson). It is a valid question and one that the film industry would probably rather not answer. Especially considering that the New Zealand recently announced that it will actually increase “subsidies of big-budget films from 15 to 20 percent of production expenditures, with an additional five percent for movies that can demonstrate significant economic benefits to the country” (New Zealand Film Commission). This means that the subsidy for new Avatar sequels will “account for up to 25 percent of the films’ $415 million budget” (Kubo). This is an extraordinary amount of money, and spurred on, Winston Peters, the leader of the political party “New Zealand First” to proclaim that “There is no doubt now that the deal with the movie industry is more about lining pockets than creating jobs” (Kubo).

Expert Opinion Review

            My sources came mostly from online newspaper or magazine articles covering entertainment industry financial news in the United States and New Zealand. I also gleaned information from sources such as The New Zealand Herald, which delved into where exactly Kiwi taxpayer money is heading. However one of my biggest sources of information also came from a blog called VFX Soldier: Commentary on the Visual Effect’s Industry’s Race to the Bottom. I will now dive into each source individually and describe the benefits they provided.

David S. Cohen from Variety was particularly enlightening as it was his article that drew my attention to the issues with film subsidies in the first place. His reporting on United States visual effects artists as they “took to the streets of Hollywood” to protest caught my eye as an interesting topic for this paper (Cohen). He also made mention that “the U.K., Canada, New Zealand and other countries have contributed massive subsidies to lure vfx work to its companies” and also explained how “U.S. vfx studios have collapsed as a result” (Cohen). This inspired me to learn more, particularly how a country as far removed from the United States as New Zealand could hope to compete with artists in Hollywood. The more I learned the more I realized that New Zealand was not only a member of the competition, but they were actually winning.

Nick Churchouse, a writer for the business section stuff.co.nz, describes how “[New Zealand] taxpayers have paid out almost $200 million in cash grants to makers of big-budget films” (Churchouse). Filming in New Zealand is made more attractive through the government’s “Large Budget Screen Production Grant” that offers a “15 percent rebate on production spending in New Zealand” (Churchouse.) This demonstrated to me just how instrumental New Zealand’s government is in making sure that big budget films will continue to stay there. It also showed me the first indication of heavy criticism that spending like this inspires. Luke Malpass, an analyst for the Centre for Independent studies is quoted in the article calling tax credits “unfair to other industries that did not get government help” (Churchouse). You can see how divided this issue is with some claiming that the government is overstepping their bounds and others voicing that the government is not doing enough for other industries.

A news piece in the New Zealand Herald by Matt Nippert goes into further detail on taxes, explaining how Avatar was “propped up by a $45 million subsidy” that came directly from taxpayers (Nippert). In exchange for this financial token of appreciation the New Zealand Government received a “special thanks” in the credits as well as the fact that Avatar employed almost “900 people for four years to work specifically on the project” (Nippert). While spending $45 million to secure film production jobs may seem outlandish, it may have been the only reason a far away location like New Zealand could ever secure a production like Avatar. Despite Weta’s prominence in the visual effects industry, the producer of Avatar was quoted as saying that the film production chose the location entirely “for the tax credit” (Nippert). This impressed upon me just how important film subsidies are in obtaining work. But it also begs the question, what happens when New Zealand can no longer afford to pay? Daniel Lay of the blog VFX Soldier, who is quoted in the Variety article mentioned above, thinks he has the answer.

Lay quotes Sue Thompson, the New Zealand chief film executive as saying, “We have been doing extremely well, but when you look at Australia, it shows how vulnerable we are and how nimble we must be to grow our market share” (Lay). New Zealand remains vulnerable because every country involved in the subsidy battle remains vulnerable. Let us not forget that the film executives who decide upon which country to choose all come from the United States, a country with a history of free market tradition that follows the Liberal Market Model. The executives are placing no faith in brand loyalty or history. They are always going to choose the competing country that pays them the highest subsidy. Therefore in order for New Zealand’s film industry to achieve any sort of growth it means that they are going to have to spend even greater amounts of money. Interestingly the governments of the U.K., Canada, and New Zealand appear to be following the Public Service Model, which is more indigenous to Europe. In other words they are relying upon the government to step in to protect their film industry. Without allowing a role for the government to provide a budget for these massive subsidies, none of these countries could hope to compete with the ease and speed of Hollywood working directly within the United States.

Lay describes this subsidy battle as a “race to the bottom” (Lay). He notes that “26 countries and 44 US states” are all “competing with each other to lure film industry work” (Lay). Therefore despite the best intentions of the New Zealand government as well as all of the other competing countries, it seems unlikely that one country will remain on top for very long. It all comes down to a question of affordability and whether one country will be able to spend the most money year after year. One imminent rival to New Zealand may come in the form of Canada where “American vfx facilities such as Imageworks, ILM, Digital Domain, and Pixar are opening or considering opening starting houses in Vancouver” (Lay).

Blogger Ron Anderson provided me with a very interesting quote about the potential money that is lost on health, education, and science funding when so much is spent on film subsidies. I think is question is excellent but that an answer would be very difficult to measure. Through Angela Kubo’s article, I found more formal opposition through political leader Winston Peters. Her report also explained how New Zealand is not going to be shying away from film subsidies in the future but will actually be increasing them to even higher levels.

My final and only primary sources comes directly from the New Zealand Film Commission website and Box Office Mojo. I quoted directly from the page “New Zealand Screen Production Grant”, mentioning that cash grants of up to 25% could be provided to large scale productions that bring economic benefits to the country. I believe it is important to include this source, as it is direct proof of New Zealand’s commitment to providing subsidies in the hope of luring blockbuster international film projects. Finally the website Box Office Mojo provided me with the financial information regarding the Lord of the Rings trilogy, showcasing just how important it was in establishing WETA Workshop and WETA Digital as prominent film production companies.

Policy Analysis and Conclusions

            In the end I believe the best possible scenario would be the abolishment of subsidies themselves, or perhaps a tariff placed upon imported digital files. This may be a possibility in a few years according to David Cohen’s article. He is quoted as saying that “Foreign subsidies on visual-effects work may be enough to trigger World Trade Organization “anti-subsidy duty” rules that would impose a tariff on those vfx when they’re imported into the U.S. “ (Cohen). Now remember that my country is New Zealand. You may wonder how I expect such a far away country to compete if subsidies are taken off the table. The answer is that New Zealand will be able to take the money that it invests in subsidies and use it to build their own burgeoning film industry. With subsidies gone, or a high tariff placed upon imported goods, New Zealand will no longer be held hostage to Hollywood and instead have the chance to pour money directly into their own films.

With such a prominent production company in WETA, New Zealand should not feel the need to continue to lure American companies to their shores. Instead they should simply skip that process and create their own films that can eventually be internationally distributed. Certainly this is a much more long-term solution than continuing to pour tens of millions of dollars into a “race to the bottom” for work. Plus by building up their own industry they may be able to lure vfx artists and companies in the U.K.,, Canada, and Australia to set up shop in New Zealand permanently. Hollywood will continue to milk the process of subsidies until there is a rival location willing to stand up to them. The Kiwi’s can make use of their initiative and competitiveness that led New Zealand to become the temporary winner in the international film subsidy battle in the first place. With these tools, they can transform their own film industry into one that does not require help from the United States.

Aside from placing a greater emphasis upon internal growth, New Zealand could also consider placing a tariff upon imported digital files themselves. That way when companies around the world, including the United States, want to jump upon the latest New Zealand project, they will be able to bring in even more money that they can use to grow their industry. It will take patience and it will take time. Clearly the New Zealand film industry is not going to rival Hollywood overnight. But with a continued use of the Public Service Model, I believe the New Zealand government can use the policies I have suggested to start changing the flow of money into their own direction. There is a role for government to help the film business but it should not involve paying more subsidies.

 References

Anderson, Rob. “Multi-movie Avatar deal lands in NZ, production could see 25% in rebates.” . The National Business Review, 16 Dec. 2013. Web. 24 June 2014. <http://www.nbr.co.nz/article/multi-movie-avatar-deal-lands-nz-production-could-see-25-rebates-150107&gt;.

 

Churchouse, Nick. “Taxpayers’ bill $200m for blockbusters.” . stuff.co.nz, 24 Apr. 2010. Web. 17 June 2014. <http://www.stuff.co.nz/business/industries/3618620/Taxpayers-bill-200m-for-blockbusters&gt;.

 

Cohen, David. “VFX Industry Rescue Could Come From WTO Rules.” . Variety, 25 July 2013. Web. 17 June 2014. <http://variety.com/2013/biz/news/wto-cvd-duties-visual-effects-1200568359/&gt;.

 

Kubo, Angela. “New Zealand Attracts Hollywood Films with Increased Subsidies.” . The Diplomat, 17 Dec. 2013. Web. 24 June 2014. <http://thediplomat.com/2013/12/new-zealand-attracts-hollywood-films-with-increased-subsidies/&gt;.

 

Lay, Daniel. “New Zealand Film Subsidy Race Fires Up.” . WordPress, 22 Oct. 2013. Web. 18 June 2014. <http://vfxsoldier.wordpress.com/2013/10/23/new-zealand-film-subsidy-race-fires-up/&gt;.

 

“New Zealand Film Production Grant.” . The New Zealand Film Commission, 1 Apr. 2014. Web. 21 June 2014. <http://www.nzfilm.co.nz/funding/feature-films/production-funding/new-zealand-screen-production-grant&gt;.

 

Nippert, Matt. “Kiwi tax break encourages Avatar to settle Downunder.” . The New Zealand Herald, 24 Jan. 2010. Web. 17 June 2014. <http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10621942&gt;.

 

“The Lord of the Rings Box Office Gross.” . Box Office Mojo, 1 Jan. 2004. Web. 21 June 2014. <http://www.boxofficemojo.com/movies/?id=fellowshipofthering.htm&gt;.

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