Patrick Fischer is the managing director of Creativity Capital. He is based in the United Kingdom and is a fan of Australian filmmakers.
About three years ago Fischer’s company lent more than $US1 million to a Queensland production company, headed by Steve Jaggi, which was the first local company to resume production after the pandemic lockdowns.
Over this period The Steve Jaggi Company was responsible for more than $30 million in production expenditure, on titles for Netflix, Disney and Network Ten.
Fischer lent The Steve Jaggi Company the money in the expectation that the project would receive the producer offset – a legislated tax incentive for screen production that rebates producers between 30 and 40 per cent of their production costs.
Based on the scheme’s 15 years of operation, both producer and financier had an expectation that the loan would be repaid within two or three months of the application being lodged.
“We were waiting to be paid out and then we start hearing from Steve that Screen Australia are short-staffed, and we said ‘Well, these things happen in the film industry’,” Fischer says.
“But then it became chronic. All of a sudden, we heard it could be six months, or another year, and when this is sprung on you as a financier this is going to wreak havoc on your deals.”
As a result of the time taken by Screen Australia to process Jaggi’s offset application, the loan from Fischer’s company was so late in being repaid that under the contract it triggered penalty conditions where default interest kicked in.
“We were trying to be nice because we could see it was beyond Steve’s control,” Fischer says, “but he was faced with the prospect of paying more money to keep the money out there for longer, and this was money that he didn’t need to pay.”
Ultimately, Jaggi refinanced his loan and paid Creativity Capital out, but it left Fischer worried about the viability of lending to Australian productions in the future.
“The communication from Screen Australia was very bad, and it was thrust upon Steve and he had to pick up the mess, and that is the opposite of how it should be if you are trying to foster a strong indigenous film industry.”
Fischer is now financing films in countries such as Malta, where he says the tax breaks are administered with more transparency and certainty.
For Jaggi, the administration of the offset is “perpetuating an environment where domestic producers are consistently on the back foot”.
He says that the extended length of time taken to process producer offset final certificates is now upwards of 11 months, and this is leading to significant losses across the industry as more producers accrue default interest. “Also, the way in which qualifying Australian production expenditure is assessed can oscillate wildly from project to project,” Jaggi says.
“We will often see identical expenditure approved on one film disapproved on the next, only to be approved again on the third.
“On several occasions we have been told by assessors that expenditure which qualifies on international projects needs to be significantly discounted on Australian films and series.”
Screen Australia counters that the number of producer offset applications for final certificates is running 31 per cent higher in the past financial year, and that it issued certificates to 101 projects worth a total of $145 million.
Some of these applications, however, are ending up in litigation before the Administrative Appeals Tribunal. There are currently 10 cases involving Screen Australia before the AAT.
In one case, a film received provisional certification for the 40 per cent feature film offset and the producer raised just under $1 million in finance on the strength of the certificate.
The producer says that 10 months later the final certificate was denied, triggering his appeal to the AAT. Because the matter is subject to litigation, neither the producer nor Screen Australia could discuss the correspondence on why the final certificate was denied. Meanwhile, the film is available for streaming on the Prime platform, while the producer struggles to repay his loan.
Janine Pearce, a Sydney-based media lawyer who has worked on many film productions, says she is seeing the “widest division” between Screen Australia and producers in her 24 years in the industry.
“Screen Australia is spending more taxpayer dollars in the courts defending their decisions than the amount of money at stake, and the taxpayer dollars allowed to promote the film and television industry,” she says.
“Producers want to do the right thing and need clarity around the offset rules, which are constantly changing and applied inconsistently.”
Creativity Capital is not the only foreign finance house now wary of Screen Australia.
Marlon Vogelgesang, the chief executive of Media Finance Capital in London, says he has experienced “degrees of ambiguity that has made offset lending comparatively spooky, especially on smaller films”. He says that where the offset rules were applied in a clear-cut process, it appeared that discretionary opinions on the artistic merits and commercial viability of films were now being applied. Screen Australia denies this, and says its approach is consistent with the legislation.
“We are active in over 20 countries and I’m sadly finding it increasingly difficult to persuade investors to finance in Australia as opposed to, say, Eastern Europe, where media sectors are veritably booming, mainly for their reliable incentives,” he says.
“Often payment of the offset seems tethered to subjective interpretations around what constitutes a film to be ‘commercial’ or certain distributors to be ‘approved’. And whenever subjectivity is saliently linked to outcome, investors shy away.”
Another UK-based financier is Phil Hunt, who founded his firm Head Gear Films in 2002. He identifies declining support for smaller Australian films, which he says are the “lifeblood” of the industry.
“We are losing faith in how the offset is processed, particularly the integrity of provisional certification and the length of time for final certification,” Hunt says.
Much of the criticism of the way Screen Australia is administering the offset through its Producer Offset and Co-Production Unit (POCU) is around consistency.
From smaller budget filmmakers, a common complaint is that they are often under pressure to apply for the smaller 30 per cent offset rather than the 40 per cent for feature films because of a view that smaller films are likely to have only television and streaming release, discounting any cinema distribution. They say decision-making is arbitrary and unpredictable and that Screen Australia’s attitude towards small producers is adversarial.
The offset regimen has been in place for about 15 years, and producers say it has historically functioned smoothly and without friction. Producers would apply and, if they were deemed compliant, the Australian Taxation Office would pay out.
More recently, the view is that Screen Australia has become increasingly involved in the process and that the “Chinese walls” between the POCU and Screen Australia have been blurred. Instead of the offset being an exercise in tax compliance under the legislation, there is another layer of discretionary judgement being applied.
At the same time as Screen Australia is making decisions on the offset for independently financed productions, it is also making investments in other films.
Film industry accountants report that there is now an additional “logging” process, which is a preliminary phase before accepting an application, and which is a key reason for the blowout in processing.
“These logging reviews are done by junior staff with no detailed knowledge of the legislation and who don’t have appropriate skills,” says a chartered accountant whose firm works on many film projects.
“It’s just a really bad idea and is slowing the whole process down, because after you go through the logging, and they accept the application, it can still take 22 weeks from that point, but I’ve heard that they can take up to 14 months.”
From London, Fischer is worried that the smaller Australian films he has enjoyed supporting will become unbankable, with a terminal impact on the wider industry.
“You want new Australian voices, but if you don’t help the industry at its grassroots it just won’t grow,” he says. “It’s like planting something. If you don’t tend it and nurture it, it will just die.”
This article was first published in the print edition of The Saturday Paper on October 22, 2022 as "Walking pictures ".
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