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I have a copy of recently filed accounts for the Special Purpose Vehicle company Thorsday Films Ltd. It is the company mechanism for the co-production of Thor - The Edda Chronicles using Section 481 finance.

Thor is an animation co-production between Galway's Tidal Films Ltd (trading as Magma Productions), Caoz Studio Ltd (Iceland) and Ulysses GMBH Film – und Fernsehproduktion (Germany). Readers may recall from an earlier post that this German company was formerly a subsidiary of Magma European Scripting House Ltd trading as Magma Films.

Thor is co-directed by Gunnar Karlsson (Iceland) and Toby Genkel (Germany). It has been backed in 2009 by the Irish Film Board (€535,000), and Eurimages (€480,000) along with the Icelandic Film Centre, The Nordic Film & TV Fund, and the Filmfoderung Hamburg Schleswig-Holstein, among others.

I believe the additional amount raised in Section 481 finance for the film, also in 2009, is €1,015,664. The film was released in Iceland, home of the lead producers, on October 14, 2011.

So, here are details from the accounts filed by Thorsday Films Ltd on March 23rd and covering the period from the company's inception (29 Sept. 2009) to 31 August 2011.

Where you come in is - have a look at the figures and let me know if anything strikes you. I won't publish your response if you'd rather I didn't.

Sustainability... what was said back in 2007?

You may remember back towards the end of 2007 Indecon produced another of their reports for the Department of Finance on the workings of Section 481.

The main recommendations were adopted - particularly the raising of the ceiling per project to €50m and lifting the level of the tax write-off from 80%. This actually went further than Indecon proposed in pushing it right up to 100% in the 2008 Finance Act. The duration of the scheme has also been extended out to 2015.

I was prompted to revisit the proposals because of the move on the Downton Abbey tax credit for TV in the UK. Here is the list of recommendations from November 2007.

I don't believe that recommendation 5 was acted upon, unless the Creative Capital report somehow ran away with the brief and turned it into something else. This might account for Film Board spend of €201,818 on 'consultancy' (excluding recruitment and readers' costs) in 2009, and €143,906 in 2010.

Below is the expanded version of the fifth recommendation (p 66). One dosen't have to read between the lines to see that there are a few cautionary words here for 'the industry'. The collective response must have been, "Not listening... not listening... not listening... but thanks for the changes to section 481!"

RECOMMENDATION 5: THE IRISH FILM BOARD, JOINTLY WITH THE INDUSTRY, SHOULD DEVELOP A 10-YEAR STRATEGY PLAN TO ADDRESS SUSTAINABILITY OF THE SECTOR
The film sector in Ireland is primarily dependent on competing on the basis of tax incentives which can easily be replicated in other counties. This vulnerability was highlighted by Indecon as far back as 1998. Any sector which is dependent on a competitive advantage which can be removed by a simple change in tax legislation in other countries is not sustainable.
The sector and the IFB need to design more sustainable tax and other incentive mechanisms that have a lower cost but greater benefit, and should also focus on developing skills/talents, infrastructure and a competitive cost base, in order to provide long-term sustainability for the sector. The plan should also consider the capital structure of Irish film and TV companies.

And now the UK have taken the ball away... again.

Endemic and Systemic

Corruption in Irish political life was both endemic and systemic. It affected every level of government, from some holders of top ministerial offices to some local councillors, and its existence was widely known and widely tolerated. - The Mahon Report

What is interesting about this quote from the Mahon Report is that it suggests that the culture of corruption runs across the entire gamut of Irish governance, that it's not limited to the sphere of planning regulation alone.

And I think it's fair to surmise that this extends to unethical, if not illegal practice. There is a distinction, for instance, between public and transparent lobbying to secure policy advantage for particular interests and the use of priviliged access and private meetings to influence funding decisions, regulatory controls, and legislative changes.

It seems increasingly obvious that all arms and agencies of the State should have the wider public interest as their primary focus rather than the narrow interest of their particular client base.

In October 2003 the then Chairman and CEO of the Motion Picture Association of America, Jack Valenti, came to Ireland. Officially he was making the world a safer place for the US major studios' copyright and it's unclear if perhaps he was invited here by SPI. It was during a period when Section 481 was, again, up for renewal and there had been mutterings about a levy on cinema tickets as an alternative method to raise funding for the industry.

A meeting was scheduled for Valenti with then Taoiseach Bertie Ahern at Government Buildings but, to my recollection, the meeting was moved out of the official limelight and into the more shadowy confines of St. Lukes in Drumcondra.

I do not know why the meeting was moved from a public office of the state to a private constituency office. I cannot draw any conclusion from that except to say that at the time I believed it was inappropriate. And that was before we knew what we now know about St Lukes, courtesy of the Mahon Tribunal.

As I recall, and I'm open to correction, there was a bland statement issued after the meeting to the effect that the State would look to introduce stronger legislation and penalties for breaches of copyright.

Later, at a meeting of the Joint Committee on Finance and the Public Service on November 5th, 2003 our now Minister, Jimmy Deenihan said, the president and chief executive of the Motion Picture Association of America, Jack Valenti, who visited Ireland in mid-October, [said] that the removal of section 481 would almost mean the end of the film industry in this country, we should take notice because these people do not exaggerate.

This did not arise from any public utterance made by Mr Valenti during his brief visit. It arose from private conversations at private meetings. I believe Screen Producers Ireland organised these meetings, or it may just have been a single evening meal with invited guests. Perhaps Mr Valenti also privately offered the MPAA's view on the desirability of a levy on cinema admissions.

If we come forward in time to the present day we can see that we are, at a time of severe financial pressure in the public sector, givng substantial sums of money in a very untransparent manner to producers of film and televison projects the rights for which may not be even part-owned by Irish companies. Or, where the rights are Irish-owned there may be limited sales potential outside of Ireland.

The money is therefore given away in return for short term spending on services and employment. The cost to the exchequer of Section 481 in 2010 was some €65 million for 57 projects. But not all of that money ends up on the screen and the possibility exists that the budgets used to raise this funding may not in every case be matched by actual spend.

Rather than standing independent of this activity, and objectively overseeing it in the wider public interest, the Film Board subscribes an annual subscription of €50,000 to SPI and is part of IBEC's AudioVisual Federation.

The agency is, in effect, part of the interest groups that privately and publicly seek to influence policy on behalf of their members in the private sector. Perhaps that is no longer appropriate?

UK Budget Speech - updated

Here's what UK Chancellor of the Exchequer George Osborne had to say about his government's intentions regarding the extension of their film tax credit scheme to related industries.

The film tax credit, protected in our spending review, helped generate over £1 billion of film production investment in the UK last year alone.

Today I am announcing our intention to introduce similar schemes for the video games, animation and high-end TV production industries.

Not only will this help stop premium British TV programmes like Birdsong being made abroad, it will also attract top international investors like Disney and HBO to make more of their premium shows in the UK.

It will support our brilliant video games and animation industries too.

update... some of the detail...

The TV tax credit is now subject to a 12 week consultation period, the intention is to introduce the measure at the beginning of the next tax year. The delay will allow time for the detail to be worked out and for the scheme to be examined by the European Commission to see if it's compatible with State Aid rules.

The expected benefit to producers is estimated to be at least 20% of spend. The effect of the announcement will be to focus the minds of producers, particularly in the US, on the possibility of producing high-end series in the UK from the beginning of April 2013. It remains to be seen how series will 'qualify' for the tax credit and whether it will be used to draw in foreign producers as much as to support locally originated projects.

The new, proactive support for animation may make the UK the English language co-production partner of choice.

Enterprise Investment Scheme(s) - tax incentive schemes used by production companies to raise capital/equity for business expansion, project production and/or development will have an annual limit of £5m. Individual tax-payers will be able to invest £1m in an EIS. The scheme has yet to be cleared by the European Commission.

Andrew Lowe of Element Pictures on Morning Ireland this morning.

And IBEC AVF yesterday:
The Audiovisual Federation, the IBEC group that represents Ireland's feature film, television and animation sectors today said that the planned introduction of new tax reliefs for the UK's audiovisual sector in 2013 highlighted the need for Ireland to ensure it remained an attractive and competitive investment location. The proposal was announced today by UK Chancellor of the Exchequer George Osborne and is subject to approval by the EU Commission.
Audiovisual Federation Director Torlach Denihan said: "Unless Ireland continues to update and improve its attractiveness as a location for TV, film and animation production we will lose jobs and investment. Ireland continues to attract significant audiovisual investment, but we need to stay ahead of the competition. The move by the UK only adds to the need to ensure that tax incentives, labour costs, skills and facilities in Ireland can compete with rival locations."
The Audiovisual Federation said the Government must actively work with all parts of the industry if the vision in its 'Creative Capital' report of doubling employment in the sector to 10,000 jobs is to be realised.

Back to Dutch Auctioneering

I'm indebted to a correspondent who passed me on a clipping from today's Financial Times.

In it Political Editor George Parker asserts that UK Chancellor George Osborne will introduce a new tax break for UK TV production in next week's budget.

His article refers to the high volume of British television drama that has been shot in other countries, including Ireland. Camelot and Game of Thrones are both referenced in the piece although they missed the fact that the latter, while filmed in Northern Ireland, did considerable post production in the Republic backed by Section 481.

There can be no doubt that if this new tax break is introduced in the UK the volume of high-end TV work coming to Ireland from (or co-produced with) the UK will almost certainly dry up.

So what to do? It calls to mind former minister John O'Donoghue's references to the 'dutch auction' character of competition for offshore production among European Union member states.

If we're not careful we just race to the bottom in terms of state munificence to producers. Added to which is the prospect of 'double-dipping' where subsidies are hoovered up in multiple jurisdictions by producers.

The main problem for us as a country, as always, is that little of lasting value is created in terms of rights or sales revenue for Irish companies doing this co-production work. They earn fees. There's periodic employment for technicians. Then the circus moves on and leaves a bare patch of grass in its wake.

The first three pars of today's FT article.

Update (20/03/2012):
The Irish Times carries a piece by Ronan McGreevy on the issue today.

Speaking through his hat an IBEC spokesman responded that the 12.5% corporation tax rate offers our industry some advantage, and that "we have got to stay competitive." He may as well have said that the Film Board is going to devalue the Euro.

We will see tomorrow what shape the new UK tax break takes. I wonder if the Irish authorities will nudge the European Commission into having a close look at the scheme.

If there's a budget floor of £1m per hour how will they avoid budgets/fees being inflated to reach that floor?

Doubtless there will be the usual guff about culture (really it's window-dressing for territorialising state aid) to bolster the logic for the new tax break being geared to local spend.

And there's the question of competitive corporate advantage being allowed to the broadcasters by enabling them to write off some of their tax liability for financing their own output.

Lastly, there is the likelihood that co-productions originated outside the UK will seek UK broadcast partners in order to avail of the tax break and so will shoot in the UK instead of their home jurisdictions.