The TV industry is a global business set to be worth more than $400BN by 2020, with predicted year-on-year growth of 4.7%. As incentive programs are becoming increasingly important across the industry, we hosted a “TV incentives” webinar to discuss some of the key issues.

Here are some takeaways.

Market overview

As TV production values and budgets continue to escalate, producers are increasingly looking to reduce costs by accessing incentives across multiple jurisdictions. At the same time many countries have been quick to see the economic benefits of introducing incentives.

Unsurprisingly, major territories such as Canada, Australia and the UK have strong programmes. But there are others such as Hungary, the Czech Republic and South Africa who have carved out a niche, and others that continue to emerge such as Singapore and Spain.

How do incentive programmes work?

 Global Incentives Inc.’s Len Pendergast explored the ins and outs of production incentives, addressing several key issues including:

  • Will the production qualify? European incentives generally have a cultural test based on story, citizenship of cast & crew, location of spending, etc. Australian content follows a similar model. Canada uses a ‘content’ test based on copyright ownership and citizenship of a select number of key cast and crew. Both Australia and New Zealand also offer an incentive for visual effects work only.
  • How much refund will I get? The rates vary. UK Film Relief is 25% of qualified spend. In South Africa the rate is 20% for production spend rising to 25% for post-production spend. Australia has different rates for production work (16.5%) versus visual effects work (up to 30%). The Louisiana tax credit is 35% for local labour and 30% for non-local labour.
  • What costs qualify for the incentive? Several Canadian and some US incentives are labour only. In the UK, costs must be ‘used and consumed’ in the UK to qualify for TV Relief. In Canada usually only local labour qualifies. The first Twilight movie was entirely shot in Vancouver, but as the actor fees increased for the 2nd and 3rd installments, the movies moved to Louisiana, where the star compensation qualified for the tax credit.

Len also addressed the impact of exchange rates on incentives, the process and timeframe for collecting the refund, and the risks of incentives being withdrawn retroactively.

Rights and other issues

Each incentive system has its own requirements. For example often ownership of the copyright in the production is a relevant consideration- our Emma Kingdon discussed the requirement in South Africa that a majority share of the copyright be owned by South African citizens.

Distribution may also form part of  the criteria for qualification, as discussed by our Jan Rataj, who looked at the distribution requirements in Hungary and the Czech Republic. In the UK, a production which applies the tax credit system must be intended for broadcast, which can include internet release, while in South Africa it is merely a requirement that a distribution plan be in place and at least one distribution agreement signed.

Some state funding incentive programmes such as Hungary, South Africa, the Czech Republic and Spain may require a screen ‘credit’.

Co-productions

Producers are increasingly looking to access incentives across multiple jurisdictions by means of co-productions. As stated by Monika Horvath there are a number of ways to qualify as a co-production:

  • Qualifying under local tests. The production will usually have to qualify under a cultural test, which is the case in the UK, Hungary and the Czech Republic. Qualifying may be subject to a minimum spend and the involvement of  a local production company as service provider or local co-producer. There may also be certain content criteria; for example drama, comedy, live-action, animation and documentaries qualify in most countries.
  • Qualifying under treaties. If productions are able to comply with a treaty’s criteria they will qualify for direct state support.  Criteria typically include (1) minimum and maximum levels of financial contribution from each producer e.g. 20/80% or 30/70%, (2) distribution rights and participation in exploitation revenues in line with their contributions, and (3) providing a creative contribution such that finance-only producers will not qualify.

Monetizing the incentive

If an incentive programme is reliable then banks and financiers may be willing to finance it. Established programmes such as those in Canada, the UK and Australia tend to be easier to monetize. As the lending market is currently very competitive banks and financiers are starting to look more closely at financing new incentives. However not all programmes are bankable. Some programmes have been less bankable, for example because it is difficult to take security over the right to claim and be paid the incentive, or because there are greater insolvency risks.

When financing incentives financiers are generally looking for a robust security package, undertakings that the TV programme will qualify for the incentive, an auditor’s opinion to give comfort in relation to qualification and the estimated amount of the incentive, and for the incentive proceeds to be paid to a blocked bank account with sweep instructions directing payment to the financier immediately after being received.

Current and upcoming changes

As stated by our Diego Ramos,in this global market there is something of a butterfly effect in the incentive market, as countries try to ‘out do’ one another:

  • Hawaii raised tax credits from 5% to 20% in 2013
  • Mexico increased incentives up to $55 million in early 2014
  • California israising tax incentives for audio-visual productions up to $330 million by 2015
  • Netherlands introduced a 30% cash rebate in May 2014
  • Hungary increased incentive from 20% to 25% in October 2014
  • Spain is looking to introduce new tax incentives by the end of      November 2014
  • Ireland will boost its cash rebate from 28% to 32% in 2015, subject to EU approval

Over the next few years we can expect to see increasing investment in infrastructure to back up the attractive incentives on offer.  We can also expect to see producers continuing to access multiple incentives via co-productions to finance productions- as one veteran recently commented, co-productions are now the only way that producers can afford to make television.