A production incentive for Sweden. A report by Olsberg SPI

Transcription

1 A production incentive for Sweden A report by Olsberg SPI 11 th May 2015

2 Contents 1. Foreword by Film Väst Executive Summary Introduction Market Failure within the Swedish Production Sector Fiscal Incentives a Proven Solution Positive Impact on Production A Self-Financing Mechanism Other Benefits Preference for a Rebate System Sweden s Challenging Production Landscape Introduction Pressure on Budget Levels and Production Volume Pressure on Public Funding Reduced Private Funding Costs of Production in Sweden Resulting Production Flight Outlook for Sweden and The International Production Sector Overview of Global Production Trends The Production Location Decision Key Competitors The Global Incentives Landscape The Importance of Incentives and Impacts in Other Countries Why a Production Incentive Makes Sense for Sweden Introduction Additional Production Activity Making Sweden a More Attractive Co-Production Partner Overcoming Financing Shortfalls, Leveraging Investment and Raising Budget Levels A Self-Financing Incentive A Cost Benefit Analysis for Sweden Increased Transparency The Benefits of a Thriving Production Sector Introduction Expenditure and Employment Skills Development Infrastructure Growth Screen Production as a Driver of Other Creative Industries Olsberg SPI th May 2015 ii

3 7.6. Screen Tourism Production Case Studies Production A Production B Production C Production D Key Elements of a Proposed Incentive Rebate Level Type of Incentive Eligibility and Expenditure Other Obligations Appendix One Successful Production Incentive Impacts Introduction Assessment of Impact at National Level Assessment of Impact from Individual Productions France The UK Croatia Appendix Two Methodology Launch meeting Data Gathering/Desk Research Questionnaires and Confidential Consultations Team Brainstorm and Synthesis Interim Report Further Research and Consultations Final Report and Presentation Olsberg SPI th May 2015 iii

4 1. FOREWORD BY FILM VÄST Film Väst is one of Europe s bigger regional film funds and certainly one of the most important film financiers in Scandinavia. Since 1997 Film Väst has invested in close to 500 feature films and a vast number of television drama series. More than half of the co-produced films have been non Swedish. The international interest in having Film Väst as a partner has grown substantially over the years and the fund has seen a dramatic increase in the number of applications over the last five years. International success measured in admissions and the number of co-produced films selected in the official programmes of the most interesting festivals such as Cannes, Berlin, Toronto, and Venice has developed in parallel with this. Film Väst as the lead partner alongside regional Swedish film funds Filmpool Nord and Film i Skåne, with a contribution from the Swedish Film & TV Producers Association initiated this study into the potential effects of a production incentive in Sweden for many reasons. While most of the non-scandinavian films the fund co-produces come to do post production in Western Sweden only a few will undertake filming. The reason more productions are not locating in the region is the lack of a fiscal incentive that can be combined with Film Väst s investment. In recent years an increasing number of Swedish films and television dramas have chosen to locate part of their production to countries with a fiscal incentive. This is good and bad. The films and dramas can be made more economically and at a higher budget. However, the risk is that necessary infrastructure for film and television drama production in Sweden will suffer. Sweden stands to lose vital competency and knowledge. Swedish film needs more money upfront in the Swedish Film Institute s national support system and a production rebate system. There is a lot less money for film production in Sweden today compared to only a couple of years ago. Investments from distributors and broadcasters have shrunken dramatically. The average budget for a film is a lot lower today than in the past. Artistic quality and audience success is hard to deliver if the budget becomes too low. Until now Film Väst has been skeptical about introducing a production rebate in Sweden. The fund has seen as a risk the potential for a production rebate to replace the state s political will to support the production of important films. Film Väst has changed its opinion. If we really want to boost national and incoming production of film and television drama we need both a more aggressive and resourceful national support system for film production and circulation; including a production rebate system that the sector and the national economy can benefit from. Tomas Eskilsson CEO Film Väst Olsberg SPI th May

5 2. EXECUTIVE SUMMARY 2.1. Introduction This study has been undertaken by the UK-based creative industries strategy consultancy Olsberg SPI ( SPI ) for Film Väst, as the lead partner alongside regional Swedish film funds Filmpool Nord and Film i Skåne, with a contribution from the Swedish Film & TV Producers Association. It provides an overview of the potential for a new, efficient production incentive to enhance levels of film and television drama production in Sweden and deliver a range of benefits to the nation. In the light of the newly proposed changes to the Swedish public support system, which will see the Film Agreement replaced by a new film policy in 2017, it is even more interesting to look at what can be added to reform exciting systems or influence the creation of new ones. In a statement that presented an outline for the new Swedish system the Minister for Culture and Democracy strongly recognised the current market failure and the need for far-reaching measures to improve the situation for the industry. Automatic funding incentives have been introduced by governments in many countries in Europe and around the world and have made a quantifiable and, in many cases, transformational impact on the domestic film and television sector and the wider screen economy. An incentive is a tool that can be used to meet a number of objectives, including boosting domestic production and serving to attract high-value international production. Combined with a sufficient level of national film support, this can has highly significant effects on expenditure and tax revenues, inward investment, job creation, skills, and culture. Such are the proven impacts of incentives that a number of countries have introduced legislation in recent years to boost the value of existing schemes to make them more attractive to producers. Meanwhile, a number of countries including in the Scandinavian region are considering the introduction of new schemes. Despite Sweden s world-class creative talent, locations, crews and infrastructure, Sweden is falling behind its competitors. Producers are struggling to finance projects, and budget levels are falling. As a result, many of Sweden s world-renowned talents are working overseas. The international competition for portable productions means that it can be difficult for Sweden to attract projects to shoot and post-produce in the country, and has in fact missed out on a number of large European films, including UK projects. Moreover, Sweden is also losing some domestic projects to other countries, as producers utilise the incentives and cost savings on offer elsewhere. This document outlines why a production incentive is would rapidly remove the downward pressure on Sweden s film and television sector and stimulate major growth that would have far-reaching benefits. It explains how such an incentive could help Sweden compete internationally in a significant growth sector and how this can be achieved with a selffinancing mechanism that requires no additional cost to government or tax code amendment Market Failure within the Swedish Production Sector Sweden s film producers are facing a relatively new and highly damaging market failure issue related to project finance: a failure that damages both the cultural and commercial interests of the sector. Recent years have seen a significant reduction in the amount of funding available for film and television, with some producers pointing to a production shortfall of between 20%-25%. Olsberg SPI th May

6 This is related to a number of factors, including those specific to Sweden and those related to the wider international independent industry. Swedish producers are struggling to attract private equity investment, while changes to SFI investment in the 2013 Film Agreement introduced a system of automatic funding, leading to a 24% decrease in resources for selective production funding from SFI s film commissioners for feature-length fiction films. Even factoring in automatic funding, the volume of feature-length fiction features backed by the SFI was lower in 2013 than in the previous two years. 1 Producers have also been hit by decline of the international DVD market, and the inability of the Video on Demand ( VoD ) market to alleviate these losses. Such decline, combined with other pressures on the independent film business, has meant that producers are less likely to be able to source presales and minimum guarantees from international distributors another key source of production financing that has dropped in recent years. Overall, estimates of production spend in Sweden point to a decline of around 13% in film and television drama expenditure between 2011 and 2014 from SEK 1.5 billion overall to SEK 1.3 billion. Such issues underline the longer-term company sustainability issues in the Swedish production sector, with 49 companies only able to make one film between 2009 and Only six companies made more than five films. 2 The outlook for the future is not positive, with financing and budgets under on-going pressure Fiscal Incentives a Proven Solution Incentives are one method of correcting market failure. Increased public funding through existing support structures, for example, would also assist in closing the financing gap currently faced by Swedish producers currently. However, there is no doubt that a multifaceted solution, which combines on-going, selective support with an automatic rebate mechanism, would be most helpful for strengthening the Swedish production sector. This combination of a new production incentive alongside existing measures of public support would offer producers a range of funding options. Furthermore a new, automatic incentive structure also offers predictability and stability that are vital elements in supporting national content creation, in developing co-productions and in attracting international portable productions. Incentives have been utilised by many nations to overcome such financing issues, stimulating growth in production volume and serving to attract additional investment into the sector. A prior analysis of the European incentives landscape undertaken by SPI found that film sector production spend in countries with an incentive in place increased by around 9% between , compared with 4% in countries with no scheme in place. 3 The impact of an incentive can be remarkably rapid. In the UK, for example, the introduction of a new high-end television incentive saw 615 million of production spend in its first full calendar year compared to an estimate of likely production levels made before the introduction of the incentive of million. An incentive would have a rapid impact on alleviating the financing issues faced by Swedish producers. Incentives lower the hurdle for commercial returns (since the rebate is non- 1 Facts and Figures Swedish Film Institute. 2 Ibid. 3 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Olsberg SPI, published by the European Audiovisual Observatory, December Olsberg SPI th May

7 recoupable), which would create a more attractive environment for private investors. This would leverage additional finance into the sector, potentially from new sources. It can also serve as a powerful attraction for film and television drama projects, which can bring very high levels of spend. In the case of the latter, there can be impacts on spend and other areas for many years if production is on-going. Northern Ireland, for example, has seen a direct economic benefit of 82 million from the first four seasons of Game of Thrones. 4 According to Northern Ireland Screen, Large Scale Production Awards for Game of Thrones resulted in cost//return ratios of between 6.64 and over the first four seasons of the production Positive Impact on Production Sweden already has many of the factors required for a flourishing production sector in place, including talent, crews, and infrastructure. A new Swedish incentive would build on this platform and have an impact on three key areas: Stimulating domestic productions that would not have been made due to financing shortfall; or boosting the budget levels of projects that might have been otherwise produced, ensuring greater quality and appeal Repatriating Swedish productions that might otherwise have shot overseas, attracted by the offer of incentives and/or lower costs; and Attracting co-productions and portable international productions, drawn to Sweden by the net cost savings, as well as the nation s wider film offer. Each of these areas of expansion would also benefit Sweden s crucial post-production sector. It is likely that the impact on the first area will be most significant of the three categories in the short term. Immediate interest from international productions would be expected, and it is noted that the highly-developed production community networks developed by Film Väst and other regional funders would make these organisations highly effective in communicating the creation and advantages of any incentive. A crucial impact of an incentive for Sweden would be in raising budget levels. This would be a powerful boost, leading to projects with more commercial appeal and attraction to audiences. In turn, higher levels of quality would also serve to attract further investment. Recent years have also seen Sweden lose production from domestic projects as producers travel to other countries in order to access cost-savings and incentives. Such an incentive would help stem this flow A Self-Financing Mechanism One vital consideration that is not always fully understood about rebate-style incentives is that they are normally self-financing. This is because the additional tax collected from additional productions is substantially more than the amount of rebate that is paid out. For example, France s tax credit for domestic production creates 3.1 in tax and social revenues for every 1 granted (See Appendix One). 4 Royals visit set of highly acclaimed Game of Thrones. Press release from Northern Ireland Office and The Rt Hon Theresa Villiers MP, 24 th June, Accessed at 5 Opening Doors: A Strategy to Transform the Screen Industries in Northern Ireland: Phase Northern Ireland Screen. Olsberg SPI th May

8 For governments, this tax yield is also collected many months before the rebate is paid out, creating excess tax revenues. This is because spend occurs during production, while the rebate is triggered afterwards. It is also only paid out following certification limiting risk. Therefore, the annual amount of the rebate does not displace other types of expenditure in a ministry s budget, and can generate additional revenues that can be spent elsewhere. For producers, it also means that other types of government funding such as selective schemes should not be affected Other Benefits A healthy production sector brings many benefits for a country. In addition to the production expenditure that can be stimulated, projects also impact on employment. Indeed, demand in this area can be so pronounced that Sweden should consider its skills base and the provision of training in necessary areas alongside any incentive legislation. Analysis of countries with fiscal incentives in place showed that an immediate impact of the introduction of a fiscal incentive in most countries is an increase in production levels to a point where full (or almost full) capacity utilisation is reached. 6 Productions require highly skilled, mobile workers from a large range of roles. Film and television can also be key drivers of other creative industries drawing on skills from music, theatre, design, and a number of other sectors. This can be very powerful considering the large creative industries growth seen in some sectors recently including the UK, where the creative industries have outperformed the wider UK economy in terms of jobs growth. An incentive could also stimulate further infrastructure growth, as existing companies respond to increased production throughputs by developing support businesses. This would help provide a welcome boost for Sweden s post production sector. It would also help draw Swedish talent and skilled film and television workers back to the country from overseas. Screen tourism is now a well-recognised benefit of increased production: with screen depictions of a country or region serving as a powerful motivation for visitors. There could also be transparency benefits from an incentive. While there is little shared data currently in Sweden any certification process would create highly useful data that, if sufficiently collated, could be used to undertake economic analysis, establish baseline data, and provide deep insight into production trends Preference for a Rebate System While there are different models of incentive (see Section 9.2) it is recommended that a cash rebate would be the most helpful for Sweden in terms of assisting in overcoming market failure issue and attaining other goals. This is because rebates are comparatively transparent, efficient, easy to use and understand, and do not require funding from additional third-party investors. A further advantage is that there is no involvement of the tax system with this structure and therefore no need to call the mechanism a tax incentive: an often misunderstood and inaccurate description sometimes given mistakenly to all fiscal incentive systems. Most crucially for Sweden, such a scheme would be self-financing as long as sufficient additional production takes place resulting from its introduction. 6 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid. Olsberg SPI th May

9 3. SWEDEN S CHALLENGING PRODUCTION LANDSCAPE 3.1. Introduction Sweden is a globally-renowned producer of high-quality film and television drama and a major exporter of talent. The country s film-makers achieve international box office and acclaim, with recent examples including Daniel Espinosa (Easy Money, Safe House, Child 44), Tomas Alfredson (Let the Right One In, Tinker, Tailor, Soldier, Spy), and Ruben Östlund (Force Majeure). In front of the camera, Swedish stars like Noomi Rapace, Stellan Skarsgård, Alexander Skarsgård and Alicia Vikander are well known to audiences around the world, combining work on international and domestic projects. Meanwhile, the Nordic Noir boom has demonstrated the worldwide interest in Swedish stories and the ability of Swedish television producers to translate those stories into globally attractive television projects. However, despite Sweden s clear base of talent the country s production sector is now struggling to fulfil its potential. In recent years a number of financing issues including factors specific to the Swedish landscape, and factors that are affecting the international independent industry have meant that producers are facing difficulties attracting or closing funding for their projects. This has led to a situation where a high-value industry with significant growth potential, delivering important economic and cultural benefits, is being stunted. Budgets and production volume are under pressure, and some projects are opting to shoot overseas in order to access the incentives that are on offer in a plethora of countries unlike in Sweden. The financing challenges facing Swedish producers are outlined in depth in this section Pressure on Budget Levels and Production Volume Sweden is facing a relatively new market failure issue in that the sources of finance for film and television projects have decreased. At a wider industry level this is due to global recession, disruptive digital innovations and marketplace pressures on independent releases. There are also a number of longer-term factors specific to Sweden, including lack of private finance. The difficult financing landscape is putting pressure on budgets, as producers find it necessary to work with limited funds. Data from the SFI show that in 2013, the average budget for a fiction feature with funding from a SFI commissioner was SEK 18.1 million a 28.5% decline from the 2012 average of SEK 25.3 million. 7 7 Facts and Figures Ibid. The average budget for feature fiction films with automatic SFI funding was SEK 22.7 million in Olsberg SPI th May

10 Figure 1 Average Budget of Feature-Length Fiction Films with Funding From a Swedish Film Institute Commissioner, Source: Facts and Figures, Swedish Film Institute. The downwards trend was noted by consultees, who suggested that the financing shortfall was currently in the region of 20%-25%. Financing difficulties are reflected in an overall decline in production expenditure in recent years. In 2011, overall expenditure was estimated to be SEK 1.5 billion. While no 2014 data were available at the time of writing this report, estimates were created and verified with a number of industry sources. These estimates point to 2014 spend levels representing a 13% decline on 2011, with a total of SEK 1.3 billion, including SEK 550 million on features and SEK 750 million on television drama. These issues are likely to exacerbate difficulties with company sustainability in the Swedish production sector. According to SFI data, while 49 companies made one film between 2009 and 2013, only six companies were able to make more than five. In total, only 25 companies were able to make more than two films in the time period Pressure on Public Funding The SFI is a central funder in the Swedish landscape. However the 2013 Film Agreement led to changes in the SFI s production supports, with the introduction of automatic funding reducing the number of projects that can receive its selective support. According to the SFI, this new automatic funding meant that in 2013 resources for production funding from a film commissioner for feature-length fiction films decreased by 24%. 8 Even considering the five films receiving automatic funding from the SFI in 2013 the volume of feature-length fiction films with backing from the SFI from is lower than in 2011 and Facts and Figures Ibid. Olsberg SPI th May

11 Figure 2 Number of Feature-Length Fiction Films with Funding From a Swedish Film Institute Commissioner, Source: Facts and Figures Swedish Film Institute. Note: there were five additional films in 2013 that received automatic funding Reduced Private Funding A key reason for the financing shortfall is the fact that access to private equity is difficult for Swedish producers. According to the SFI, private equity contributed just 1.6% of the average financing for feature-length fiction films with SFI production funding in Swedish venture equity was worth just 1.3% of the average financing, with 0.3% coming from foreign sources. 9 Private equity had a slightly higher average share of the financing for feature-length films with automatic funding with 6% of the average budget (all of which was Swedish venture equity). For feature-length fiction films without SFI production funding private equity contributed 5.4% of average financing in Swedish private donations represented 2.7% of this total, with Swedish venture equity representing 2.7%. 10 Investing in film production carries risk, since all new productions are essentially prototypes. In Sweden, a lack of incentive offers no mitigation of risk for investors particularly at a time when the global market for independent cinema is facing a number of uncertainties. The following sections outline key challenges affecting the financing of Swedish projects. 9 Facts and Figures Ibid. 10 Ibid. Olsberg SPI th May

12 The decline of presales and the DVD market Independent films are typically financed through a patchwork of sources, including the producer s own investment, public money, regional funds, private equity, and presales. A presale is a key source of independent finance, and is the financial commitment from a distributor to buy a film before it has been made or completed. The nature of deals in the content distribution sector has meant that producers have been able should a project be attractive enough in the market to secure presales from a number of distributors, and thus source a significant portion of a budget. However, recent years have seen a decline in prebuying, with producers less able to source investment from distributors in Sweden and internationally. SFI data on the average financing for feature-length fiction films without SFI production funding show that presales contributed just 3.8% of average funding. This decline is due to difficulties in the independent distribution sector particularly the decline of the DVD market. Once a highly-significant revenue stream, the DVD market has declined markedly as audiences have moved to sourcing video content online. However, the revenues from online film distribution has not matched the revenues lost from the decline of DVD meaning that distributors have less resources to pre-buy content. The scale of decline can be seen in the example of the UK, where the value of retail video sales (all categories) was 1.4 billion in 2013 down from a peak of 2.5 billion in Broadcaster funding Consultations suggest that funding from broadcasters is also under pressure. While support levels for film are set out in the Film Agreement, it appears that broadcasters are not committing resources beyond these levels, with reduced interest in feature films and fewer pre-buys. Finance has also reduced for television drama projects, with producers reporting that broadcasters are investing less in television drama than in previous years. This development has also occurred at a time when broadcasters, in response to audience expectations, are requiring higher quality productions Costs of Production in Sweden A further issue for Swedish producers already working with constrained budget levels is the fact that Sweden is not a cheap nation in which to produce film and television content. The lack of an incentive in Sweden means that these production costs are not reduced in any way unlike in many other countries. The UK, for example, does not have cheap production costs but the existence of the country s tax reliefs for film and high-end television effectively provides producers with a cost-reduction for filming in the UK Resulting Production Flight With no such incentive in place a number of Swedish producers have been forced to produce their projects overseas. This enables them to access cheaper production costs, and in 11 Statistical Yearbook British Film Institute. Olsberg SPI th May

13 particular, fiscal incentives which reduce costs further and help bridge the financing gap that has opened up in Sweden. To a certain degree, shooting overseas is a natural element of film and television production as film-makers seek specific locations for a story, or to fulfil aspects of a co-production agreement. However, Sweden has experienced the wholesale loss of productions to other competitor countries, such as Lithuania and Hungary solely because of the existence of cheaper costs and, especially, incentives, which are not present in Sweden Outlook for 2015 Consultations generally suggest that the decline seen in recent years will continue into The funding situation remains very difficult for producers, with no major factors likely to improve the range and volume of Swedish financing sources in the short term. Meanwhile, wider industry issues in the independent sector are unlikely to lead to any improvement in international sources of finance, with ongoing difficulties in securing presales and minimum guarantees from international buyers. The funding gap that has been identified will therefore continue to be a key issue for Swedish producers, meaning continued downwards pressure on budgets. Olsberg SPI th May

14 4. SWEDEN AND THE INTERNATIONAL PRODUCTION SECTOR Driven by considerable global audience demand for high-quality content, film and television production is a fast-growing sector. It is also highly international, with productions opting to move to countries around the world in order to access creative and financial benefits. This section outlines the current international production landscape, Sweden s position in this landscape, and its competitors Overview of Global Production Trends Film and television are major consumer growth markets. According to PwC, filmed entertainment revenue will pass $100 billion in 2017, with global revenues rising at a compound annual growth rate of 4.5% from $88.3 billion in 2013 to $110.1 billion in Such growth is being driven by the emergence of new markets, like China, and continued growth in established markets. This expansion has been met with rising production and the emergence of major new investors in content production and distribution, such as Netflix and Amazon. Just as demand for content is global, the production of film and television is now a fully international business, with major feature films and television series now routinely based in countries away from where they might have been developed, financed, or commissioned. Movement of production is a key trend. This is related to creative considerations, such as the need for specific locations, and it is also very much stimulated by the fact that many nations and regions have installed incentives in order to attract productions and the economic and related impacts they create. At the top Hollywood studio level the economic impact of attracting such a production can be considerable, with budgets often well over $100 million. Walt Disney Studios Chairman Alan Horn has spoken about Star Wars costing in the region of $175 million - $200 million 13. Recent years have seen studios retrench, making fewer but higher budget films that can dominate the box office and serve as tentpoles for the business. Another key trend has been the growth of the high-end television sector, with budgets and the creative ambition rising in this sector. Productions now attract feature film talent and budgets are significant. For example, Scotland expects to see 20 million in spend from the production of Starz / Sony Pictures Television s Outlander. 14 The Northern Irish economy saw a direct economic benefit of 82 million from the first four series of Game of Thrones, creating the equivalent of more than 900 full-time and 5,700 part-time jobs in a region of fewer than two million people, according to the Northern Ireland Assembly Filmed entertainment key insights at a glance. From Outlook insights: an analysis of the Global entertainment and media outlook PwC, Interview with Alan Horn on Bloomberg TV. April 22, Backing Scotland s film industry. Scottish Government press release, July 25, Royals visit set of highly acclaimed Game of Thrones. Ibid. Olsberg SPI th May

15 As with features, the production of high-end television is now a global market and governments are as keen to attract these projects as features. The UK, for example, introduced tax relief for high-end television productions in 2013 and saw 615 million generated in production spend in 2014, the first full year of the incentive The Production Location Decision Incentives may be a key factor for international productions looking at where to shoot, but there are a range of factors that producers consider. A project may opt to shoot in a country because of its centrality to story such as Sony s The Girl with the Dragon Tattoo in Sweden but without incentives a country will not be able to attract sustained international interest. Figure 3, below, outlines the centrality of incentives but also other important factors that producers consider. Aside from the lack of incentive, Sweden has many of these in place, with highly regarded talent, well-developed production infrastructure, film commissions and regional funders, and a wide spread of attractive locations spanning urban, coastal, and countryside landscapes. It also offers an attractive lifestyle and a stable, secure environment vital for producers. Olsberg SPI th May

16 Figure 3 the Production Location Decision 16 Creative specifics that will determine the locations and look of the production Budgeted line-by-line costs of production The effect of fiscal incentives in reducing such costs Production infrastructure provision Depth and capability of crew and their skills Variety of suitable locations and facilities and whether they are in close proximity Fluctuations in exchange rates Personal preferences of key talent, particularly the director and lead actors Perceived ease of filming including regulations, licences and permits Effectiveness of support from local film offices and commissions Communications and lifestyle offer (hotels, restaurants) Safety and security Overall film-friendliness of the region/state concerned 16 Source: Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid. Olsberg SPI th May

17 4.3. Key Competitors Sweden may offer a number of key factors outlined in Figure 3 but in the highly competitive international production sector it has struggled to attract major co-productions and other projects even when there has been interest from major productions in using Sweden. Sweden faces competition from a number of nations, both regionally and internationally. With regards the latter major productions will consider countries with well-developed film infrastructure that offer attractive and well-understood incentives and other funding options. This includes such countries as the UK, Ireland, Germany, the Czech Republic, Hungary and Iceland. Some are be able to offer similar locations to Sweden. Regional competition is also evident, with countries able to attract Swedish projects to shoot abroad including Lithuania, Latvia and Hungary. The outlook is also expected to become more competitive. Currently, there is rising interest in incentives across Scandinavia and it is reasonable to expect that there will be further regional competition in the coming years. Norway and Finland, for example, are known to be examining incentives. Some competitors are able to offer selective funding, which can also help attract projects. For example, the Copenhagen Film Fund has invested 0.81 million in the production of Working Title Films The Danish Girl, which shot in the city in Sweden is also able to offer such funding, via organisations such as Film Väst. With an incentive in place, the existence of additional funds in Sweden would be a powerful attraction for potential incoming coproductions. 17 Tom Hooper s The Danish Girl to shoot in Copenhagen. News item on The Danish Film Institute website, 10 th March, Hoopers-The-Danish-Girl-to-shoot-in-Copenhagen.aspx Olsberg SPI th May

18 5. THE GLOBAL INCENTIVES LANDSCAPE Given the economic benefits of attracting high-value film and television, many nations have introduced fiscal incentives. Indeed, some have seen such an economic impact from production that they have sought to make their systems more attractive. This section provides an overview of the international production business and the centrality of incentives The Importance of Incentives and Impacts in Other Countries Production incentives operate by attracting high-spending productions to a region or country that would not otherwise have been produced there, as well as stimulating domestic production levels pushing up volume and budgets. Practically all of the world s leading production countries now have incentive mechanisms in place. In Europe, 26 fiscal incentive schemes could be identified in 17 European countries as of December 31, Governments have recognised the assistance that incentives can provide in attracting international production and boosting domestic production. As previously outlined projects can bring significant expenditure, and in the case of some high-end television projects this impact can be made over a number of years. In addition to attracting expenditure, there are also effects on jobs, skills, production capacity, culture, and other areas, as discussed in Section 7. A vital point for governments is that such mechanisms can be formulated so that they are effectively self-financing. See Section 6.5. Provided an incentive generates sufficient additional production (which is undoubtedly the case in most countries analysed) this means that incentives demand no extra costs from government, and should not displace existing public support. Indeed, the existence of both automatic and selective public funding together offers producers strong funding options, and boosts a nation s attractiveness as a co-production partner. Many nations have seen major impacts from the introduction of incentives. The UK, for example, saw an increase in expenditure in response to the introduction of Film Tax Relief ( FTR ) in In that year, the UK spend of feature films produced in the UK was 851 million, and while it fell to 722 million in 2008 it has risen to a record 1.47 billion in Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid. Olsberg SPI th May

19 Figure 4 UK Spend of Feature Films Produced in the UK, ( millions) Note: The introduction of FTR in 2007 is noted by the red line. Source: Film and other screen sector production in BFI Research and Statistics. March The country s introduction of relief for high-end television has had a very rapid impact. In 2014, the first full calendar year of the incentive s operation, there was a total UK spend of , 20 million from 87 high-end television programmes. A recent SPI study found that for each pound of FTR granted across the period to , in additional GVA was created through direct and multiplier effects. This equates to a taxation return for the Exchequer of 3.74 in additional tax revenues for each pound of relief granted. 21 Further evidence of the impact of incentives in a number of countries is outlined in Appendix One. 19 Statistical Yearbook The British Film Institute. 20 Film, high-end television, animation programmes, and video games production in the UK: full-year BFI Research and Statistics Unit release, 3 rd February, Economic Contribution of the UK s Film, High-End TV, Video Game, and Animation Programming Sectors. A report presented to the BFI, Pinewood Shepperton plc, Ukie, the British Film Commission and Pact by Olsberg SPI with Nordicity, February Olsberg SPI th May

20 6. WHY A PRODUCTION INCENTIVE MAKES SENSE FOR SWEDEN This section outlines the relevance of a fiscal incentive to Sweden and the potential impacts that could be made Introduction Sweden has many of the factors needed for a flourishing production sector already in place. However, the nation s abundance of talent and its film-making infrastructure are not currently reaching their potential. The domestic sector is being hampered by financing difficulties, while there is a lack of spend from international projects because there is no incentive. Moreover, Sweden is losing domestic productions overseas, where producers are able to find incentives and cheaper costs. While increased public funding could help improve the current financing difficulties, an automatic incentive would sit alongside existing selective funding without displacing it, and offer a robust, cohesive funding support ecosystem. This also enables a nation to target cultural objectives alongside boosting growth in the industry. The introduction of an incentive would likely have an immediate, transformative effect. Domestic producers would be able to attract new investment, helping them traverse the difficulties in the market to produce more films with bigger budgets and heightened creative ambition. Moreover, Sweden would finally be on the map for international producers and be able to operate on a level playing field as a co-producer with countries such as the UK, France, Hungary, Iceland, Lithuania and a host of international countries. The transformative effect of incentive mechanisms was evidenced by a recent study undertaken by SPI on incentives, which concluded that: An immediate impact of the introduction of a fiscal incentive in most countries is an increase in production levels to a point where full (or almost full) capacity utilisation is reached. 22 The Study also found that countries with fiscal incentives in place tend to have larger film sectors, with above-average growth in the production sector. Strong jobs growth was also found in response to an introduction of an incentive. However, such is the growth potential of a new incentive that a country considering the introduction of such a mechanism should give serious consideration to adequately servicing the rise in production in order to fully benefit from the opportunity Producer Survey In undertaking this project, a number of key producers and other figures in the Swedish industry were consulted to understand their perspectives on the potential effects of an incentive in Sweden. Producers were sent short questionnaires relating to the potential production spend in 2015 with and without a hypothetical 20% cash rebate in place. Consultations were then held with each producer over the telephone to discuss their answers, and also gather other insights into the potential impact of an incentive. 22 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid. Olsberg SPI th May

21 Producers thought that the introduction of such an incentive would have a marked effect on the Swedish production landscape. The success of an incentive, a consultee remarked, was not a question of when, but of how much. The majority thought that with an incentive in place total 2015 production expenditure would have been higher than 2014, with larger budgets for projects. One predicted that with a 20% rebate in place, the overall production expenditure could be 140% higher than without Additional Production Activity For countries introducing such a mechanism one key benefit is the ability to stimulate or attract production that would not have occurred without the mechanism. In the case of Sweden, this would have an effect across three key categories: Stimulating domestic productions that would not have been made due to financing shortfall; or boosting the budget levels of projects that might have been otherwise produced, ensuring greater quality and appeal Repatriating Swedish productions that might otherwise have shot overseas in order to save costs; and Attracting co-productions and portable international productions, drawn to Sweden by the cost savings, as well as the nation s wider film offer. It is clear that incentives can stimulate growth. In an analysis undertaken by SPI, film sector production spend in European countries with an incentive in place was found to have grown by around 9% between , compared with 4% in countries with no scheme in place Stimulating and Repatriating Swedish Production Consultees thought that an incentive would be key in stimulating the production of new Swedish projects, with one of the opinion that a new incentive would actually have the most pronounced impact on this category of production. Such a result would occur because an incentive would help to close the financing gap that producers are currently faced with. As outlined in Section 2.2, producers are currently facing a 20-25% shortfall in funding. Clearly, a cash rebate of 20% or more would be key in moving projects to the point where they can actually be made. In the current landscape, such projects are languishing at the financing stage. For example, one consultee was working on two projects that were having difficulties in closing financing. One is a television series and a feature film, with both financed up to 80%. Budgeted at 7 million and 2 million to 2.5 million respectively they were both planned to shoot entirely in Sweden. However, due to the financing shortfall there is a chance they may not be produced. Recent years have also seen Sweden lose domestic productions to competitor countries because of the cost savings and incentives on offer to producers. A Swedish incentive would help to stem this flow, since the cost differential between shooting in Sweden and elsewhere is likely to be less pronounced. Generally, some outwards production flow is to be expected as producers seek locations not available in Sweden, or move abroad to fulfil co-production requirements. However, an 23 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid. Olsberg SPI th May

22 incentive would be expected to repatriate a proportion of productions, particularly those whose main reason for leaving is cost. An incentive may not be enough to make Sweden the cheapest place for domestic producers to shoot, but it could remove enough of the gap for producers to decide to stay. Consultees noted that film-makers prefer working in Sweden and living in their own homes and that it can sometime cost more than planned to work for an extended period of time in an unfamiliar environment Attracting International Productions A new Swedish fiscal incentive is likely to create immediate interest in the country from international producers. There is evidence that Sweden has failed to attract the production of big European films: an incentive could help the nation secure such projects. Consultees noted that the effect on international productions is likely to be less immediate than the impact on domestic production. International producers require stability and there will be a period of assessment as interested producers satisfy themselves that Sweden is able to host large-scale productions. Lead times may also be a consideration in terms of immediate impact: while feature films may be able to react relatively quickly television projects can have longer lead times. In addition, consultees expressed a view that Film Väst and other regional bodies would be a highly effective channel for quickly and effectively communicating details of any new Swedish incentive to their well-positioned contacts in the international production community. When considering any potential rise in inward production flow it is important that countries give serious consideration to training and development of workers and infrastructure. Rising production levels can quickly use up existing capacity and the resulting shortfall can lead to production leakage, and rising costs. In order to avoid leakage and ensure effective development of the Swedish film sector plans should seek to develop a strong, skilled crew base alongside production growth. Finally, any influx of major productions will also create opportunities for Swedish producers to undertake production service work, further diversifying their businesses Making Sweden a More Attractive Co-Production Partner The stability of a reliable incentive is also important in attracting co-production partners, and Swedish producers will be in a stronger position to attract such projects. They are already able to offer some funding in the form of SFI backing (if received) and regional funds, and a cash rebate of 20% or more will make Sweden more attractive. This means that with a Swedish partner on board, financing a project will be easier. Consultees thought more co-productions would result from an incentive, particularly from with Nordic countries Overcoming Financing Shortfalls, Leveraging Investment and Raising Budget Levels As outlined in Section 2, Swedish producers are facing a relatively new market failure issue when financing their projects, with funding for features declining by around 20-25% in recent years, and funding for television projects dropping by a similar level. Clearly, a cash rebate of 20% would take the industry some distance to overcoming the financing gap. Olsberg SPI th May