Film sector loses pot of gold

British Government changes to rules for sale and leaseback schemes have left New Zealand filmmakers struggling to finance their movies.

Changes finalised on March 31 mean Kiwi producers can no longer present New Zealand-UK co-productions made here as British, and eligible for tax-based investment funds.

The UK scheme was part of the complex world of international film finance.

Teams of accountants hunt the world looking for loopholes. They use structured finance arrangements to exploit film incentives and gaps in tax legislation, charging a healthy commission along the way.

When they become popular, authorities clamp down and other incentives takes their place.

But New Zealand's Screen Production and Development Association says no replacement for the UK sale and leaseback scheme is in sight and producers are having a tough time putting together deals.

Excluding Hollywood-backed Peter Jackson, the vast majority of major New Zealand films are funded by cobbling together finance from cultural organisations and investment is frequently linked to tax-based incentives in various countries.

At least five New Zealand features were made using UK sale and leasebacks, with funds that deliver tax write-offs to high net worth individuals in the UK, and which have been a key part of the international film finance sector for six years.

They include River Queen and In My Father's Den as well as the yet to be released Perfect Creature and The Ferryman.

A UK/New Zealand/Australian co-production called Hard Drive set in Queenstown tried to slip into production just before the old rules ended March 31, but finance fell through and production was halted.

Richard Fletcher, a film finance consultant, says the change to the UK scheme is significant.

"For years there has always been a pot of gold in film finance.

"In the old days sales companies paid advances - they still do, but only rarely.

"Then there were tax-based schemes and regional incentives in Germany like the one that helped fund Whale Rider. Then the UK was a major source of international film finance.

"Now for the first time in a long time there is no pot of gold," he said.

The producer of In My Father's Den, Trevor Haysom, said the financing scene was the worst he had seen in eight years and he was struggling to find overseas finance for a movie he was developing based on a Margaret Mahy script.

For comparatively bigger budget movies of more than $8 million producers cannot rely on the limited pool of funds in New Zealand and have to find money offshore.

The latest change exacerbates the trend for increased direct control of the film industry through the New Zealand Film Commission.

Chief executive Dr Ruth Harley expected the most immediate effect would be smaller budgets for some bigger local movies such as those funded by the New Zealand Film Fund, and its replacement, the new commission controlled Film Fund 2.

Funds provided by the Government are specified as being for films budgeted at $5 million to $20 million, such as Whale Rider and The World's Fastest Indian, with at least 40 per cent of the budget coming from a source outside a New Zealand Government agency. The Large Budget Film Production Grant aimed at Hollywood movies gives a 12.5 per cent rebate on New Zealand movies but its $15 million threshold is too high for most locally financed films.

Typically projects financed by the New Zealand Film Fund with UK sales and leaseback funding have been budgeted between $10 million and $15 million.

Harley expects budgets under the new film fund to be lower.

The first independently constituted Film Fund with $20 million of taxpayer cash has come close to running its course, with the last applicant expected to be the Niki Caro-directed version of Elizabeth Knox's book The Vintner's Luck. It has been highly successful with films including Whale Rider, The World's Fastest Indian and Sione's Wedding.

Film Fund 2 is to be more directly overseen by the Film Commission, an approach that has upset some producers.

That is because the commission operates its own sales company and insists that it has the right to sell the films that it funds.

So commission staff travel to the big film markets such as Cannes with the latest output and it takes a cut from distributors which buy the rights for different territories.

Some filmmakers such as Whale Rider's John Barnett have questioned the credentials of commission staff, and the viability of the small operation in the cutthroat world of film sales.

Others worry about the commission's policy of forcing filmmakers to use its sales arm.

One of the few place where filmmakers can sometimes get additional finance to make movies is when a sales company gives an advance on sales, taking a risk investing in films based on scripts only.

The danger is that with the changes to the Film Fund the Film Commission is now once more the monopoly funder of New Zealand films.

While the Film Fund is demanding that producers find outside money, producers worry they will be shut out of one of the few remaining sources for film finance.