I like to examine why our cinema ecosystem is the way it is today. I think many of you know by now that I also like to examine what we’ve lost in The FKATheFilmBiz. And yeah, the alternative ways things could have gone are important to me too. I hope you know I do this all in hope of finding a new and better path forward.
Nowhere in our industry is this new path more necessary than when it comes to film financing. The model is profoundly broken. But we are going to fix it, right? And why can’t our industry figure out how to work together to solve it anyways? Couldn’t this be something the talent agencies work to solve, as they need all their clients to generate more wealth for their commissions to swell? Employing a Big Thinker to address these things should be something they do. Or maybe the MPA seeing they are supposed to be driving this industry forward? Or if we only had a Future Of Film Think Tank at some well-endowed ivory tower, maybe that would get something moving? For now, I think we are just going to need to rely on FilmStack, that good ‘ol think tank in real time for the time being, and this realm, you can count me putting my hand up.
And just because you probably think I will need to, let me tell you, no I don’t need to start this with yet another list of all that has been lost. Nah, not this time; I think I can spare you as I bet you have that down by now. Let’s just dive right in instead.
We need more paths to cash
Once upon a time and not so very long ago, we in the once second best export business of these still-United States enjoyed a plentitude of film financing mechanisms—structures that could turn people who had no special desire to finance movies into people who suddenly had a strong economic reason to do so. Tax shelters, baby!
Granted “tax shelter” has acquired an understandably unsavory reputation. The phrase evokes aggressive accounting full of abusive deductions and wealthy taxpayers scheming to avoid their fair share of taxes. Much of that history is all too real, and some of the reforms that eliminated those structures were more than entirely justified, but still we can learn from them, and maybe even yearn for them!
There is another part of our not-too-distant past surely worth remembering too. For several decades, governments around the world created tax systems that had the effect of generating large amounts of private risk capital for motion pictures. Sustainable industries were built and manymanymany great movies were generated. America did it. Canada did it. Australia, Britain, Germany… them too. American studios and independent filmmakers became extremely adept at finding and using that money wherever it existed. That’s we producers do after all, and amongst many other things, by the way.
Tax policy, in other words, helped generate a class of film investors who built good businesses that in turn built lasting infrastructure. An ecosystem! That possibility deserves consideration today. We damn sure need it, right?
Most contemporary film incentives are based on production expenditure. If you make your movie in Georgia, New York, New Jersey, really anywhere: the UK, Canada, Australia, Hungary or one of many other states and countries, some portion of qualifying expenditure may come back to the production through a credit, rebate or other incentive. That’s pretty much as good as it gets now.
And don’t get me wrong here, either: these programs can be enormously valuable. They can determine whether a budget is locked, where a film shoots and sometimes whether a movie gets made at all. Producers and strategists have become highly skilled at assembling financing plans around these incentives. But government intervention in movie economics did not begin with contemporary state production incentives. Federal tax policy had already been shaping capital flows into film for decades. And we need to get smarter around this once again.
The older tax-shelter systems frequently operated much earlier in the chain. They made investment in film attractive to the person supplying capital. A wealthy individual might invest in a film partnership because the investment generated substantial deductions in the current tax year while also preserving some possibility of participating in the movie’s eventual success. The expected return from the film therefore became only one component of whether they’d decide to invest. This system grew the field, strengthened the sector as well as our country’s position in it.
Under such a system, a producer no longer needs to find only investors who believe a particular movie will deliver an attractive financial return. The potential pool can expand to include people seeking legally available tax advantages, diversification or some combination of the two. For an industry whose assets are unusually challenging to value in advance, that was a powerful instrument that has now been removed from our tool box.
I am hoping now that by pulling up some of the way things were, someone else besides me might raise their hand — ideally someone that understands tax policy far better than I. Perhaps someone wants to make it their hobby and become the FilmStack Tax Policy Expert In Residence. It is a very prestigious position after all. And in the meantime, I have a neat little history for you to explore.
America Once Had a Film Tax-Shelter Business
During the 1970s, the Hollywood faced severe financial instability due to skyrocketing production costs, a decline in theater attendance, and corporate restructurings. Sound familiar? To survive, The Studios resorted to aggressive political lobbying in Washington, D.C., securing massive legislative victories that transformed movies into highly lucrative tax shelters and generated billions of dollars in savings. Perhaps we need something like that today. Let’s take a look, shall we?
