Australian screen industry is an inseparable part of Australian culture and one of the most profitable industry in the country. The Australian screen industry as per an article released by the Guardian in 2018, contributed more than 3 billion of revenue for the economy. The industry exported films worth $m 250 to the overseas markets and generated over 25000 jobs (Broinowski 2018). The Australian screen industry allows the actors, directors, producers and technicians to present their talent on the global stage. The industry showcases aspects of Australian culture and lifestyle in Australia as well as abroad (www.arts.gov.au. 2019). The industry comes heavily under the impact of the macroeconomic contexts both within Australia and abroad. These macroeconomic contexts are like ever evolving technological platforms and changing taxation laws. It is subjected to supervision of several stakeholder groups like government bodies, viewers (individual customers), film distributors (business customers) and technicians. The aim of the report would be delving into the financing and production model issues which the Australian screen industry is facing. The research would largely take into account the financing and production models which are in use. The report would also take into account market threats like competition which the Australian screen industry faces from its overseas counterparts, impact of demographic changes in the country and technological advancements. The research would come to a close by recommending measures which could help to deal with the issues.

A Description of the issues:

The following are the main issues which Australian screen industry is facing in terms of financing and production:

Increasing taxation rates:

The Australian screen industry is facing high rise in costs of film making owing to increase in taxes which the Government of Australia imposes on it. The Report on the inquiry into the Australian film and television industry published by the House of Representatives Standing Committee on Communications and the Arts mentions that the taxation structure which is in practice in Australia is constituted for a period of 10 years. The taxation structure provides a rebate of 40 percent on cinematic productions and 20 percent on television shows production. The report further mentions that the cost of production of both films and television shows have increased and that the prevailing taxation structure is no longer profitable (www.aph.gov.au. 2019). Government financing is one of the most important financing model which is utilized by the screen production house. Thus, one can point out that lack of appropriate government financing and tax rebates would result in increase in cost of film making. This in turn would impede the financial liquidity of the production companies.

Debt financing issues:

The second issue the film production houses are facing is increasing cost of debt financing. The film production companies in order to bear the immense cost of production, usually borrow funds from private companies. Debt financing model is consisted of five categories namely, presales model, television pre-sales, negative pickup deal, slate financing and individual investors. The first category of debt financing model namely, pre-sales model refers to providing financial assistance to film making based on the script and cast of the film. The film maker in this case, sells the distribution rights of the films even before the shooting of the film is completed. The television pre-sales model refers to selling the distribution rights of television shows even before the directors shoot the films. These two categories of models of debt financing enable the film makers and television shows production firms to acquire initial capital in order to meet their expenses. The third debt financing model as far as screen industry is concerned is negative deal pickup. The negative deal pickup financing is a contract between an individual producer and a film making studio. According to the contract, the later agrees to purchase a film on a mentioned date and at an agreed price. The producer concerned has to meet all the expenses prior to the agreed date. The producer has to bear budget overrun, if any. The fourth model of debt financing is gap financing. The film producers acquire capital using the predicted turnover. They would earn by selling the film in the overseas market as a security. The fifth model of debt financing prevailing in the Australian screen industry is bridge financing. The model requires the film maker to acquire a promissory note from the investor(s) concerned to bring a particular actor on board. The investor(s) emphasize on casting the particular actor because of the high market value of the latter. As per Packard et al. (2016), the revenue generation capabilities of the films are not dependent on the guest appearances of actors alone. Events like controversies related to the film cast also impact the profitability of the film. Thus, it is clear that the presence of a particular actor does not invariably guarantee profit generation. In fact, on the other hand, the salary of the concerned highly famous actors adds to the cost of film. The sixth debt financing model of films is slate financing. The model aims to mitigate the risks involved in film making by forming investment package covering several films (Kelly 2016). It can be inferred that the film making and producing business in Australia faces intense risks due to risk factors like competition from films made in Australia as well as films made by overseas film industries entering the Australian market. Petrie (2016) strengthens the argument by mentioning that Australian screen industry faces immense competitive threats in term of market penetration and profitability from its more powerful counterparts like Hollywood. It transpires that diversifying the costs and risks involved in film making over assortment of films acts as hedging instruments. The seventh type of film financing is individual investors financing. It involves obtaining investments from a high-net worth investors who invest in films as a part of their respective investment portfolios. The analysis conducted above brings out that fact the intense competition in the Australian film industry results in lowering of revenue generation of Australian film making companies. The increasing costs of resources like salary of the lead actors and cost of technology have escalated the cost of film making which in turn eat into the profits which film making firms generate (Chow et al. 2016). This low profit margin inhibits the film making companies from paying the investors described and consequently prevents them from borrowing capital to finance future film profits. Thus, it transpires that debt financing is one of the main issues which the Australian screen industry faces.

Increased competition from overseas film industries:

The third issue the Australian screen industry is facing is increased competition from foreign film industries. The root of this challenge lies in the dynamic demographic profile of the country. The Australian Bureau of Statistics reports that around 30 percent residents till 2018 in Australia are of foreign origin. The top five nations which contribute to the population of Australia are England, China, India, New Zealand and Philippines (www.abs.gov.au. 2019). Consumers prefer films belonging to their own cultures (Moon et al. 2015). Considering the fact the Australia is experiencing rise in the foreign population, it can be inferred that there is increase in the demand for foreign films. Thus, it is clear that there is increase in viewership of films of the foreign origin from markets like India, China and New Zealand. It comes to the fore front from the discussion that the Australian screen is facing intense profitability challenges due to this competition of the foreign film industries. Australian screen production firms owing to the high level of competition from their foreign counterparts are not able to generate high revenue (Petrie 2016). This generation of lower revenue prevents them from meeting their debts and high costs of film production. The Hollywood Reporter in an article released in 2018 reported that the Australian Government in order to boost its revenue generation from overseas film production has increased tax rebate rate from 16 to 30 percent. The article also mentioned that Hollywood films like Thor have been shot in Australia to take the advantage of the tax having offered by the Government of Australia (Bulbeck 2018). One can point out in this respect that the film production firms in Australia face competition from overseas film industries even in case of availability of shooting locations. Pratt (2017) strengthens the argument by mentioning that the Australian film production firms have to compete with their foreign counterparts like Hollywood in terms of resources like technicians and actors who might choose to feature in the latter. The competition Australian screen companies’ face from their foreign counterparts extend to finance acquisition as well (Peng 2015). One can infer from the discussion that competition from overseas film industries is one of the most significant finance and production issue.

Figure 1. Graph showing foreign population in Australia till 2018

(Source: Abs.gov.au. 2019)

A discussion and analysis of the data collected:

An analysis of the issues the Australian screen industry faces in terms of finance and production reveals several findings pertaining to the issue. The first issue that the Australian screen production firms face relates to the tax structure established by the Government of Australia. The Government of Australia provides 40 percent and 20 percent tax rebates to the film and television shows respectively, both insufficient to meet the needs of the industry (Aph.gov.au. 2019). This is because the cost of making films and television shows have increased and the tax rebates do not contribute towards lowering the costs significantly. One can iterate that the Government of Australia provides around 30 percent tax rebates to attract foreign film companies to shoot in Australia (Bulbeck 2018). The analysis shows that the very low tax rebates available to the Australian screen companies and high tax rebates to the foreign film companies put the former into weaker bargaining position compared to the latter. The second issue which comes to the forefront upon analysis of the first issue is that though debt financing is used extensively, it reduces the say of the film making firms on the film projects. The financing companies are able to exercise extensive controls like deciding on the cast of the film concerned and as a result reducing the creativity of the film maker. This lack of creativity impedes the directors concerned which in turn impacts the quality of the film and leads to lowering of the profits (Peng 2015). The third issue which surfaces upon analysis is that Australian screen companies face competition from their foreign counterparts in terms of not only revenue but even in terms of locations available, technicians and even actors (Pratt 2017). The whole the Australian screen industry faces these three issues. It is also clear these issues are mutually extensive and one leads to the other and challenge the very sustainability of the very Australian screen industry.

Conclusion:

It can be concluded from the analysis of the financing and production issues that the screen companies based in Australia face, that they need to take strong steps to deal with the issues. The first issue namely, higher tax rebates that the Government of Australia provides to the foreign film companies is likely to be of a disadvantage to the Australian screen companies compared to their international counterparts. Secondly, the extreme dependence on the debt financers would reduce the right of the producers and directors on their own film projects, thus likely to demean the quality of the films and consequent revenue generation. The competition the Australian screen companies are facing from their foreign counterparts are actually escalating these two issues. It is also clear that the mitigation of the issues is not totally in the hands of the Australian screen firms and involves external stakeholders like Government of Australia. However, it can be mentioned that the firms can take certain initiatives which can boost their revenue generation and competitive advantage.

Recommendations:

The following are the business strategies one can propose before the management bodies of the Australian screen companies to deal with the issues:

Foreign expansion:

The Australian screen companies should release more films overseas. This would boost their revenue and enable them to diversify the costs of film making. The Australian screen companies would become less dependent on the debt financers. They would be able to boost their financial strengths and take up larger projects. Taking up of large scale projects would increase the scope of the Australian film makers of earning higher revenue.

Investment in the technology:

The screen making companies should invest in technology. It would enable them to make films by less labour and eventually lower their cost of film production. The Australian film makers would be able to apply techniques like simulation and perceived reality to give their films a more realistic touch. Besides improving the technological aspect of their films, they should shoot certain scenes by using perceived reality thereby reducing labour costs. Use of technology would enable Australian film makers to reduce their costs and boost their profits.

References:

Abs.gov.au. 2019. Abs.gov.au. [online] Available at: https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/3412.0Main%20Features22017-18 [Accessed 30 Aug. 2019].

Aph.gov.au. 2019. Aph.gov.au. [online] Available at: https://www.aph.gov.au › Committees › House › Communications › Report [Accessed 30 Aug. 2019].

Arts.gov.au. 2019. Arts.gov.au. [online] Available at: https://www.arts.gov.au/what-we-do/screen/australian-screen-production-incentive [Accessed 30 Aug. 2019].

Broinowski, A. 2018. Theguardian.com. [online] Theguardian.com. Available at: https://www.theguardian.com/culture/2018/apr/29/the-whole-industry-will-be-gutted-why-australias-film-and-tv-industry-is-fighting-for-its-life [Accessed 30 Aug. 2019].

Bulbeck, P. 2018. Hollywoodreporter.com. [online] Hollywoodreporter.com. Available at: https://www.hollywoodreporter.com/news/australia-increases-foreign-movie-production-incentive-1108612 [Accessed 30 Aug. 2019].

Chow, A., Parrish, J., Snyder, A. and Williams, C., 2016. Investment Opportunities in Film Finance.

Kelly, L.W., 2016. Professionalising the British film industry: the UK Film Council and public support for film production. International Journal of Cultural Policy, 22(4), pp.648-663.

Moon, S., Bayus, B.L., Yi, Y. and Kim, J., 2015. Local consumers’ reception of imported and domestic movies in the Korean movie market. Journal of Cultural Economics, 39(1), pp.99-121.

Packard, G., Aribarg, A., Eliashberg, J. and Foutz, N.Z., 2016. The role of network embeddedness in film success. International Journal of Research in Marketing, 33(2), pp.328-342.

Peng, W., 2015. China, film coproduction and soft power competition (Doctoral dissertation, Queensland University of Technology).

Petrie, D., 2016. Resisting Hollywood dominance in sixties British cinema: the NFFC/rank joint financing initiative. Historical Journal of Film, Radio and Television, 36(4), pp.548-568.

Pratt, A.C., 2017. ‘Imagination can be a damned curse in this country’: Material geographies of filmmaking and the rural. In Cinematic countrysides. Manchester University Press.

Financing and Production Model Issues in the Australian Screen Industry – 1057230

Financing and Production Model Issues in the Australian Screen Industry

Introduction: