Online Exclusive: A Look at Worldwide Production Incentives

October 24, 2011 World Screen
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PREMIUM: World Screen Newsflash looks at how tax incentives and lush locations are luring producers of programming to destinations across the globe.

 

Producers are used to being sellers in the television business, pitching ideas to programming executives. But when it comes to choosing production locations, they are increasingly finding themselves in a buyer’s market as destinations around the world compete to attract projects and the potential benefits they bring to the local economy and tax coffers.
 
Some of the biggest new shows on American TV screens are being made in Central Europe. Production of ABC Studios’ new ten-part series Missing, starring Ashley Judd, is based in the Czech Republic (and is also shooting in other European territories, including Croatia and Turkey). Showtime’s The Borgias is shooting a second series of ten episodes in Hungary. The two high-profile series have one critical point in common. They receive incentives in the form of tax breaks from the countries hosting the productions.
 
“Tax incentives are a huge factor in today’s market,” says David Minkowski, the head of film production at Stillking Films, which plays a central role in organizing the locations for Missing. “Whether you’re talking about making a feature film or a series or a TV movie, you need incentives. Studios and networks want incentives, whether it’s close to home in one of the states or Canada or anywhere else around the world.”
 
The main production base for Missing is Barrandov Studios in Prague. “We are shooting as much as possible of the series there,” Minkowski says. The Czech tax regime, in place for a bit more than a year, offers Missing a break of 20 percent on local spending. In addition to that, there is a 10-percent break on foreign labor costs. “In effect, it means if you have a star making $5 million you get $500,000 back. That is very attractive. The incentives were one of the reasons ABC chose to work in the Czech Republic.”
 
HUNGRY FOR MORE
Hungary offers The Borgias, with an estimated budget in the range of $40 million to $45 million for 10 hours, an incentive of 20 percent of the approved spend in the country, so the producers get 20 percent of the budget back. In addition, The Borgias post-produces in Canada, where the incentive is 25 percent of approved spend. The show is an Irish-Canadian-Hungarian co-production.
 
James Flynn of the Dublin-based Octagon Films, executive producer of The Borgias along with Neil Jordan, previously produced The Tudors for Showtime as a co-production of Ireland and Canada. Showtime was interested in a replacement series and after coming up with The Borgias it decided it made sense to expand the co-production to Hungary by shooting there. “We explored various location options, including Ireland, Spain and Hungary,” Flynn says. “There is a checklist of things that you go through when you’re choosing. Along with the incentives, the studio set-up in Hungary was great. Hungary has a tradition of large-scale sets. We found out they were building a Renaissance village at Korda Studios, which was ideal for us. They have an entire medieval village at Fox Studios, too. Hungary also has good crews.
 
“We make it our business to track the incentives around Europe,” Flynn continues. “Various states in the U.S. are now offering incentives as well nowadays, which not many of them were doing five years ago. We follow changes in legislation and we are alerted to opportunities by people in the field. We do location scouting.”
 
Eastern Europe is also attracting productions with a natural outdoor setting. MarVista Entertainment, which is based in Los Angeles, recently produced Super Eruption, a Syfy original movie, in Bulgaria. The movie was licensed at MIPCOM following the U.S. broadcast. 
 
“This is our first movie in Bulgaria,” says Fernando Szew, MarVista’s CEO. “Syfy had a history of producing in Bulgaria. They suggested that we should explore there and we decided that for this film in particular it made sense. A disaster/catastrophe setting is hard to replicate if it’s supposed to take place in a city, but this was set outside, in Yellowstone, which was an easier task, and the forests and fields in Bulgaria worked. We were able to deliver a film that’s very big for television. It’s bigger in scope than we could have done in the U.S.”
 
Bulgaria has not yet gotten to the point of advantageous tax legislation. For Super Eruption, a 90-minute movie with a budget north of $2 million, lower costs were a big attraction.
 
“There were some incentives for doing it there in the cost differentials,” Szew states. “It’s a lower-cost production environment. Much more important was the history in Bulgaria of a crew base that had worked on things in the past, not just for Syfy, and were good at what they had to do. They have a fairly robust industry. We obviously took key people, but Bulgaria has infrastructure and people. It wasn’t a question of incentives so much as the right fit for the right movie.”
 
MarVista worked on Super Eruption with a local producer, UFO Film. “It was a learning curve, as it always is with a new location,” Szew says. “Now that we have the experience under our belt we would look to try again there. We always have our eyes and ears open. Movies and TV are produced all over the world, and in many different states in the U.S.”
 
Stillking is right in the middle of the globalization and increasing complexity of producing on location. As a line-production outfit it facilitates shooting in overseas destinations by providing an additional layer of administrative services. With a lot of its offshore activity in Prague, Stillking also has offices in Budapest, Barcelona, Cape Town, London and Santiago, as well as Los Angeles, with about 50 full-time staffers.
 
“Usually a company that’s making a film or series does not have a legal presence in the location,” Minkowski says. “We offer that presence. We offer corporate infrastructure. We take care of the incentives, and offer payroll services and cover all the legal and administrative aspects.”
 
Stillking’s growth has followed the upward trend in offshore production. The British producer Matthew Stillman launched the company in Prague in the early ’90s as a kitchen table–type operation. Minkowski joined in 1995 to run the film side of the business.
 
“The mid to late ’90s was when the runaway production phenomenon [films and TV shows shot in locations outside of the market in which they originated] started to take off and the business in Prague just exploded,” Minkowski says. “There has been a big evolution since. We went through the runaway production phase, which was about getting lower costs and better value in a location, and moved into the tax-incentive phase. The whole business is much more sophisticated. Producers are a lot savvier now. It is definitely more competitive. Every country that wants to be in the film business, which is consistently shown to be a net benefit to the economy, needs to create incentives.”
 
RUNAWAY INCENTIVES
Runaway production took off in the ’90s, most notably in the area of TV movies. Production of these in the U.S. dropped by about 30 percent during the second half of the decade, according to the U.S. Commerce Department.
 
The biggest “foreign” location remains Canada, which attracted foreign production spending to the tune of more than C$1.5 billion in 2009–10, up from C$768 million in 1996–97. However, Canadian location spending is down from a peak of some C$1.9 billion in 2003–04.
 
HOLLYWOOD NORTH        
Canada enacted its first incentive program in 1998, and has both federal and provincial incentives.
 
British Columbia, the preferred location, attracted a total of 135 productions in 2009–10 with a production value of C$321.8 million. The projected tax credit on those projects was C$57.3 million. Of those 135 projects, 39 were TV series, 24 were movies of the week, 4 were mini-series and 32 were other TV programs. Nine pilots were also shot in British Columbia.
 
The spectacular growth of incentives is nowhere more evident than in the U.S. In 2000, there were only four states with incentive programs for film production and they offered a grand total of $3 million in benefits, according to the Tax Foundation. By 2005, there were 15 states offering $129 million. That jumped to 24 states offering $369 million the next year, 33 states and $489 million in 2007, 35 states offering $807 million in 2008 and 40 states offering $1.25 billion in 2009. The number of states held steady in 2010 as the amount rose to $1.4 billion.
 
But this year has seen a rollback to 37 states with a total of $1.3 billion in incentives. And the number is set to drop to 35 states next year. One factor has been the weak economy, with governors and legislatures giving preference to other priorities. But, according to the Tax Foundation, the competition among states means that the main beneficiary is the production business rather than local businesses or state coffers. Several governors have targeted the subsidies in their states for elimination.
 
Arkansas, Idaho and Maine have appropriated no funds for their programs this year. Arizona, Iowa, Kansas and New Jersey have suspended their programs and Washington is following suit. The incentive regime may not survive in Alaska, Georgia, Missouri and Rhode Island, and the generosity of treatment has been scaled back in some other states.
 
MarVista Entertainment shot the teen drama series Beyond the Break in Hawaii for The N (now TeenNick). “When we went to make our show in Hawaii there were better incentives,” Szew says. “That has changed now. Hawaii does tend to be more expensive. But you can still get 15 percent to 20 percent of the budget covered with their incentives, making it equivalent to other places. If you want big waves and beaches, that is the place to go. We also did two movies in Hawaii. There is a look to movies shot in Hawaii that is very special. Only Australia or South Africa offer the same sort of potential and they are even farther away with their own logistical issues.”
 
CREATIVE NEEDS       
Incentives and lower costs aside, the creative demands of a project still loom largest. “It is all about the right project in the right place, not the incentives,” says Szew. “It is hard to pinpoint the tipping point. It’s a drawing-board puzzle. Finance and economics play a part, but the decision absolutely must work creatively. It’s about weather patterns and the director’s experience and what the director of photography wants. The creative team must be convinced. Creative absolutely comes first.”
 
“Incentives are an important factor, but the key is whether the location does the script justice,” agrees Octagon’s Flynn. “The options are to do it in a natural location, which is very hard for most drama, or to have a set. Hungary, for example, has high-end designs and sets. They invest in sets.”
 
The issue of location is now part of the creative discussions at an early stage. “I am contacted at a very, very early stage in projects,” Stillking’s Minkowski says. “Sometimes it’s when the script is still in development. A producer calls us and wants to know how can I make this. We do location research to see if it can be done visually as well as financially.”
 
There are still times when only a particular geographical setting will do. An example was an episode of the ITV Studios series Agatha Christie’s Poirot shot in Morocco in May of 2008. Entitled “Appointment with Death,” it was based on a novel set around the ancient site of Petra in Jordan. “We were advised by an executive producer that Jordan would not necessarily be a safe place to film,” Karen Thrussell, the show’s producer, says. “Morocco is very film-friendly and has equipment and crews to hire. It also has some great locations and we felt it could really work with the tone of the film. However, there were not really any financial incentives to work there.”
 
The local partner was a company called Dune Films. The British producers brought most of their crew and equipment from England but had additional makeup, wardrobe, sparks and construction help in Morocco. Plus, they used local background artists and there were Moroccan nationals in the cast.
 
There were practical drawbacks. “On the whole it was a smooth process, but getting British trucks through customs was very nerve-racking as they held them for as long as they wanted,” Thrussell recalls. “Our makeup truck with all the actors’ wigs inside arrived only hours before we were due to start filming. We would have had real difficulty otherwise because you need a lot of wigs for period drama. Getting permission to film in government buildings was also difficult and it often took a long time to get things approved.”
 
What would she say to someone thinking of producing in Morocco? “It’s a very friendly place with lots of interesting locations. Make sure you have a really good fixer who is up front about any problems that may arise and the timescales for solving them.”
 
In Central Europe, the production infrastructure is by no means reliant on foreigners coming to town; local production has become a strong underpinning to the sector.
 
“We are producing programming targeted at our own Central European markets, so we are really less interested in the international appeal of our series,” says Linda Jensen, the CEO of HBO Central Europe. “The important thing is that we create landmark series and television events for our various markets and cultures. We are currently producing for Poland, the Czech Republic and Slovakia, Hungary and Romania. But without a doubt, one can produce in Central Europe for the international audience. Many Hollywood studios, and HBO U.S., do come to our territories to produce. Keep in mind that the region hosts great facilities, including the Buftea studios in Romania, Barrandov in the Czech Republic and Korda in Hungary.”
 
Once again, however, incentives are important. “Many countries do have tax incentives and financial schemes, along with cultural support funds,” Jensen says. “We have obtained funding, together with our producers, from the Czech and Polish film councils in the past. And the current Hungarian tax-rebate scheme is helping our development of Hungarian fiction.”
 
She adds, “We are producing for the local markets. So our ‘lower’ costs are monetized across a lower value (GDP) audience base, if one were to compare them to Western markets. In fact, sometimes we lament that multiple foreign producers in our markets drive the prices up. On the other hand, the foreign presence in the production industry is increasing knowledge and standards of production, which is a great plus for all of us.”
 
FARTHER AFIELD
HBO Romania produced The World According to Ion B, an International Emmy Award winner, and has made the first five episodes of the Romanian version of In Treatment. Local versions of In Treatment are also being made by HBO Poland and HBO Czech Republic as part of their extensive local-production slates.
 
Meanwhile, American and European media companies pursuing productions in markets beyond Central and Eastern Europe and Canada appear to be one of the emerging factors in the locations business. Outside of the U.S., India is the largest market Disney has invested in for local production, producing literally thousands of episodes of local fare. Output is aimed at the Indian market at present, but as Disney becomes more comfortable working in India, a low-cost environment with a variety of natural settings, who’s to say that that might not change someday?
 
As part of the globalizing market, producers have definitely started looking to new continents and countries for locations. “South Africa is popular now,” says Minkowski. “There are incentives to producing there. They are slightly different from what we get in the Czech Republic, for example, but basically the concept is similar. It’s about getting back a sizable chunk of the budget. South Africa’s drawback is the distance you have to come from the States. But it has quite a specific look that is special. We see lots of business—feature films more than television.”
 
LOCAL FLAVOR
South America is up and coming too. Stillking worked on the James Bond movie Quantum of Solace in Santiago. “South America offers great nature, great cities, a European look and an American look,” Minkowski says. “We are doing a lot of commercials in South America. It’s also relatively close to L.A. Another advantage is the different seasons—if you need a winter look in summertime, you can get it in South America.”
 
MarVista is partnering with a company in Argentina called SNAP TV to begin producing in Latin America. “We have a film in Brazil in development and we are looking for a Brazilian partner,” Sew says. “We are also looking at doing one in Colombia. We are very actively looking around.”
 
So is Octagon Films’ Flynn, who will return to Ireland for his next project, a second series of the crime show Love/Hate featuring Aidan Gillen, who had a leading role in The Wire. “I’m based in Dublin so I focus on Europe, but there are other opportunities,” he says. “Australia and New Zealand have flourishing location businesses. South Africa has become very interesting with some attractive incentives. The Emirates and Morocco are starting to emerge.”
 
All in all, the buyer’s market shows no sign of abating for producers, at least outside the U.S.
 
“We are going to reach the point where if you are a producer you are going to be able to make your movie or program exactly where it is supposed to be,” Minkowski says. “It used to be that a few locations were doubling for whatever you wanted and people were faking everything. Now you’re starting to be able to go to the location you really need. It’s a good time to be a producer.”         


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