FILM INDUSTRY INCENTIVE PACKAGE

THE KENYA FILM AND TELEVISIONINDUSTRY REPORT

REPORT TO THE MINISTRY OF FINANCE

By

David Maingi, CEO – Kenya Film Commission

December 2008

The report was commissioned by the Minister of Finance, Hon. John Michuki to propose strategies to catalyze the film & TV industry growth and development.

CONTENTS PAGE:

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EXECUTIVE SUMMARY.........................................................................................................................................3

SECTION ONE - INTRODUCTION .........................................................................................................................8

1.1 Background ........................................................................................................................................................8

1.2 Why is the Film Industry important? ..................................................................................................................8

1.3 Trends in the Global industry? ..........................................................................................................................9

1.4 Kenyan Industry…………………………………………………………………………………………………………..91.4.1 Kenya’s Film History……………………………………………………………………………………......91.4.2 Current Scenario…………………………………………………………………………………………..11

SECTION TWO – PROPOSED INITIATIVES .......................................................................................................13

SECTION THREE – GLOBAL TRENDS IN INCENTIVES ...................................................................................15

SECTION FOUR – PROPOSED KENYA FILM INCENTIVE PACKAGE..............................................................19

4.1 Local Content Incentive………………………………………………………………………………………………..19

4.2 Large Film & Television Film Incentive……………………………………………………………………………….19

4.3 Film Development Fund………………………………………………………………………………………………..20

4.4 Local Authority Film Levy Rationalization…………………………………………………………………………….21

4.5 Film Infrastructure Development ……………………………………………………………………………………...21

4.6 Increased Funding for the Kenya Film Commission………………………………………………………………...22

SECTION SIX: APPENDIXList of figures & Tables ..........................................................................................................................................23Best Practice Case Studies………………………………………………………………………………………………...26

EXECUTIVE SUMMARYRATIONALE:

The film Industry has been identified as a key growth industry with great potential to spur economic growth and help in the realization of vision 2030 through tourist attraction, investment and employment creation. Currently the

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film industry is generating over Kshs.3 Billion annually in Film, documentary and advertising commercials annually. However when performing optimally the film industry can generate over Ksh.40 billion and create more than 250,000 jobs annually. The film industry has the potential of being a top 5 national economic activity if given the right support.

Specifically, Kenya will realize the following economic benefits as a result of a vibrant film industry: Increase in tourism revenue by showcasing the natural beauty of the country globally Position the country as a centre for technological innovation Attract significant levels of foreign currency and increase levels of direct and indirect taxation Provide employment and training opportunities in the entertainment, IT, investment and financial sector Pump direct economic benefits into the country Exponential growth of the film industry as a leading revenue generator for government Boost the domestic film and television physical and technical infrastructure necessary for overall

economic growth

Although Kenya has some of the world’s spectacular locations, it has over the years since mid 1980’s gradually lost ground to other countries because of a lack of incentives (Principally to South Africa). By introducing a reasonable incentive scheme, Kenya can compete for large, medium and low budget films, attract international and local investment and build a national film infrastructure necessary for sustainable economic growth for Kenya.

The proposal doesn’t intend to change the current tax law structure to any extent and may be offered to local and international film production and investment companies. The criteria being that the Kenya Revenue Authority (KRA) are assured of increasing the amount of collectable revenues through these measures. The primary beneficiaries will be the Government through revenue generation, improved national reputation, and Film / TV, trade and tourism industries.

This initiative can be best attained by focusing on two important objectives:

Increase the competitiveness of Kenya as a destination for International film makers

And to increase the potential of the local industry to generate marketable content.

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PROPOSED INCENTIVE PACKAGE:

TYPE DESCRIPTION INTERVENTION BENEFITS ANTICIPATED OUTCOME

Film & TV Production Rebate Scheme

Countries that are in direct competition with Kenya for international film business now offer a combined rebate and incentive scheme of upwards of 25% combining such packages as subsidy, Tax Rebate, Tax credit and Film Financing. Kenya needs to match or at least offer a competitive scheme to benefit from the lucrative local and international film business

Combined incentive scheme of 35% comprising of 25% Tax Rebate based on local spend for film, TV and internet content and further 10% tax rebate (for qualified projects) for both local and foreign film producers that meet the set criteria.

Rebate applies to films with budgets of at least $500,000.

Maximum tax rebate capping at $2.0 million (Initial Funds provision $ 10 million)

Producers Equity Investment Funding through a Commercial Development Finance Agency for qualifying film projects

Encourage big budget local and international film and video production in Kenya to grow the economyAdvance intensive hiring of local technical crew and equipmentIncrease in country film budget spend by providing one stop shop film ready environment

Industry growth to Kshs.40 billion in three years with an exchequer revenue generation of more than Ksh15 billion from direct and indirect taxation on in country film spend

Film Production Equipment and Infrastructure development

Kenya lacks critical film infrastructure to support a robust film industry requirements. This has mainly been due to the high cost of investment required for developing fully fledged production capacities in Production and Post production facilities. A trade incentive is required to allow for an accelerated investment in the industry for cameras, Lighting, Sound, Film Stock and post production facilities

Zero rating of tax on Cameras: Digital (Super 8 – 35 mm), lenses, zoom, heads, tripods, HD / HDCAM, HDV, DVCAM and Beta Cam and Broadcast quality camerasLighting: Gels, Stands, Bounce Boards, practical Lights, Sun Guns, Pepper Light, Red Heads, Blonde, Fresnel Light, HMI Lights etcSound: Booms, Microphones, Mixers, DAT Machines (48 KHz and 44.1 KHz), Digital Audio studio equipmentEditing suites; Digital mastering and editing, reproducers, VCD and DVD production equipmentFilm Stock: Super 8mm, Standard 16mm, Super 16mm and 35 mm

Rapid investment for quality film production infrastructure for use by local and foreign film production companiesState of the art training opportunities for film technical professionalsHigher quality film content production

Kenya Film Industry infrastructure comprising of technical facilities, human capacity and investment in the sector

TYPE DESCRIPTION INTERVENTION BENEFITS ANTICIPATED OUTCOME

Local Authority Film Levy Rationalization

Current practice among local councils

Rationalization and harmonization of local authority location fees by

With predictable levies, film production

Higher local authorities revenue

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is to levy a range of film location fees from a low of Kshs 7,500 per day in Nairobi to a high of Kshs.100, 000 per day in Malindi Municipality for example. These fees in some local authorities are not fixed and are adjusted irrationally.This practice has led to gross exploitation of both local and foreign film production companies as local authorities have the freedom to charge any amount of money. This has discouraged film development in Kenya

classifying and zoning municipalities and local council and stipulating a maximum threshold to reduce exploitation and increase levy fee predictability

Abolishment of all license fees and local authority levies for all local productions to benefit to grow frequency and number of productions per year for local consumption

companies can be plan and budget appropriately. They will also be facilitated to access locations readily and encourage greater use of Kenya’s diverse locations

Major local content development for Kenya

from filming activitiesReduction in cases of exploitation of film production crews on location

Higher number of Kenyans employed in the industry and enough content to meet local demands

Local film content incentive

Provision of a business incentive to local broadcasting stations and film screening companies for commissioning of projects and broadcasting at a specific minimum threshold

Corporate tax incentive of 5 – 10% to encourage distribution through digital broadcasting of Kenyan film content

Broadcasters to commission 75% of all projects to local production companies to build local production quality and infrastructure

At least 50% local content regime and 75% local content commissioning to encourage employment creation and local production of film contentReduction of adverse foreign content in Kenya’s broadcast and screening industryGreater number of commissioned film productions by broadcasters

Higher employment of skilled and semi skilled Kenyans Increased revenue generation for Govt.Contribution towards growth of a national screen culture and distribution of content in Kenya and abroad

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TYPE DESCRIPTION INTERVENTION BENEFITS ANTICIPATED OUTCOME

National Film Development Fund

Provides competitive film development financing for individual local film producers.The fund to support projects in the form of a recoupable contribution towards the production of innovative film , TV, new media, or cross-platform content projects Applications to be evaluated 2 times a year until target funding is expended. Disbursement to match broadcast or distribution commitment available

Setting up of a Revolving Film Development Fund (Kshs. 100 million p.a. for 5 years initially): 25% Sinking fund component & 75% revolving fund component)

Growth in quantity and quality of local film productionsIncrease global distribution of Kenya’s film productionsGrowth of the number of local film production companies

Support for 100 short and long feature films, TV series and animation projects in the first 3 years to spur quality local film productions

Increased funding for Kenya Film Commission

KFC has in the past three years continued to receive inadequate funding to allow it to build a sustainable film industry

KFC requires a budget allocation of at least Kshs150 million annually over the next 5 years to successfully grow the film industry to more than Kshs40 billion

KFC will develop and market Kenya’s locations and incentive programme to deliver a major increase of films shot in Kenya as well as develop a robust well trained and responsive film industry complete with the requisite infrastructure and personnel to make it one of the World’s leading film destinations

Kshs40 billion industry, 50,000 jobs created annually, increase in tourism revenue, tax revenue and global influence and image

This incentive is competitive with other countries. South Africa offers two programmes – one for

international productions providing 15% of qualifying spends with a cap at US$1 Million. The other

is for local films and co-productions, providing 35% of qualifying spend also capped at US$1

million. Australia has 3 rebate programmes: a 15% tax rebate on qualifying production spend as

long as it is between $9.8 million and $32.8 million and 70% of the film is shot in Australia; 15% tax

rebate on qualifying post expenditure for films regardless of whether the production is shot in

Australia; and lastly a 40% tax rebate for films that are deemed to have significant Australian

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content. Ireland offers 20% of local spend. The UK also offers 20%, Canada using both federal and

provincial tax rebate structure of 29% of qualifying spend.

1.0 INTRODUCTION1.1 BackgroundUS Theatrical Release gross budget expenditures on films shot worldwide increased 30%. However, while

production in the U.S. fell 14%, production in the rest of the world increased 135%. The number of films shooting

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outside the US has more than doubled since 1998. This phenomenon is referred to in the US as runaway

production. There are two types of runaway productions – “creative” runaways, which depart because the story

takes place in a setting that cannot be duplicated or for other creative considerations, and “economic” runaways,

which depart to achieve lower production costs. Economic runaways have been caused by producers seeking

more cost effective ways to make their films whether its cheaper labor and/or incentive programs to fund a

portion of their budgets. Canada, Australia, New Zealand, UK/Ireland, Eastern Europe and South Africa have

particularly strong incentive programs with the latter two also offering substantially cheaper labor rates. Films are

no longer only shot where their stories take place.

1.2 Why is this industry important?Firstly, this industry plays a powerful role in communicating ideas, information and ideology. For individuals, film

and television provides at least an indirect link to the rest of society. It has the potential to create a common

culture and system of values as well as inform people of a diversity of cultures and ideas. It can provide minority

communities with local news and entertainment and allow them to see the world through their own lenses.

Secondly, on a political level, this industry provides a forum for debate and discussion as well as information,

which is essential for individual’s participation in community life. It therefore plays a central role in the workings of

a democratic state.

Third, economically this is an industry which turns over billions of dollars and generates millions of jobs

throughout the world. In 2007, the global entertainment industry generated US$180 billion. The entertainment

industry includes film, television, music and publishing. The film and television industry generates jobs directly in

production and post-production companies, equipment-hiring, set design and manufacturing and prop suppliers.

Jobs are also created indirectly in supporting industries such as hospitality, catering and transport .

Film productions with their broad and extensive spending patterns tend to inject needed capital into an economy.

Film productions can provide direct economic benefit to a community. They can pump millions of dollars into a

community -- occupy hotel rooms, eat, hire transportation, utilize IT services, and hire local crews, actors,

directors and producers. Productions pay taxes and in some cases construct studios or other infrastructure. The

direct spending is subject to a multiplier or ripple effect. A recent study by the Los Angeles Economic

Development Corporation shows that every dollar spent on a production in California generates on average a

total economic impact of nearly triple in addition to amounts realized by the state itself in taxes. In Canada, the

multiplier effect is tenfold. It is estimated that 50,000 jobs can be added each year in the initial stages of

ramping up the entertainment industry in Kenya. And allied industries such as ICT, finance, transportation,

tourism, as discussed above will also receive an added boost. A film production can also provide indirect

economic support. For example, a production can also showcase the natural beauty of Kenya thus attracting

tourists.

1.3 Trends in the Global Industry

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A number of trends are evident in the global film and television industry that impact on the Kenyan industry.

These include:

Increasing levels of vertical and horizontal integration as well as concentration of ownership. Vertical

and horizontal integration of entertainment companies result in greater profit maximization due to the

ability to recoup revenue across a number of delivery channels. For example the research and

development cost of a Disney production is recouped through the box office receipts, video and pay and

free television as well as through the sale of merchandise such as T-shirts and stationery with pictures

of the characters printed on them. Increased concentration of ownership has led to higher barriers to

entry for new entrants into the global industry.

Increased distribution channels due to the advent of digital and satellite technology that has created a

greater number of channels. The impact of increased distribution channels has fragmented audiences

who have greater choices regarding the programs that they watch. This has resulted in two options for

filmmakers. They can target a mass audience by accessing bigger budgets in order to employ high

profile actors, actresses and directors and bigger and better special effects. Alternatively, they can

target niche markets and access smaller audiences. It is recommended that the Kenyan industry targets

the latter. Independent producers are most equipped to adapt to local conditions.

A secondary pricing system has developed in the Africa television industry where international second

run films and TV programmes are acquired cheaply thus killing the local productions. Therefore, it is

imperative that broadcasters retain local content quotas.

1.4 The Kenyan Industry1.4.1 Kenya’s Film HistoryAmongst places to shoot in Africa, Kenya has always been a popular location for American and European film

productions. In particular, Hollywood has had a longstanding affair with Kenya that dates back to the 1930's when

adventure films such as The Snows of Kilimanjaro starring Gregory Peck, King Solomon's Mines with Stewart

Granger and Mogambo featuring Clark Gable and Ava Gardner were shot on location in Kenya. In 1966 (check

date) Joy Adamson's book Born Free was made into a hit movie filmed entirely on location in Kenya. The film's

stars Virginia McKenna and Bill Travers went on to form a charity The Born Free Foundation which continues to

support conservation work in Kenya.

In 1985, Hollywood brought to life Karen Blixen’s classic book Out of Africa which was shot in entirely on location

in Kenya and starred Meryl Streep and Robert Redford. With stunning cinematography and a rich music score by

John Barry, the film brought Kenya to life for audiences all over the world. A major box office hit, Out of Africa

went on to win the Academy Award for Best Picture, and drew scores of tourist seeking to experience Kenya.

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In 1989, Kenya was the location for the filming of Bob Rafelson's critically acclaimed historical epic Mountains of the Moon about the Burton and Speke expedition. Filmed in diverse locations including Lamu, Hell's Gate and

Lake Turkana, the film shows Kenya‘s diverse landscapes.

Kenya has since served as location for several Hollywood blockbusters, including the sequel to Tomb Raider. In

2002 Nowhere in Africa a German language film about Jewish refugees struggling to create a new life in wartime

Kenya was shot on location in Nairobi, Baringo, Bogoria and Mt Kenya. The film was a major success, winning

over 14 international awards, including the 2003 Academy Award for Best Foreign language film. The 2005 box-

office hit The Constant Gardener was also filmed on location in Loiyangalani, a small town located on the

southeastern coast of Lake Turkana, and in Kibera.

In addition, Kenya has been a popular destination for television wildlife productions. Many award winning wildlife

series have been shot on location in Kenya by BBC Natural History, Discovery, Survival and other production

houses. The Maasai Mara continues to be the backdrop for BBC's popular Big Cat Diary, following the lives of the

reserves predators. It was recently named one of the new Seven Wonders of the World in a poll conducted by

ABC Television's Good Morning America.

Kenya hit the top of US TV ratings with the arrival of Survivor Africa. The third series of the hit game show was

filmed entirely on location in Shaba Reserve in Kenya. For the producers, Kenya offered the perfect combination

of beautiful locale, stunning wildlife and plenty of opportunity for adventure.

However, over the years, international production has declined and is quite sporadic. Many international

productions have gone to post-apartheid South Africa having been attracted by the country’s processing labs,

better infrastructure, financial incentives, and crew depth and experience. So while Kenya is third in terms of

Oscar winning films shot in the country, South Africa has achieved a critical volume and steady stream of

productions allowing the country to build capacity, new facilities, and to improve infrastructure and existing

facilities. Thus permitting both local and international production to flourish and bringing down costs for all

productions. A more detailed case study of the South African film industry can be found in the appendix.

1.4.2 Current Scenario:

The Kenyan entertainment industry is worth approximately Kshs 6 billion. The Kenyan entertainment industry is

comprised of the broadcasting, cinematic, music and interactive industries. Of this figure, the film and television

industry is worth Kshs 4 billion and employs approximately 15,000 people.

The biggest problems in the industry have been:

Limited access to financing

Limited access to distribution and exhibition facilities

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Insufficient audience development

Few training opportunities for people entering the industry as well as producers, directors and

scriptwriters and other crew currently working in the industry

A small domestic market

Few opportunities to export Kenyan film and television products

A lack of understanding of the needs of the market by Kenyan film makers

Inadequate co-ordination and an absence of standards in training provision

Piracy and weak Intellectual property protection legislative and policy frameworks

Poorly funded Kenya Film Commission

A number of important developments recently indicate that the film and television industry has the potential to

grow significantly in the future.

Firstly, the government has acknowledged the importance of the film and television industry has initiated a

number of important interventions aimed at developing the industry. These include:

Setting up the Kenya Film Commission which aims to promote local content development and market Kenya’s

locations at international film markets

The Government has initiated the National Film Policy that is currently in draft form and receiving comment from

the stakeholders.

Secondly, there are some initiatives already in place to address problems in the industry. These include:

The Kenya International Film Festival: The International Kenyan Film Exhibition which provides an opportunity for

networking and creative hybridism for film makers, distributors, exhibitors, broadcasters and international players.

Currently in its third year, the event continues to go from strength to strength

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2.0 Proposed InitiativesThe Kenya Film Commission will be the most important vehicle for government assistance to the film and

television industry. KFC is plays the following roles and carry out the following projects:

Financing: Provide seed funding to new and upcoming filmmakers.

Co-Productions: Assist with partnering local and foreign film-makers

Distribution: Assisting with opening up distribution and exhibition channels by:

Sending film makers to international markets

Providing more opportunities for exhibition and marketing of Kenyan films internationally

Information provision: Develop a database of the Kenya’s location industry

To ensure that producers wishing to make movies in Kenya can access information at central points

Provide Kenyan producers with information on potential export niche markets in Africa and the rest of

the world

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Facilitate the collection of information by Govt. & Private Statistical Services on the Kenyan industry

itself in terms of economic growth, employment creation and value of exports

Provide information to players in the industry which will enable greater cooperation between different

players in the value chain

Provide information on possible co-production partners in the international industry.

Networking, Communication and Lobbying: Provide opportunities for networking, communication and lobbying by the industry players

The promotion of the location industry: Promote Kenya as a location for foreign productions by:

Setting up a web site providing details on the quality of the location and support services offered in the

country as well as contact details.

Setting up an office which provides support for foreign film makers in the country in the form of

information and assistance with obtaining work permits

Training and Development - The greatest gap in skills in the film and television industry is in the areas of:

Film direction

Production

Distribution and financing

Scriptwriting

Export Stimulation – Organize trade relations in conjunction with the Ministry of Trade, where industry players

and government officials will investigate new markets and make contacts with players in those markets.

Pilot Project - The film and television industry has not been taken seriously as an employment and income

generating industry in Kenya. The best way to show what impact this industry can have would be to run a pilot

project. This pilot project would aim to show the economic and employment creating benefit of the industry,

including the multiplier effects.

This pilot project could take the form of documentation of three productions such as a documentary, a feature film

and a television series. Booklets could then be produced describing:

Development, production and distribution process for each production

How financing was obtained

How much of the budget was spent on writers, crew, actors, equipment, marketing, post production, etc

How many people were employed directly and indirectly

How well the production did financially

lessons learned

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3.0 Global Trends in incentivesThe world of incentives is highly competitive with 40 US states and 27 countries offering incentive programs.

Traditionally international locations and governments have utilized the film tax incentive in order to draw movie,

television, video and new media production to their shores. With the rising cost of labor in the United States

overseas countries tried with great success to lure production away from Hollywood. One of the most successful

of these programs was Canada, which built Vancouver and Toronto into major North American production

centers.

There are obviously many factors that influence the choice of location for feature film production. Sometimes the

decision is based on artistic factors and the exchange rate and applicable labor rates can also play a significant

role. However, the connection between the advent of Canadian Production subsidies in late 1998 and the

dramatic increase in production that occurred in the following year (as reflected by the 144% increase in dollar

volume for the 2000 release year films) appears unassailable as there were no appreciable changes in exchange

rates or labor rates to justify this dramatic shift from one year to the next, other than the subsidy programs. As

does the significant jump from an estimated $412 million of US theatrical releases to over $1 billion as shown in

Table 2. The result of the incentives was to essentially relocate production from the US to Canada. Producers

started shooting Toronto for New York and Vancouver for other parts of the US.

There is a direct correlation between the number of foreign films shot in a country and the strength of that local

film infrastructure. Countries that attract more foreign films tend to have advanced infrastructure, experienced

crew and top-notch facilities.

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Tax incentives have become a major factor in producers’ choice of location. And furthermore, Film Tax

Incentives are the new backbone of film financing equations. Many communities provide rebates of sales tax, or

waivers of local occupancy taxes, while others provide significant income tax benefits to taxpayers to invest in

production in that area. Some of these incentives have been extremely successful not only to attract economic

activity from outside the community, but also to develop local production for cultural and economic reasons. It is

important to design these incentives to effectively produce the intended results. Again, for producers and

investors, the crucial issue will be certainty that the benefits will be available as promised and that accessing the

benefits and working in a given country is cost effective.

Kenya’s most significant location competitor, South Africa offers up to 35% in Tax Rebates. South Africa’s market

share of US feature films shot outside of the country jumped from .2% prior to the announcement of the incentive

to 8.2% after the incentive was put in place. Table 1 depicts the dramatic jump in dollar volume of theatrical

releases shot outside the US. The incentives offered by other countries along with favorable currency exchange

rates can be very lucrative, saving the production 10-15% of the total budget. With crime rates at a high in South

Africa, now is the time for Kenya to step in.

In order for Kenya to become competitive, it must create an incentive program, which encourages and moreover

persuades producers to shoot in Kenya. In addition, the government must create a marketing presentation that

educates line producers and physical production teams about the benefits and history of shooting in Kenya and

mitigates any concerns about the safety, infrastructure, facilities, crew and talent availability, capabilities of the

financial community, as well as the mechanics of the incentive (that it’s straightforward, transparent, easy to

compute, locked in (doesn’t require extra services and additional money), pays as soon as possible in the

production cycle reducing bank fees or at least is bankable, the costs don’t outweigh the benefits, and

guaranteed to be there in the future etc.) Many producers have shot in South Africa and word of mouth is strong.

To get people to switch from what they are used to something new is difficult. A member of the physical

production team at one of the US studios said “Honestly, I’ve never even considered it. South Africa has a 30+

year history of producing firs class commercials for Europe, The Middle East and Asia as well as having a robust

indigenous filmmaking tradition. Their locations are diverse, their crews are excellent and the availability of

equipment is immense. Safety is a bit of a concern in the Eastern portion of the country, but Cape Town is a first

class vacation destination and accommodations are plush, on the order of Sydney and English is the language

spoken.” While some of what he states regarding the experience level of crews and availability of equipment is

accurate, the lack of information regarding amenities, locations and English language crews available in Kenya is

evident. He also mentioned the following concerns - that there is a professional local crew base, availability of

first class accommodations for actors and above the line, that Kenya is safe. He added that he would like to be

enlightened if his perceptions were not accurate.

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The great thing is that once people come to Kenya, they often decide to shoot here. For example both Tomb Raider and The Constant Gardener were going to shoot in South Africa. Once their production teams conducted

location scouts in Kenya, both decided to shoot here. And in the case of The Constant Gardener, they chose

Kenya for creative reasons. Gail Egan, producer of The Constant Gardener said “It just looked so magnificent

and we couldn’t really imagine setting what was so obviously a Kenya story somewhere else. And of course, we

couldn’t have been made more welcome.”

In order to implement and support an economic development plan that encompasses job training, creation of pre

and post-production resources and an ongoing stream of productions both local and international, Kenya must be

competitive vis a vis incentives offered by countries with similar locations, infrastructure and crew base such as

South Africa. However, it also must be feasible. 35% is the amount pictures typically have covered through soft

money. Countries like Australia and South Africa have fabulous incentive schemes; Eastern European countries

are very cost effective. Our challenge therefore is to remain cost-effective and a rebate will help do that.

According to imdb1, since 2004 when South Africa initiated their tax incentive 371 films (including 124 feature

films, 19 TV episodes, 9 Mini-series, 85 TV series) were shot as compared with 81 films (including 17 feature

films) in Kenya. And South Africa has a pipeline of 18 international feature films for 2009 including Hilde the

German film that is shooting in South Africa for Los Angeles (without incentive benefits because South Africa is

cheaper and crews are strong) and the Ron Howard film Colossus for 2010. Kenya has one international feature

film scheduled to shoot in 2009 and two in 2010.

Kenya has many attributes that make it a prime shooting location. Even though tourism has declined due to the

events in December 2007, Barrack Obama’s election has put Kenya back on the front lines as a tourist

destination. Bringing international productions to Kenya would promote the country as a tourist destination and a

safe place to conduct business. It’s long history as the place to go on safari provides world-class hotels and

restaurants. Over the past five years, the country has developed superior telecommunications infrastructure that

is cost-effective. Kenya boasts prime unique locations from its miles of beaches and coast in the east, to its

moonscapes in the north, cityscapes in Nairobi, its mountains, and of course its famed savannahs and lakes.

Kenya has a predictable weather pattern, with an amazing 270 days of sunshine. In addition, Kenya has an

English speaking workforce and labor costs are low. Crime rates are also low in comparison to South Africa.

Last year, there were 50 murders in Kenya compared to 50 murders a day in South Africa.

In order to attract international productions, Kenya needs to put in place a tax incentive program that fulfills both

its needs and that of producers, that mitigates producer concerns, and that is affordable / feasible. In devising a

tax incentive policy, Kenya’s goals should be to reap the direct economic benefits that productions pump into a

community, create jobs, promote tourism, and promote local culture.

1 Internet Movie Data Base (imdb)

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However, there are several challenges to attracting international productions to Kenya, which an incentive

program must address and mitigate. They are as follows:

1) Crew Depth/ Experience

2) Lack of Equipment

3) Lack of Infrastructure

4) Safety Issues

5) Financial Institutions

6) Bankability

7) Currency Fluctuation

8) Unions

9) Cost

10) Facilitation

11) Censorship

12) Reliability of the Incentive

It is important to note that Canada has followed an integrated approach to launching its film/television production-

oriented initiatives during the past several years. This approach begins with a relatively undeveloped production

industry, and launches a series of (usually tax credit-centered) initiatives to attract production activity/investment,

but often create qualifying requirements for those incentives that stimulate hiring of local personnel. As a result,

local production crews, actors, production managers and assistant directors gain valuable experience/training

and are therefore more capable and attractive to other producers. At the same time, investments in physical

infrastructure are sought so that more and more productions can be accommodated. As these production

capabilities expand, other tax incentives such as those for local labor expenditures are offered to further stimulate

demand for local production resources. Ominously, this approach to capture productions is readily replicable by

other countries; in fact, Australia is moving along a very similar path to that pursued by Canada.

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4.0 Proposed Kenya Film Incentive PackageThe proposed film incentive proposal has five pillars namely: Local Industry & Content Development; Large Film

& Television Film Incentive; Film Infrastructure Development; film Development Fund; and increased funding for

the Kenya Film Commission. The package seeks for an all inclusive intervention that will propel the film industry

to be one of Kenya’s key economic sectors generating jobs, government, revenue and content for Kenya in both

the short and long run.

4.1 Local Content Incentive

TYPE DESCRIPTION INTERVENTION BENEFITS ANTICIPATED OUTCOME

Local film content incentive

Provision of a business incentive to local broadcasting stations and film screening companies for commissioning of projects and broadcasting at a specific minimum threshold

Corporate tax incentive of 5 – 10% to encourage distribution through digital broadcasting of Kenyan film content

Broadcasters to commission 75% of all projects to local production companies to build local production quality and infrastructure

At least 50% local content regime and 75% local content commissioning to encourage employment creation and local production of film contentReduction of adverse foreign content in Kenya’s broadcast and screening industryGreater number of commissioned film productions by broadcasters

Higher employment of skilled and semi skilled Kenyans Increased revenue generation for Govt.Contribution towards growth of a national screen culture and distribution of content in Kenya and abroad

4.2 Large Film & Television Film Incentive

This proposal seeks for an introduction of a competitive Incentive scheme for Film and TV production. In

essence, this scheme is a PRODUCTION REBATE, whereby an eligible applicant will qualify for a 25% rebate

and a further 10% for production that incorporates local trainee programmes for both Above & Below-the-Line

personnel. This incentive applies for the qualifying local spend. The applicant will also be able to include as part

of the qualifying spend, the cost of crew members brought in from abroad if a local person is trained in that

position. Eligible projects must have a budget of at least US$500,000 and have at least 50% of principle shooting

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undertaken in Kenya. The maximum rebate for any project is US$2 million. The initial funding provision for this

facility will be US$10 million. The rebate is tax exempt for the purposes of income tax.

To further assist a range of policy initiatives in the present and near future, it is recommended that consideration

be given to the establishment of Producers Equity Investment Fund to allow for further equity participation by

qualified production entities. This component will be managed through the Industrial & Commercial Development

Corporation (ICDC).

ICDC is a self-financing national development finance institution that provides financing to entrepreneurs

engaged in competitive industries. ICDC follows normal company policy and procedures in its operations, pays

income tax at corporate rates and reports on a fully consolidated basis, with its Annual Report freely available to

the public.

In general, ICDC finance will be available for projects within Kenya. The ICDC does not seek shareholding

control or management participation but sees its role as a provider of financial assistance.

Financial participation is usually by way of loan finance. The financing instruments are:

• Equity

• Quasi-equity

• Commercial Loans

• Wholesale finance

• Share Warehousing

• Export/Import finance

• Short-term trade finance

• Guarantees

4.3 Film Development Fund

The Fund will provide competitive film development financing for individual local film producers. It will support

projects in the form of a recoupable contribution towards the production of innovative film, TV, new media, or

cross-platform content projects. Applications for the fund will be evaluated 2 times a year until target funding is

expended. Disbursement of the funds will match broadcast or distribution commitments agreed in advance. The

Film Development programme will support 100 short and long feature films, TV series and animation projects in the

initial 5 years to spur local content development

The Fund will include:

Kshs 100 million p.a. for initial 5 years

25% Sinking fund component

75% revolving fund component)

The Fund will: Grow quantity and quality of local film productions

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Increase global distribution of Kenya’s film productions

Growth of the number of local film production companies

4.4 Local Authority Film Levy Rationalization

TYPE DESCRIPTION INTERVENTION BENEFITS ANTICIPATED OUTCOME

Local Authority Film Levy Rationalization

Current practice among local councils is to levy a range of film location fees from a low of Kshs 7,500 per day in Nairobi to a high of Kshs.100, 000 per day in Malindi Municipality for example. These fees in some local authorities are not fixed and are adjusted irrationally.This practice has led to gross exploitation of both local and foreign film production companies as local authorities have the freedom to charge any amount of money. This has discouraged film development in Kenya

Rationalization and harmonization of local authority location fees by classifying and zoning municipalities and local council and stipulating a maximum threshold to reduce exploitation and increase levy fee predictability

Abolishment of all license fees and local authority levies for all local productions to benefit to grow frequency and number of productions per year for local consumption

With predictable levies, film production companies can be plan and budget appropriately. They will also be facilitated to access locations readily and encourage greater use of Kenya’s diverse locations

Major local content development for Kenya

Higher local authorities revenue from filming activitiesReduction in cases of exploitation of film production crews on location

Higher number of Kenyans employed in the industry and enough content to meet local demands

4.5 Film Infrastructure Development

TYPE DESCRIPTION INTERVENTION BENEFITS ANTICIPATED OUTCOME

Film Production Equipment and Infrastructure development

Kenya lacks critical film infrastructure to support a robust film industry requirements. This has mainly been due to the high cost of investment required for developing fully fledged production capacities in Production and Post production facilities. A trade incentive is required to allow for an accelerated investment in the industry for cameras,

Zero rating of tax on :Re-importation of finished Kenyan films on DVDs and VAT on sale of the sameCameras: Digital (Super 8 – 35 mm), lenses, zoom, heads, tripods, HD / HDCAM, HDV, DVCAM and Beta Cam and Broadcast quality camerasLighting: Gels, Stands, Bounce Boards, practical Lights, Sun Guns, Pepper Light, Red Heads, Blonde, Fresnel Light, HMI Lights etcSound: Booms, Microphones, Mixers, DAT Machines (48 KHz and 44.1 KHz), Digital Audio studio equipment

Rapid investment for quality film production infrastructure for use by local and foreign film production companiesState of the art training opportunities for film technical professionalsHigher quality film content production

Kenya Film Industry infrastructure comprising of technical facilities, human capacity and investment in the sector

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Lighting, Sound, Film Stock and post production facilities

Editing suites; Digital mastering and editing, reproducers, VCD and DVD production equipmentFilm Stock: Super 8mm, Standard 16mm, Super 16mm and 35 mm

4.6 Increased Funding for the Kenya Film Commission

TYPE DESCRIPTION INTERVENTION BENEFITS ANTICIPATED OUTCOME

Increased funding for Kenya Film Commission

KFC has in the past three years continued to receive inadequate funding to allow it to build a sustainable film industry

KFC requires a budget allocation of at least Kshs280 million over the next 5 years to successfully grow the film industry to more than Kshs40 billion

KFC will develop and market Kenya’s locations and incentive programme to deliver a major increase of films shot in Kenya as well as develop a robust well trained and responsive film industry complete with the requisite infrastructure and personnel to make it one of the World’s leading film destinations

Kshs40 billion industry, 50,000 jobs created annually, increase in tourism revenue, tax revenue and global influence and image

APPENDIX 1: LIST OF TABLES & FIGURES

There are obviously many factors that influence the choice of location for feature film production. Sometimes the decision is based on artistic factors and the exchange rate and applicable labor rates can also play a significant role. However, the connection between the advent of Canadian Production subsidies in late 1998 and the

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dramatic increase in production that occurred in the following year (as reflected by the 144% increase in dollar volume for the 2000 release year films) appears unassailable as there were no appreciable changes in exchange rates or labor rates to justify this dramatic shift from one year to the next, other than the subsidy programs.

Based upon the figures in Table 1, domestic Theatrical Release gross budget expenditures on films shot worldwide increased from $5,557 million in 1998 to $7,205 million in 2005 (30%). For the same time period production in the U.S. fell from $3,927 million to $3,378 million (-14%) while production in the rest of the world increased from $1,630 million to $3,828 million (135%). The U.S. market share dropped from 71% to 47% with the rest of the world going from 29% to 53%.

Table 1Estimated Budgets of Domestic Theatrical Releases ($ million)

1998 1999 2000 2001 2002 2003 2004 2005Shot Worldwide

5,557 5,029 5,450 5,599 6,439 6,495 6,957 7,205

Shot in the US

3,927 3,553 3,365 3,244 3,439 3,546 2,972 3,378

Rest of the World

1,630 1,476 2,085 2,355 3,000 2,949 3,985 3,828

% Shot in the US

71% 71% 62% 58% 53% 55& 43% 47%

% Rest of the World

29% 29% 38% 42% 47% 45% 57% 53%

Production outside of the US:

Table 2 depicts the dollar volume of Theatrical Releases shot outside the U.S. During this period, Canada’s market share of this international production increased from 26% in 1998 to 49% in 2000 and then fell to 31% in 2005. Expenditures in Canada went from $430 million in 1998 to a high of $1,373 million in 2004 (219%) then dropped to $1,200 million in 2005 (-13%). The U.K and Ireland market share of Theatrical Releases shot outside the U.S. went from 26% in 1998 to a low of 9% in 2003 and back up to 21% in 2005. Expenditures in the U.K and Ireland oscillated from $486 million in 1998 to a low of $245 million in 2000 (-50%), (that year expenditures in Canada more than doubled), then rose to $584 million in 2002 (138%) then declining to $257 in 2003 (-56%) then rising to $809 million in 2005 (215%). Overall, expenditure in the U.K and Ireland improved by 66% from 1998 to 2005. Australia/New Zealand grew from a 7% market share of productions not shot in the U.S. in 1998 to 19% in 2005. Expenditures in Australia/New Zealand rose from $113 million in 1998 to $717 million in 2005 (531%).Eastern Europe's market share of productions shot outside the U.S. went from 2% in 1998 to 8% in 2005. Expenditures in Eastern Europe expanded from $30 million in 1998 to a high of $447 million in 2004 (1390%) then dropping to $308 million in 2005 (-31%).

Table 2Estimated Budgets Of Domestic Theatrical Releases ($ million)

1998 1999 2000 2001 2002 2003 2004 2005Outside the US 1,630 1476 2085 2355 3000 2949 3985 3828Canada 430 412 1022 1047 1261 1191 1373 1200% of Total 26.4 27.9 49 44.4 42 40.4 34.5 31.3UK & Ireland 486 450 245 414 584 257 752 809% of Total 29.8 30.5 11.8 27.6 19.5 8.7 18.9 21.1

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Australia/ NZ 113 116 298 65 275 639 219 717% of Total 7 7.8 14.3 2.8 9.2 21.7 5.5 18.7Europe 204 90 275 440 303 349 549 413% of Total 12.5 6.1 13.2 18.7 10.1 11,8 13.8 10.8Africa 48 120 34 0 92 7 325 314% of Total 2.9 8.1 1.6 0 3.1 .2 8.2 8.2Eastern Europe 30 85 70 208 340 191 447 308% of Total 1.8% 5.8 3.4 8.8 11.3 6.5 11.2 8Asia 47 105 131 117 2 126 236 67% of Total 2.9% 7.1 6.3 5 0 4.3 5.9 1.8Mexico 269 85 3 65 106 180 73 0% of Total 16.5% 5.8 .1 2.7 3.5 6.1 1.8 0Others 3 13 7 0 38 10 10 0% of Total 0.2% .9 .3 0 1.3 .3 .3 0

The incentives offered by other countries along with favorable currency exchange rates can be very lucrative, saving the 10% to 15% of the total budget. On a $50 million dollar film, the very film most incentives are targeted at, the producer saves $5 million to $7.5 million. At the current exchange rate the savings in Canada on labor 42.1%, a $25.00 an hour technician costs the producer $14.49. The same hourly technician in Australia costs $16.14 (35.4%), and in New Zealand $13.71 (45.2%). And then there are countries with low wages and high exchange rates, in Eastern Europe a $25.00 an hour worker costs the producer $2.50 an hour. Also, more and more countries are offering incentives that include visual effects and postproduction, a significant employer, and up to now dominated by the U.S.

U.S. state incentives are working, but it is not clear if they are they keeping production from leaving the U.S., or just moving them from one U.S. location to another, especially if a location doesn't offer any incentive. State incentives on average are 15% of qualified labor which means that a $25.00 per hour worker will cost the producer $21.25 an hour, comparatively, Canada saves the producer an additional $6.76 (27%), Australia $2.61 (10%), and New Zealand $7.54, (30%).

As seen in Table 3, historically, 11% of the savings in Canada is from the exchange rate, and 28% is from the federal and provincial rebate, a $25.00 an hour worker in the U.S. has a net cost in Canada of $15.38, a savings of $9.63 an hour (38.5%). In Australia the currency represents 24% savings and the rebate saves 16%, for a total savings of 39.9%. In the U.K. the entire savings is from the incentive as $1.00 U.S. is currently valued at $0.53 in the U.K.

Table 3

Rate (per/hr)

Exchange Rate

Federal Rebate

Province Rebate

Cost to Producer

Total Savings

% Total Savings

Canada $25 $1.12 16% 18% $15.38 $9.63 38.5%Australia $25 $1.31 12.5% 10% $15.03 $9.97 39.9%New Zealand

$25 $1.56 12.5% 0% $14.02 $10.98 43.9%

United Kingdom

$25 $1.00 16% 0% $21.00 $4.00 16.0%

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Benefit and Cost of Foreign Federal Production Incentives

As shown in table 4, the Canadian government in 2005 paid an estimated $58 million in feature film incentives resulting in 48,000 jobs, at a cost of $1,200 per job. The federal Canadian incentive is only on what a foreign feature film spends on production labor, this averages 30% of the total budget -- the percentage increases on lower budget productions, and decreases on large budget films. In Australia/New Zealand, and the U.K/Ireland the incentives are for all "in-country" expenditures including; postproduction, visual effects, and foreign talent and labor, as long as they pay in-country withholding taxes.

Table 4

2005 Estimated Budgets ($m)

% of Budget Rebated

Eligible for Rebate ($m)

Federal Incentive

Estimated Cost ($m)

& of Total Budget

Estimated Jobs

Estimated Cost Per Job

Canada 1,200 30% 360 16% 58 5% 48,000 $1,200Australia/NZ 717 70% 502 12.5% 63 9% 28,680 $2,188UK/Ireland 809 80% 647 20% 129 16% 32,360 $4,000

APPENDIX 2: BEST PRACTICE: CASE STUDIES

CANADA

The Canadian government has long recognized the importance of film and video as a cultural resource, a vehicle of artistic expression, and a mechanism for reaching vast audiences. Through the creation of the National Film Board, the Canadian Broadcasting Corporation television networks and production facilities, Telefilm Canada (Telefilm), and the Canada Council's film program, the government has moved to provide an artistic, technical, and economic climate in which Canada's creative talents could be translated onto the screen to be seen by audiences in the country and abroad.

CAVCO was created in 1974, along with the introduction of the CCA program for Canadian feature films, which was designed to increase private sector support of the Canadian feature film industry. The CCA program was essentially a tax shelter program whereby an investor could write off 100% of the budget. The generous incentives caused a stampede into the film business. The result was a wave of secondhand third-rate American-

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style movies that made little money and were quickly forgotten, along with a few that managed to succeed at the box office – such as Porky’s and Ivan Reitman’s Meatballs.

On December 12, 1995, the federal government introduced the Canadian Film or Video Production Tax Credit (CPTC) replacing the CCA program. It initially provided a refundable tax credit of 11% which was raised to 16% in 2003 and then again in 2004 to its current rate of 25% of the lesser of qualified labor or production expenditures, up to a maximum of 48% of the total eligible costs of production, net of assistance, thus providing up to 12% of the total budget.

CAVCO currently administers two Federal tax programs with the Canada Revenue Agency (CRA):

1. Canadian Film or Video Production Tax Credit (CPTC)

The objective of the CPTC is to encourage Canadian programming and to develop an active domestic production sector. This fully refundable credit is available at the rate of 25% of lower of the qualified labour or production expenditure of an eligible production. The credit was designed to encourage a more stable financing environment and longer-term corporate development for production companies, rather than focus simply on single project financing.

2. Film or Video Production Services Tax Credit (PSTC)

The PSTC is designed to enhance Canada as a location of choice for film and video productions employing talented Canadians, as well as strengthen the industry and secure investment. The PSTC is available at a rate of 16% of qualified Canadian labor expenditures.

Through a loophole the production services tax shelter program remained in effect until 2002 offering considerable combined savings, especially to the studios. At that time the exchange rate was $1.47 for every $1.00 U.S. Savings could run 10% to 25% of the total budget. The loophole was closed in 2002 causing a ripple effect through the economy. The larger the budget, the smaller percentage of the budget that is covered by the labor focused production services tax credit. The old tax shelter compensated for the lower rate of return.

Each province in Canada - Ontario, Quebec, Nova Scotia, Alberta, British Columbia, Manitoba, Saskatchewan - also has a provincial tax credit program. These incentives range from 35% to 60% rebate based on labor and production spend.

Since the June 1998 revision of the Canadian Production Services Tax Credit (PSTC) and other rebates and incentives, the overall value of production in Canada has risen in total dollar volume by $635 million (154%). The U.S. has suffered a corresponding fall in annual production expenditures from 1998 to 2001 of $683 million (17%).

In 2006/2007 the Total volume of Canadian film and television production was $5 Billion, a 3% growth in this year and an increase from $3 Billion total volume in 1996/1997.TV production accounts for 42% of this total. Film and TV production generated 126,900 full time equivalent jobs in Canada in 2006/07

According to the CFTPA's The Profile 2008 for Canadian Feature Films in the fiscal year April 1, 2006 to March 31, 2007 the total financing with tax credits was 22% (Federal 5%, Provincial 17%). The Total Volume of Canadian theatrical production in the fiscal year 2006/2007 was $282 Million. The number of Canadian theatrical films in the fiscal year 2006/2007 was 96. The number of full-time equivalent jobs in Canadian theatrical production was 2900 direct jobs and 4600 indirect jobs, for a total of 7500 jobs.

In 2006/07 Canadian owned production rose to $2.4 Billion, close to 50% of all TV and film production in the country. Tax credits paid for 26% of this or $624 Million was paid for by both the federal and provincial government.

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SOUTH AFRICA

The South African local film industry has suffered as a result of the strong rand in recent years and it has been difficult to remain competitive in comparison to destinations such as Ireland, Australia, New Zealand and Canada. All of these countries have set up incentives to draw international films. Against these attractive incentive programs in conjunction with the uncertainty caused by South Africa’s fluctuating currency, the industry was struggling despite the fact that production costs are 40% cheaper than in the US.

Armed with the knowledge that the biggest challenge in attracting foreign filmmakers to South Africa is cost, the government launched a new incentive scheme that is more competitive and will likely boost both local and foreign films shooting in South Africa. The Department of Trade and Industry (DTI), the South African Film and Television Production and Co-production offers a 35% rebate on the cost of feature films, telemovies, television drama series, documentaries, animation and short form animations produced by South African filmmakers and co-production treaty members. The second scheme is the Location Film and Television Production Incentive, which offers foreign film companies (once they incorporate a special purpose corporate vehicle) a 15% rebate on the costs of filming in the country. Both schemes are set to run until 2014. And it is important to note that both schemes are capped at R10 million (US $1 million) per production and exclude Reality TV, Discussion programs, Current affairs, News, Advertising programs or commercial, Panel programs, Variety programs or a programs of a like nature, Public events including sports events, and training or “how to” programs.

The Location Film and Television Production Incentive requires that at least 50% of the principal photography, and a minimum of four weeks, must be shot in South Africa. This incentive is expected to increase both foreign direct investment as well as the country’s international profile by attracting big-budget foreign films and to create much needed job opportunities. And it appears to have been successful. South Africa has 18 films shooting in 2009 and 2010 with three very large budget films Clint Eastwood’s The Human Factor starring Morgan Freeman and Matt Damon, Mira Nair’s Amelia starring Hilary Swank and Richard Gere, and Ron Howard’s The Colossus.

The revised film production incentive intends to increase local content generation and improve location competitiveness for foreign film productions in South Africa. The local production incentive scheme is designed to support South Africa’s film industry and create job opportunities, while the location incentive for foreign filmmakers aims to encourage and attract big-budget films to the country, increasing both foreign direct investment and the country’s international profile. The South African film and television production incentive provides more financial support for both locally-owned productions and co-productions. It is available to both South African productions and official treaty co-productions with a total production budget of two comma five million rand and above. South Africa has co-production treaties with the following countries Canada (1997), Italy (2003), Germany (2004) and the UK (2007). And if a film qualifies as a co-production, it is eligible for the incentives in both countries.

The key changes that were introduced are:

* The reduction of the threshold from R25 million QSAPE for foreign-owned productions to R12 million, (to attract lower budget international productions)* A differential requirement that local-owned productions and co-productions must have at least two comma five million rand of total production budget,* An increase of the rebate from 25 percent up to 35 percent for local productions in order to ensure higher financial support for local productions* The reduction of the threshold will make the bundling of productions unnecessary for producers.

The incentive is structured in such a way that it will provide necessary impetus to the growth of the South African film and television production industry thus creating an environment conducive for South African producers to attract investment and develop stable output and sustainable production companies.

In addition to the financial support provided through the new rebate incentives, a number of other measures are being implemented as part of the broader sector development strategy. These include capacity development for emerging production companies, the development of writers and editors through the enterprise development program and the establishment of five pilot programmes in different locations to address distribution infrastructure, local content and audience expansion.

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The South African incentive scheme has been successful both on the local and international level. Tsotsi, a wholly South African production, won the Academy Award for best foreign language film in 2006. Warners Brothers’ 2006 film Blood Diamond, filmed on location in South Africa, was nominated for five Academy Awards. The country’s other recent movie successes include Yesterday, nominated for an Oscar in 2005, and U-Carmen eKhayelitsha, awarded a Golden Bear at the prestigious Berlin International Film Festival in 2005.

Co-productions have provided access to filming expertise from outside of the country by forming creative and financial partnerships. They have certainly provided South African crews good experience and have earned them high reputations with outside producers. Since the incentive program, not only has South Africa developed its crew base and depth, but has attracted investment to create soundstages and has an investment community that has film finance capabilities and will lend against the tax credit.

From 2004 – 2008, DTI approved 40 applications for the rebate (26 foreign, 16 local, and 7 co-productions). In 2008, the organization has already approved a total of 22 (8 foreign, 12 local and 2 co-productions).

AUSTRALIA

The Australian Screen Production Incentive has three mutually-exclusive strands:

the Location Offset;the Post, Digital and Visual effects (PDV) production Offset andthe; Producer Offset.

The Location Offset offers a 15% rebate on Qualifying Australian Production Expenditure (QAPE), as long as QAPE amounts to at least A$15 million ($9.8 million). The Location Offset may not be combined with either the PDV Offset (Post, Digital and Visual effects production) or Producer Offset. To be eligible, film and television productions must have a total Qualifying Australian Production Expenditure (QAPE) of at least A$15 million. Australian spends of between A$15 ($9.8 million) million and A$50 million ($32.8 million) must represent 70% of the project's total (worldwide) production expenditure. To be eligible, television series must spend an average of A$1 million per hour of finished production.

The Post, Digital and Visual effects production (PDV) Offset offers a 15% rebate on Qualifying PDV Expenditure (QAPE incurred on or in relation to PDV work), and is available for projects spending a minimum of A$5 million ($3.3 million) in Qualifying Australian PDV Expenditure, regardless of whether the production is filmed in Australia. Qualifying expenditure includes (but is not limited to) visual effects, audio and visual editing and mixing, orchestration, green-screen photography and many other tasks. It can also include salaries, per diems and travel for post, digital and visual effects production staff and crew, as well as rental of relevant facilities and equipment. The PDV Offset may not be combined with either the Location Offset or Producer Offset.

Eligible productions must have a total Qualifying Australian PDV Expenditure of at least A$5 million. Applies to expenditure on or related to PDV activity on a feature film, telemovie or television mini-series or series.

The Location and PDV Offsets are administered by the Australian Federal Government's Department of Environment, Water, Heritage and the Arts (DEWHA).

The Producer Offset is available exclusively for producers of film and television projects with Significant Australian Content (SAC) or official co-productions and is worth up to 40% of Qualifying Australian Production Expenditure (QAPE). The minimum QAPE must me A$1 million ($657,000).

Australia also has regional incentives in South Australia, Queensland, and Victoria.

NEW ZEALAND

Through a tax loophole the New Zealand government was instrumental in the financing of the "Lord of the Rings" trilogy. The Government assisted New Line's "Rings" project by allowing the studio to form shell companies that

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got tax breaks and then "sold" the finished film to New Line. That cost the New Zealand taxpayer more than $100 million and the loophole was closed as soon as the "Rings" films wrapped and is highly unlikely to be reopened.

In July 2003, after first rejecting the idea, the New Zealand introduced an incentive plan targeted at large-budget offshore productions. The policy is a bid to remain competitive in the offshore sector, particularly given the effectiveness of neighboring Australia's tax rebate system for production, on which the New Zealand model is largely based.

Under the plan, a 12.5% "expenditure grant" - essentially a cash rebate - will be given to productions budgeted between NZ$15 million and NZ$50 million ($8.7 million and $29 million) that spend at least 70% of their budget in New Zealand. Productions with budgets exceeding NZ$50 million ($29 million) automatically qualify for the grant.

In March 2006, New Zealand extended its incentive program. New Zealand has extended its film rebates to 2009 to attract more "King Kong"-sized movies. The rebate was launched in 2003 to maintain Hollywood interest in New Zealand after the success of Peter Jackson's Kiwi-shot "The Lord of the Rings" trilogy.

In 2005 the scheme paid $33.3 million for five projects including Jackson's "King Kong" for Warner Bros. (interim payout of $16.6 million) and Walden Media's "The Chronicles of Narnia: The Lion, the Witch and the Wardrobe" ($10.3 million). Without incentives like this grant system, New Zealand wouldn't have been considered. New Zealand is home to Weta Digital Ltd, an Academy Award winning visual effects facility based in Wellington. Their credits include: "King Kong," "I, Robot," "Van Helsing," "Return of the King," "The Two Towers, "Fellowship of the Ring," "Contact," "The Frighteners," and "Heavenly Creatures."

UNITED KINGDOM

In place of the mind-bending complexity of old is a transparent new system of rebates that pays out promptly, so long as your film passes the British culture test or qualifies under an official co-production treaty. Even though the rebate is only paid once a film is complete, the U.K. Film Council will apply the culture test in advance, so that companies can know whether their project will be eligible. The test is based on points for using British material, subject matter, talent, facilities and locations. In marginal cases, the UKFC has some discretion to award marks for projects perceived as making a "cultural contribution" to Blighty, even if they don't quite tick all the right boxes.

In truth, if you shoot in the U.K., it's a hard test to fail -- though in the case of big international projects such as "Prince of Persia," some maneuvering on the amount of post-production done in London was necessary. For budgets under £20 million ($37 million), the rebate is 25% of qualifying expenditure. For bigger-budget movies, it's 20%. Qualifying spend is defined as all direct production costs within the U.K., up to 80% of the budget. There is no cap on the amount which can be claimed. Above-the-line salaries are included, regardless of the nationality of the talent. So Russell Crowe's fee in Ridley Scott's "Nottingham" will be eligible. Films including those made under official co-production treaties, must reach a minimum UK spend requirement of 25%. Because the rebate is paid on completion, indie producers typically need to take out a bridging loan to cover the gap in their budgets, which generally nets them only around 80% of the value. The good news, however, is that HM Revenue and Customs pays out within a month of receiving an application.

The biggest reason for this surprising result is the U.K.'s tax credit, is described by Olsberg as "one of the most generous incentives in the world." This goes a long way to mitigate the U.K.'s relatively high upfront cash cost of production. Marc Huffam, exec producer of "Mamma Mia!," testifies that the tax credit made a big difference to Universal's calculations about where to shoot the Abba musical. Despite its Greek island setting, the production spent a bare four weeks on location in the Aegean, with the rest filmed on soundstages at Shepperton.

THE UK FILM COUNCIL

The UK Film Council is the UK’s strategic agency for film in the UK. UKFC strives to make the UK a hub and natural home for film in the digital age: a place with diverse and vibrant film culture and a flourishing, competitive film industry.

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The UKFC works closely with the Government and the film industry – offering policy advice about industrial, economic and cultural issues affecting film. We make policy and provide funding. Every year they distribute around £27 million from the National Lottery and £27 million from the Government to support: script development, film production, short films, film export and distribution, cinema, film education, culture and archives, festivals and audience support schemes.

Film productionWe support the production of British feature films through two funds:

The Premiere Fund provides £8 million a year to finance production of popular, mainstream films, for example St. Trinian's,Stormbreaker, Severance, Miss Potter and Becoming Jane.

The New Cinema Fund releases £5 million a year to innovative film-makers, helping to back movies like Red Road, The Wind that Shakes the Barley, This is England and London to Brighton.

Short filmsShort films can help new film-makers break into the mainstream. Our New Cinema Fund supports several short film schemes. Finance provided through the scheme has allowed Andrea Arnold (Wasp, Red Road), Duane Hopkins (Love Me or Leave Me, Better Things) and other directors to move from shorts to full features.

Film distribution and exportWe want to widen the choice of films shown at UK cinemas. Our Prints and Advertising Fund provides £4 million a year to support the distribution of films that might otherwise not be shown widely, among them, The Curse of the Golden Flower, Volver and Tell No-One. Our export funding helps to sell and finance the screening of British films around the world.

CinemaTo help make 'going to the pictures' an even better experience we've invested in 240 digital cinema screens across the UK. We also provide improvement grants to independent cinemas.

Film education, culture and archivesWe promote knowledge about film through a range of funding schemes, including our , Archive Fund and First Light - - a £1.1 million a year Lottery funded digital short filmmaking scheme aimed at helping young people to gain first hand experience of filmmaking..Festivals and audience support schemesStimulating greater audience choice is one of our four key aims and supporting film festivals is a great way to do this. We also fund myfilms.com – a useful film information website.

SkillsWe provide £6.5 million a year to Skillset to support a national film skills and training strategy.

National and regional filmWe provide around £8 million a year to national and regional film bodies, supporting their efforts to build a clear film strategy and provide financial support for a wide range of film related activities.

ISLE OF MANN

Isle of Man Film, formerly known as the Isle of Man Film Commission, began in 1995 as part of the Government's economic diversification policy and is managed under the Department of Trade and Industry. Since then, the Isle of Man has produced some 80 films and TV dramas and has become one of the busiest film locations in the British Isles.

The Isle of Man Media Development Fund ('MDF') has been established to make available equity investment to film and television productions shooting on the Isle of Man.

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The MDF is run by CinemaNX Limited ('NX') and offers a broad range of film investment including:

Advances against specific territories

Discounting of Tax Credits and other 'soft' money

Provision of contract discounting and 'gap' financing

NX does not have any upper or lower limit on its individual investments and is able to offer from 10% to 100% of a film's budget.

NX decisions are considered on a case by case basis. However, the funds are largely available to producers with a certain track record. And most of the films produced to date have underperformed (including Sparkle, Stormbreaker and Miss Potter) with the exception of Iron Man.

To be considered for investment, your project should normally:

Be filmed wholly or in part on the Isle of Man (at least 50% of all principal photography to take place on the Island)

Be capable of spending at least the equivalent of 20% of the below the line budget with local service providers

Be capable of being completion bonded

NEW MEXICO

One of the country’s most successful programs is in New Mexico, which has backed movies like the Oscar-winning “No Country for Old Men” and next year’s “Terminator Salvation,” the latest sequel in the action series, with a reported budget of $200 million.

New Mexico officials boast of having used a 25% production cost rebate to build a local film industry that has attracted more than $600 million in direct spending since 2003, and an estimated $1.8 billion in total financial impact, as of last June. And in fiscal year 2008, the productions in the state generated 142,577 days of employment, up from 25,293 in 2004. The rebate is structured as a refund not a credit on the full amount of the expenditure, not just the tax portion. There is no minimum spend required and no cap. The law also allows filmmakers to get their tax credits immediately, allowing the money to go directly into the film's production budget.

As the country grappled with so-called "Runaway Production" - projects going overseas to cheaper locales, the States started coming up with tax based incentive programs to keep the jobs at home. The theory is, if Producers find it more beneficial to film in a particular state economically, they will. And they were right.

State film incentive legislation and their proponents grew. New Mexico for example started one of the most aggressive and successful programs and film production there exploded. As more films came to the state, more crew members were trained and gained experience creating more jobs and enlarging the base and number of production crews available to inbound productions. This program was repeated in many states, Louisiana being the next most significant player in the growing field. New York, Connecticut and Massachusetts followed suit.

New Mexico also offers loans, with participation in lieu of interest, up to $15 million per project, (which can represent 100% of the budget) for qualifying feature films or television projects. Terms are negotiated and budget must be at least $2 million. The state has established a fund of $85 million for the purpose. The money comes in the form of no-interest loans, repayable in two to five years. The state will invest as much as $7.5 million in any movie that passes muster with the New Mexico State Investment Council, as long as filmmakers agree to spend most of their shooting schedule in state and hire a crew made up of at least 60% New Mexico residents

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New Mexico offers a 50% reimbursement of wages for on-the-job training of New Mexico residents in advanced below-the-line crew positions. New Mexico Supervisors and Keys have the opportunity to hire and mentor qualifying New Mexico crew in advanced positions for the program.

The post-production tax credit expands the film tax rebate to post-production and film rated technologies. This bill responds to the evolution of the industry and opens doors for more techjobs for New Mexicans. The film production tax credit loans bill allows the state investment council to loan a production company up to 80% of its expected tax rebate upfront. Program supports small filmmakers by assisting with cash flow in the early stages of production. The film training program allows film companies to utilize $2 million in job-training incentive program funds. The low-income-county film production tax credit enhances the existing tax rebate by adding an additional 5% for expenditures made to companies and crew members who have lived in the state for at least two years.The state investments in film projects and funds increases the allowable cap on the film loan from $7.5 million to $15 million and increases the percentage of the severance tax permanent fund that can be utilized for film loans from 2.5% to 5%.

MICHIGAN

The trend continues with Michigan offering the highest percentage tax incentive in the nation, if not the world. At 40% statewide and 42% in 102 core cities, Michigan production has experienced a volume of production unimaginable just a few years ago. With over 60 applications and 30 films shot, prepping or shooting since April, 2008 upon passage, the success of this program is indisputable. Crew members are returning to the state, productions are mounting daily, training and facilities are expanding and millions of dollars are flowing into local hotels, restaurants, shops, vendors, equipment suppliers, professional services and transportation.

NEW YORK

In the 90’s New York had a vibrant independent film, documentary, and television community. By 2000, much of this production had moved to Canada and California. In a successful bid to win back this production work, New York began offering an aggressive tax incentive program. The New York City and New York State offer Film Production Tax Credit programs, which when combined provide qualifying film and television productions a fully-refundable tax credit equal to 35% of production expenditures.

The incentive applies to production costs incurred in New York City and/or New York State. Eligible productions include• Feature Films• Episodic television series• Television pilots• Television movies and miniseries

The New York State program provides a refundable 30% tax credit for qualified feature films, episodic television, pilots, and television movies/ miniseries. The New York City program provides an additional 5% credit and was signed into law by Mayor Michael R. Bloomberg on January 3, 2005. The incentive applies to qualified production costs for work incurred in New York State and/or City, and productions must qualify by being based in New York State and/or City. New York City consists of the five boroughs of Bronx, Queens, Brooklyn, Staten Island, and Manhattan. The two programs (City and State) are similar and have similar qualifying thresholds. Projects and costs which qualify for the New York City credit will also be eligible for the New York State program. However, work incurred in New York State but outside the City is eligible only for the State 30% credit.

The State through this program has managed to attract films and television shows such as Ugly Betty from California which in turn in planning an incentive program of its own.

LOUISIANA

* More than $2 billion in productions have been filmed in Louisiana since 2002* The total direct impact to Louisiana's economy is $1.48 billion

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* The percentage of film budgets spent in Louisiana has risen from 33% in 2005 to 87% for 2007* Film-related jobs in Louisiana have grown at a rate of 23% per year* Over 50 projects were completed in 2007 statewide* An estimated 65 projects will be completed in 2008

Success of Key Tax IncentivesThe film industry sat up and took notice in 2002 when the Louisiana State Legislature enacted an aggressive film tax incentive program. Louisiana's film investor tax credit program offers out of state production companies a tax credit equal to 25% of their spending in Louisiana during film production. The labor tax credit offers an additional 10% tax credit based on the amount of Louisiana labor employed during the production.So what has been the impact of these film tax incentives? Without question the lure of tax credits has helped grow the entire film industry in the state. From private investments to sound stage and studios - the impact is being seen all over the state. Many local colleges and universities have already added specialized training programs to satisfy the growing workforce demands.

Key Infrastructure DevelopmentsNot to be overlooked in the success of this young industry was the 40% infrastructure tax credit which has encouraged the development of much needed production support facilities. These new facilities allow film production studios to conduct more of their work in the state thus maximizing their "Louisiana spend." The rate has been decreased to 10-25% based on capital expenditure and date expended as the State has reached a saturation point. The incentive was too aggressive and in 2006 alone, there were 32 soundstage proposals. The State has 6 sound stages and can only support a total of 15. As a result of these measures, skilled laborers have been increasingly moving to the state.

Recently, however, there was a New York Times article detailing the abuses of the Louisiana rebate program. http://www.nytimes.com/2008/10/12/us/12incentives.html

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