A production incentive for sweden by Film Väst

A production incentive for Sweden

A report by Olsbergâ&#x20AC;˘SPI

11th May 2015

A production incentive for Sweden Contents 1.

Foreword by Film Väst............................................................................................................... 1

Executive Summary .................................................................................................................. 2

2.1.

Introduction ........................................................................................................................ 2

2.2.

Market Failure within the Swedish Production Sector ......................................................... 2

2.3.

Fiscal Incentives – a Proven Solution ................................................................................... 3

2.4.

Positive Impact on Production............................................................................................. 4

2.5.

A Self-Financing Mechanism ............................................................................................... 4

2.6.

Other Benefits ..................................................................................................................... 5

2.7.

Preference for a Rebate System .......................................................................................... 5

Sweden’s Challenging Production Landscape ........................................................................... 6 3.1.

Introduction ........................................................................................................................ 6

3.2.

Pressure on Budget Levels and Production Volume ............................................................ 6

3.3.

Pressure on Public Funding ................................................................................................. 7

3.4.

Reduced Private Funding .................................................................................................... 8

3.5.

Costs of Production in Sweden ............................................................................................ 9

3.6.

Resulting ‘Production Flight’ ............................................................................................... 9

3.7.

Outlook for 2015 ............................................................................................................... 10

Sweden and The International Production Sector ....................................................................11 4.1.

Overview of Global Production Trends ...............................................................................11

4.2.

The Production Location Decision ..................................................................................... 12

4.3.

Key Competitors ............................................................................................................... 14

The Global Incentives Landscape .............................................................................................15 5.1.

The Importance of Incentives and Impacts in Other Countries ...........................................15

Why a Production Incentive Makes Sense for Sweden.............................................................. 17 6.1.

Introduction ....................................................................................................................... 17

6.2.

Additional Production Activity .......................................................................................... 18

6.3.

Making Sweden a More Attractive Co-Production Partner ................................................ 19

6.4. Overcoming Financing Shortfalls, Leveraging Investment and Raising Budget Levels ...... 19 6.5.

A Self-Financing Incentive ................................................................................................. 20

6.6. A Cost Benefit Analysis for Sweden ................................................................................... 20 6.7. 7.

Increased Transparency .................................................................................................... 21

The Benefits of a Thriving Production Sector .......................................................................... 22 7.1.

Introduction ...................................................................................................................... 22

7.2.

Expenditure and Employment ........................................................................................... 22

7.3.

Skills Development ........................................................................................................... 23

7.4.

Infrastructure Growth........................................................................................................ 23

7.5.

Screen Production as a Driver of Other Creative Industries ............................................... 23 © Olsberg•SPI 2015

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A production incentive for Sweden 7.6. 8.

Screen Tourism ................................................................................................................. 24

Production Case Studies.......................................................................................................... 25 8.1.

Production A ..................................................................................................................... 25

8.2.

Production B ..................................................................................................................... 25

8.3.

Production C ..................................................................................................................... 25

8.4.

Production D ..................................................................................................................... 25

Key Elements of a Proposed Incentive..................................................................................... 26 9.1.

Rebate Level ..................................................................................................................... 26

9.2.

Type of Incentive ............................................................................................................... 26

9.3.

Eligibility and Expenditure................................................................................................. 27

9.4. Other Obligations ............................................................................................................. 27 10.

Appendix One – Successful Production Incentive Impacts ................................................... 29

10.1. Introduction ...................................................................................................................... 29 10.2. Assessment of Impact at National Level ............................................................................ 29 10.3. Assessment of Impact from Individual Productions ........................................................... 30 10.4. France ................................................................................................................................31 10.5. The UK .............................................................................................................................. 32 10.6. Croatia .............................................................................................................................. 32 11.

Appendix Two – Methodology ..............................................................................................33

11.1. Launch meeting .................................................................................................................33 11.2. Data Gathering/Desk Research ..........................................................................................33 11.3. Questionnaires and Confidential Consultations..................................................................33 11.4. Team Brainstorm and Synthesis ........................................................................................ 34 11.5. Interim Report ................................................................................................................... 34 11.6. Further Research and Consultations .................................................................................. 34 11.7. Final Report and Presentation ........................................................................................... 34

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iii

A production incentive for Sweden 1. FOREWORD BY FILM VÄST Film Väst is one of Europe’s bigger regional film funds and certainly one of the most important film financiers in Scandinavia. Since 1997 Film Väst has invested in close to 500 feature films and a vast number of television drama series. More than half of the co-produced films have been non Swedish. The international interest in having Film Väst as a partner has grown substantially over the years and the fund has seen a dramatic increase in the number of applications over the last five years. International success – measured in admissions and the number of co-produced films selected in the official programmes of the most interesting festivals such as Cannes, Berlin, Toronto, and Venice – has developed in parallel with this. Film Väst – as the lead partner alongside regional Swedish film funds Filmpool Nord and Film i Skåne, with a contribution from the Swedish Film & TV Producers Association – initiated this study into the potential effects of a production incentive in Sweden for many reasons. While most of the non-Scandinavian films the fund co-produces come to do post production in Western Sweden only a few will undertake filming. The reason more productions are not locating in the region is the lack of a fiscal incentive that can be combined with Film Väst’s investment. In recent years an increasing number of Swedish films and television dramas have chosen to locate part of their production to countries with a fiscal incentive. This is good and bad. The films and dramas can be made more economically and at a higher budget. However, the risk is that necessary infrastructure for film and television drama production in Sweden will suffer. Sweden stands to lose vital competency and knowledge. Swedish film needs more money upfront in the Swedish Film Institute’s national support system and a production rebate system. There is a lot less money for film production in Sweden today compared to only a couple of years ago. Investments from distributors and broadcasters have shrunken dramatically. The average budget for a film is a lot lower today than in the past. Artistic quality and audience success is hard to deliver if the budget becomes too low. Until now Film Väst has been skeptical about introducing a production rebate in Sweden. The fund has seen as a risk the potential for a production rebate to replace the state’s political will to support the production of important films. Film Väst has changed its opinion. If we really want to boost national and incoming production of film and television drama we need both a more aggressive and resourceful national support system for film production and circulation; including a production rebate system that the sector and the national economy can benefit from.

Tomas Eskilsson CEO Film Väst

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A production incentive for Sweden 2. EXECUTIVE SUMMARY 2.1. Introduction This study has been undertaken by the UK-based creative industries strategy consultancy Olsberg•SPI (“SPI”) for Film Väst, as the lead partner alongside regional Swedish film funds Filmpool Nord and Film i Skåne, with a contribution from the Swedish Film & TV Producers Association. It provides an overview of the potential for a new, efficient production incentive to enhance levels of film and television drama production in Sweden and deliver a range of benefits to the nation. In the light of the newly proposed changes to the Swedish public support system, which will see the Film Agreement replaced by a new film policy in 2017, it is even more interesting to look at what can be added to reform exciting systems or influence the creation of new ones. In a statement that presented an outline for the new Swedish system the Minister for Culture and Democracy strongly recognised the current market failure and the need for far-reaching measures to improve the situation for the industry. Automatic funding incentives have been introduced by governments in many countries in Europe and around the world and have made a quantifiable – and, in many cases, transformational – impact on the domestic film and television sector and the wider screen economy. An incentive is a tool that can be used to meet a number of objectives, including boosting domestic production and serving to attract high-value international production. Combined with a sufficient level of national film support, this can has highly significant effects on expenditure and tax revenues, inward investment, job creation, skills, and culture. Such are the proven impacts of incentives that a number of countries have introduced legislation in recent years to boost the value of existing schemes to make them more attractive to producers. Meanwhile, a number of countries – including in the Scandinavian region – are considering the introduction of new schemes. Despite Sweden’s world-class creative talent, locations, crews and infrastructure, Sweden is falling behind its competitors. Producers are struggling to finance projects, and budget levels are falling. As a result, many of Sweden’s world-renowned talents are working overseas. The international competition for portable productions means that it can be difficult for Sweden to attract projects to shoot and post-produce in the country, and has in fact missed out on a number of large European films, including UK projects. Moreover, Sweden is also losing some domestic projects to other countries, as producers utilise the incentives and cost savings on offer elsewhere. This document outlines why a production incentive is would rapidly remove the downward pressure on Sweden’s film and television sector and stimulate major growth that would have far-reaching benefits. It explains how such an incentive could help Sweden compete internationally in a significant growth sector – and how this can be achieved with a selffinancing mechanism that requires no additional cost to government or tax code amendment. 2.2. Market Failure within the Swedish Production Sector Sweden’s film producers are facing a relatively new – and highly damaging – market failure issue related to project finance: a failure that damages both the cultural and commercial interests of the sector. Recent years have seen a significant reduction in the amount of funding available for film and television, with some producers pointing to a production shortfall of between 20%-25%. © Olsberg•SPI 2015

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A production incentive for Sweden This is related to a number of factors, including those specific to Sweden and those related to the wider international independent industry. Swedish producers are struggling to attract private equity investment, while changes to SFI investment in the 2013 Film Agreement introduced a system of automatic funding, leading to a 24% decrease in resources for selective production funding from SFI’s film commissioners for feature-length fiction films. Even factoring in automatic funding, the volume of feature-length fiction features backed by the SFI was lower in 2013 than in the previous two years.1 Producers have also been hit by decline of the international DVD market, and the inability of the Video on Demand (“VoD”) market to alleviate these losses. Such decline, combined with other pressures on the independent film business, has meant that producers are less likely to be able to source presales and minimum guarantees from international distributors – another key source of production financing that has dropped in recent years. Overall, estimates of production spend in Sweden point to a decline of around 13% in film and television drama expenditure between 2011 and 2014 – from SEK 1.5 billion overall to SEK 1.3 billion. Such issues underline the longer-term company sustainability issues in the Swedish production sector, with 49 companies only able to make one film between 2009 and 2013. Only six companies made more than five films.2 The outlook for the future is not positive, with financing and budgets under on-going pressure. 2.3. Fiscal Incentives – a Proven Solution Incentives are one method of correcting market failure. Increased public funding through existing support structures, for example, would also assist in closing the financing gap currently faced by Swedish producers currently. However, there is no doubt that a multifaceted solution, which combines on-going, selective support with an automatic rebate mechanism, would be most helpful for strengthening the Swedish production sector. This combination of a new production incentive alongside existing measures of public support would offer producers a range of funding options. Furthermore a new, automatic incentive structure also offers predictability and stability that are vital elements in supporting national content creation, in developing co-productions and in attracting international portable productions. Incentives have been utilised by many nations to overcome such financing issues, stimulating growth in production volume and serving to attract additional investment into the sector. A prior analysis of the European incentives landscape undertaken by SPI found that film sector production spend in countries with an incentive in place increased by around 9% between 2009-2013, compared with 4% in countries with no scheme in place.3 The impact of an incentive can be remarkably rapid. In the UK, for example, the introduction of a new high-end television incentive saw £615 million of production spend in its first full calendar year compared to an estimate of likely production levels made before the introduction of the incentive of £300-£350 million. An incentive would have a rapid impact on alleviating the financing issues faced by Swedish producers. Incentives lower the hurdle for commercial returns (since the rebate is non-

1 Facts and Figures 2013. Swedish Film Institute. 2 Ibid. 3

Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Olsberg•SPI, published by the European Audiovisual Observatory, December 2014.

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A production incentive for Sweden recoupable), which would create a more attractive environment for private investors. This would leverage additional finance into the sector, potentially from new sources. It can also serve as a powerful attraction for film and television drama projects, which can bring very high levels of spend. In the case of the latter, there can be impacts on spend and other areas for many years if production is on-going. Northern Ireland, for example, has seen a direct economic benefit of £82 million from the first four seasons of Game of Thrones.4According to Northern Ireland Screen, Large Scale Production Awards for Game of Thrones resulted in cost//return ratios of between 6.64 and 13.75 over the first four seasons of the production.5 2.4. Positive Impact on Production Sweden already has many of the factors required for a flourishing production sector in place, including talent, crews, and infrastructure. A new Swedish incentive would build on this platform and have an impact on three key areas:   

Stimulating domestic productions that would not have been made due to financing shortfall; or boosting the budget levels of projects that might have been otherwise produced, ensuring greater quality and appeal Repatriating Swedish productions that might otherwise have shot overseas, attracted by the offer of incentives and/or lower costs; and Attracting co-productions and portable international productions, drawn to Sweden by the net cost savings, as well as the nation’s wider film offer.

Each of these areas of expansion would also benefit Sweden’s crucial post-production sector. It is likely that the impact on the first area will be most significant of the three categories in the short term. Immediate interest from international productions would be expected, and it is noted that the highly-developed production community networks developed by Film Väst and other regional funders would make these organisations highly effective in communicating the creation and advantages of any incentive. A crucial impact of an incentive for Sweden would be in raising budget levels. This would be a powerful boost, leading to projects with more commercial appeal and attraction to audiences. In turn, higher levels of quality would also serve to attract further investment. Recent years have also seen Sweden lose production from domestic projects as producers travel to other countries in order to access cost-savings and incentives. Such an incentive would help stem this flow. 2.5. A Self-Financing Mechanism One vital consideration that is not always fully understood about rebate-style incentives is that they are normally self-financing. This is because the additional tax collected from additional productions is substantially more than the amount of rebate that is paid out. For example, France’s tax credit for domestic production creates €3.1 in tax and social revenues for every €1 granted (See Appendix One).

Royals visit set of highly acclaimed Game of Thrones. Press release from Northern Ireland Office and The Rt Hon Theresa Villiers MP, 24thJune, 2014. Accessed at https://www.gov.uk/government/news/royals-visit-set-of-highly-acclaimed-game-of-thrones 5 Opening Doors: A Strategy to Transform the Screen Industries in Northern Ireland: Phase 1 2014-18. Northern Ireland Screen.

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A production incentive for Sweden For governments, this tax yield is also collected many months before the rebate is paid out, creating excess tax revenues. This is because spend occurs during production, while the rebate is triggered afterwards. It is also only paid out following certification – limiting risk. Therefore, the annual amount of the rebate does not displace other types of expenditure in a ministry’s budget, and can generate additional revenues that can be spent elsewhere. For producers, it also means that other types of government funding – such as selective schemes – should not be affected. 2.6. Other Benefits A healthy production sector brings many benefits for a country. In addition to the production expenditure that can be stimulated, projects also impact on employment. Indeed, demand in this area can be so pronounced that Sweden should consider its skills base and the provision of training in necessary areas alongside any incentive legislation. Analysis of countries with fiscal incentives in place showed that “an immediate impact of the introduction of a fiscal incentive in most countries is an increase in production levels to a point where full (or almost full) capacity utilisation is reached”.6 Productions require highly skilled, mobile workers from a large range of roles. Film and television can also be key drivers of other creative industries – drawing on skills from music, theatre, design, and a number of other sectors. This can be very powerful considering the large creative industries growth seen in some sectors recently – including the UK, where the creative industries have outperformed the wider UK economy in terms of jobs growth. An incentive could also stimulate further infrastructure growth, as existing companies respond to increased production throughputs by developing support businesses. This would help provide a welcome boost for Sweden’s post production sector. It would also help draw Swedish talent and skilled film and television workers back to the country from overseas. Screen tourism is now a well-recognised benefit of increased production: with screen depictions of a country or region serving as a powerful motivation for visitors. There could also be transparency benefits from an incentive. While there is little shared data currently in Sweden any certification process would create highly useful data that, if sufficiently collated, could be used to undertake economic analysis, establish baseline data, and provide deep insight into production trends. 2.7. Preference for a Rebate System While there are different models of incentive (see Section 9.2) it is recommended that a cash rebate would be the most helpful for Sweden in terms of assisting in overcoming market failure issue and attaining other goals. This is because rebates are comparatively transparent, efficient, easy to use and understand, and do not require funding from additional third-party investors. A further advantage is that there is no involvement of the tax system with this structure and therefore no need to call the mechanism a “tax” incentive: an often misunderstood and inaccurate description sometimes given mistakenly to all fiscal incentive systems. Most crucially for Sweden, such a scheme would be self-financing as long as sufficient additional production takes place resulting from its introduction.

6 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid.

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A production incentive for Sweden 3. SWEDEN’S CHALLENGING PRODUCTION LANDSCAPE 3.1. Introduction Sweden is a globally-renowned producer of high-quality film and television drama and a major exporter of talent. The country’s film-makers achieve international box office and acclaim, with recent examples including Daniel Espinosa (Easy Money, Safe House, Child 44), Tomas Alfredson (Let the Right One In, Tinker, Tailor, Soldier, Spy), and Ruben Östlund (Force Majeure). In front of the camera, Swedish stars like Noomi Rapace, Stellan Skarsgård, Alexander Skarsgård and Alicia Vikander are well known to audiences around the world, combining work on international and domestic projects. Meanwhile, the Nordic Noir boom has demonstrated the worldwide interest in Swedish stories – and the ability of Swedish television producers to translate those stories into globally attractive television projects. However, despite Sweden’s clear base of talent the country’s production sector is now struggling to fulfil its potential. In recent years a number of financing issues – including factors specific to the Swedish landscape, and factors that are affecting the international independent industry – have meant that producers are facing difficulties attracting or closing funding for their projects. This has led to a situation where a high-value industry with significant growth potential, delivering important economic and cultural benefits, is being stunted. Budgets and production volume are under pressure, and some projects are opting to shoot overseas in order to access the incentives that are on offer in a plethora of countries – unlike in Sweden. The financing challenges facing Swedish producers are outlined in depth in this section. 3.2. Pressure on Budget Levels and Production Volume Sweden is facing a relatively new market failure issue in that the sources of finance for film and television projects have decreased. At a wider industry level this is due to global recession, disruptive digital innovations and marketplace pressures on independent releases. There are also a number of longer-term factors specific to Sweden, including lack of private finance. The difficult financing landscape is putting pressure on budgets, as producers find it necessary to work with limited funds. Data from the SFI show that in 2013, the average budget for a fiction feature with funding from a SFI commissioner was SEK 18.1 million – a 28.5% decline from the 2012 average of SEK 25.3 million.7

Facts and Figures 2013. Ibid. The average budget for feature fiction films with automatic SFI funding was SEK 22.7 million in 2013.

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A production incentive for Sweden Figure 1 – Average Budget of Feature-Length Fiction Films with Funding From a Swedish Film Institute Commissioner, 2009-2013 30

15 20.6

23.1

25.3 18.1

17.2 5

0 2009

2010

2011

2012

2013

Source: Facts and Figures, 2013. Swedish Film Institute.

The downwards trend was noted by consultees, who suggested that the financing shortfall was currently in the region of 20%-25%. Financing difficulties are reflected in an overall decline in production expenditure in recent years. In 2011, overall expenditure was estimated to be SEK 1.5 billion. While no 2014 data were available at the time of writing this report, estimates were created and verified with a number of industry sources. These estimates point to 2014 spend levels representing a 13% decline on 2011, with a total of SEK 1.3 billion, including SEK 550 million on features and SEK 750 million on television drama. These issues are likely to exacerbate difficulties with company sustainability in the Swedish production sector. According to SFI data, while 49 companies made one film between 2009 and 2013, only six companies were able to make more than five. In total, only 25 companies were able to make more than two films in the time period. 3.3.

Pressure on Public Funding

The SFI is a central funder in the Swedish landscape. However the 2013 Film Agreement led to changes in the SFI’s production supports, with the introduction of automatic funding reducing the number of projects that can receive its selective support. According to the SFI, this new automatic funding meant that in 2013 “resources for production funding from a film commissioner for feature-length fiction films decreased by 24%”. 8 Even considering the five films receiving automatic funding from the SFI in 2013 the volume of feature-length fiction films with backing from the SFI from is lower than in 2011 and 2012.

8 Facts and Figures 2013. Ibid.

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A production incentive for Sweden Figure 2 – Number of Feature-Length Fiction Films with Funding From a Swedish Film Institute Commissioner, 2009-2013 25

15 23 10

18 13

0 2009

2010

2011

2012

2013

Source: Facts and Figures 2013. Swedish Film Institute. Note: there were five additional films in 2013 that received automatic funding.

3.4. Reduced Private Funding A key reason for the financing shortfall is the fact that access to private equity is difficult for Swedish producers. According to the SFI, private equity contributed just 1.6% of the average financing for feature-length fiction films with SFI production funding in 2013. Swedish venture equity was worth just 1.3% of the average financing, with 0.3% coming from foreign sources.9 Private equity had a slightly higher average share of the financing for feature-length films with automatic funding with 6% of the average budget (all of which was Swedish venture equity). For feature-length fiction films without SFI production funding private equity contributed 5.4% of average financing in 2013. Swedish private donations represented 2.7% of this total, with Swedish venture equity representing 2.7%.10 Investing in film production carries risk, since all new productions are essentially prototypes. In Sweden, a lack of incentive offers no mitigation of risk for investors – particularly at a time when the global market for independent cinema is facing a number of uncertainties. The following sections outline key challenges affecting the financing of Swedish projects.

9 Facts and Figures 2013. Ibid. 10 Ibid.

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A production incentive for Sweden 3.4.1. The decline of presales and the DVD market Independent films are typically financed through a patchwork of sources, including the producer’s own investment, public money, regional funds, private equity, and presales. A presale is a key source of independent finance, and is the financial commitment from a distributor to buy a film before it has been made or completed. The nature of deals in the content distribution sector has meant that producers have been able – should a project be attractive enough in the market – to secure presales from a number of distributors, and thus source a significant portion of a budget. However, recent years have seen a decline in prebuying, with producers less able to source investment from distributors in Sweden and internationally. SFI data on the average financing for feature-length fiction films without SFI production funding show that presales contributed just 3.8% of average funding. This decline is due to difficulties in the independent distribution sector – particularly the decline of the DVD market. Once a highly-significant revenue stream, the DVD market has declined markedly as audiences have moved to sourcing video content online. However, the revenues from online film distribution has not matched the revenues lost from the decline of DVD – meaning that distributors have less resources to pre-buy content. The scale of decline can be seen in the example of the UK, where the value of retail video sales (all categories) was £1.4 billion in 2013 – down from a peak of £2.5 billion in 2004.11 3.4.2. Broadcaster funding Consultations suggest that funding from broadcasters is also under pressure. While support levels for film are set out in the Film Agreement, it appears that broadcasters are not committing resources beyond these levels, with reduced interest in feature films and fewer pre-buys. Finance has also reduced for television drama projects, with producers reporting that broadcasters are investing less in television drama than in previous years. This development has also occurred at a time when broadcasters, in response to audience expectations, are requiring higher quality productions. 3.5.

Costs of Production in Sweden

A further issue for Swedish producers already working with constrained budget levels is the fact that Sweden is not a cheap nation in which to produce film and television content. The lack of an incentive in Sweden means that these production costs are not reduced in any way – unlike in many other countries. The UK, for example, does not have cheap production costs but the existence of the country’s tax reliefs for film and high-end television effectively provides producers with a cost-reduction for filming in the UK. 3.6. Resulting ‘Production Flight’ With no such incentive in place a number of Swedish producers have been forced to produce their projects overseas. This enables them to access cheaper production costs, and in

11 Statistical Yearbook 2014. British Film Institute.

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A production incentive for Sweden particular, fiscal incentives which reduce costs further and help bridge the financing gap that has opened up in Sweden. To a certain degree, shooting overseas is a natural element of film and television production as film-makers seek specific locations for a story, or to fulfil aspects of a co-production agreement. However, Sweden has experienced the wholesale loss of productions to other competitor countries, such as Lithuania and Hungary solely because of the existence of cheaper costs and, especially, incentives, which are not present in Sweden. 3.7.

Outlook for 2015

Consultations generally suggest that the decline seen in recent years will continue into 2015. The funding situation remains very difficult for producers, with no major factors likely to improve the range and volume of Swedish financing sources in the short term. Meanwhile, wider industry issues in the independent sector are unlikely to lead to any improvement in international sources of finance, with ongoing difficulties in securing presales and minimum guarantees from international buyers. The funding gap that has been identified will therefore continue to be a key issue for Swedish producers, meaning continued downwards pressure on budgets.

ÂŠ Olsbergâ&#x20AC;˘SPI 2015

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A production incentive for Sweden 4. SWEDEN AND THE INTERNATIONAL PRODUCTION SECTOR Driven by considerable global audience demand for high-quality content, film and television production is a fast-growing sector. It is also highly international, with productions opting to move to countries around the world in order to access creative and financial benefits. This section outlines the current international production landscape, Sweden’s position in this landscape, and its competitors. 4.1. Overview of Global Production Trends Film and television are major consumer growth markets. According to PwC, filmed entertainment revenue will pass $100 billion in 2017, with global revenues rising at a compound annual growth rate of 4.5% – from $88.3 billion in 2013 to $110.1 billion in 2018.12 Such growth is being driven by the emergence of new markets, like China, and continued growth in established markets. This expansion has been met with rising production and the emergence of major new investors in content production and distribution, such as Netflix and Amazon. Just as demand for content is global, the production of film and television is now a fully international business, with major feature films and television series now routinely based in countries away from where they might have been developed, financed, or commissioned. Movement of production is a key trend. This is related to creative considerations, such as the need for specific locations, and it is also very much stimulated by the fact that many nations and regions have installed incentives in order to attract productions and the economic and related impacts they create. At the top Hollywood studio level the economic impact of attracting such a production can be considerable, with budgets often well over $100 million. Walt Disney Studios Chairman Alan Horn has spoken about Star Wars costing in the region of $175 million - $200 million13. Recent years have seen studios retrench, making fewer but higher budget films that can dominate the box office and serve as ‘tentpoles’ for the business. Another key trend has been the growth of the high-end television sector, with budgets and the creative ambition rising in this sector. Productions now attract feature film talent and budgets are significant. For example, Scotland expects to see £20 million in spend from the production of Starz / Sony Pictures Television’s Outlander.14 The Northern Irish economy saw a direct economic benefit of £82 million from the first four series of Game of Thrones, creating the equivalent of more than 900 full-time and 5,700 part-time jobs in a region of fewer than two million people, according to the Northern Ireland Assembly.15

12 Filmed entertainment – key insights at a glance. From Outlook insights: an analysis of the Global

entertainment and media outlook 2014-2018. PwC, 2014. http://www.pwc.com/gx/en/globalentertainment-media-outlook/assets/2014/filmed-entertainment.pdf 13 Interview with Alan Horn on Bloomberg TV. April 22, 2014. http://www.bloomberg.com/news/videos/b/6ef7649c-cc8d-4031-9514-e80b21c35227 14 Backing Scotland’s film industry. Scottish Government press release, July 25, 2013. 15 Royals visit set of highly acclaimed Game of Thrones. Ibid.

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A production incentive for Sweden As with features, the production of high-end television is now a global market and governments are as keen to attract these projects as features. The UK, for example, introduced tax relief for high-end television productions in 2013 and saw £615 million generated in production spend in 2014, the first full year of the incentive. 4.2. The Production Location Decision Incentives may be a key factor for international productions looking at where to shoot, but there are a range of factors that producers consider. A project may opt to shoot in a country because of its centrality to story – such as Sony’s The Girl with the Dragon Tattoo in Sweden – but without incentives a country will not be able to attract sustained international interest. Figure 3, below, outlines the centrality of incentives but also other important factors that producers consider. Aside from the lack of incentive, Sweden has many of these in place, with highly regarded talent, well-developed production infrastructure, film commissions and regional funders, and a wide spread of attractive locations spanning urban, coastal, and countryside landscapes. It also offers an attractive lifestyle and a stable, secure environment – vital for producers.

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A production incentive for Sweden Figure 3 – the Production Location Decision16

Creative specifics that will determine the locations and look of the production

Budgeted line-by-line costs of production

The effect of fiscal incentives in reducing such costs

Production infrastructure provision

Depth and capability of crew and their skills

Variety of suitable locations and facilities and whether they are in close proximity

Fluctuations in exchange rates

Personal preferences of key talent, particularly the director and lead actors

Perceived ease of filming including regulations, licences and permits

Effectiveness of support from local film offices and commissions

Communications and lifestyle offer (hotels, restaurants)

Safety and security

Overall ‘film-friendliness’ of the region/state concerned

Source: Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid.

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A production incentive for Sweden 4.3. Key Competitors Sweden may offer a number of key factors outlined in Figure 3 but in the highly competitive international production sector it has struggled to attract major co-productions and other projects – even when there has been interest from major productions in using Sweden. Sweden faces competition from a number of nations, both regionally and internationally. With regards the latter major productions will consider countries with well-developed film infrastructure that offer attractive and well-understood incentives and other funding options. This includes such countries as the UK, Ireland, Germany, the Czech Republic, Hungary and Iceland. Some are be able to offer similar locations to Sweden. Regional competition is also evident, with countries able to attract Swedish projects to shoot abroad including Lithuania, Latvia and Hungary. The outlook is also expected to become more competitive. Currently, there is rising interest in incentives across Scandinavia and it is reasonable to expect that there will be further regional competition in the coming years. Norway and Finland, for example, are known to be examining incentives. Some competitors are able to offer selective funding, which can also help attract projects. For example, the Copenhagen Film Fund has invested €0.81 million in the production of Working Title Films’ The Danish Girl, which shot in the city in 2015.17 Sweden is also able to offer such funding, via organisations such as Film Väst. With an incentive in place, the existence of additional funds in Sweden would be a powerful attraction for potential incoming coproductions.

17 Tom Hooper’s The Danish Girl to shoot in Copenhagen. News item on The Danish Film Institute website,

10th March, 2015. http://www.dfi.dk/Service/English/News-and-publications/News/March-2015/TomHoopers-The-Danish-Girl-to-shoot-in-Copenhagen.aspx

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A production incentive for Sweden 5. THE GLOBAL INCENTIVES LANDSCAPE Given the economic benefits of attracting high-value film and television, many nations have introduced fiscal incentives. Indeed, some have seen such an economic impact from production that they have sought to make their systems more attractive. This section provides an overview of the international production business – and the centrality of incentives. 5.1. The Importance of Incentives and Impacts in Other Countries Production incentives operate by attracting high-spending productions to a region or country that would not otherwise have been produced there, as well as stimulating domestic production levels – pushing up volume and budgets. Practically all of the world’s leading production countries now have incentive mechanisms in place. In Europe, 26 fiscal incentive schemes could be identified in 17 European countries as of December 31, 2014.18 Governments have recognised the assistance that incentives can provide in attracting international production and boosting domestic production. As previously outlined projects can bring significant expenditure, and in the case of some high-end television projects this impact can be made over a number of years. In addition to attracting expenditure, there are also effects on jobs, skills, production capacity, culture, and other areas, as discussed in Section 7. A vital point for governments is that such mechanisms can be formulated so that they are effectively self-financing. See Section 6.5. Provided an incentive generates sufficient additional production (which is undoubtedly the case in most countries analysed) this means that incentives demand no extra costs from government, and should not displace existing public support. Indeed, the existence of both automatic and selective public funding together offers producers strong funding options, and boosts a nation’s attractiveness as a co-production partner. Many nations have seen major impacts from the introduction of incentives. The UK, for example, saw an increase in expenditure in response to the introduction of Film Tax Relief (“FTR”) in 2007. In that year, the UK spend of feature films produced in the UK was £851 million, and while it fell to £722 million in 2008 it has risen to a record £1.47 billion in 2014.

18 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe.

Ibid.

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A production incentive for Sweden Figure 4 – UK Spend of Feature Films Produced in the UK, 2004-2014 (£ millions) 1600 1400 1200 1000 800 600 400 200 0 2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Note: The introduction of FTR in 2007 is noted by the red line. Source: Film and other screen sector production in 2014. BFI Research and Statistics. March 2015.

The country’s introduction of relief for high-end television has had a very rapid impact. In 2014, the first full calendar year of the incentive’s operation, there was a total UK spend of £615 million from 87 high-end television programmes.19, 20 A recent SPI study found that for each pound of FTR granted across the period 2006-07 to 201314, £12.49 in additional GVA was created through direct and multiplier effects. This equates to a taxation return for the Exchequer of £3.74 in additional tax revenues for each pound of relief granted.21 Further evidence of the impact of incentives in a number of countries is outlined in Appendix One.

19 Statistical Yearbook 2014. The British Film Institute. 20 Film, high-end television, animation programmes, and video games production in the UK: full-year 2014.

BFI Research and Statistics Unit release, 3rd February, 2015. 21 Economic Contribution of the UK’s Film, High-End TV, Video Game, and Animation Programming Sectors. A report presented to the BFI, Pinewood Shepperton plc, Ukie, the British Film Commission and Pact by Olsberg•SPI with Nordicity, February 2015.

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A production incentive for Sweden 6. WHY A PRODUCTION INCENTIVE MAKES SENSE FOR SWEDEN This section outlines the relevance of a fiscal incentive to Sweden – and the potential impacts that could be made. 6.1. Introduction Sweden has many of the factors needed for a flourishing production sector already in place. However, the nation’s abundance of talent and its film-making infrastructure are not currently reaching their potential. The domestic sector is being hampered by financing difficulties, while there is a lack of spend from international projects because there is no incentive. Moreover, Sweden is losing domestic productions overseas, where producers are able to find incentives and cheaper costs. While increased public funding could help improve the current financing difficulties, an automatic incentive would sit alongside existing selective funding without displacing it, and offer a robust, cohesive funding support ecosystem. This also enables a nation to target cultural objectives alongside boosting growth in the industry. The introduction of an incentive would likely have an immediate, transformative effect. Domestic producers would be able to attract new investment, helping them traverse the difficulties in the market to produce more films with bigger budgets and heightened creative ambition. Moreover, Sweden would finally be on the map for international producers and be able to operate on a level playing field as a co-producer with countries such as the UK, France, Hungary, Iceland, Lithuania and a host of international countries. The transformative effect of incentive mechanisms was evidenced by a recent study undertaken by SPI on incentives, which concluded that: “An immediate impact of the introduction of a fiscal incentive in most countries is an increase in production levels to a point where full (or almost full) capacity utilisation is reached”.22 The Study also found that countries with fiscal incentives in place tend to have larger film sectors, with above-average growth in the production sector. Strong jobs growth was also found in response to an introduction of an incentive. However, such is the growth potential of a new incentive that a country considering the introduction of such a mechanism should give serious consideration to adequately servicing the rise in production in order to fully benefit from the opportunity. 6.1.1. Producer Survey In undertaking this project, a number of key producers and other figures in the Swedish industry were consulted to understand their perspectives on the potential effects of an incentive in Sweden. Producers were sent short questionnaires relating to the potential production spend in 2015 with and without a hypothetical 20% cash rebate in place. Consultations were then held with each producer over the telephone to discuss their answers, and also gather other insights into the potential impact of an incentive.

22 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid.

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A production incentive for Sweden Producers thought that the introduction of such an incentive would have a marked effect on the Swedish production landscape. The success of an incentive, a consultee remarked, was not a question of when, but of how much. The majority thought that with an incentive in place total 2015 production expenditure would have been higher than 2014, with larger budgets for projects. One predicted that with a 20% rebate in place, the overall production expenditure could be 140% higher than without. 6.2. Additional Production Activity For countries introducing such a mechanism one key benefit is the ability to stimulate or attract production that would not have occurred without the mechanism. In the case of Sweden, this would have an effect across three key categories:   

Stimulating domestic productions that would not have been made due to financing shortfall; or boosting the budget levels of projects that might have been otherwise produced, ensuring greater quality and appeal Repatriating Swedish productions that might otherwise have shot overseas in order to save costs; and Attracting co-productions and portable international productions, drawn to Sweden by the cost savings, as well as the nation’s wider film offer.

It is clear that incentives can stimulate growth. In an analysis undertaken by SPI, film sector production spend in European countries with an incentive in place was found to have grown by around 9% between 2009-2013, compared with 4% in countries with no scheme in place.23 6.2.1. Stimulating and Repatriating Swedish Production Consultees thought that an incentive would be key in stimulating the production of new Swedish projects, with one of the opinion that a new incentive would actually have the most pronounced impact on this category of production. Such a result would occur because an incentive would help to close the financing gap that producers are currently faced with. As outlined in Section 2.2, producers are currently facing a 20-25% shortfall in funding. Clearly, a cash rebate of 20% or more would be key in moving projects to the point where they can actually be made. In the current landscape, such projects are languishing at the financing stage. For example, one consultee was working on two projects that were having difficulties in closing financing. One is a television series and a feature film, with both financed up to 80%. Budgeted at €7 million and €2 million to €2.5 million respectively they were both planned to shoot entirely in Sweden. However, due to the financing shortfall there is a chance they may not be produced. Recent years have also seen Sweden lose domestic productions to competitor countries because of the cost savings and incentives on offer to producers. A Swedish incentive would help to stem this flow, since the cost differential between shooting in Sweden and elsewhere is likely to be less pronounced. Generally, some outwards production flow is to be expected as producers seek locations not available in Sweden, or move abroad to fulfil co-production requirements. However, an

23 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe.

Ibid.

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A production incentive for Sweden incentive would be expected to repatriate a proportion of productions, particularly those whose main reason for leaving is cost. An incentive may not be enough to make Sweden the cheapest place for domestic producers to shoot, but it could remove enough of the gap for producers to decide to stay. Consultees noted that film-makers prefer working in Sweden and living in their own homes and that it can sometime cost more than planned to work for an extended period of time in an unfamiliar environment. 6.2.2. Attracting International Productions A new Swedish fiscal incentive is likely to create immediate interest in the country from international producers. There is evidence that Sweden has failed to attract the production of big European films: an incentive could help the nation secure such projects. Consultees noted that the effect on international productions is likely to be less immediate than the impact on domestic production. International producers require stability and there will be a period of assessment as interested producers satisfy themselves that Sweden is able to host large-scale productions. Lead times may also be a consideration in terms of immediate impact: while feature films may be able to react relatively quickly television projects can have longer lead times. In addition, consultees expressed a view that Film VĂ¤st and other regional bodies would be a highly effective channel for quickly and effectively communicating details of any new Swedish incentive to their well-positioned contacts in the international production community. When considering any potential rise in inward production flow it is important that countries give serious consideration to training and development of workers and infrastructure. Rising production levels can quickly use up existing capacity and the resulting shortfall can lead to production leakage, and rising costs. In order to avoid leakage and ensure effective development of the Swedish film sector plans should seek to develop a strong, skilled crew base alongside production growth. Finally, any influx of major productions will also create opportunities for Swedish producers to undertake production service work, further diversifying their businesses. 6.3. Making Sweden a More Attractive Co-Production Partner The stability of a reliable incentive is also important in attracting co-production partners, and Swedish producers will be in a stronger position to attract such projects. They are already able to offer some funding in the form of SFI backing (if received) and regional funds, and a cash rebate of 20% or more will make Sweden more attractive. This means that with a Swedish partner on board, financing a project will be easier. Consultees thought more co-productions would result from an incentive, particularly from with Nordic countries. 6.4. Overcoming Financing Shortfalls, Leveraging Investment and Raising Budget Levels As outlined in Section 2, Swedish producers are facing a relatively new market failure issue when financing their projects, with funding for features declining by around 20-25% in recent years, and funding for television projects dropping by a similar level. Clearly, a cash rebate of 20% would take the industry some distance to overcoming the financing gap.

ÂŠ Olsbergâ&#x20AC;˘SPI 2015

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A production incentive for Sweden In addition, an incentive would also create a more attractive environment for private equity investment, which has demonstrated limited engagement in production. Such a mechanism would lower the hurdle for commercial returns, effectively reducing the net cost of a production from an investor’s perspective (as the rebate is non-recoupable). This would make investing in the sector more attractive for private investors and increase returns for public funders. Depending on the structure of the mechanism there may also be involvement from financial institutions able to lend against or cashflow the incentive. It is likely that a reduced financing gap and new equity investment will increase budget levels in the Swedish production sector. This trend could bring a powerful boost for the potential of the domestic production sector, since higher budget levels can lead to projects with more commercial appeal and attraction to audiences. In turn, higher levels of quality would also serve to attract further investment. 6.5. A Self-Financing Incentive Of vital importance to any government considering the introduction of an incentive is the fact such mechanisms are able to operate without additional costs. Rebates can be structured so that their payment is triggered by the certification of qualifying production costs. This means that spend will have taken place, and the tax collected, before any rebate is paid out to the producer. Spend often occurs months before the rebate is paid out and the robust certification process limits risk to the authorities by ensuring that the expenditure has taken place. The typical tax derived from additional production activity that the mechanism is able to stimulate is also likely to be worth substantially more in tax yield than the rebate that is eventually paid out.24 This creates excess tax revenues, which can be spent elsewhere. Because of their self-financing status, automatic fiscal incentives should not in any way displace or reduce other types of public film funding in a country. Together these supports can create a solid platform for future growth. 6.6. A Cost Benefit Analysis for Sweden The impact of incentives are generally calculated in other countries using different methods, such as a GVA calculation for tax yield, and a direct spend multiplier. Given the specifics of Sweden’s tax system it was not possible to undertake a detailed assessment using these methods for this project, and further detailed assessment should be undertaken in partnership with a Swedish tax expert or an academic institution. In absence of specific tax assessment for Sweden, analysis was undertaken into the impacts measured in a number of comparable countries, and the methodologies used to calculate these impacts. This comparative evidence is included in Appendix One.

Evidence of such impacts in comparable countries is presented in Appendix One.

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A production incentive for Sweden 6.7. Increased Transparency Another potential benefit of an incentive system is increased data transparency in the Swedish industry. Currently there is little shared data in Sweden. Rebate systems necessarily require productions to give information about budget, spend, and other factors. This production data – anonymised for commercial sensitivity if necessary – would enable the industry to undertake more detailed economic analysis of production flows and to establish baseline statistics. This would enable a clearer understanding of the size of the sector and its benefits to Sweden, as well as offering the industry deeper insight into production trends and the health of the landscape.

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A production incentive for Sweden 7. THE BENEFITS OF A THRIVING PRODUCTION SECTOR 7.1. Introduction A successful production sector brings significant benefits for a nation, with wide-ranging impacts on employment, investment, skills, infrastructure and other areas such as culture. 7.2. Expenditure and Employment The production of film and television projects can bring high levels of expenditure. When considering the kind of top-level international projects that competitive incentives are able to attract such expenditure can be very large indeed. As noted in Section 4.1 Northern Ireland saw a direct economic benefit of £82 million from the first four series of Game of Thrones. According to the UK Chancellor of the Exchequer George Osborne, the total production expenditure by films claiming the UK’s FTR has been £7.8 billion, with 72% incurred in the UK.25 Expenditure from individual feature projects can occur relatively rapidly during production, with high levels of spend occurring. In the case of high-end television, projects can bring high levels of spend across a longer timeframe – in some cases over many years. Productions can also spend widely throughout a country, particularly if they are utilising a number of geographically diverse locations, while spend occurs in a wide variety of sectors. These spend levels have significant employment impacts. As previously detailed, for example, the first four series of Game of Thrones created the equivalent of more than 900 full-time and 5,700 part-time jobs in a region of fewer than two million people. On a national level, the core UK film sector directly generated 39,800 Full Time Equivalent cast and crew jobs in 2013, contributing over £1.4 billion to UK GDP. Employment has risen sharply in the sector – increasing 22% since 2009.26 Such employment is highly skilled and mobile. The nature of productions mean that they create employment across numerous sectors. This includes: creative personnel (such as producers, directors, actors, musicians, designers, and writers); financial and accounting roles (production accountants, line producers); technical crew (lighting, sound); craftspeople (plasterers, set dressers, carpenters, costumiers); other specialist services (model makers, armourers, upholsterers). Productions will also create employment at studios, post-production and other facilities and create employment impacts on companies in the supply chain: for example, with catering companies, hotels, vehicle rental. Employment generated can also draw on skills and workers from other creative sector – serving as a driver of these (see Section 7.5).

25 Economic Contribution of the UK’s Film, High-End TV, Video Game, and Animation Programming Sectors.

Ibid. 26 Economic Contribution of the UK’s Film, High-End TV, Video Game, and Animation Programming Sectors. Ibid.

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A production incentive for Sweden A further employment impact of a potential incentive is that such mechanisms can serve to attract talent and workers that might have been gone overseas back to a country, once they understand the level of production occurring. 7.3.

Skills Development

A major benefit of a thriving production sector is the impact on skills. Film and television draw on cutting-edge skills across a wide range of roles during their production across the types of roles outlined in the previous section. Projects require highly-skilled individuals, often at the cutting-edge of their profession: the move to digital production in recent years also means that these skills can be very adaptable for other sectors. Such skills can be in high demand, and careful planning should be undertaken by any country considering an incentive to ensure that training is adequate across all key roles so that productions attracted by the incentive are able to source a satisfactory workforce. In the absence of a strong crew base capacity can quickly be used up by additional production, creating negative impacts such as rising costs. For local crews, additional production stimulated by an incentive can lead to significant career development opportunities. 7.4. Infrastructure Growth Just as additional production requires a deeper crew base, it can also have a positive impact on developing a country’s film-making infrastructure. This occurs through attracting investment – from existing players or new entrants – into companies involved in all aspects of the filmmaking process. This can include the development of new businesses or expansion of existing businesses, such as studios, post production facilities, and equipment rental. An example of this impact can be found in the UK, which has seen over £425 million of capital investments in film studio facilities since the introduction of FTR in 200727. 7.5.

Screen Production as a Driver of Other Creative Industries

The film and television sector is a key driver of other creative industries, and healthy production levels can help catalyse a range of other sectors. This is because film and television draw on a wide range of creative skills and infrastructure that can also be used by other creative industries. Impacts can be seen across multiple creative sectors. For example, a film production might hire local musicians to work on a soundtrack, and rent a local recording studio. It might draw on actors and costume designers who also work in local theatre. Digital skills are also in demand. Well-supported creative sectors can respond with phenomenal growth. The UK’s creative industries saw growth of almost 10% in 2013, three times that of the wider UK economy. The

27 Economic Contribution of the UK’s Film, High-End TV, Video Game, and Animation Programming Sectors.

Ibid.

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A production incentive for Sweden GVA of the creative industries reached £76.9bn in 2013, and accounted for 5% of the UK economy.28 In employment terms the creative industries have also outperformed the wider UK economy, with jobs increasing by 3.9% each year between 1997 and 2013, compared to 0.6% in the UK economy. In 2013, the creative industries accounted for 1.71 million jobs, or 5.6% of total UK jobs – a 1.4% increase on 2012.29 7.6. Screen Tourism Screen tourism is an increasingly recognised impact of increased production levels. This is a phenomenon which sees tourists visiting a destination having first experienced it on screen, and the impact can be highly significant. An SPI study for Creative England and VisitEngland found clear evidence that visits to filming locations were stimulated by experiencing them on screen. Core screen tourism – i.e. the primary reason for a visit to a location was because a tourist had seen it on screen – was conservatively estimated to be worth £100-£140 million in 2014 to film and television locations in England, outside of London.30 The value is likely to be many times higher when other levels of motivation are considered. Screen tourism can also make a significant cultural impact, with on-screen depictions a powerful way of communicating images of a country, its landscapes, lifestyle, culture and people to the world. This is also referred to by some commentators as ‘soft power’.

“Creative Industries now worth £8.8m an hour to UK economy”. DCMS press release, 13th January,

2015. https://www.gov.uk/government/news/creative-industries-now-worth-88-million-an-hour-to-ukeconomy 29 Creative Industries Economic Estimates. Department for Culture, Media & Sport Statistical Release, 13th January 2015. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/394668/Creative_Indu stries_Economic_Estimates_-_January_2015.pdf 30 Quantifying Film and Television Tourism in England. Olsberg SPI for Creative England in association with VisitEngland, 4th March, 2015.

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A production incentive for Sweden 8. PRODUCTION CASE STUDIES This section provides brief examples of recent Swedish film and television projects, and issues their producers experience surrounding financing or production – and how the situation might have been improved with an incentive in place. 8.1. Production A This €7 million television series is planned to shoot entirely in Sweden, with all spend occurring in the country. The producer has currently financed the project up to 80%, but with a 20% financing shortfall there is potential for it not to be made. The same producer is facing a similar financing shortfall with a current feature film project; budgeted at €2 million to €2.5 million, the project faces a gap of between 20%-30%. An incentive would assist in closing such financing gaps. 8.2. Production B This high-budget feature film and miniseries opted to shoot in a Baltic state with an incentive in 2013. The producer says it is probable that the film would have remained in Sweden if such a mechanism had been available. 8.3. Production C In the last phase of development, this project is the first part of a large television series and is budgeted at €5 million. A co-production involving Swedish, Finnish and German partners the Swedish producer says it would have been much quicker and much easier to finance had there been an incentive in place, and that an incentive would lead to bigger budgets and help secure more co-productions, especially within the Nordic countries. 8.4. Production D Budgeted at around SEK 50 million, this forthcoming feature is a co-production between Sweden, Denmark and Germany. Financing the project would be easier with a Swedish incentive in place, the producer says. Such a mechanism would help secure co-producers interested in participating in projects, and would give Sweden something to offer as a co-production partner.

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A production incentive for Sweden 9. KEY ELEMENTS OF A PROPOSED INCENTIVE The design of an incentive should be carefully undertaken so that a nation’s key objectives are met. In Sweden’s case it is important to have a mechanism that is able to stimulate domestic production, retain a portion of this production from shooting entirely overseas, and also attract international shoots and co-productions. This section explores the key considerations in formulating such a mechanism. 9.1. Rebate Level This is a vital consideration since the value of an incentive – i.e. the percentage of qualifying expenditure that is offered as a rebate – is the central attraction for producers. For Sweden this percentage must be able to assist producers overcome the current financing shortfall, which is in the region of 20%-25%, and also be significant enough so that producers are not drawn to undertake production in competitor countries. It is also important that an incentive is able to help Sweden compete for major international productions in the global market. Strong competition in this sector has seen the value of fiscal mechanisms increase in recent years. For example, Ireland’s Section 481 film and television tax credit has been worth up to 32% of eligible expenditure since the start of 2015. In March 2015 the UK government announced plans to increase the rate of its FTR to 25% for all qualifying expenditure. Previously, the incentive was available at 25% on the first £20 million of qualifying expenditure, and at 20% on expenditure higher than £20 million.31 This report has focused on a hypothetical cash rebate of 20%. While this level is lower than some mechanisms, it is considered to be a significant enough amount to have an impact. Moreover, it is possible that the level can be amended in the future in response to a mechanism’s initial performance – something that would not incur any costs since rebates are self-financing. 9.2. Type of Incentive There are three main types of incentives:32 

Tax shelters, which stimulate investment from high-net worth individuals or high-tax paying firms who can deduct investments in qualifying productions from their tax liabilities.



Rebates, which are driven by production spend and offer productions a percentage of qualifying expenditure. Funded from the state budget, they are typically triggered after spend has occurred and audited and taxes have been collected.



Tax credits, which are similar to rebates in that they repay a percentage of qualifying expenditure. However, rather than being paid from a demarcated fund, the incentive is set against the producer’s tax liabilities on a corporate annual tax return.

UK boosts film, TV incentives in pre-election budget. ScreenDaily, 18th March 2015. http://www.screendaily.com/news/uk-boosts-film-tv-incentives-in-pre-electionbudget/5084362.article 32 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid.

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A production incentive for Sweden Due to their transparency and ability to be self-financing, policy makers in Europe have shown a particular preference for rebate mechanisms in recent years.33 It is recommended that such a model would be most useful for Sweden to attain its goals. Rebates are more straightforward than tax shelters and credits, and their ease of use for producers would also ensure international interest. They are also transparent, not requiring external private investors. Most crucially for Sweden, rebates do not require tax code alterations and, from a fiscal point of view, such schemes are self-financing. 9.3. Eligibility and Expenditure It is important that incentive legislation is drafted so that a country’s objectives can be fulfilled. This means clearly defining eligible projects and the levels of expenditure in the country that will be sufficient to trigger the incentive. For example, qualifying criteria should define what kind of productions are able to apply for the incentive. Given Sweden’s priorities, any incentive should be open to domestic and international productions, as well as film and high-end television. Consideration should also be given to a number of other production types, such as animation. Some countries operate separate mechanisms for television and film while others have single incentives open to both projects. Furthermore, incentives can be targeted so that only highervalue productions are eligible. The UK, for example, limits its High-End Television Tax Relief to projects that have average qualifying production costs of not less than £1 million per hour. It is also not available to a number of production types, including advertisements, news programmes and game shows.34 Legislation should also define qualifying production expenditure, controlling the elements of production spend that can legitimately be considered for the incentive. Typically, this relates to goods and services purchased in a country, as well as cast and crew employed, and should be incurred within the country. Excluded costs should also be detailed. The proportion of budget that must be spent in a country should also be made clear. This can be set to a relatively high percentage, to ensure that a significant portion of a film’s budget occurs in a country. Conversely, a lower proportion of production costs may be required in order to qualify for an incentive. For example, in the UK only 10% of the total production costs must occur in the country: this can help attract high-value projects that may not shoot in the country to its well-developed post production sector. Minimum spend requirements can also ensure reduce administrative time and costs that could result from a high volume of lowerbudget productions. One key eligibility consideration for Sweden as a member of the European Union is a cultural test. This State Aid requirement means that qualifying productions should be certified as Swedish, or could also qualify through a co-production treaty. 9.4. Other Obligations Incentives can be further modelled to achieve specific aims. For example, the requirement for qualifying productions to provide training opportunities can help boost the local skills base – which can be crucial for a nation looking to build production capacity. Other national

33 Ibid. 34

Corporation Tax: creative industry tax reliefs. HM Revenue & Customs, 1st January, 2007. https://www.gov.uk/corporation-tax-creative-industry-tax-reliefs#cultural

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A production incentive for Sweden objectives, such as gender equality or diversity, could also be supported through designing the system to provide extra reward for productions that meet particularly identified needs. It is also important that new incentives are seen as stable by the international production community, so there is confidence in utilising the model. Information about any new incentive should be communicated with clarity, while processes – such as certification – should be dealt with in a transparent and timely manner. Another obligation to consider is the ability for producers to access finance to cash-flow the incentives. Given that a cash rebate is payable to producers after the production spend has occurred, such finance is necessary to ensure they are able to use the incentive for production. Again, the model should be outlined clearly and be administered predictably so that financial institutions have confidence to lend against the mechanism.

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A production incentive for Sweden 10. APPENDIX ONE – SUCCESSFUL PRODUCTION INCENTIVE IMPACTS 10.1. Introduction Understanding the impact of production incentives on government finances is undertaken using a variety of different models in countries where such mechanisms exist. In the UK, such assessments are undertaken by applying an economic multiplier to production spend, and calculating tax yield. Some countries use different methods of analysis, such as assessing a range of other factors like the decrease in unemployment benefits paid out as a result of additional work, but the multiplier and tax yield approaches are considered most relevant for this study.35 An economic multiplier enables the calculation of impact through the application of a film industry-specific multiplier to the amount of direct expenditure created by an incentive. The multiplier reflects the indirect impact of such spend – i.e., arising from the industry’s supply chain – and its induced impact, i.e. arising from those directly and indirectly employed in these industries using their earnings to buy other goods and services.36 The multiplier calculation therefore provides a perspective on an incentive’s impact, although the creation of such a multiplier requires detailed assessment. The resulting economic impact is known as Gross Value Added (“GVA”). The overall tax yield from the GVA created by the industry can then be calculated depending on the specific tax environment in a country, and accepted approaches to quantifying such yield. In the case of the UK, a multiplier is used to achieve this, while in France and Hungary a tax model is preferred. 10.2. Assessment of Impact at National Level Given that Sweden does not have a recognised film industry multiplier, it was not possible to undertake analysis of the potential impacts of an incentive in the country without conducting further, highly detailed work. It is therefore recommended that advanced assessment should be undertaken regarding the potential impact of incentives on tax yields. Such analysis will also require detailed assessment of Standard Industrial Classification (“SNI”) codes in Sweden to ensure that all relevant workforce members are included. One study on the music industry by Volante, commissioned by the Swedish Agency for Economic and Regional Growth, combined SNI codes to accurately describe the size of the Industry, number of companies and employees and the overall economy in all aspects. Previous assessment work into Film Väst utilised a model called rAsp to assess the organisation’s impact. This identified direct, indirect and induced effects in the regional economy, and was used to calculate workforce and economy growth related to Film Väst investments. The project concluded that every SEK 1 million invested in production by Film Väst generates 3.9 Full Time Equivalent jobs and contributes GRP of SEK 2.6 million. The study also identifies that every taxpayer krona is multiplied 2.6 times through the investments of Film Väst.37 This model identifies regional impact but given the volume of activity in Stockholm, for example, the wider industry impact is likely to be higher at national level.

35 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid. 36 Ibid. 37

Västra Götaland som filmregion. Inno Scandinavia and WSP, 2011.

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A production incentive for Sweden In the absence of an industrial assessment model, the impacts that have been created by incentives in other countries are presented in this section. Evidence across the two key comparison countries points to the significant economic impact that incentives can have – in some cases far outperforming the costs to government. 10.3. Assessment of Impact from Individual Productions For the purposes of this study, analysis was also undertaken into the potential tax impact of three types of production that could be produced and post produced in Sweden: a large budget film for theatrical release, a smaller arthouse film and a television series. These examples are based on actual productions and have been anonymised. Budgets were assessed and the resulting tax yields were calculated using two methods.38 One uses the tax to GDP ratio, which in Sweden is 42.8 % (compared, for example, to the UK at 32.9%; Belgium at 44.6%; and Hungary at 38.9%). The percentages for VAT and Income Tax were also assessed. 10.3.1. Large budget film This project was made with a total budget of SEK 105 million, with 50% of financing from public sources in Scandinavia, including broadcasters; as well as private equity, presales and minimum guarantees from international and domestic buyers. The film was produced and post produced in Sweden. Production costs in Sweden (SEK millions) Cast Crew Set etc. Equipment Material Studio locations Travel, accommodation Post Other Total

13 18 10 8 7 2.5 4 16 3.5 82

Tax (42.8%) Estimated VAT and income tax

34.4 21

Figures given for total budget and total production costs in Sweden differ for each project. This is because some costs, such as development and financing, were not counted as Swedish production costs.

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A production incentive for Sweden 10.3.2. The arthouse project This project had a total budget of SEK 12 million, and sourced 80% of its financing through public support mechanisms with the remaining 20% invested by the production company. Production costs in Sweden (SEK millions) Cast Crew Equipment Set Locations Travel, accommodation Total

0.5 3.1 0.5 0.2 0.4 0.7 5.4

Tax (42.8%)

2.3

Estimated VAT and income tax

1.5

10.3.3. Television series This project was budgeted at SEK 75 million and financed almost entirely through private equity, presales and minimum guarantees from the Nordic Countries and Germany. Some regional funding was also utilised. The series was produced and post produced in Sweden. Production costs in Sweden (SEK millions) Cast Crew Equipment Studio, location Accommodation, travel Post, wages Post, facilities Other Total

6 21 2.5 4 4 2.5 4 3 47

Tax (42.8%)

20.1

Estimated VAT and income tax

13.3

10.4. France A total of five different incentive schemes operate in France. The country’s domestic tax credit for film production – the Crédit d’impôt cinema – creates €3.1 in tax and social revenues for every €1 granted. The mechanism attracted €491 million of eligible spend in 2013.39 Meanwhile, France’s international film and television rebate – the Tax Rebate for International Production, or TRIP – sees every €1 of granted incentive creating an impact of €2.7. Introduced

Evaluation des dispositifs des crédit d’impôt. EY, published by the Centre National du Cinéma et de l’image animée. October 2014.

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A production incentive for Sweden in 2009, the mechanism has seen significant growth in eligible spend. In its first year it attracted €33 million, rising to €110 million in 2013. 40 10.5. The UK There are a number of creative sector tax reliefs available in the UK including FTR, High-end Television Tax Relief and similar mechanisms for animation, video games development and theatre. FTR, which operates as a tax credit, has had a major impact in the UK since it was introduced in 2007, with each pound of relief creating £12.49 in additional GVA through direct and multiplier effects. This equates to a return of £3.74 in additional tax revenues for each pound of relief granted.41 Stimulated by FTR, direct expenditure in feature film production in the UK reached record levels in 2014 in the UK, at £1.5 billion. The effects of incentives on inward production flows is underlined by the fact that 84% of this total was created by inward investment projects. Meanwhile, the success of the UK’s high-end television tax relief underlines the immediate impact that any new fiscal incentive can have in countries with a pre-existing production sector. In 2014, the first full calendar year of the credit, the UK saw £615 million in spend from qualifying projects.42 10.6. Croatia Croatia has also seen a rapid response to its Film Production Incentive Programme, a cash rebate system introduced in 2012 to support film and television projects. According to analysis undertaken by the Croatian Audiovisual Centre (HAVC) in 2012 there was HRK 24.6 million in eligible spend, rising to HRK 58 million in 2013.43 Between 2012 and 2013, the amount of qualifying expenditure spent on wages rose by 227% to HRK 24.9 million, with income taxes from those wages rising by 477% to HRK 4.25 million. Furthermore, 24 trainees were hired by qualifying productions in 2013. SPI analysis shows a fiscal impact of HRK 1.26 for each HRK 1 in incentive spent, with the impact growing from the first to the second year. Table 1 – Fiscal Impact of Croatia Cash Rebate Incentive Disbursed

Government Earnings

Ratio

2012

4.57

4.89

1.07

2013

12.62

16.79

1.33

Total

17.20

21.69

1.26

Source: Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Report by Olsberg•SPI. Ibid.

40 Ibid. 41 Economic Contribution of the UK’s Film, High-End TV, Video Game, and Animation Programming Sectors.

Ibid. 42 Film and other screen sector production in 2014. Ibid. 43 Impact analysis of fiscal incentive schemes supporting film and audiovisual production in Europe. Ibid.

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A production incentive for Sweden 11. APPENDIX TWO – METHODOLOGY The methodological approach utilised by SPI when undertaking this project is summarised below. The project consisted of seven key steps, with several occurring simultaneously: 1. 2. 3. 4. 5. 6. 7.

Launch meeting; Data gathering / desk research; Questionnaires and Confidential consultations; Team brainstorm and synthesis; Interim report; Further research and consultations; Final report and presentation.

These steps are described over the following sections. 11.1. Launch meeting Undertaken with Film Väst, this meeting enabled the study team to gather wide-ranging insight from the Client in terms of specific issues facing Swedish producers and funders in the film and television sector, as well as the current outlook. 11.2. Data Gathering/Desk Research This aspect of the methodology involved drawing together existing data and research on how countries with incentive mechanisms in place assess the impact of those systems. This included a number of countries. Research was also undertaken into the Swedish tax system, and how the evaluation methods used by other countries might be applied to Sweden. Analysis of other sectors was reviewed to understand whether systems of evaluation that had previously been used in other sectors could be adapted for the film and television production sector. At this stage research was also undertaken into the Swedish film and television sector, including production and budget levels. The examination of current trends in Swedish production, financing and support, ensured an up-to-date base of knowledge which informed the consultation process. 11.3. Questionnaires and Confidential Consultations Written questionnaires were circulated to a number of leading Swedish production companies in order to obtain estimates for the amount of additional film and television drama production that might take place if a national fiscal incentive were introduced. This document presented 2014 production spend estimates for features, television drama, and overall – with producers asked to estimate how these figures might differ a) with no incentive in place and b) in a hypothetical situation where a 20% cash rebate has been introduced from the beginning of 2015. Producers were also asked for details of any productions that might have been made or generated more production expenditure in Sweden had a cash rebate existed. A process of consultations was then undertaken to discuss this questionnaire and the potential effects of a new production incentive for Sweden. Seven key producers were consulted, as well as a post production executive and a regional film commissioner.

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A production incentive for Sweden

11.4. Team Brainstorm and Synthesis With the desk research and consultations complete, and in order to prepare for drafting the study, the team reviewed and analysed all data and findings so far at an internal “brainstorm” meeting. The brainstorm involved all members of the team plus one other SPI executive who had not been involved in any of the Study to date. That person brought added objectivity to the process of analysis and of developing the findings and recommendations. 11.5. Interim Report With key findings identified, the contents of the study were agreed and first draft of the study was written by SPI. This drew on all previous elements of the methodology. An executive summary was created following drafting, and the first draft submitted to the Client. 11.6. Further Research and Consultations Based on the discussions of the first draft, elements of further work were undertaken in order to complete all outstanding data and information gathering and analysis. 11.7. Final Report and Presentation With the research concluded, the final report was drafted. The key findings of the research were also formatted as a PowerPoint deck to deliver at the launch of the project in Cannes.

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