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Part 2-Soft Money, Grants, Subsides and other Financing Schemes - Asia

I used to play poker with an older gentleman who told me, "All money is a pleasure but found money, now that's a joy!" Subsidies and grants are like that - they're found money and as much as you may appreciate money that you've worked hard for, nothing brings a smile to your face and a lift to your spirit like that roll of bills you spot on the sidewalk.

Soft Money and other Enticements – Part 2.

When last we met, metaphorically, we took a squint at how many independent co-productions are put together.  The interlinked system between a number of Western European countries (EU) along with economic treaties most notably in place within former British colonies, Australia, New Zealand and Canada form the basic structure of countries that offer public support for their film industries. 

Recently however, a number of Asian countries have been touting various forms of economic participation in an effort to join the party.  Normally these deals are difficult to completely understand and are unique by nature.  Often the approval of the subsidy relies upon an individual or panel that needs to approve the arrangement between the studio and its co-pro partners.   This form of review and approval can rely more on personal relationships than the meeting of any firm criteria and the grants or subsidies are not, with few exceptions, based on any open and continuing economic programs.  This however is not unusual for some emerging countries as they are in a transitional stage and changing old ways of doing business takes time.  Look at these offerings as akin to shopping at a giant warehouse store – A product may be on the shelf and available one day and has disappeared the next time you look for it….  You may find some very nice deals but many are unique one time offers. 

As I finished the first part of this piece, I offered a theoretical co-production deal and broke it down into numbers to show how a producer, under the right circumstances can reduce the hard money (equity or debt) needed to produce his film by 70-80%.   Now, not all such co-productions will fare so well but it is very safe to safe that 60% is almost always reachable if you know the rules and follow them.

Before I move on to Asia and then to the U.S., let me finish up with these major players by looking at the downside of these subsidized co-productions.

Rule and Regulations:  You didn’t think these countries would give away their tax payer’s money without making sure the money stayed right where it came from and that it did what it was intended to do – support their industry and create jobs.

In order to make sure that happens, the recipient of the subsidy must fulfill specific requirements such as spending a certain percentage of the film's budget within the country and hiring citizens of that country to fill key roles in the production such as writer, director, voice over cast and others. 

Exceptions - Now between certain treaty countries there are specific accommodations that might allow a British actor to voice the main character in a German-Canadian production but his/her fee would not be eligible to be part of the budget that was being used to calculate the subsidy.  The rule here is that there are many exceptions to the rules but the secret is to know what they are and how they may be applied or skirted.

Time factor – all of this filing and paperwork takes time and it is highly bureaucratic.   All the questions must be answered and all the boxes checked.  In turn if the subsidy comes back to the producer as a tax credit he might need to discount it and sell it off to meet his cash flow needs.  Depending on the agency and country and how they operate, a producer might need to go to his bank, show his paperwork and borrow against the subsidy that may only come after he completes the film.

Qualification - If you are a recent graduate from film school and decide you want to make your own film, it is highly unlikely that you would be able to qualify for these kinds of subsidies although there are many grant programs and film boards and other organizations that you may to apply to for financial aid.  The bureaucrats want to make sure that applicants are accredited film producers with established companies that have been doing business within the industry for a reasonable period of time.  

So don’t call your Uncle Bob up in Halifax or Cousin Otto in Hamburg and think you can run your production through them.  It won’t work unless they own and run existing animation studios, and besides Uncle Bob and Cousin Otto could go to jail for fraud.

Other considerations – If the project is a television series, it is often required that the company complete a sale of the series to a broadcaster within the country.  Not horribly difficult but neither is it a rubber-stamp.  If the program is for children you may have a few other hurdles to jump through.   In some countries, children’s shows that are deemed purely commercial (raison d’entre is to sell toys) are not eligible for subsidies.  All of these rules and considerations can change year by year and you need to keep updating your information for each potential country where you are considering a co-production.  New treaties between countries are always pending but I’ve often been assured that they are all but done and dusted only to find two years later that they are still pending…

Compatibility - Last but not least is the need for 2 or 3 or more entities to work together creatively and technically to produce the program.   If the film has cultural touchstones in all of the partnering countries that’s a help but how hard is that?  I’ve worked on co-productions with French, German, Canadian, Spanish and English partners and I can assure you, as much bonhomme as you begin with problems soon pop up that you would not expect in a normal production.  No one’s fault but they still must be dealt with and often concessions made.  This is why in Canada you normally find Montreal studios co-producing with French partners and Ontario studios looking to Australia, Ireland or Britain for partnerships.  It is easier if you all speak the same language even if you say ‘elevator’ and they say ‘lift’.

Jumping back to Asia, India and the Middle East  - We can start with China as it has the largest and most aggressive economy in the region. 

As I said above, China’s subsidy programs are a bit mysterious.  I personally know of four projects that are being funded directly out of China through government supplied grants.  Some of the work is being done here in the U.S. (scripts, voices and in some cases art design).   These deals were arranged by the Chinese studios with National and/or regional agencies.  These are similar in intent to what many countries, states and provinces have done in the West, the only difference is that the many Chinese programs often are not really ongoing programs, but a one and done with all subsidy funds locked in China.  This still is not a bad deal if you have a Chinese studio you like to work with and they can tap into the funds needed to do their share of the work.  They will take all Chinese rights and perhaps ask for some points in addition, but still a fair deal if the work is acceptable.  These are not all standing programs so don’t count on money always being available.  In addition you will need a property that the Chinese officials can embrace and your friend who owns the studio needs to have some friends in the right places…. 

Korea has been offering to put up production services all over the place for years – everywhere except in Seoul where all the animation is done.  Every small town has a media/technology fund available for the purpose of stimulating the industry and creating jobs.  The problem is that the guys that control those funds are normally the mayor or an official of that town or region and their idea of the constructive use of the money is to fill a large government owned building with thousands upon thousands of dollars of hardware and software and then declare they have a studio and want to co-produce with Western partners. Problem is they have no one to sit at all those beautiful workstations and to run their motion capture system and film recorders.   Buying a building full of high tech gear is safe.  If and when someone comes along and wants to know where the funds went, they can proudly point at the equipment and smile.  Unfortunately I have never seen one of these deals work although I haven’t given up hope.   These deals always have followed the same path –money is no problem until it is…. And that never takes long.

Sticking with Asia proper – Forget Japan – far to insular and they love their own stuff and don't need any help making it.  The Philippines has no subsidy programs but is home to several studios that are owned by groups outside the Philippines and finance some of their own projects.  Good animation services but no real deals there and no treaties in place with the big guys to allow contracting without punitive changes in their subsidy plans.  Toon City has been around for years and the new owners (Investment fund) will consider a reduction of fees (at best 1/3) if the project is attractive but like nearly all the Asian studios their investment is limited to sweat equity.   Another studio in the Philippines is the Jordanian owned Rubicon.  They are actively trying to buy their way into the U.S. and Western market by producing pilot episodes for cable networks on their own dime.  This has become a reoccurring theme recently.  In the past most Asian groups were unwilling to fund the pre-production work that gives the project the western look and feel but it seems that reluctance may be softening.

Malaysia and Indonesia have offered co-production schemes off and on over the past ten years.  Like so many others they all are build around governmental investment in local facilities and tax credits for employers but nothing really has ever developed that would entice serious co-production partners.

Singapore is showing a lot of muscle for such a small nation.  Their MDA (Media Development Authority) has partnered with several neighboring countries to set up and maintain uber-modern studio facilities throughout the region.  Singapore loves technology and they have put their money where their interest is and supported a number of projects using cutting edge hardware and software.   Trouble is that it is very hard for the little guy to get his foot in the door.   The MDA claims to have over 1 billion Singapore dollars available in the fund but you must of course partner with a Singapore company and a number of production areas must be performed in Singapore.  There is a good deal of red tape and a very rigid review of all aspects of the project to ensure that they meet cultural and social standards, from the viewpoint of the Singapore government of course.  I worked on a co-production out of Singapore a few years past and found no particular problems but I would advise anyone looking to partner in a production to be patient and be thorough.  Singapore is the Germany of Asia – be prepared to cross your T’s and dot your I’s…..  And don’t chew gum.

India has risen to challenge Korea and China as the largest provider of offshore animation services in Asia and the Sub-Continent. Like Singapore, India loves technology and has been drawn to animation since the advent of CGI and motion capture systems.  It has taken awhile for Indian producers and studio owners to accept the fact that technology alone does not replace the need for creative animators and designers but they have slowly learned their lesson and have become a favorite production home for western television and theatrical work.

The problem with India is that it does not have any true subsidy program in place outside of a weak 10-year tax holiday, and only if the studio locates within a government controlled media compound.  Some Indian studios have made deals with western media groups to guest their animation operations under their roof.  Most recent and notable were the deals struck between Paprikaas and tenet/partners,Technicolor and Dreamworks.

Although India does not currently offer co-production schemes, a number of Indian companies are aggressively looking for projects in which they can invest.  A good part of the India’s animation industry is driven by structured financial goals and many of the companies’ owners are more comfortable in the stock exchange than in the studio.  Companies like Tata Elxsi VCL are part of huge conglomerates and their parent companies can offer balance sheets to compare with anyone worldwide.  Companies with these lines of corporate lineage have the ability to co-produce if it allows them to achieve their strategic financial goals but as you might have guessed, they prefer to work with large media companies like themselves….. 

On the other end of the Indian spectrum there are a fair number of studios that will represent that they can invest in a project – normally offering to take on the animation in exchange for an equity position.  They offer to work for a reduced fee or simply offer to invest all their production labor costs. Be cautious. There are companies that are more shell than studio and their interest is to use the announcement of their involvement in the production to raise money within the Indian and Asian stock/investment markets. The higher profile the name of the project the better to flog stock offerings.  This is not to say that there are not some very solid and stable companies that would co-produce and have the ability to fulfill their part of the deal.

The only point here is to go into any possible deal with your eyes wide open.  You are at your most vulnerable when you’ve almost given up and someone comes along and offers to put up the pieces you’re missing – This advice goes not only for India but for everyone everywhere – There are no free lunches.  Everything comes with a condition and a compromise so take your time and read the fine print.

Thought I'd get to the U.S. but this is too long already.  Next week we can look at what various U.S. states offer, but don't get too excited.  I will also try to sum up the whole picture up and give my opinion if this is a trend or a permanent shift in the way we produces animated films and televison shows...