The Accelerating Subsidy War

This blog routinely points out that subsidies in the VFX industry have led to a “race to the bottom” where various governments engage in a trade war as they outbid each other trying to lure US studio work.

If you remember, two years ago I wrote a few posts about how WB threatened to film The Hobbit elsewhere if the NZ government didn’t sweeten the incentives deals.

Well now it seems US Studio producers want more as the PM visits to meet with Hollywood execs:

“People are cutting extraordinary deals,” said Rubin. “Thirty, 45% tax kickbacks if you make your movie there.”

To lure Hollywood to New Zealand, Key would have to offer more than just “incomparable” scenery, he added.

Rubin said the strong New Zealand dollar, which has doubled in value since The Lord of the Rings trilogy began to be shot here in the late 1990s, is a problem for the country’s film industry.

If you have a moment, a podcast by a New Zealand radio station has an in depth discussion about the subsidies they offer to US Studios. At one point they ponder if it’s even worth it given that they will leave for the next country offering more.

In the UK, Wired reports that the UK VFX industry is under threat. Among many of those threats, we are starting to see the Vancouver subsidies injure the UK industry:

Getting them to keep the post-production work in the UK is trickier, as countries like Canada undercut the British tax breaks in that area — a film company can spend 25 percent of their budget in the UK, qualify for the filming credit, and then head to another country with the remaining 75 percent of the budget to take advantage of another tax credit. That could mean the loss of “billions”, says Hunt.

The only solution is to keep giving more and more money to the US Studios.

Soldier On.

11 Responses to The Accelerating Subsidy War

  1. Paul says:

    Pay taxes so you can get paid. VFX goes public sector.

  2. PolarisSoup says:

    One of the problems in London is that some of the VFX studios expect to run a just in time staffing model like you would if you were running a supermarket, picking apples or recruiting office temps. They then complain that they can’t get trained staff and the schools and universities are not doing enough. VFX is not a low skilled industry and studios should be recruiting grads who show potential and training them up over a number of years (like an old time apprenticeship in plumbing or carpentry). Running a hire and fire model to cut costs does not allow new recruits to be trained or progress within a company, there is no use blaming the education system, VFX studios need to look closer to home.

  3. NWang says:

    If the VFX studios are only being paid for particular projects, and so can only guarantee an income when they’re working on something…how would you expect them to guarantee employment if they’re not being paid? The “hire and fire” system you’re talking about is surely just how the industry has to behave?

    OK its quite different if you control the demand, if you were a studio say…then things might be different. But no VFX studio, in any country, does that.

    • mkden says:

      Which begs the question, why does so much tax payer funding, subsidies and training-education grants get poured into this unstable, edge-of-the-seat UK industry when their old folk get their social aid programmes cut for things like winter heating and food stamps, and students get 100% tution fee increases, and so on. You know over there, its the same big studios who have their snouts in the trough, gobbling up all this tax money. And oh yeah, just look at their profiles online, easy enough to do, all ‘oxbridge’ priveledged types, lord this and sir that, not really like they need corporate welfare handouts to begin with!
      Let’s throw them into some good old fashioned free-markets and see if they would sink or swim without the nanny state fusing after them like a spoilt brat. If their business model is all based on short term projects on the whims of international producers and entirelty dependent on tax breaks and tax funding, well maybe that is not a good candidate industry to base the nation’s future on!

      • NWang says:

        Actually the tax situation in the UK was put in place to benefit all film production, using Londons’ VFX studios as tools to attract work to the UK. Of course it benefits the VFX houses, but there are many freelancers working at places such as Pinewood, Leavesden and Shepperton which have seen a steady flow of work as a result of this tax arrangement.

        But my point was that many industries operate on a project by project basis, and so their needs for workers ebbs and flows. Theres nothing terribly unusual about VFX in that regard. So when the earlier poster was criticising the practices of the London VFX studio they seemed to be assuming that it was unique to VFX. In fact many industries are similar, as indeed are many VFX houses in other countries.

        (Heck, last time i looked Weta was entirely freelancers, there aren’t really any permanent staff)

        I’m not really clear how a project-based job is in any way less deserving of government industry than any other form of work.

        For what its worth i’m actually a socialist. I think leaving the market to sort things rarely benefits society as a whole. Perhaps thats why i don’t find a government encouraging segments of industry particularly shocking. I suppose the differing political balances in various countries contributes to how we all view how our industry is evolving.

        BTW a couple of points: firstly theres no such thing as “food stamps” in the UK. Not sure where you got that idea from. We have a social security system, but nothing called food stamps. I believe thats an American thing.

        Secondly the way UK employment law works is that someone on a fixed term, or project, contract has the same employment rights as someone on a “permanent” contract. So if a VFX studio needs to terminate contracts early, perhaps as a result of a film being delayed, its actually quite complicated. I understand this isn’t the case outside of Europe.

  4. VFX_Boom says:

    Anyone else see the irony of the UK taking issue with Canada’s subsidies under cutting them, all the while the UK subsidies were in place solely to undercut the United States?

    Where does it end? Round and Round we go……..into the ground, we all know. At this current rate the VFX industry as we know it will no longer exist in the next 4-7 years.

    • Moobster says:

      How do you get “the UK” out of the comments of a single exec at a smallish VFX house (until very recently wholly owned by an American company)? In any case, it’s not ironic, unless he’s complaining that the Canadian subsidies are unfair/illegal, which he isn’t. Then again, you might subscribe to irony as defined by that famous Canadian singer, Alanis Morisette, where she confuses irony with misfortune.

      • ion says:

        Probably because the blog has been covering the various proclamations of UK studios, banging out the same tune on the violin for a while now … including very recently dneg and Framestore (remember Sir Lord Lancelot Framestore claiming 75% of UK movie work would leave without tax payer subsidies … the UK Car industry, Steel industry, fishing industry, Coal mining industry never got that kind of nanny state favouritism before their mass closures. Guess they didn’t go to the right snooty schools for successful lobying).

        Yes, irony can be a difficult concept. I’ve often noticed British folk confuse sarcasm with irony. Maybe the fella from the article was being sarcastic? Or something inbetween sarcasm and machiavellianism, the German language would have a word for that exact stituation, for sure.

        Whichever way, I think Paul above was very succinct in describing maybe how the situation exists in the UK vfx industry ;

        “Pay taxes so you can get paid. VFX goes public sector.”

  5. Steve says:

    Everyone uses what they have at hand, to attract work. The LA industry has one key advantage; geography, and in many cases their geography trumps our money.

    But not always.

    Everyone is relying on something other than quality to give them an advantage because (when it comes right down to it) the quality is no different from one country to the next? Would anyone claim that VFX done in LA, or London or Canada or New Zealand are superior to anyone else?

    So we’re left with an arms race over price and it’s not going to go away unless EVERYONE GLOBALLY co-operates to fix a standard rate.

    Which is the definition of a cartel and illegal in most countries.

    So this is reality, the world we live and work in and we all better get used to it because it’s only going to evolve around this fact, not change radically.

    It simply can’t.

    • ion says:

      “So we’re left with an arms race over price”

      Thats very fatalistic.

      Makes you wonder why anyone in any business in any industry would get out of bed in the morning if that’s it, fait-accompli. Japanese cars often hold up well to german cars and are more competitvely priced, yet German cars sell record levels across the globe despite a price premium. Things you would do on a home PC now would be a major task on supercomputers at a major studio 10-15 years ago. If the increase in economic development over the past few hundred years, post enlightment and Adam Smith, has been loosely based on a capitalist system or notion of economic freedoms, then it is innovation and increased productivity that has been the driver of increased living standards. Not price cutting and central government manipulation.

      I say ‘capitalism’ in a broad sense, since we probably have never seen capitalism in the ‘Adam Smith’ sense of the word. Certainly not in the presence of Central Bank planning, like the federal reserve and Bank of England, private corporations who have always been in cahoots with political aspirations of politicians and kings, yet centrally plan and hold monopoly on the currency you are forced to use by pain of law.

      Point being, the further subsidies and political relationships between select groups become the crucial balance in economic activity, the less likely you will see future big strides in innovation and increased living standards. Because it all becomes ‘artificial’ and you end up living in an economic version of the ‘Matrix’. The increase in living standards across the world, post enlightenment, have occured due to falling prices and increased productivity and innovation. Taken to extremes, subsidies and political relationships are the end game for fallen empires like Rome, the Soviets and even the British Empire, which collapsed internally from debt, subservience and overly-political manipulation of economic activity.

  6. chris says:

    After running a post and VFX business for many many years, I believe it is time to change to a hourly / daily quote basis. This is done in other sectors of the post business and should be extended to VFX. The client may need to closely monitor the actual hours spent. It’s their decision to spend more time (money) on the work, and their decision to incur loadings for out of hours work.
    I believe this is the only fair way to run our business, fair to the client and to the VFX house. This would differentiate the vfx houses. Those with experienced artists, great workflow, high level management, would rise to the top. I have visited VFX houses in India and China, and they are struggling with their local competition, and their workflows inhibit them from the high end innovative work. Some of the work will inevitably go there, but local houses should still thrive, and use these offshore houses to advantage.
    This fundamental change may even out the subsidies, as it may inhibit inflated rates and hours which unfairly influence the value of the subsidy.
    It’s time for the industry to man up and make the change. As soon as one leading house takes the step, others will immediately follow.

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