Creative Industries


The UK Government has ruled out tax breaks for the games industry, although commended the industry on its progress.

An MCV article reports Minister for Culture Media and Sports Margaret Hodge let the industry know that the government sees them as leading the creative industries pack financially but that they would not be seeing and development assistance in the way of tax concessions.

The Minister’s comments illustrate the reluctance of governments to give funding to an industry that may be perceived negatively by certain interest groups, and in particular, vocal voters.

Games in the UK arguably face the same issues that the games industry in Australia faces (see previous posts ‘could triple‘ and ‘Aus govt turns down games‘). There is no ‘threat’. Games lack the unique ‘cultural’ identity, and as they are a fast growing industry, they do not display any ‘infant industry’ characteristics.

The obvious critique of such a policy stance is that it is conservative and reactive. Shouldn’t governments be looking for new, high growth, high skills industries to develop rather than propping up old and inefficient ones?

While the answer would seem a clear “yes”, one question in response could be “should governments promote any industries at all?”

Industries that can anchor themselves in a rhetoric of culture and national identity arm themselves with an effective shield, based on the premise that economics (and ‘globalisation’) does not discriminate between qualitative differences in cultural goods. (This is not necessarily the case of course). There are still (if I remember correctly) exceptions in WTO articles for cultural goods, which eases international pressure on states from protecting them.

A second question, is whether governments intent on supporting industries should be looking to unlock the institutional barriers to investment by clarifying IP, tax, and inward foreign investment legislation, and aim their spending efforts at capacity building by investing in human capital formation and infrastructure development rather that giving financial incentives to any one industry.

With the Tokyo Games Show over, the Japan Animation Contents Meeting (JAM2007) concluding on Sunday 7th and ASIAGRAPH 2007 starting on the 11th, the content-related trade shows and festivals continue to roll as part of CoFesta in Tokyo, supported by the Ministry for Economy Trade and Investment (METI) and various industry bodies.

CoFesta continues with:

among others.

According to CoFesta site,

The Japan International Contents Festival (CoFesta) is one of the world’s largest contents festivals. Various events related to the contents industry, such as games, anime, manga (comics)/characters, broadcasting, music and films, are all held in Japan in autumn. CoFesta brings all these events together. CoFesta is for all kinds of contents emerging from Japan to influence each other and to be linked, to create new possibilities while also maintaining connections with the media technology industry for the distribution of contents, and to make a broad appeal to overseas.

The Game Developers Association of Australia (GDAA) have had their request for tax rebates for the film industry to be extended to investment in games developing rejected by Federal Government Communications IT and Arts Minister Senator Coonan.

In a previous entry, >>Howard Government to ‘bring Hollywood home’ through tax breaks<< I mentioned the new package the federal government was providing the film industry to ‘bring Hollywood home’ which included a 40 percent refundable tax rebates for film production.

The entry was also critical of the package and its ambitious goal:

…on first glance the tax incentives appear somewhat short-sighted or parochial on the policymakers front by exacerbating an artificial division between supporting “Australian stories” and allowing international films to use local locations and talent.

Quoted on Builder AU news, the Minister said in a written response to the GDAA:

“The Screen Media Support Package announced in the Budget has the potential to benefit screen content producers of all kinds. While games will not be eligible for the tax offsets announced as part of the Package, the introduction of a Location Offset is expected to have positive indirect flow-on effects for screen businesses, as digital and visual companies develop larger and more skilled workforces.”

Builder AU quotes GDAA CEO Greg Bondar saying the introduction of a rebate would have led to an additional AU$25 million in new investment into Australian-developed titles.

Raising the game developers’ interest in receiving government support to encourage investment, the aforementioned DISCONTENTS entry asked the question “why film and not games?”

On the game / film divide, one could argue that the film industry still has the justification of “culture” on its side, having enjoyed a long history of support from a cultural policy approach. Film and television policy has long supported the production of “Australian” programs to ‘protect our culture and national identity.’ Like nobody would watch Australian programs if there was not a 50 percent local content quota on free-to-air broadcasts? Games in contrast are rarely distinguishable as ‘Australian’ (and probably export better than films for that very reason!)

But if the goal of the film industry package is to increase economic growth, then games developers have a very cogent argument for the package being extended to them.

Undoubtedly, the Minister, and Treasury, would be anxious about extending tax incentives beyond the industry that the policy was originally designed for. Fears that such a move would open the flood gates to lobbying from any number of industry bodies claiming that they are no different to the industry sector receiving benefits. With this in mind, it is not all together likely that the tax incentives will be extended to the games sector if Labor wins office this election, despite their being “very sympathetic”.

It is an indictment on industry [industrial] policy that an industry should need to show it is in danger of dying – that capital will dry up and jobs will be lost, before a government offers any kind of support. One has to wonder whether if the Minister’s response would be any different if the GDAA showed that they were being undercut by programmers and developers in China and were set to lose x number of jobs without government intervention. That is not meant to be a statement advocating the propping up ailing industries, nor one that supports the indiscriminate provision of tax dollars to high-growth industries.

One does wonder though, whether the recent ‘lull’ in industry policy in Australia is not so much a sleeper as it is the conservative continuation of prevailing protection for inefficient industries.

Nova Scotia’s film industry is to get the tax incentives it sought (see previous DISCONTENTS entry).

A news release from the Premier’s office on 13 September indicates that the industry will receive its requested 50 percent tax credits for films shot in Halifax, and a 60 percent tax credit on films shot in rural areas. Any company who films 3 or more films in a year will receive an extra 5 percent on top of the applicable rate.

The tax credits, calculated on the number of local residents employed, is aimed at boosting employment in the industry. According to the press release however, it is not just the tax credits that make the province attractive for filmmakers:

Nova Scotia is known for many positive attributes that help attract film production including experienced film production crews, talented actors, impressive locations and a solid infrastructure.

The release also quotes Ann Mackenzie’s analysis of the need for government assistance:

“A number of factors are coming into play this year including a short ACTRA strike, a stronger Canadian dollar, and more attractive incentives in other jurisdictions. We do not want to lose our position as the fourth largest film centre in the country, a position we have held for the past ten years.

David MacLeod, chair of the Nova Scotia Motion Picture Industry Association believes the increased tax credits will allow the film and television industry to be “intensely competitive and ensure employment for hundreds of Nova Scotians.”

There is no mention of making ‘Canadian films’, no policy drive for local companies to retain the copyrights for the productions being made. Are there any data on the numbers of foreign (including U.S.) versus Canadian productions shot in Canada disaggregated to the provincial level?

Tax credits for labour might keep a certain number of locals employed and technically trained, but just how sustainable is that? Does it encourage or enable these employees to eventually make their own commercially viable productions? Or does the model lock the industry into a fee-for-service model indefinitely?

This one from the Chronicle Herald on 12 September.

Nova Scotia film makers point out that tax credits and ‘infrastructure support’ are better in other provinces, and argue that this is leading businesses away from investing in the far eastern province.

Inter-provincial or regional competition can be healthy if it means that residents and businesses have choice of service provision, rather than being faced with a virtual monopoly.

The provision of incentives such as tax concessions to attract investment however, can be a different game to ensuring effective and efficient services. To what extent are these incentives in place to attract sustainable investment, and how much of these policies merely pander to local rent seekers?

In this case, criticism of the government comes in varying shades. Some are aimed at municipal governments, others at the Nova Scotia provincial governments.

“MacKenzie (CEO of provincial film fund) pleaded with Halifax Regional Municipality to up the ante on its contribution to film production, …[stressing] the importance of tax incentives, free rent on municipal buildings used for filming and even discounts on goods and services.”

“Like the industry association, MacKenzie wants the Nova Scotia tax credit raised to 50 per cent from 35 per cent.”

Others indicate the frustration filmmakers feel in less subtle tones.

“We are going to lose a lot of people in the industry if the government maintains its current policy of inaction. I’m really pissed off by the half-assed action of the government,”

“We are losing millions, a lot of talent is dropping out of the industry or moving away and we can’t get that back overnight. My two films speak to the fact that . . . we can create higher-profile film projects out of the region. It’s a show of hope for others in the region.”

– Nova Scotia filmmaker Chaz Thorne

 

One question that comes to mind is, if Thorne’s films are indicative of the high-profile films that can be made in the province, why can it not be done in the current environment?

 

Nevertheless, this plea still follows the ‘rent seekers rule’ of demonstrating how valuable the industry is, then showing close the industry is to being wiped out, and all that economic value with it.

As with most ‘perks’ in life, aren’t financial incentives really a way of encouraging people to choose an option they would normally judge as sub-optimal? In this vein of thought, the larger the incentive, the greater the signaling effect of the option’s underlying demerits should be.

But when it comes to location shooting, production certainly seems to follow the money, and hence the incentives that are being offered in various jurisdictions around the world. But just how sustainable a policy is that? Location shooting is one of the most mobile forms of investment there are, but it possibly looks good for politicians as it almost definitely means local jobs.

But do such policies allow for the development of local talent through knowledge spillovers? Do these financial incentives become catalysts for further investment? Or does it result in local focus pullers and gaffers waiting around until producers can convince investors that the state will offer them adequate tax credits to make their investment viable?

An article in the Bangkok Post has quoted industry figures in Thailand saying that the animation and graphics ‘industry’ needs government support.

”Policymakers should realise that animation and the CG industry could generate lucrative income to the country,”
”It is a value-creation industry, which needs only ideas and creativity. It is not harmful to anybody and does not cause global warming,”

….Santi Laohaburanakit, the vice-chairman of the Thailand Animation and Computer Graphics Association told investors and fund managers at the Thailand Focus 2007 investor conference yesterday.

Calls for government assistance come despite the fact that the industry has grown by 40 percent in the last year.

It may seem strange for a high growth industry to be asking for government support, but it not all that uncommon. Industries – particularly newer industries – lobbying for assistance generally first need to show politicians how ‘valuable’ their industry is in terms of how much it contributes to the economy (income and jobs), and what its growth potential is. The second prong is then to identify that growth could be much higher if certain policy provisions were implemented. Here, it is also important to mention the potential for increased exports. A common strategy is to point out a similar industry that is receiving favourable conditions and argue that one’s own industry is facing discrimination. Finally, lobbyists will invariably point to other nations in the region indicating to their own government that foreign states are providing more favourable environments and may well gain a competitive advantage over the home country.

”Unfortunately, many Thai policymakers have not seen this opportunity, unlike [those in] South Korea or Singapore,”

”Without a national policy, Thailand can lag behind Singapore and Malaysia.”

”I would say that the value could multiply by 10 times over the next five years if we receive a strong commitment from the government,” Mr Santi said.

…which is a monstrous target. Digital Content industry players in Australia were aiming to double industry size in 10 years (7% growth per year) but then that all is relative to the respective starting size and maturity of the industries.

Finally the author of the article has added some supporting statistics:

Based on a Kenan Institute report, South Korea’s online game industry is now worth more than $4 billion. The global market is estimated at $101 billion, more than 80% of which is controlled by American and Japanese companies.

According to the association, animation and computer graphics in Thailand can be categorised into three segments: animation for TV and cinemas, valued at $41 million last year; digital gaming worth $41 million; and visual effects and computer graphics worth $33 million.

An article in the Taipei Times that argues when it comes to creativity, size isn’t all that it is cracked up to be.

A large volume of work in economics and industrial organisation has looked at how small firms may be more innovative in certain areas than larger firms. Yet this article is referring to the relevance of a nation’s size and economic might.

It is not unpredictable for a Taiwanese source to drum up support, both domestically and abroad, for the viability of small nations, particularly given the their political relations with the ever-expanding economic juggernaut China (PRC).

Yet the article points to the high rankings of Norway, Iceland, and Ireland on the Human Development Index, of Denmark, Switzerland, and Austria in a ‘happiness’ study, of Singapore, Hong Kong, and New Zealand in an International Finance Corp. study on ease of doing business, and of Denmark, Finlan, and Sweden as being high on the 2005 Globalization Index.

For medium-sized countries such as Taiwan, the article recommends:

Taiwan’s policies for development should concentrate on opening up to globalization, and creating a globalized society with Taiwanese characteristics.

An economy of creativity is the most important type of economy in the 21st century. Taiwan has a diverse culture and a climate of unlimited creativity. It should study examples like Ireland and the Boston area in the US and establish a social framework for creativity, to let Taiwan develop a unique position and advantages.

This framework includes three things: First, a good framework for creative industry, like improved financial systems, higher budgets for research and related organizations. Second, a general creative operation models, including creative work environments and flexible production methods. Third, a geographical, cultural and social environment that gives full play to creativity.

There is a mounting body of evidence that suggests a policy framework should include measure to promote both economic freedom as well as political freedom if a nation is to encourage the development of the ‘creative economy’. Providing an solid institutional framework for financial and legal systems, together with investment in education, research, and artistic endeavour appear to be key fundamentals in happy, creative, affluent nations.

Perhaps we should consider a viable and equitable health system and aim for healthy residents as well?

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