Incentives maketh the Man
31 March 1998
The Isle of Man Film Commission's incentives ensure that the island has a starring role in the industry, writes Helen Tulley. Helen Tulley is a senior assistant in the intellectual property/media department of Hammond Suddards.
Film production incentives, which were introduced three years ago by the Isle of Man government, have made a significant contribution to the boom in the UK movie industry.
Since the Isle of Man Film Commission was set up, filming on the island has mushroomed from one film per year to 12 in 1997 with a similar number anticipated in 1998.
The commission is part of the Manx Department of Trade and Industry, working in conjunction with the treasury, which ratifies the decision to provide finance for each production.
A number of incentives are offered to attract film makers. The commission offers film production companies (which are often British) an equity on production finance. This is provided by way of a guarantee (or a letter of credit) in favour of a Manx bank, which then provides cash flow for the production.
Most significantly, for the structuring of a film's finance, the commission requires a comparatively low level of estimated sales for the film to cover its risk. By and large, equity financiers seek to have their investment covered two or three times in the projected sales figures for a film. The sales figures are provided by sales agents, who produce a projection of the selling price to distributors for each major territory.
The commission determines whether or not to make a loan by relying on a report submitted by Steve Christian, a partner at Ernst & Young on the Isle of Man. He assesses each application for a loan on its financial merits and how well it fulfils the criteria set down by the Manx DTI.
The commission generally wants its investment covered once by the minimum sales figures, which leaves scope for the producer to offer other equity investors ample cover for their investment.
Subject to adequate sales cover being provided, the commission will often take a recoupment position behind the principal equity investor, or will agree to recoup its investment out of receipts from the film in a limited number of territories.
The Isle of Man government can afford to take this position on recoupment because of other, less direct, benefits which derive from production taking place on the island.
As a result, the commission demands that a minimum production-spend requirement on the island must be met. Typically, this requires the majority of the filming to be carried out on the island, where the accommodation, the catering and the transport costs can be attributed to the minimum production-spend requirement (post-production often has to be carried out elsewhere because, at present, the Isle of Man has limited facility houses which can provide such services).
Other criteria for a loan mirror those required by established sources of equity film finance for example, a completion guarantee must be in place before drawdown of the loan. In simple terms, this is a type of insurance whereby the guarantor promises either to complete and deliver the film to the distributor or to repay the investor.
An independent collection agent, responsible for collecting and allocating receipts from the film, must also be appointed.
A sales agency or distribution agreement must be concluded on satisfactory terms, which means that distribution commission and fees must be limited or capped, as applicable.
The DTI and the Treasury both take security for the loan in the form of charges over the intellectual property and the physical property in the film held by the borrower.
One of the main requirements for borrowing is that the production is carried out by a Manx production company. The borrower, if not a Manx company, is obliged to form a Manx company, which is then engaged by means of a production agreement to produce the film.
Under the terms of the production agreement, the Manx company, on completion of the film, sells that film to the borrower so generating further income for the island in the form of VAT.
The DTI and the Treasury also take security by charging the Manx production company.
There are additional incentives for television production companies in the form of so-called production credits.
Production credits may be given in conjunction with other financial assistance, and these are provided as grants of up to £350,000. In order to qualify for a production credit, a broadcaster must be fully or partially involved in the funding of the production.
The package of incentives offered by the Isle of Man has been eagerly taken up by the film and television industry not just in the UK, but also in US and elsewhere.
One of the most recent films to be shot on the island was The Dreaming of Joseph Lees, which is majority-financed, owned and distributed by Fox Searchlight, a division of 20th Century Fox, which is currently distributing The Full Monty.
The Isle of Man does not suit every film, of course, because there are limitations in the physical and geographical opportunities it offers. Similarly, the budget for each film is usually within the $1m to $6m range, in part because of the limitations mentioned above.
But, no doubt with an eye on the success of the Isle of Man, there are apparently discussions in progress relating to Jersey, Guernsey and southern England, for a scheme which could offer equity participation in film with the aim of encouraging productions in these locations.
The benefits of film and television production to local commerce are obviously being recognised. If the current backlog in film distribution can be addressed, the prospects for film production continue to look rosy.
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