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Getting down to business:
The Producer Offset five years on

The Producer Offset was introduced in July 2007 as part of the Australian Screen Production Incentive (ASPI), the Australian Government's package of measures to boost support for the Australian film and television industry. One of the key aims of the Offset was to assist Australian producers to build stable and sustainable production companies.

By 30 June 2012, the Offset had been in place for five years, nearly 500 final certificates had been issued for qualifying projects, and the industry had gained considerable experience in working with it.

This report looks at producers' experiences with the Offset, the benefits it has delivered, and the ways in which it has impacted on business practices.

Key findings

Based on total expenditure in Australia, production of Australian narrative content has increased since the Offset was introduced.

Impacts on producers

For the individual producers surveyed for this report, the Offset has unquestionably provided relief from the challenges involved in raising production budgets. But the recent scarcity of international finance and the high Australian dollar have counterbalanced that effect to some extent, and most Offset projects (features in particular) still need to secure direct funding from Screen Australia.

Along with the financial contribution of the Offset to the project's budget, the Offset has also improved the producer's equity share for their projects, in some cases giving them a position on the recoupment 'waterfall' where previously they had none.

Extra equity increases the producer's share in their project's potential revenue. Although it can take some time for revenue to pass through the higher levels of the revenue waterfall and reach the producer (and other equity investors), the majority of surveyed producers have received revenue for at least one of their Offset projects to date.

The Offset has also altered the playing field for negotiating with the marketplace and raising finance. Producers have been harnessing this enhanced leverage in two main ways:

  • Equity trading: some producers traded part of the extra equity delivered by the Offset to attract investors and/or talent.
  • Creative use of the 'margin' the difference between the Offset amount eventually received from the ATO and the amount included in a project's finance plan at the outset: this might be invested back into the budget, offered to investors, or retained to build the business or finance subsequent projects.

Apart from the Offset's contribution to the budget and the access it gives to a greater share of revenue, the main benefits identified by producers depended on the type of project:

  • For feature films, it was the leverage provided by the extra equity, which can be used to attract investors and talent to the project.
  • For TV drama and documentaries, it was the ability to invest the Offset margin back into the company or into subsequent projects.

Working with the Offset

The portion of the budget contributed by the Offset is not available until the film or program is complete and a tax return filed, so needs to be cashflowed into the budget by producers. Feature producers relied more heavily on interest-incurring loans from banks and financial institutions to cashflow the Offset, while TV dramas and documentaries had a greater capacity to be cashflowed using the company's internal resources. This is in part explained by the higher value of the Offset for features and the different financing structures for features and TV.

All Offset features and most TV dramas and documentaries were made using special purpose vehicles (SPVs) – companies set up specifically for each production. For around half the features this was specifically to avoid a delay in Offset payment. For TV drama and documentaries it was much more likely to be associated with quarantining the Offset payment from other tax liabilities.

While the Offset has had a positive impact for producers overall, many noted that it had added to their administrative and legal costs.

Download the full report