Production incentive design

Governments globally follow five steps to ensure their production incentive programs are effective and can enable growth in the local media sector. They first define the objectives and desired impacts of the program; then identify the most suitable incentive types; detail requirements and criteria; design incentive application processes; and monitor the impacts so they can adjust program design accordingly.

Types of production incentives

Globally, governments deploy a range of different production incentives to take advantage of the benefits highlighted above.

Cash rebates. Here, the government repays an amount of qualifying production expenditure to a producer, according to a predetermined formula. Rebates are the most common type of incentive, accounting for about 60 percent of all incentives deployed in 2019.
Tax credits. This is the second most popular type of incentive, accounting for about 35 percent of all incentives globally in 2019. Video game production hubs, including the UK and Canada’s Montreal, have successfully relied on tax incentives to increase video game production in their region. There are two types:
- Refundable tax credits. This incentive is given against tax owed by a production company. It reduces liabilities when the company’s tax return is filed and provides a refund if the credit exceeds liabilities.
- Transferable tax credits. Where tax credits are not refundable, they can be transferable, allowing producers to sell the credits at a discount to third parties to reduce their individual or corporate tax liabilities.
Tax shelter. This type of incentive is based on a government attracting investment from companies and individuals who invest in film projects to reduce their tax liabilities. These are rarely used today, mainly due to their complexity. Typically, intermediaries are required to facilitate the connection between the investor and the production.
Equity investments and loans. Here, governments invest and hold shares in a media production, or offer a loan for producers, which needs to be paid back with interest. These forms of incentives are mainly seen in countries such as Australia and New Zealand. The invested amounts from governments tend to be low, due to the relatively high risks.
Uplifts. Here, governments offer additional funds based on specific preset requirements. Uplifts are used in many countries to attract more productions and target specific needs. For example, a government may offer a 5 percent uplift for filming in an underserved area.

Production incentive requirements

Each type of incentive has specific requirements, which can be grouped into three common categories.

Eligibility requirements. These include the media production format (such as feature film, TV series, or video game) that is eligible for the incentive, along with the requirement that the production company be a legal entity.
Qualification requirements. Some incentives require a minimum use of local talent, minimum share of footage shot in the hosting country (generally around 25 percent), and minimum spend for each production.
Definitions such as qualifying expenditure (generally between 10 percent and 40 percent). The incentive amount can be calculated by multiplying qualifying expenditure with the incentive rate.

Incentive application process

Once producers decide on an incentive scheme that suits them, the journey to obtain an incentive starts with an application process and continues with gaining preliminary approval. Then, after production, expenditure is audited, and finally the incentive is paid. The steps in the process are as follows:

Application. The producer submits an application including the script or synopsis, the predicted budget, and qualifying spend.
Preliminary approval. The entity administering the rebate reviews the application against its eligibility criteria and issues a preliminary decision (such as an interim certificate).
Audit. At the end of the production, full documentation is submitted for an independent audit by the competent authority, for claimed qualifying spend.
Payment. After verification, the payment incentive or tax credit is issued to the production company.

Conclusion

The benefits of incentive programs have been clearly demonstrated in multiple jurisdictions over a long time frame—in some cases, spanning more than 30 years of successful renewals. However, governments should design and implement their incentives to maximize their impact and unlock the sought-after key objectives. Countries and jurisdictions are competing against each other to offer the best production incentive programs, as these become a key component of a producer’s decision on where to film. Countries that offer production incentives will be preferred over countries with similar natural landscapes or production infrastructure that do not offer incentives.

Disbursement mechanisms for media production incentives should fulfill three key guiding principles to be effective. They need to be:

Rigorous. The process for project selection should be clear and based on strict guidelines to help ensure that only eligible projects are selected for the incentive, in line with the overall vision of the issuing authority. Qualifying factors might include whether the production will promote local culture, attract tourists, or strengthen soft power.
Tailored. Schemes should be capable of accommodating large and small projects. They should focus on highly competitive projects that can bring more benefits than a regular production, such as through uplifts.
Impact-driven. An effective performance measurement mechanism needs to be put in place to ensure the issuing authority derives maximum value from the project. This mechanism should include an impact assessment routine, taking inspiration from pioneer jurisdictions that have established production incentives and which regularly measure the socioeconomic impacts of incentivized projects.

Alignment with these guiding principles is more likely in countries where a central or local entity is responsible for managing the incentive program, with clear governance, processes, and performance management systems. This entity is commonly called a screen office or film commission.

Several leading hubs, including the US, have more than 20 screen offices in charge of administering production incentives across regions. In countries such as Australia, the UK, and Canada, there are multiple screen offices, including at the national and provincial or district levels.

The screen office plays a crucial role in independently controlling, disbursing, and monitoring the use of large production incentives. As it enjoys a 360-degree view of the overall screen value chain—from production to distribution and exhibition—the office can anticipate industry evolution in terms of supply and demand. This means it is well positioned to adapt the incentive disbursement strategy in the most appropriate way.

Incentive programs are key enablers of media ecosystem creation and growth. In the short to medium term, they are instrumental in creating local jobs, attracting foreign investors, and stimulating local media infrastructure. In the long term, their impact goes beyond the media sector, spilling over to adjacent sectors such as tourism and culture. This in turn strengthens their potential for generating soft power and increases return on investment when it comes to government support.

Case studies

United Kingdom

Media sector overview

The UK is one of the world’s leading box office markets, producing an average of 134 feature films annually. Films made by UK companies have grown to account for around 25 percent of global box office revenues, elevating the film industry’s status as a key driver of the country’s economic growth. Today, the UK’s media sector constitutes 11.7 percent of the country’s gross domestic product (GDP). It comprises more than 15,600 film and video production businesses, and accounts for around 312,000 jobs.

A key reason for the success of the British film industry is its comprehensive range of creative sector tax relief measures, which have helped make the UK a competitive and stable market in which to develop and produce content. Other important factors include the presence of a world-renowned base of talent and creative businesses, as well as a specialized set of offerings relating to physical infrastructure, skilled crews, and various supply chain businesses.

UK tax incentives

The UK first introduced a creative industry tax relief scheme in 2007 in the form of the Film Tax Relief program. In 2012, it introduced additional tax relief support in the form of the Creative Sector Tax Relief program, which included categories such as high-end television and animation productions. The Video Games Tax Relief scheme followed in 2014. These schemes allow qualifying companies to make a deduction in their taxable profits or surrender a loss for a payable tax credit. They provide a single rate of at least 25 percent of relief that applies to all categories. Since introducing the first scheme in 2007, the government has supported productions through more than US$6.1 billion in tax relief.

Tax credit impact

As figure 7 indicates, the total amount of tax relief funding disbursed annually to the creative sector has grown consistently since the introduction of the Film Tax Relief scheme in 2007. For example, between 2014 and 2019 there was a 20 percent increase in funding. There has also been a steady increase in the amount of tax relief available for video game production since the 2014 introduction of the Video Games Tax Relief program. These increases indicate the efficacy of tax relief schemes and their role in helping to drive the UK’s economic development. Their success is reflected in the UK’s commitment to providing constant and growing incentives of this type over the years.