Chasing film money is bad economic policy

16:00, Dec 06 2012
Peter Jackson
Hairy investment: Prime Minister John Key and director Peter Jackson are appeasing the rich wizards at Warner Bros.

If The Hobbit trilogy matches the performance of The Lord of the Rings series, it will gross about $3.6 billion. So how much taxpayer money, would you guess, did Warner Bros need to produce the films based on the J R R Tolkien book? The answer is zero. The films are almost certain to be immensely profitable.

But the real question is: How much taxpayer money can Warner demand from the Government to keep production in New Zealand (rather than, say, in Australia or the Czech Republic)? That turns out to be about $146 million, plus the revision of New Zealand's labour laws to forbid collective bargaining among film-production contractors, plus the passage of three-strikes internet-disconnection laws for online copyright infringement, plus enthusiastic and, it turns out, illegal co-operation in the shutdown of the pirate-friendly digital storage site Megaupload and the arrest of its owner, Kim Dotcom.

For keeping Warner happy, Prime Minister John Key, a former Merrill Lynch currency trader, got a replica magic hobbit sword from United States President Barack Obama and a chance to hang New Zealand's fortunes on becoming the destination for Middle-earth enthusiasts. What could go wrong?

Let's start with the obvious. Film money is hot investment money, fast in and fast out. Production is very mobile, and studios have become adept at extracting subsidies from governments for a few trinkets and promises of jobs.

This is true in the US, where subsidies rocketed from $2.4m in 2003 to about $1.8b in 2012. Film subsidies are epidemic in Europe and have been a major part of New Zealand policy, where more than $400m has been invested in The Rings, Avatar and a handful of other productions in the past decade.

But competitive subsidies are the quintessential suckers' game, in which winning is losing. New York found this out in 2009, when it decided it had to subsidise productions to keep them from leaving the city. When the three-year budget was exhausted in one year, the city called it quits.


The British government found this out in 2005, when Warner threatened to move Harry Potter productions to the Czech Republic. The government of Gordon Brown caved in to studio demands and passed new subsidies. In 2009, New Zealand also gave in and now faces demands for more.

The worst part is that, for most of the wannabe Hollywoods, it's bad economic policy on every level. The productions bring in mostly low-end, temporary jobs, while the high-end jobs remain in Hollywood or New York. Call it the Curse of Harry Potter.

One way to break the curse is to route public money through an Expecto Patronum licence - named after a powerful defensive charm in the Potter series - making it a conditional loan rather than a grant or tax break. After five years, producers have a choice: Pay back the loan or re-release the film under a Creative Commons attribution licence, which would allow it to be shown freely. If a film is among the few that have longer-term commercial value, its producers can choose the first path. If it isn't, they lose nothing by taking the second. The licence thus underwrites creative risk-taking without frittering taxes on blockbusters. It ensures public investment in public culture - not works controlled by the studios for 95 years.

Unfortunately, the Trans-Pacific Partnership trade deal being negotiated by New Zealand, the US and nine other Pacific Rim countries is widely regarded as yet another sellout to Hollywood. It includes three-strikes internet disconnection for repeat infringers and content blocking by internet providers.

Still, the framework could be used to back our increasingly participatory, rich audiovisual culture, rather than curtail it. It could look to the Washington Declaration on Intellectual Property and the Public Interest, released by the American University Washington College of Law, for ways to balance public and private interests.

Many Kiwis struggling with Mr Key's sellout to Hollywood will be less amused if Warner decides to take the next Middle-earth epic to Slovakia for an extra 10 per cent tax break.

So come on, New Zealand. Roll the TPP agreement into a wand, stick a kiwi feather in it, and cast your Expecto Patronum spell! Help free Regular Earth from the tyranny of Middle-earth.

- Joe Karaganis is vice-president of the American Assembly, a public-policy institute based at Columbia University.

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