FILM INDUSTRY INCENTIVE PACKAGE
THE KENYA FILM AND TELEVISION
INDUSTRY REPORT
REPORT TO THE MINISTRY OF FINANCE
By
David Maingi, CEO – Kenya Film Commission
December 2008
The report was commissioned by the Minister of Finance, Hon. John Michuki to propose strategies to catalyze the film & TV industry growth and development.
CONTENTS PAGE:
EXECUTIVE SUMMARY...... 3
SECTION ONE - INTRODUCTION ...... 8
1.1 Background ...... 8
1.2 Why is the Film Industry important? ...... 8
1.3 Trends in the Global industry? ...... 9
1.4 Kenyan Industry…………………………………………………………………………………………………………..9
1.4.1 Kenya’s Film History……………………………………………………………………………………...... 9
1.4.2 Current Scenario…………………………………………………………………………………………..11
SECTION TWO – PROPOSED INITIATIVES ...... 13
SECTION THREE – GLOBAL TRENDS IN INCENTIVES ...... 15
SECTION FOUR – PROPOSED KENYA FILM INCENTIVE PACKAGE...... 19
4.1 Local Content Incentive………………………………………………………………………………………………..19
4.2 Large Film & Television Film Incentive……………………………………………………………………………….19
4.3 Film Development Fund………………………………………………………………………………………………..20
4.4 Local Authority Film Levy Rationalization…………………………………………………………………………….21
4.5 Film Infrastructure Development ……………………………………………………………………………………...21
4.6 Increased Funding for the Kenya Film Commission………………………………………………………………...22
SECTION SIX: APPENDIX
List of figures & Tables ...... 23
Best Practice Case Studies………………………………………………………………………………………………...26
EXECUTIVE SUMMARY
RATIONALE:
The film Industry has been identified as a key growth industry with great potential to spur economic growth and help in the realization of vision 2030 through tourist attraction, investment and employment creation. Currently the film industry is generating over Kshs.3 Billion annually in Film, documentary and advertising commercials annually. However when performing optimally the film industry can generate over Ksh.40 billion and create more than 250,000 jobs annually. The film industry has the potential of being a top 5 national economic activity if given the right support.
Specifically, Kenya will realize the following economic benefits as a result of a vibrant film industry:
· Increase in tourism revenue by showcasing the natural beauty of the country globally
· Position the country as a centre for technological innovation
· Attract significant levels of foreign currency and increase levels of direct and indirect taxation
· Provide employment and training opportunities in the entertainment, IT, investment and financial sector
· Pump direct economic benefits into the country
· Exponential growth of the film industry as a leading revenue generator for government
· Boost the domestic film and television physical and technical infrastructure necessary for overall economic growth
Although Kenya has some of the world’s spectacular locations, it has over the years since mid 1980’s gradually lost ground to other countries because of a lack of incentives (Principally to South Africa). By introducing a reasonable incentive scheme, Kenya can compete for large, medium and low budget films, attract international and local investment and build a national film infrastructure necessary for sustainable economic growth for Kenya.
The proposal doesn’t intend to change the current tax law structure to any extent and may be offered to local and international film production and investment companies. The criteria being that the Kenya Revenue Authority (KRA) are assured of increasing the amount of collectable revenues through these measures. The primary beneficiaries will be the Government through revenue generation, improved national reputation, and Film / TV, trade and tourism industries.
This initiative can be best attained by focusing on two important objectives:
· Increase the competitiveness of Kenya as a destination for International film makers
· And to increase the potential of the local industry to generate marketable content.
PROPOSED INCENTIVE PACKAGE:
Film & TV Production Rebate Scheme / Countries that are in direct competition with Kenya for international film business now offer a combined rebate and incentive scheme of upwards of 25% combining such packages as subsidy, Tax Rebate, Tax credit and Film Financing. Kenya needs to match or at least offer a competitive scheme to benefit from the lucrative local and international film business / Combined incentive scheme of 35% comprising of 25% Tax Rebate based on local spend for film, TV and internet content and further 10% tax rebate (for qualified projects) for both local and foreign film producers that meet the set criteria.
Rebate applies to films with budgets of at least $500,000.
Maximum tax rebate capping at $2.0 million (Initial Funds provision $ 10 million)
Producers Equity Investment Funding through a Commercial Development Finance Agency for qualifying film projects / Encourage big budget local and international film and video production in Kenya to grow the economy
Advance intensive hiring of local technical crew and equipment
Increase in country film budget spend by providing one stop shop film ready environment / Industry growth to Kshs.40 billion in three years with an exchequer revenue generation of more than Ksh15 billion from direct and indirect taxation on in country film spend
Film Production Equipment and Infrastructure development / Kenya lacks critical film infrastructure to support a robust film industry requirements. This has mainly been due to the high cost of investment required for developing fully fledged production capacities in Production and Post production facilities.
A trade incentive is required to allow for an accelerated investment in the industry for cameras, Lighting, Sound, Film Stock and post production facilities / Zero rating of tax on Cameras: Digital (Super 8 – 35 mm), lenses, zoom, heads, tripods, HD / HDCAM, HDV, DVCAM and Beta Cam and Broadcast quality cameras
Lighting: Gels, Stands, Bounce Boards, practical Lights, Sun Guns, Pepper Light, Red Heads, Blonde, Fresnel Light, HMI Lights etc
Sound: Booms, Microphones, Mixers, DAT Machines (48 KHz and 44.1 KHz), Digital Audio studio equipment
Editing suites; Digital mastering and editing, reproducers, VCD and DVD production equipment
Film Stock: Super 8mm, Standard 16mm, Super 16mm and 35 mm / Rapid investment for quality film production infrastructure for use by local and foreign film production companies
State of the art training opportunities for film technical professionals
Higher quality film content production / Kenya Film Industry infrastructure comprising of technical facilities, human capacity and investment in the sector
TYPE / DESCRIPTION / INTERVENTION / BENEFITS / ANTICIPATED OUTCOME
Local Authority Film Levy Rationalization / Current practice among local councils is to levy a range of film location fees from a low of Kshs 7,500 per day in Nairobi to a high of Kshs.100, 000 per day in Malindi Municipality for example. These fees in some local authorities are not fixed and are adjusted irrationally.
This practice has led to gross exploitation of both local and foreign film production companies as local authorities have the freedom to charge any amount of money. This has discouraged film development in Kenya / Rationalization and harmonization of local authority location fees by classifying and zoning municipalities and local council and stipulating a maximum threshold to reduce exploitation and increase levy fee predictability
Abolishment of all license fees and local authority levies for all local productions to benefit to grow frequency and number of productions per year for local consumption / With predictable levies, film production companies can be plan and budget appropriately. They will also be facilitated to access locations readily and encourage greater use of Kenya’s diverse locations
Major local content development for Kenya / Higher local authorities revenue from filming activities
Reduction in cases of exploitation of film production crews on location
Higher number of Kenyans employed in the industry and enough content to meet local demands
Local film content incentive / Provision of a business incentive to local broadcasting stations and film screening companies for commissioning of projects and broadcasting at a specific minimum threshold / Corporate tax incentive of 5 – 10% to encourage distribution through digital broadcasting of Kenyan film content
Broadcasters to commission 75% of all projects to local production companies to build local production quality and infrastructure / At least 50% local content regime and 75% local content commissioning to encourage employment creation and local production of film content
Reduction of adverse foreign content in Kenya’s broadcast and screening industry
Greater number of commissioned film productions by broadcasters / Higher employment of skilled and semi skilled Kenyans
Increased revenue generation for Govt.
Contribution towards growth of a national screen culture and distribution of content in Kenya and abroad
TYPE / DESCRIPTION / INTERVENTION / BENEFITS / ANTICIPATED OUTCOME
National Film Development Fund / Provides competitive film development financing for individual local film producers.
The fund to support projects in the form of a recoupable contribution towards the production of innovative film , TV, new media, or cross-platform content projects
Applications to be evaluated 2 times a year until target funding is expended. Disbursement to match broadcast or distribution commitment available / Setting up of a Revolving Film Development Fund (Kshs. 100 million p.a. for 5 years initially): 25% Sinking fund component & 75% revolving fund component) / Growth in quantity and quality of local film productions
Increase global distribution of Kenya’s film productions
Growth of the number of local film production companies / Support for 100 short and long feature films, TV series and animation projects in the first 3 years to spur quality local film productions
Increased funding for Kenya Film Commission / KFC has in the past three years continued to receive inadequate funding to allow it to build a sustainable film industry / KFC requires a budget allocation of at least Kshs150 million annually over the next 5 years to successfully grow the film industry to more than Kshs40 billion / KFC will develop and market Kenya’s locations and incentive programme to deliver a major increase of films shot in Kenya as well as develop a robust well trained and responsive film industry complete with the requisite infrastructure and personnel to make it one of the World’s leading film destinations / Kshs40 billion industry, 50,000 jobs created annually, increase in tourism revenue, tax revenue and global influence and image
This incentive is competitive with other countries. South Africa offers two programmes – one for international productions providing 15% of qualifying spends with a cap at US$1 Million. The other is for local films and co-productions, providing 35% of qualifying spend also capped at US$1 million. Australia has 3 rebate programmes: a 15% tax rebate on qualifying production spend as long as it is between $9.8 million and $32.8 million and 70% of the film is shot in Australia; 15% tax rebate on qualifying post expenditure for films regardless of whether the production is shot in Australia; and lastly a 40% tax rebate for films that are deemed to have significant Australian content. Ireland offers 20% of local spend. The UK also offers 20%, Canada using both federal and provincial tax rebate structure of 29% of qualifying spend.
1.0 INTRODUCTION
1.1 Background
US Theatrical Release gross budget expenditures on films shot worldwide increased 30%. However, while production in the U.S. fell 14%, production in the rest of the world increased 135%. The number of films shooting outside the US has more than doubled since 1998. This phenomenon is referred to in the US as runaway production. There are two types of runaway productions – “creative” runaways, which depart because the story takes place in a setting that cannot be duplicated or for other creative considerations, and “economic” runaways, which depart to achieve lower production costs. Economic runaways have been caused by producers seeking more cost effective ways to make their films whether its cheaper labor and/or incentive programs to fund a portion of their budgets. Canada, Australia, New Zealand, UK/Ireland, Eastern Europe and South Africa have particularly strong incentive programs with the latter two also offering substantially cheaper labor rates. Films are no longer only shot where their stories take place.
1.2 Why is this industry important?
Firstly, this industry plays a powerful role in communicating ideas, information and ideology. For individuals, film and television provides at least an indirect link to the rest of society. It has the potential to create a common culture and system of values as well as inform people of a diversity of cultures and ideas. It can provide minority communities with local news and entertainment and allow them to see the world through their own lenses. Secondly, on a political level, this industry provides a forum for debate and discussion as well as information, which is essential for individual’s participation in community life. It therefore plays a central role in the workings of a democratic state.
Third, economically this is an industry which turns over billions of dollars and generates millions of jobs throughout the world. In 2007, the global entertainment industry generated US$180 billion. The entertainment industry includes film, television, music and publishing. The film and television industry generates jobs directly in production and post-production companies, equipment-hiring, set design and manufacturing and prop suppliers. Jobs are also created indirectly in supporting industries such as hospitality, catering and transport .
Film productions with their broad and extensive spending patterns tend to inject needed capital into an economy. Film productions can provide direct economic benefit to a community. They can pump millions of dollars into a community -- occupy hotel rooms, eat, hire transportation, utilize IT services, and hire local crews, actors, directors and producers. Productions pay taxes and in some cases construct studios or other infrastructure. The direct spending is subject to a multiplier or ripple effect. A recent study by the Los Angeles Economic Development Corporation shows that every dollar spent on a production in California generates on average a total economic impact of nearly triple in addition to amounts realized by the state itself in taxes. In Canada, the multiplier effect is tenfold. It is estimated that 50,000 jobs can be added each year in the initial stages of ramping up the entertainment industry in Kenya. And allied industries such as ICT, finance, transportation, tourism, as discussed above will also receive an added boost. A film production can also provide indirect economic support. For example, a production can also showcase the natural beauty of Kenya thus attracting tourists.
1.3 Trends in the Global Industry
A number of trends are evident in the global film and television industry that impact on the Kenyan industry. These include: