An underperforming taxpayer subsidised industry

Getting diverted again on Saturday, because of yet another road closure to assist the film industry, reminded me that I had been intending to write briefly about the screen industry data Statistics New Zealand released last week.

Perhaps I missed the coverage in the local papers, but the only media story I’ve seen on these data was in the Wall Street Journal, in a story headed “With no hobbits, New Zealand movie industry is hobbled”. The author quotes a US industry figure observing that “New Zealand is a global hub for filmmaking with an exceptional reputation”. Perhaps, but the numbers don’t seem to be moving in the right direction.

Gross revenue of screen industry businesses was $3221 million last year, slightly up for the year, but still 2 per cent lower (in nominal terms) than in 2012.

Gross revenue from production and post-production of feature films was (down a lot last year and) less than half of that in 2012.

There are almost 10 per cent fewer jobs in the screen industry than there were in 2005 (and while I promise not to keep mentioning it, New Zealand’s population is a lot larger than it was in 2005).

And this in an industry where 40 per cent of the revenue for “production” comes from the New Zealand government: it makes the export incentives in places a few decades ago to encourage non-conventional exports look niggardly.

Statistics New Zealand also recently released a detailed breakdown of exports of servces for 2015.  Here is how exports of “motion picture production services” have gone over the last few years.

movie exports

There has been some growth in “Radio, TV, and other artistic services” but nowhere near enough to offset the fall in the movie side of things.

SNZ also reports some industry value-added estimates, but the most recent data relate to 2014 financial years.

screen industry VA

Presumably the 2015 numbers will be lower.

And although much the hype is around Wellington –  still important on the movie side of things – what is striking is the decline in the industry in Wellington.

screen gross revenue wgtn

Another way of seeing this over a longer period is to turn to the regional GDP numbers.

The published numbers don’t identify film or screen industry activities separately.  But they do have a category called “Information media, telecommunications and other services”.  Much of the screen business activity must be included in that industry segment.   But here is how the share of this industry segment in GDP has behaved for Wellington on the one hand, and for the median New Zealand region on the other.

film share of gdp

As I’ve noted in earlier posts, the industry breakdowns of the GDP data are only available to 2013.   When it is available, the relative picture for Wellington is likely to be even worse by 2015.

The Wall Street Journal article summed up the subsidies.

New Zealand, along with the UK, Canada, and several US states, offers incentives for businesses producing films here.  A cash grant was increased to 20%, from 15%, from 2014 –  partly to clinch the “Avatar” deal.  This allows international productions to claim back 20% of the money they spend in the country.  Some productions receive an additional 5% rebate.  And local ones receive a 40% grant.

Even MBIE was opposed to the increased subsidies.   The industry has the feel of a sinkhole, into which public money is poured with little very evident payoff.  At least when we subsidized manufacturing exports in the bad old days, we got more of them.  But screen industry exports have been falling.

The head of the government’s Film Commission is quoted as saying “we need to keep growing.  We want those jobs here”.   But do we?  If so, why?  And at what cost to the rest of us.  (And as the SNZ data show, most of these jobs aren’t even particularly well remunerated.)

Ah, but “industry experts say that the movie business’s economic contribution cannot be measured by revenue alone”.  Tourism spinoffs are apparently the thing.  WSJ readers are told of tourists spotted along “Miramar’s main retail strip”, but perhaps won’t appreciate that Park Road isn’t exactly Hollywood Boulevard.  More importantly, perhaps, as I highlighted last week, although tourism had a good year last year (and export education as well), New Zealand’s overall services exports remain weak by international standards (especially for small countries) and have been some of worst-performing among advanced economies over recent decades.

services X change since 2005

We massively subsidise the film industry with direct subsidies.  We also subsidise the tourism industry with the rapid expansion in working holiday programmes –  this time, the subsidy isn’t direct from taxpayers, but from lower-end New Zealand workers facing greater competition from temporary foreign workers.     Much the same could now be said for export education.

And yet we have so little to show for it all.  A better class of cafes in Miramar perhaps, but not much beyond that.  Sadly, it is all too typical of the disappointing New Zealand story –  although perhaps made worse by the direct government hand in these industries.

 

 

 

12 thoughts on “An underperforming taxpayer subsidised industry

  1. For some reason the Power Ranges like to film outside of the Vector Arena. I would have thought that there would be a lot more of NZ to film rather than the front of the Vector Arena. I guess the local retail outlets get a bit of a boost everytime they film.

    I got quite a shock one day when the old railway station on mahuhu crescent was used as a prop for a Japanese movie. It was a full set prop with army trucks, Japanese rising sun flags on the old railway station and japanese imperial soldiers in full dress code and armed with rifles, and a whole bunch of people all dressed with kimonos, and period western attire. Scary.

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  2. The spinoff really is seen more in the visitor numbers which has risen to 3.2 million and $11 billion in GDP. John Key is the tourism minister and the whole point really would be to get tourists to be able to see NZ as a special place to visit. Prior to the Lord of the Rings and the Hobbit series, most visitors would just see NZ as part of Australia and miss us completely from a place to come visit.

    I think the identification with Middle earth is giving us a clear separation from Australia as a tourist destination. Probably also the reason why John Key wanted a different flag so that we can be seen and known as an entirely separate destination from Australia.

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    • Agreed. Would be interesting to see what the ROI was. I’ll take the bet that it is quite positive. Re: Avatar, that’s 4 additional movies that will be partially filmed in Wellington. Should keep things going for a while. Now perhaps if we had a direct connection to LA…

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      • Loved that Avatar movie. Definitely one of my favourite Sc-Fi movie. I think the tourist industry should play up the the Avatar series and get a whole bunch of blue people and giant blue avatar creatures as they did with the Hobbit series. Perhaps Air NZ should join in the adventure and have some blue airplanes in the air. Afterall John Cameron with his massive NZ land holdings could be easily persuaded that he is a kiwi and to join in this advertising campaign to boost NZ movie industry and NZ tourism.

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  3. I’m no fan of MBIE’s analysis generally, so perhaps they have this one completely wrong, but their analysis – as an agency generally keen on govt support and facilitation – suggested there was no acceptable return for the taxpayer.

    as for massive public subsidies for an airport extension, that is a topic for another day!

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    • Not necessarily. I have found a lot is dependent on whether the individuals that power these government funded organizations are left wing or right wing. I have found TV NZ more supportive on left wing opinions on programs such as Nation and Q&A. Paul Henry on TV 3 definitely more right wing even without government funding.

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  4. Dick Smith’s collapse may have given tourist retail spending a bit of a boost these last few months as they go through the liquidation of their retail stores. I was queued up behind a whole line of tourists in backbacks. They were each individually having a chat with the point of sale teller as to how cheap those laptops and ipads were compared to London or or even the USA as they were paying and loading up their credit cards.

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  5. yes the subsidy are marginally profitable but as a current ac defcit nation with spare capacity we have managed to steal some global growth off another nation in a world of currency wars and shrinking pie this is an okay outcome not great for productivity

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  6. Is that last graph a touch misleading? I’m not sure NZ policy makers should look to Iceland for inspiration. Not sure when the subsidy started but given inherent cycle/film fashion, maybe the policy should be measured over a fairly long period, maybe….

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    • yes, I’m quite happy with the idea of formally measuring the effectiveness of subsidies over a reasonably long period (altho cost-benefit analyses should be hardheaded and forward looking). equally questions can reasonably be posed.

      On the chart, when I first ran it I noted that I had no idea what the story was in Ireland, but much was probably about tax. I’m not suggesting countries at the other end as models, just noting how poorly we have done, given the constant talk about reorienting and growing exports, incl in partic services exports (notably film .tourism and export education). We simply aren’t that well placed to excel in any of them – lovely locations notwithstanding. Does’nt doom us to disastrous outcomes either, but when so many subsidies (explicit and implicit) are thrown at it, and we still get quite underwhelming results, it should raise questions.

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