Panic over. Now the challenge really begins.
The British film production biz spent a few days last week on the brink of breakdown, after the U.K. government abruptly changed its tax rules to shut down so-called GAAP funds, and inadvertently managed to outlaw perfectly respectable sale-and-leaseback deals at the same time.
That meant more than 90 movies made in 2006 (the last films to be eligible for S&L before it was replaced this year by the new production tax credit) suddenly had a retrospective budget shortfall of up to 16%. Films affected included "Casino Royale," "Fred Claus," "Love in the Time of Cholera" and "Hannibal Rising."
But faced with the prospect of catastrophic losses among local producers and total collapse of Hollywood confidence in the U.K. as a safe place to make movies, it took only five days of frantic lobbying for the government to realize its mistake and lift the ban on sale-and-leaseback partnerships.
The industry wiped its brow -- and went back to worrying about the more fundamental question of how to sustain the production boom of the past couple of years without the equity investment provided by the GAAP funds.
GAAP specialists such as Ingenious Film Partners, Scion Films, Future Film and Prescience Film Finance used generally accepted accounting principles (hence the name) to create an upfront tax loss that mitigated the risk for equity investors.
In the year to April , these funds were set to pump an estimated $2 billion into movies -- many of them British though not all, and many distributed by the Hollywood majors. Much of that money was already spent by the March 2 clampdown.
Pics that previously tapped such coin, typically worth around 30% of budgets, include "Night at the Museum," "Eragorn," "The Golden Age," "Atonement," and smaller indie pics such as
Mike Leigh's next untitled movie and
Nick Love's "Outlaw." The studio movies often made genuine profits for the equity investors regardless of the tax break, but the indie pics never did.
Most films currently in production with GAAP coin won't be affected by the shutdown, although investors won't now get their expected tax relief, so will have to rely on the movies to make real money. A few indie projects that shot with backing from a GAAP fund but didn't get the cash upfront could yet come up short.
In the future, British producers fear it will be much harder to finance the kind of larger scale, more commercially ambitious projects -- such as
Danny Boyle's "Sunshine,"
Matthew Vaughn's "Stardust,"
Julian Jarrold's "Becoming Jane,"
Martin McDonagh's "In Bruges" and
Edgar Wright's "Hot Fuzz" -- that were fueled by these equity funds.
More likely, filmmakers will be forced back to smaller projects that can be bankrolled by some combination of the U.K. broadcasters, the U.K. Film Council and, if they are lucky, a couple of presales. Anything more than $10 million, with a recognizable international star or two, will become next to impossible without studio backing.
"It will drive budgets down, but whether that drives ambitions down, or just prices, remains to be seen," says producer
Andy Paterson.
The recent enthusiasm of the Hollywood majors and their specialty arms for British production could also cool when they can no longer share their risk with local equity players.
DNA Films topper
Andrew Macdonald admits that Boyle's $45 million sci-fi epic "Sunshine" simply could not have been made without Ingenious to match Fox's investment.
But despite losing their GAAP coin, none of the high-profile projects set to shoot in the next couple of months has yet fallen apart. Producers are scrambling to cut costs and call in favors, but pics such as
Barnaby Thompson and
Oliver Parker's "St. Trinian's,"
Michael Winterbottom's "Genova," Jarrold's "Brideshead Revisited" and
John Maybury's "The Best Time of Our Lives" all seem confident of going ahead, although perhaps on less attractive terms.
"There's always enormous collateral damage when you have to refinance," Thompson says. "It's incredibly difficult to attract investors into film when the government keeps changing the rules all the time. The equity money filled the gap that used to be filled by presales, so it's going to be very difficult without it."
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