Screen Australia’s Playing for Keeps Report – the way forward for Australian computer gaming

Screen Australia, in the Playing for Keeps Report (November 2011) proposes two new options for computer games: and Interactive Entertainment (Games) Offset, which will provide indirect support for computer games through the taxation system, in a similar way to the existing tax offset for film and television production; and with Screen Australia also proposing that direct support for original online content through an Online Production Fund. These are important initiatives that I consider should be implemented.

Canada provides incentives to the entertainment software industry, which the Software Association of Canada’s May 2011 Report states as having provided 11% growth in the past 2 years for the games production industry with 17% projected growth in the next 2 years.  The Canadian provinces of Ontario, Quebec, and British Columbia provide refundable tax credits on labour ranging from 17.5% to 37.5% of expenses; with the Federal government providing R&D tax credits. The Canadian success, and the declining number of independent games production companies, has motivated the U.K. games industry organisation, TIGA in a January 2011 Report to lobby for tax credits for computer games that meet a test directed to the cultural content and connection to European culture, heritage or creativity and the employment of European personnel.

The international games industry in the last decade has seen the emergence of substantial companies with consolidation among the major publishers/distributors of triple-A games titles. In this space, the focus on the publishing of a smaller number of big budget ‘franchise’ titles has impacted on the level of fee-for-service work being available for Australian studios. The high value of the Australian dollar also results in the major publishers/distributors looking for studios in lower cost countries or where there are substantial tax credits on labour cost and other investment incentives.

Screen Australia’s proposal can be seen as a valuable strategy to build and sustain the existing independent development studios that operate in Australia. While very small ‘garage’ start-up’s do not face barriers of entry, there are hurdles to building and sustaining development and production teams. The independent studios need to compete for fee-for-service work while funding development work on original IP projects.

The Software Association of Canada attributes the key business conditions that contribute to the success of the Canadian games industry is the internet and communications structure followed by availability of qualified personnel. The Canadian experience is that the “shares of total resources dedicated to downloadable, handheld, and PC games have been holding relatively steady, traditional console share has been declining, and is expected to continue to drop in response to rapid growth in resources dedicated to social, mobile, casual, and MMO (massively multiplayer online) gaming.”

The improvement in recent years in the digital platforms and Apple’s iOS and the Android technology, in particular the emergence of tablet devices and new generation smart phones, provides opportunities for independent publishers to directly distribute their titles through these digital platforms. The success of the ‘Angry Birds’ title shows that small independent games companies can build run-away successes with inventive and addictive gameplay.

The Interactive Entertainment (Games) Offset, proposed by Screen Australia, in the Playing for Keeps Report (November 2011) proposes a 20 per cent tax credit on eligible expenditure with a minimum expenditure threshold of $200,000.  This will provide part of the budget for games for social, mobile and casual gaming platforms.

The big budget, big teams and long production time frames of triple-A console games will usually require publisher financing. The proposed 30 per cent tax credit on eligible expenditure with a minimum expenditure threshold of $500,000 will provide larger independent games companies with part of the budget to attract the interest of international publishers for triple-A console games.

Screen Australia’s proposal for direct support for original online content through an Online Production Fund will provide a source of funding for those Australian independent development studios that are active in MMO (massively multiplayer online) gaming.

Having worked on "Frontiers of Utopia”, the first interactive project financed by the Australian Film Commission in the mid 1990s; then on web based projects; and having worked at Activision in recent times, I have see at first hand the evolution of online business strategies and the dramatic innovations that have allowed the games industry to undergo exponential growth so that consumer spending on computer games has, for the past decade, exceeded that spent on the music and movies. 

The economics of the development and financing of game titles is similar to the animation production – labour intensive with a high proportion of the cost of game development budgets being spent on artists, animators, designers and programmers.  Project development is always a process of fitting the pieces of the financing jig-saw together. Screen Australia, in the Playing for Keeps Report (November 2011), when read in conduction with the Software Association of Canada’s May 2011 Report, shows a pathway to build and sustain independent game studios in Australia.

Film location releases – can a tenant give permission to film on a location?

Obtaining a permission to film at a location is standard practice, but does the film company ever carry out due diligence as to whether the person signing the location release actually has legal authority to grant permission to use the property?

Cinema audiences enjoy spotting locations in locally made productions, but what will be their reaction when they see the interiors of a house they own – when they were not aware that the property was being used as a film location. It happens, as plenty of properties are occupied by tenants. A standard location release has the person warranting that they have legal authority to grant the production company access to the property.  However that warranty may not protect the production company from the irate property owner.

I have advised a production company when a property owner complained about the use of their house in a film.  The production managers obtained a signed location release from the person living in the house and paid the location fee to the ‘occupier’ who agreed to vacate the property so that the film company could shoot interior scenes. Months later, the property owner, while enjoying a night at the movies, recognises their house. Now with the tenant long gone – the property owner may claim that the production company was trespassing on their property or that the use of the interior of the house was an invasion of the right of privacy of the property owner.

The production company ends up with carry the cost of dealing with this claim. Locating and suing the departed tenant would be throwing money away. The production company is left with the choice of spending money of defending the claim or paying an inflated location fee to the property owner to settle the claim. There may be scope for the production company to argue the tenant had either the implied authority or ostensible (apparent) authority to grant permission to use the property; however the property owner may be able to produce a tenancy agreement which prohibited the tenant from sub-letting the property, which is the legal effect of a location agreement. 

Apart from the trespass claim the property owner could argue that use of the interior of the house was an invasion of the right of privacy of the property owner.  This may be a more speculative argument, but it is happening as this week The Hollywood Reporter (THR Esq. website) reports that a Malibu property owner (their ex-tenant having apparently signed the location release) is asserting an invasion of privacy, with a claim of general damages of at least US$25,000; with the owner also claiming punitive damages and an injunction. THR Esq. is clearly unsympathetic to the claim as the address of the property (19936 Pacific Coast Highway) is published, including a GoogleMap image.

An Australian  production company, when facing an invasion of privacy claim may argue that while a court may accept a claim for invasion of ‘personal’ privacy (privacy of personal information), but that the expansion of legal remedies for the protection of privacy does not extend to ‘locational’ privacy.  The High Court, in the Victoria Park Racing case of 1937,[1] appeared to reject an action for invasion of ‘locational’ privacy.  However the activities of paparazzi have resulted in an expansive understanding of privacy in the law of United Kingdom and Europe. Rights to privacy in Australia are undeveloped, but actions for invasion of ‘personal’ privacy are a growing tread. This trend is identified in the Australian Law Reform Commission report (ALRC Report 108) into the extent to which the Privacy Act 1988 (Cth) and related laws continue to provide an effective framework for the protection of privacy in Australia. 

The bottom line is that a film or television production companies are exposed to damages claims from property owners and the potential threat of injuctions to stop the cinema release or TV screenings – where a tenant gives permission to use a location.

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[1] Victoria Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479

Significant Australian Content assessment by Screen Australia

What is an Aussie film, in terms of financing production, is determined by whether the film has “significant Australian content”. The ‘producer offset’ provide film and television production incentives for Australian producers are a key element in pulling together financing for film and television productions. Qualifying productions are eligible for 40% producer offset payments from the Australian Tax Office (ATO) in respect of feature films that are to be released in cinemas; with 20% producer offset payments in respect to other qualifying productions. There have been films that have been refused producer offset status because they have been assessed as not having sufficient Australian content, such as George Miller's ‘Justice League Mortal’ project in 2008; more recently the Beyond Productions ‘Taboo’ documentary series was refused producer offset status.

Some projects will be at the edge of the envelope as to whether the film “has a significant Australian content” as required under requirement under s 376-65(2) of the Income Tax Assessment Act 1997 (Cth) (the ITAA). This requirement was reviewed by the Administrative Appeals Tribunal of Australia (ATTA) in proceedings between Beyond Productions Pty Ltd and Screen Australia. In that matter Screen Australia had determined that series 4 & 5 of a factual series titled ‘Taboo’, that Beyond produced for the National Geographic Channel, did not have significant Australian content; and that series 4 & 5 of ‘Taboo’ was not “a new creative concept” (s 376-65(5)) ITAA.

As Beyond came into the production of ‘Taboo’ at series 4 & 5, the production of the ‘Taboo’ series was outside what may be the usual project development path of Australian producers.  Therefore rather than discussing the specific arguments put before the ATTA as to why the ‘Taboo’ series should have been accepted as having “significant Australian content”, a more generic discussion on that requirement follows.

Section 376-70 (1) sets out the factors to which regard must be had in determining whether a film has a significant Australian content:

(a)  the subject matter of the film;

(b)  the place where the film was made;

(c)  the nationalities and places of residence of the persons who took part in the making of the film;

(d)  the details of the production expenditure incurred in respect of the film;

(e)  any other matters that the film authority considers to be relevant.

The subject matter of the film

·         The ATTA gave general support to the approach taken in Screen Australia’s guidelines where they interpret the ‘subject matter of the film’ as requiring Screen Australia to consider the ‘look and feel of the film’ and determine whether the film is sufficiently Australian or has a significant creative connection with Australia.[1]  This approach was consistent with an earlier decision of McVeigh v Willara Pty Ltd – the ‘Captain Invincible’ case – in which the Full Federal Court stated that:

“ "the subject matter of the film" are ordinary English words. They have no technical connotation and entitle, indeed require, … regard to such matters as the setting of the film, whether it purports to tell a story about Australians, whether there is some quality about the film that marks it out as an Australian film. This does not mean that only a film such as Jedda or Gallipoli may be said to have a significant Australian content.”[2]

·         Even if the subject matter is international rather than set in Australia or involving identifiable Australian characters, the “subject matter” of a film can still be said to have “significant Australian content”, as described by the ATTA, if there is a “discernible Australian point of view or sensibility that the ordinary viewer would recognise as Australian”. The ‘Captain Invincible’ case referred to where “the subject matter of the film is universal but that it reflects a cultural background peculiar to Australia” which may “warrant a decision that the film has a significant Australian content, notwithstanding that its subject matter has no particularly Australian quality.” [3]

The relative importance of the factors in subparagraphs (a) to (e)

·         As to the relative importance of the factors in subparagraphs (a) to (e), the ATTA identified from the Captain Invincible’ case the necessary approach of reviewing each element “individually and cumulatively, is to determine whether they demonstrate significant Australian content.”[4]  The ATTA rejected an argument that subparagraphs (b) to (d) can also be considered in relation to subparagraph (a) subject matter; that is, strong Australian elements relevant to subparagraphs (b) to (d) do not add weight to the ‘subject matter’ elements relevant to subparagraph (a).

·         The review of each factor cannot be described as an exercise in attributing value (either positive or negative) when assessing each factors (such as in a points based assessment).  That is, undue emphasis should not be given to non-Australian elements.[5]  The ATTA identified the correct approach as following from “the focus of s 376-70(1), which is whether a film has a significant Australian content” and that the decision maker “must be satisfied, having had regard to the matters specified in paragraphs (a) to (e), “whether there are aspects of the film which give it a content which is significantly Australian”.[6]

The Beyond decision discounts the significance of applications for producer offset status referring to other projects as have been granted producer offset status, as the ATTA stated that “s 376-70 requires that each application must be individually assessed with reference to the specified criteria.  The outcome of other applications is not, therefore, a relevant matter in making this determination.”[7]  The consequence of this approach is that the focus is on the elements of the project and the extent to which those elements advance the argument that the project has “significant Australian content”.

In separate proceedings before the ATTA involving an Essential Media project, the ATTA took the view that considering how other projects have been assessed by Screen Australia cannot influence the central question in that matter (which is still to be determined by the ATTA) whether the Essential Media project was a ‘documentary’ that is eligible for producer offset status or whether the project is ineligible because fall into the excluded category of ‘infotainment’.[8] [UPDATE: see Lush House - cleaning up the doco scene]

A ‘new creative concept’ (s. 376-70 ITAA)

The ATTA decision in the Beyond matter provides guidance as to what is meant by the words ‘a new creative concept’. The view of the ATTA is that this phrase implies “more than mere difference and ….more than a different treatment of the subject matter, even if the treatment of a subject is an important matter.  The words suggest an idea or design for the film in question that involves some originality in how the subject matter is addressed.”[9]

Early focus on the question whether a film has “significant Australian content”

The eligibility of a proposed feature film or television production for producer offset production finance needs to be considered at the time the underlying rights are acquired and co-production contracts are put in place so that these arrangements provide strong arguments to support the application to the producer offset and co-production division of Screen Australia for the necessary producer offset certificate. 

UPDATE

On 7 September 2011 Screen Australia announced that following a confidential agreement, Beyond Productions had discontinued its appeal in relation to the AATA decision with respect to the television series ‘Taboo’.

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[1] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 (31 January 2011) [18] & [28].

[2] McVeigh v Willara Pty Ltd [1984] FCA 379 (the Captain Invincible case); (1984) 6 FCR 587 at 597.

[3] The Captain Invincible case (1984) 6 FCR 587 at 597.

[4] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 [29].

[5] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 [27].

[6] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 [66]. Referring to the Captain Invincible case at 596.

[7] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 [60].

[8] EME Productions No 1 Pty Ltd and Screen Australia [2010] AATA 839 (28 October 2010) 

[9] Beyond Productions Pty Ltd and Screen Australia [2011] AATA 39 [71].