One year on from thegovernment's February 10 crackdown on tax financing, forecasts say the amountof money being offered by investors is down by as much as two thirds on lastyear's levels.
The worst hit are theproduction equity schemes, which offer film-makers a larger chunk of theirbudgets but require investors to take more risk. The end of the financial yearshould be the busiest time of the year for funds raising money from investors.But even investor demand for traditional sale and leaseback schemes ' safer forinvestors but less lucrative for film-makers ' is down 25%, according to someestimates.
"Investors are very worriedabout becoming film financing road-kill," says Martin Churchill, editor of theTax Efficient Review. "There are now so many potholes out there."
Financiers say that investorconfidence has been battered by the government's repeated overhauls of taxlegislation last year. It is 12 months to the week after the most damaging ofthose changes: the closure of a tax loophole on Feb 10.
The film industry may havebeen as much at fault for abusing the system in the first place as thegovernment was for the draconian nature of its punishment. But it will taketime to restore confidence in the film business after the resulting train wreckcaused The Libertine, Tulip Fever and this year's Sundance success OnA Clear Day to scramble for refinancing or collapse.
"Everyone is worried becausethe goalposts have moved so many times," says Peter James, joint managingdirector of Movision, the fund behind Head In The Clouds and TheBridge Of San Luis Rey. "The competition [for investors] is not so muchfrom other film funds as other tax products. Property is quite attractive as,in addition to the tax incentive, you have got bricks and mortar at the end ofit."
Movision pulled its originalfund because of another change in legislation, December's ban on double dipping' where films combined a sale-and-leaseback deal with tax-driven equity. Jamesis finalising details of a new scheme which, he says, will use a structuresimilar to a traditional sale-and-leaseback to offer film-makers around 25% ofa budget. That is still far more aggressive than the 15% usually offered bysuch deals, but way down on the 40% Movision use to provide.
Ed Pressman and JohnSchmidt's ContentFilm was also hit by the double-dipping ban. The UK-US indiehas warned the London stockmarket that its partnership with EntertainmentInvestor, a fund which set out to raise £10m, may yield "less than originallyanticipated".
There is one financier thatremains unbowed, however. Ingenious Media, the financing and consultationpowerhouse founded by Patrick McKenna, started the craze for film funds usingaccountancy write-down principles (GAAP) rather than film-specific legislationunder Section 48. The result was that a lot of films got financed ' Ingeniousinvested in Oscar nominees Closer and Vera Drake. But as everyfinancier in London scrambled to launch their own GAAP scheme, the governmentbaulked at the amount of tax being deferred. That led to another result: Feb10.
This time around, Ingeniousis out to raise a hefty £100m. Ingenious is keeping tight-lipped about thedetails of its new scheme, Ingenious Film Partners, which it calls "a business"rather than another tax fund. Rivals, though, are incensed about what onecalled "son of GAAP". They fear another crack down.
"It infuriates me," says onefund chief. "Everyone who is left standing is being so careful not to doanything that pushes the envelope."
But few film-makers can affordto argue about such niceties, as things may get worse before they get better.Five months to go before Section 48 disappears, there is still littleindication of how its replacement will work or when the government will firm updetails. The government finished meeting with the film industry to discuss howson of Section 48 would work last year. But its conclusions seem to have beenheld up by its announcement of a review of Section 42, the mechanism forlarge-scale films, in December. The government only finished consulting withthe industry for that review last month. A spokesperson for the Inland Revenuesaid the findings of both reviews would be incorporated together. "It would bestupid to come to a conclusion about one aspect in isolation," he said.
Government-backed supportbody the UK Film Council, one of the key agencies in the consulting process,said it still expected son of Section 48 to be ready in time for July.