FuelFilm’s Production Venture Proposal for Tennessee
TN PRODUCTION VENTURE FUND – INCENTIVE POSITION PAPER
Prepared By James Sposto
There are three aspects to the film industry to consider when developing policy for Tennessee and Memphis. Capacity – the talent and skillsets and personnel available here. Infrastructure – the facilities and supporting services for production, and Origination – I’d like to address the third aspect, and propose a positive solution around that aspect that can help effect the other two.
At FuelFilm our goal is to develop the motion picture, TV and media industry here in Tennessee. To obtain that goal we suggest an alternative focus from traditional film incentives that seem to lure Hollywood and independent producers here to make films, take advantage of our tax credits, and ultimately withdraw back to the coast and reap the rewards of our incentives. That model makes us beholden to a fickle industry that continually shops for the best deal among a cafeteria of state incentive programs that lack a mandate for real, long term investment in those states economies.
We suggest following the Tennessee Investco model, which is part of Senate Bill 1203 – as many of you already know, this is how it works.
The bill sets aside tax credits and grants them to local, qualified for profit venture funds. IN Tennessee. These funds then sell those tax credits to insurance companies and use the liquid funds raised to invest in promising startups IN TENNESSEE, new businesses and industries that create jobs and growth and cashflow and tax revenue right here.
We propose using senate bill 1203 as a template to create the same type of program for Film, TV and Media companies. Qualified groups or individuals will create “Production Venture Funds”, or you might think of them as “Venture Studios” based in various parts of Tennessee. These venture studios would be awarded the tax credits, sell those tax credits and use the funds to finance locally originated productions. These “Production Venture Funds” would be for-profit entities that would have incentive to choose investments in local productions or local production companies that have the greatest likelihood of success, all while following the rules imposed by the program – to ensure the money stays with companies and productions originating in Tennessee.
Originating in Tennessee – that’s the magic phrase, what we’re talking about is growing local capacity for origination and rewarding growth from within – as Tennessee has a long tradition as a place of creative development. Our influence in the world – culturally and artistically – belies our size.
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Here’s how we see it working – let’s start with $30,000,000 in tax credits – doled out equally – $10,000,000 worth to three Production Venture Funds. One fund might be able to sell their credits for 70 cents on the dollar. Now that fund has $7,000,000 to invest in locally originated projects or locally based production companies. Each production venture fund will be required to invest in multiple projects within a two year period – with no single investment topping 25% of the fund total – in this case 1.75 Million.
As with the investcos, the Production Venture Fund would earn a management and expense fee (let’s call it 3% per year for the two years) plus the fund will also be allowed to take 50% of all revenue earned from its investments through the first $20,000,000.00 with the other 50% going back to the state to replace those borrowed tax revenues. This way if the Venture Fund earns $10MM the state gets back $10MM – after payback the State would earn 20% of all profit the fund makes from those investments.
It would be advisable to create policy for a growth feedback loop to encourage reinvestment for Production Venture funds to qualify for additional Tax Credits.
I believe a plan like this can be written with SB1203 as a foundation, and designed in such a way to grow the media, film and entertainment industry in Tennessee. The bigger and more robust our local industry is, the easier it will be to make Tennessee a first choice for productions – and ultimately lure more productions, production companies and talent to Tennessee – and give our home grown creative and entrepreneurial class more reason to stay here.
Thank you.
James,
You are to commended for the homework you have done, and for pointing the way forward, once we establish whether or not the state even wants to keep the industry here at all during the next few months of legislative session. However, you need to know that the prevailing political winds at the Capital are not at all in favor of the Investco Act… maybe not your best example going forward.
Best,
Scott Hallgren
President, AFFT
affttennessee.org
I’m sorry to hear of those prevailing winds, Scott. I’ve only seen the investcos from the entrepreneurial side, and seen some success with them here in Memphis. The representatives I’ve talked to seemed to indicate that a plan like this might be an easier sell than traditional “incentives”. Thanks for your comment.
James
I think your proposal is not only sound, but fair. For the life of me I cannot understand why those in power cannot see that the current “incentives” state-of-affairs is producing a very negative “Filmmaking Greenhouse Effect.” I’ll explain: With the current incentives that the state of Tennessee offers we are not competitive so Big Budget projects go to Georgia or Louisiana. Our talented Crew who have the technical skill set relocate to those states where they can find the most work. Actors from those states usually get the meatier roles. Those states local economy improves, its a win-win for everyone. Basically Tennessee has a rich and fertile pool of talented crew members, actors, writers, producers etc. But other States and their politicians that understand how to cast their sails in the proper direction too utilize winds of change and not be subject to them, don’t have to worry about their talent being cultivated at home then harvested elsewhere…Tennessee does!
Well:
Republican governor + Nashville competition = no increase in public incentive money for Memphis
Talent + current tax incentive + Memphis = no work
Republican Governor + no public funding + no existing 1203 Investco support = no work in Memphis
Talent + Memphis + current incentives + unknown = WORK IN MEMPHIS
A Republican governor can’t support a public sector incentives package.
This is a team project and it will work if properly done, but, it won’t be government supported. The wind isn’t going to blow that way again.
James,
You have indeed certainly done your homework, and we in the film community here in Memphis thank you for it. Would that I was as hopeful as you are that this legislation may pass. Though I don’t have the ears-on-the-ground in Nashville that Mr. Hallgren doubtless does, I too have heard rumblings that neither the state legislature or the Governor (the former dominated by Republicans, the latter a Republican) is interested in passing this piece of legislation. They apparently care little or nothing for the arts, and/or fail to understand the economic boon to regional Tennessee economies with a sound investment or incentive package that might lure production companies to Tennessee, arguably one of the South’s most desirable and pieturesque states.
Aside from the lack of serious state/legislative interest in a better business environment for out-of-state production entities, the fact that there is no state income tax from which to derive tax incentive monies, is the key issue. And while I believe you are correct that incentivizing a local/regional film industry is optimum, the fact remains, that for the foreseeable future, large productions coming to Tennessee are our best hope for employment the many talented, skilled people we have in the film community in Tennessee.
You are further correct that we need to have proper infrastructure like much larger sound stage facilities that can house multiple sets at one time, with all the amenities a modern, state-of-the-art facility can offer. But that will take time and a large investment. And while I think your aims are right on, I believe that looking to the state/local government to help create a “film fund” of sorts (whichever way it is ultimately developed) is barking up the wrong tree. I realize that politics are a fact of life and that this beast must needs be fed on a regular basis. I feel that local investors who have a cultural and economic stake in this community, and like communities in Tennessee, are what’s needed to build the infrastructure necessary to attract major outside film/TV productions to the state.
Additionally, this infrastructure (including, perhaps, a film processing lab and other local amenities, including cheaper hotel, airfare and catering, etc.) could help support worthy local filmmakers through generous use of said facilities and resources, while providing an educational opportunity for those interested in becoming professionally involved in film/TV production in a professional setting not provided by local universities and colleges. It’s a win-win situation for most.
Are there many obstacles to overcome in order for this idea to come to fruition? Of course. But I firmly believe that this is the best way to attack this issue.
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