Film Budget

We look at the recent history of HK Government intervention in the movie industry, the land grants involved, and the proposal to throw HK$300m of public money into private movie production. We urge LegCo to cut this scene from Hong Kong's script. Tell them what you think in our opinion poll.

The recent Hong Kong budget speech by Henry Tang, while completely devoid of any structural reforms, was pleasingly short on new interventionist schemes. However, there is one that stood out like a bad scene from a B-movie and should be dumped by LegCo on the cutting-room floor. We refer, of course, to his proposal to establish a new fund to "help finance film production" and "overcome the shortage of talent" (in the film industry, not the Finance Bureau).

Mr Tang, who has obviously seen a few too many triad movies (the stories, we mean), would like to spend HK$300m of the public's money on this, in an undisclosed timeframe. That's equivalent to $50,000 for each of the 6,000 people in the HK film industry in 2001, the latest figure we can find.

History

It's worth pausing to remind you that the Performing Arts Sub-sub-sector of the 796-member Election Committee which chooses Hong Kong's Chief Executive has 10 votes, and the sub-sector overall (which includes Performing Arts, Sports, Culture and Publication) has 40 votes. There is an additional Election Committee vote held by the legislator for that sector.

The recent history of Government intervention in the film industry comes from the Film Services Advisory Committee (FSAC), established during the Tung dynasty, which morphed into the Film Development Committee during the current Tsang dynasty on 1-Nov-05. It all started with Tung's 1997 Policy Address:

The sub-plot

That sounds fairly innocuous, apart from the bit about allocating land that could only possibly be bid for by a few major studios who could then vacate existing land and apply to redevelop it. And that's what happened. In 1998, after a tender which received just 2 bids, the Government sold a 29,800 sq m piece of land known as Tseung Kwan O Town Lot No. 67 to a consortium company called Hong Kong Movie City Co Ltd (HKMC) for just HK$78m. The site allowed a plot ratio of 2 and hence a gross floor area of 59,600 sq m. At the time, HKMC was majority-owned by Shaw Holdings Inc. (37%) and its listed subsidiary, Shaw Brothers (Hong Kong) Ltd (SB, 0080) (35%), with 5 other members holding 28%. SB also controls the larger of the 2 local TV broadcasters, Television Broadcasts Ltd (0511).

Episode II

Not just any piece of land but, it turns out, the site next to the first one. Who could possibly have a special interest in winning that? On 16-Aug-00, after a tender which attracted only 1 bid, the Government sold the site next door, Tseung Kwan O Town Lot No. 81, to Hong Kong Digital Movie City Co Ltd (HKDMC), for just HK$18m. This site, half the size of its neighbour, had an area of 14,600 sq m and allowed an extra 29,200 sq m of floor area. You won't be surprised to learn that HKMC and HKDMC had common ownership. In Mar-02, the consortium was restructured, with Shaw holding 95% (including the 35% still held by SB) and a private arm of China Star holding 5%.

The result is a combined site of 44,400 sq m (477,900 sq ft). Somehow even that has been enlarged, as it is now quoted as 523,000 sq ft, with a floor area of 1.1m sq ft. Now, a top-notch US$180m 1.1m sq ft complex known as Shaw Studios (formerly Movie City) is almost finished. Meanwhile on 20-Oct-06, SB received Town Planning Board approval to redevelop its Clearwater Bay site into about 920,000 sq ft of residential and commercial space, which might make you wonder - why didn't they just build their new Movie City on that original site? Whatever the reason, that wouldn't have allowed them to make a redevelopment profit.

Film Development Fund

But we digress. Let's get back to that poverty-stricken film industry, you know, the one that cannot afford US$180m studio complexes and has no land to redevelop. Inbetween the two land sales, in his 1998 Policy Address, Tung announced a subsidy of $100m for the Film Development Fund (FDF).

However, some filmmakers thought they could get the fund to finance their private productions. As the Government clarified on 22-Dec-99:

Film Guarantee Fund

Then on 17-Oct-02, the Government went a step further towards direct funding of private film projects, when a consultation paper was published proposing to set aside $50m of the FDF for a Film Guarantee Fund (FGF). Providing loan guarantees is a favourite Government way of claiming not to be subsidising an industry while at the same time being liable for its losses. They've done it with various funds for Small and Medium Enterprises too. On the FGF, they said:

It's always good to emphasise these things, so that we remember them 5 years later. Thankfully, the FGF had various strings attached, including that at least half the cast and crew must be HK permanent residents, the film company has to bear at least 30% of the budget, the FGF would only guarantee 50% of the loan provided by a financial institution on a risk-sharing basis, up to a maximum of HK$2.625m, and the film company had made at least 3 films for commercial theatrical release in the last 10 years. Finally, your name had to begin with "X". Alright, we made the last criterion up, but the rest are true, and it kept the numbers down.

The latest progress report shows that 10 applications were made from Apr-03 to Oct-06, all of which received loan guarantees, of which 1 never drew the loan and the other 9 did, for a total guarantee commitment of $20m. An 11th project was approved on 29-Jan-07. As a result of this low usage, on 14-Dec-04, the FSAC reallocated $20m of the $50m back to the FDF, which by then was almost empty. In Mar-05, LegCo approved this and relaxed the experience criterion to 2 films in 10 years.

The list of film loans guaranteed by the FGF shows that the 11 loan guarantees have gone to just 7 companies, with 4 of them receiving two guarantees each. Two went to Mandarin Films Ltd, owned by Mandarin Entertainment (Holdings) Ltd (0009). Another two went to Panorama Distributions Co Ltd, owned by Intelli-Media Group (Holdings) Ltd (8173). One went to One Hundred Years of Film Co Ltd, owned by China Star Entertainment Ltd (0326). Another went to Brilliant Idea Group Ltd, which was 50% and is now 95% owned by Mei Ah Entertainment Group Ltd (0391). So 4 of the 7 recipients, and 6 of the 11 loan guarantees, went to subsidiaries of listed companies, which have other sources of finance, like the stock market, for example. Taxpayers will be glad to know that their money is on the line to support these listed companies.

On 18-Oct-05, the Government gave the FSAC a new name, the Film Development Committee (FDC), and stopped chairing it, instead appointing Jack So Chak-kwong, the Managing Director of PCCW Ltd (0008), which runs a pay-TV service.

Then, in the latest Policy Address on 11-Oct-06, Executive Producer Tsang announced that he would upgrade and again rename the FDC, without changing its initials, to the Film Development Council, "mainly comprising members of the film industry", as before.

The present

And that synopsis brings us up to the present, or if you prefer, the gift, of HK$300m of taxpayers money for the new Film Development Council to play with. It makes Tung's $100m look like a trailer for the main feature. We've gone all the way from simply facilitating movie shoots by closing roads or renting shooting locations, to direct funding of movie production. And still, the Government denies it is a subsidy - listen to Joseph Wong, Secretary for Commerce, Industry and Technology, speaking on 7-Mar-07:

Oh really? According to the press, Wong says the Government will invest in movies up to 30% of the production cost. Now either they are going to pick and choose the movie projects, becoming an active movie fund manager, or they are going to invest in every movie which meets certain criteria, in which case all they are doing is lowering the overall cost of making movies in HK at taxpayers' expense. In the former case, movies which don't get the funding will be at a competitive disadvantage to those that do. In either case, it distorts the economy.

Two thumbs down

The movie industry should stand or fall on its own merits. There is no justification for such blatant intervention in any for-profit sector of our economy. If a movie is worth making, then it should find its own funding in the free market. If it succeeds, its backers will make a profit, and if not, they won't, but the Government has no business throwing public money at it, or picking and choosing winners. As we have shown, the local movie industry has a number of listed companies, large and small, and is perfectly capable of finding and funding its own way.

And if they get their hand-out, where are these movie makers going to film their movies? Well don't forget Shaw Studios, which has a brand new and very expensively constructed studio on very cheap land. Some of your money may end up being spent on renting their studios.

What do you think?

Your opinion counts! Do you agree or disagree? Take part in our Movie Fund opinion poll, and we will send the overall result to Legislators who are being asked to approve this plan.

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Lights, camera...budget! 9th March 2007