Soft Money, Tax Credits and Production Rebates

A Confusing Presentation for Tax Credits

Oh my!  What they are, what are they not and how giving them is re-shaping the global entertainment production market.

Ask a producer in Los Angeles or London what you call the distribution agreements signed before their film starts shooting and they will almost certainly reply with the term:  Pre-Sales. 

Ask the same producer what the government subsidies for film production in Italy or Greece are called and they will almost certainly reply with the term:  Tax Incentives. 

If those were the only two questions on an MBA exam, the producer would receive a score of 50%.  Maybe a passing grade in some schools, but just barely. 

If that were a conversation with a well-advised investor, they would likely loose out on the money.

Both questions are crucial in the financing of films and television shows today.  For the Media Majors, which tend to focus on acquiring rights and controlling access to distribution, these details are very important.  These large conglomerates are the buyers of entertainment content that are inevitably conceived, developed and produced by much smaller companies.

So, when those smaller companies are trying to convince an investor to provide capital for production, knowing what to call crucial elements of the film’s finance structure can mean the difference between an investor supporting a film or walking away.

Terms of Art

The Media & Entertainment industry has made many investors, and more than a few artists, very wealthy.  Today, the M&E industry is estimated to be well on its way to US$2.5 trillion in global revenues just this year.  The largest media conglomerates generate most of that revenue through delivering entertainment content to ever growing global audiences and from advertisers seeking greater access to those audiences. 

But the hard work of producing that entertainment content is where real economic activity takes place.  The film and television production markets will expend an estimated US$240 billion this year. 

You may be interested in …

Money for Nothing

Why the whole planet is competing to attract film & television productions.

Much of that money is spent within a 30 mile radius of Los Angeles and the City of London.  Most of that money is raised as investment capital by a cottage industry of artists, producers and production services companies.  While the Media Majors have payrolls comprised of expert lawyers and accountants with the singular task of extracting value from entertainment content, once its delivered, the creative economy is less inclined to the complex nature of capital risk and value creation strategy.

The US, the UK and Europe have long recognized that, if you want film producers to spend the money in your cities, you need to offer a little help.

There’s a History to It

The economic and cultural development of film and television production has been at the heart of subsidy and grants from local governments in the UK, the US and Europe since at least the 1940s.

This “soft money” tends to support film-makers’ efforts to develop projects to commercial stages before shopping for the distribution and investors needed to justify production.  Wherever this soft money was available, the creative minds writing scripts and television treatments would begin to congregate, most notably, in Los Angeles and London.

The Tax Credit

In the face of competition from Los Angeles to attract the best creative talent, the UK government began offering a 100% write-off on production expenditure for purely “British” films in 1992 in the form of tax concessions.  In an amendment to that legislation in 1997, then Chancellor Gordon Brown stated that such tax relief was necessary since, “too many British films that could be made in Britain are being made abroad, or not at all.” 

That concession became a form of forward credit and was subsequently amended to a base figure of 25% of a project’s qualifying expenditure applied against taxable profits, on par with California today. 

See, UK House of Commons’ Briefing on tax reliefs for production of British films.

Tax credits directly benefit those production companies that actually achieve profits from their films and typically favour the Media Majors, which have been well-entrenched in both LA and London since World War II.  Distribution companies “invest” in production budgets, and similarly benefit by sheltering their profits using tax credits against such investment.  Such tax credit schemes always assume that a film or television budget has been raised in the first place.

This government favouring of the established, capital-rich Media Majors resident in California and the UK has slowly evolved into opportunity in the Post-Covid global marketplace.  But this has been a long-time coming, as independent creatives have long struggled to build financial capability to compete with, and increasingly supply, the Media Majors. 


The substantial international business of film finance has developed in lock-step with the development of “commercial paper” as collateral for production companies to borrow money for filling production budgets. 

This was pioneered in the late 1970s by legendary producer John Heyman, who began selling advance foreign distribution rights for major studio films in development, which in turn financed their production.  These “pre-sales” agreements are today the foundation of structured finance in the film industry.

A picture of John Heyman.
John Heyman (April 27, 1933 – June 9, 2017). Speaking at the 22d Annual Movieguide Awards Gala. Credit: Alberto E. Rodriguez/Getty Images.

In the 1980s, Frans Afman took “Pre-Sales” agreements to the next level and began lending against the future value of box office receipts, offering independent production companies the means to compete with major studio productions. 

Once independent producers began realising greater revenues, and even profits, some States in the US began to dream of local versions of Hollywood, and followed Britain’s example of creating additional competitive advantages over California.  The US State of Louisiana first offered Tax Credits in 2002.   A number of US States and Canadian Provinces followed suite with production companies being re-structured and moved from California as a result. 

A picture of Frans Afman.
Frans Afman (December 11, 1933 – May 4, 2011).  From the 2014 documentary, Hollywood Banker. Credit:  Rozemyn Afman/CTM Docs.

By 2009, the State of California began offering its own Tax Credits to stem the flow of productions leaving for other locations offering incentives.


Today, governments around the world are competing to offer “Certificates”, a form of promissory note, to qualifying production companies for direct rebates on expenditure from film and television production budgets within their local economies.  Production companies then borrow against these to fill as much as 40% of their project’s production budget, paying off the debt when the State pays the Rebate as contract revenue (or outright assigning the Rebate to the lender). 

With the purchase of insurance policies called Completion Bonds, a lender can realise a nearly risk-free return on investment by advancing money against the State-backed promise to rebate certain expenditures. 

Together, borrowings against Pre-Sales agreements and Rebate Certificates can offer as much as 80% of a total production budget for films, and increasingly for television series.

Scoring Better

Investors want to know the structure of the deal as much as the nature of the project.  So too should the producer.

For producers in the process of raising capital for their next picture, speaking the same language as an investor makes commercial sense.

Is the investor buying shares to benefit from the film’s potential profits?  If so, then the risk is higher but only a fraction of the production budget is required.  By knowing the difference between Tax Credits and Rebates, the producer can distinguish between equity and debt.

Successful deals are more likely to result from producers saying what they mean, and meaning what they say.  For investors, it could be the difference between walking away or coming back for more.

Leave a Reply

Previous Story

Recession Resistant Investing in Media & Entertainment

Next Story

Cooler Heads to Prevail Over Generative AI