Assessing the economic effects
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The counterfactual
In undertaking an assessment of any policy intervention, it is important to consider the counterfactual: whether the effects of the intervention were attributable to the intervention, or whether they would have occurred anyway in the absence of the intervention. This assessment was designed to consider this question, and it provided some answers, even though the intended information gathering was not completed.
The ongoing effects of the MOUs
It will be noted from 'The interviewees' section that the studios representatives’ responses highlighted effects that were largely “additional”, i.e., most of the activities and deliverables that flowed from the MOUs would not have occurred in the absence of the 5% Uplift. However, it is not possible to quantify the exact extent of the additionality.
The additional activities and deliverables have the potential to generate effects that represent the true economic value of the MOUs. All 4 productions that were covered by interviews with their respective studios involved the delivery of materials that could be used to promote New Zealand as a location for film making or tourism. The materials included such things as film content, location footage, behind the scenes content, and screen credits. All 4 also involved the provision of internships or mentorships for New Zealand production and creative talent. TNZ and ENZ both benefitted from the delivery of promotional materials for their own use.
Although the effects referred to in the preceding paragraph are potentially important, their eventual economic value can only be described in most cases, rather than quantified and expressed in dollar terms. As was noted in the 'Interviews with NZ signatories to the MOUs' section, 3 of the MOUs resulted in the delivery of film content and other materials to TNZ and ENZ had a known EAV. However, the ultimate value of what flowed from the EAV, in terms of extra tourist visits and overseas student registrations is not known. The 2 agencies had not evaluated the effect of the MOUs in this way. In addition, the response to COVID largely negated the effectiveness of the film content and other promotional materials.
What is known from desk-based research is that films that achieve box office success can lead to large increases in tourism activity, especially where they include extensive location footage. For example, TNZ has reported that 16% of international visitors in 2015, equivalent to more than 500,000 international visitors that year, cited The Hobbit Trilogy as the initial reason they considered a trip to New Zealand. The estimated expenditure of these visitors was almost $2 billion. The Lord of the Rings series had a similar effect, and some overseas economies are also known to have experienced a boost in tourism activity after they provided locations for the filming of commercially very successful movies.
The Lord of the Rings and The Hobbit also led to the establishment of Hobbiton, as a stand-alone enterprise, which was attracting well over half a million visitors annually and providing around 250 jobs before COVID. However, these productions were major box office hits, and it is probable that less successful films would have very little impact on visitor numbers.
Focusing on a different type of benefit, the 4 MOUs covered by the interviews with studio representatives also resulted in a total of 14 internships and mentorships for New Zealanders. Studio representatives discussed the importance of New Zealand being able to supply high quality production professionals. Internships and mentorships have potentially added to the skills base of the New Zealand screen workforce; however it was not possible to verify this as part of this assessment, due to not being able to identify and access any of the interns or mentees to explore how they felt their experiences developed them and furthered their careers, and whether they were still working in the screen industry.
The Meg – a case study
The MOU associated with The Meg is different from the others covered by the information gathered, in that some of its key additional effects can be measured in dollar terms.
The MOU required Warner Bros to invest in a sound stage, backlot and water tank facilities in what would become Kumeu Film Studios. The site and the building where the investment took place was previously used for industrial purposes.
Warner Bros indicated that the infrastructure investment would not normally be delivered for a production, and it is understood from representatives of Kumeu Film Studios that the cost of the investment by Warner Bros, and further investment after production of The Meg was completed, was around $25 million.
It is unlikely that this investment would have occurred in the absence of the Uplift. Warner Bros indicated that the extra 5% funding was absolutely critical to the decision to bring the production of The Meg to New Zealand. The standard 20% rate of the NZSPG was not sufficient.
It should also be noted that the water tanks at the Kumeu Film Studios are unique in New Zealand, and that they were subsequently used to film parts of Mulan, the first Avatar sequel, and Season 1 of the Amazon Untitled Project. These productions have had a known QNZPE, but it does not necessarily mean that the QNZPE would have been lost to New Zealand without the tanks.
When needed, conventional swimming pools and temporary tanks can be used to shoot scenes that feature water. However, the management of Kumeu Film Studios explained that purpose-built tanks for screen productions are considerably more suitable, because they provide an environment that for actors can tolerate for longer periods than is possible in conventional or temporary pools. Water tanks constructed especially for filming can be kept at a temperature that is comfortable for actors, and which do not need potentially irritant pool chemicals.
Using the Kumeu tanks reduces the time needed to film sequences that feature water, with the result that production costs are reduced. Consequently, the tanks enhance New Zealand’s offering as a screen production location.
Temporary expenditure-related effects
The effects considered above have the potential to endure, but there are also possible temporary effects associated with the MOUs.
Although it was not a key objective of the assessment, the question arose during the interviews with studio representatives of whether the decision to bring the productions in question to New Zealand hinged on the offer the 5% Uplift. The importance of this point is that, if the extra 5% in grants made the difference between productions coming to New Zealand, or being taken elsewhere, then logically the entire production expenditure in New Zealand would be attributable to the Uplift.
Although the responses of the studio representatives made clear that other conditions (i.e. infrastructure and talented production personnel) needed to be favourable, they implied that the 5% Uplift was “absolutely critical”, “a factor” or “important”. One interpretation of the responses is that they imply the granting of the Uplift was a necessary, but not sufficient, condition for bringing the productions to New Zealand.
In reality, given that other factors were at play, exactly how much would have been lost in the absence of the Uplift cannot be known. Had the assessment progressed further, it would have been possible to undertake some scenario modelling of the economic effects of the scheme. The modeling would have been based on Computable General Equilibrium (CGE) analysis, to take account of possible price and displacement effects associated with the additional production expenditure.