The streaming boom (and why accountants are in demand)

Producers are well acquainted with risk. Their role equates to CEO of any film or TV production, and it comes with a high degree of uncertainty.

Financially speaking, there has always been immense risk in film and TV production in countries like Australia, says Matthew Carter, managing partner of Sydney-based Above The Line Accounting.

“You’re the first person on the project and you’re the last person off the project,” Carter says. “Many producers push their fees right to the end.”

“Often, producers make just enough money to pay the rent. They have to be very passionate about the project.”

Carter began considering film production during what he describes as his “early midlife crisis”.

“I’d done everything my parents expected me to do, including getting a degree and working at KPMG for eight years,” he says. “Then I took a year’s sabbatical to work out what I really wanted to do.”

Carter has a love of storytelling, so he took several film production courses, including a Master of Arts Screen: Producing at the Australian Film, Television and Radio School.

He worked at Screen New South Wales before branching out on his own.

“I spent a short time as a producer, and I just couldn’t see how I could make a living.”

He decided to combine his passion and skills by launching Above The Line Accounting, a firm that serves production companies.

Show me the money

When a film releases, says Carter, the bulk of ticket-sales revenue goes to exhibitors (the cinema chain, such as Hoyts) and distributors.

For example, if a ticket costs A$10, then four to five dollars stays with the exhibitor. Another three dollars goes to the distribution company, which also expects reimbursement for the costs of distribution.

So, there might be one or two dollars sent back to the production company, which has to pay back production costs to investors, which for Australian films will often cost two to six million dollars.

“Let’s say your film did A$10 million at the box office, which would make it an extremely successful Australian film,” Carter says. “Two million might come back to the producer, who then has to repay investors. That money is gone, and the producer isn’t left with a cent.”

“Now, with streaming businesses, the streamer [such as Netflix] might fund 70 per cent of the production, but the streamer will demand all of the rights. So, for the producer, the project isn’t theirs anymore. They lose the intellectual property.”

The entertainment industry has undergone a significant shift since the rise of streaming platforms such as Netflix.

Natalie Ducki CPA is a BAS agent and principal of Collective Works, which specialises in accounting and bookkeeping for creative businesses, with a particular focus on production accounting. Prior to establishing Collective Works eight years ago, Ducki worked as the financial controller and operations manager for film industry heavyweights Baz Luhrmann and Catherine Martin’s group of companies.

When Ducki started with that group, Luhrmann had just finished directing the film Australia. Since then, Ducki has been involved with the group’s productions of The Great Gatsby, Strictly Ballroom the Musical, Moulin Rouge the Musical, Elvis and more.

The streaming revolution she has witnessed over that time has resulted in several shifts.

“For Collective Works, the most notable change is the increase in the number of small- to medium-sized production companies having their projects funded and distributed,” she says.

The streamers have introduced significantly greater funding opportunities for productions, which means that the traditional fundraising task for producers is sometimes not as cumbersome. It also makes the producer’s role more sustainable, but removes their final ownership of the product.

“As a result of streamer funding, there are a lot more quality productions being made,” says Holly Salmons, film and TV production accountant, BAS agent and founder and director of Neo Numerist, which specialises in accounting and bookkeeping for creative media businesses, with a focus on film and TV production.

When she originally graduated from media arts at RMIT University, before focusing on film finance and studying Financing Screen Projects at the Australian Film, Television and Radio School, Salmons’ short films won awards at festivals such as Flickerfest, made the finals at Tropfest, and were exhibited around the globe.

“Sometimes, the streamers pay for film and TV productions outright, but sometimes they just contribute a minimum guarantee.

It can depend on a lot of factors,” Salmons says. “But it means there is a lot more content getting made, and stories from diverse perspectives being told.

"In the past, what used to be produced was often dictated by a small group of gatekeepers," says Salmons. “Now, the streamers analyse their subscriber data and are aware of what audiences want.”

In fact, funding bodies such as Screen Australia are openly interested in funding projects that address gender imbalance and other diversity measures.

“Their agenda is to support minorities, Indigenous and gender [diversity], and so on,” Carter says.

Accounting for the box office

In the development stage of a production, it is enormously important for the production accountant to track development funding and expenses, and assign them to a tracking ID, Ducki says.

Production companies typically have a slate of projects in development. However, once a project is greenlit — meaning it is funded for production — it is usual for the production to set up a new special purpose vehicle (SPV) to run the production through.

“The development costs and funding are then moved over to the SPV and form part of the overall budget,” Ducki says.

“When doing production accounting, it is also very important to make sure you understand all the funding which will be received, so you can track the production expenditure appropriately and be able to report accordingly.”

What Australian producers and their teams require, says Salmons, is accountants with knowledge of the Producer Offset rules.

The tax incentives for those in the film and TV production arena are complex and challenging to navigate. Right now, there aren’t enough experienced and knowledgeable production accountants or tax experts to manage the workload, she says.

“I think if there was more awareness around the quality of work required from a production accountant and the important nature of the work they do, more graduate accountants would be attracted to this area of work,” Salmons says.

There is great scope for smaller accounting firms to offer niche service in this space, Salmons believes.

“It’s very hands on,” she says. “It’s ideal for diligent BAS agents who can deliver accurate cost reporting as you go.” It is the production accountant, Salmons says, who is really responsible for a happy ending to the film or TV story.

The role of tax incentives

Several countries, including Australia, New Zealand, Canada and India, take steps to encourage film and TV companies to bring their productions — and the jobs required around those productions – into their territory.

In Australia, for example, Natalie Ducki CPA, BAS agent and principal of Collective Works, explains these steps include tax incentives such as:

• Producer Offset: Screen Australia’s tax rebate on qualifying Australia spend, which helps attract local and international productions to Australia by returning up to 40 per cent of the budget spent.
• Enterprise Program: Provides funding to develop production-company capabilities.
• Post, digital and visual effects (PDV) Offset: A 30 per cent rebate on post, digital and visual effects costs incurred in Australia, regardless of where the film was filmed.
• Location Offset: An offset of 30 per cent on qualifying Australian production expenditure, intended to attract big-budget productions to Australia.
• Development Programs: Funds and awards to support writers and producers to develop projects.

International co-production agreements, while relatively uncommon, also allow producers to access tax benefits across a few countries, such as India and Australia.

“So, India will have certain tax benefits for filmmakers, and [in Australia] we have the Producer Offset and things like that,” Matthew Carter says. “So, if you’re an official co-production – which is difficult to qualify for – both governments allow you to access both sets of government refunds, rebates and support.”

When television was popularised in the 1950s, doomsayers claimed it would cause the death of cinema, says Matthew Carter, managing partner of Above The Line Accounting. The same argument was made when VHS was introduced, then again with DVDs.

It is no different with streaming, says Carter.

“However, the cinematic experience is such a unique one,” he says. “You’re in a dark room with a huge screen and no interruptions. You’re completely immersed in the story.”

Data from Statista confirms that box office sales globally have now surpassed pre-COVID-19 levels, with the cinema market projected to reach A$138.17 billion in 2025.

In Australia, cinema revenue is projected to reach A$2.8 billion this year, growing to nearly A$3.2 billion in 2029. Along the way, tastes change, as do types of viewers and their preferences.

Currently, the most habitual moviegoers are Gen Z – those born between 1996 and 2010 – according to a report from Sarah Bay-Cheng, dean of the School of the Arts, Media,

Performance & Design, and professor of Theatre and Performance Studies at York University in Toronto. They typically attend one movie every week.

Younger audiences are propping up the cinema sector, as they traditionally have. In Australia specifically, according to Screen Australia, 66 per cent of Australians attend the cinema at least once per year, with an average of about seven visits per person per year.

When Gen Z make their once-a-week visit, what are they most keen to watch? A report from NSS Magazine says they crave horror movies, just as millennials once flocked to “chick flicks”.