DNEG slams proposed cuts to NSW screen funding

DNEG Sydney MD Alaric McAusland.

Global visual effects giant DNEG, which recently opened a Sydney studio, has called on the NSW Government to reconsider proposed cuts to screen funding programs, arguing it will have a “devastating” impact on the state’s ability to attract production, and stymie business, infrastructure and job growth, ultimately resulting in talent leaving the state.

The Minns Government announced earlier this week that it will make a significant series of cuts to arts, cultural and innovation programs at next week’s state budget. Screen funding to be affected include the state’s major production attraction program, the $175 million Made in NSW fund, as well as the Post Digital and Visual Effects (PDV) rebate and the Digital Games Development Rebate Program.

The exact extent of the screen cuts has not yet been publicly revealed. The government has said it has inherited this decision from the former Coalition government, who cut the budget of the Department of Enterprise, Investment and Trade by $188 million on March 8, as part of the Pre-election Budget Update. IF understands that current Screen NSW funding agreements will be fulfilled.

DNEG Sydney is currently working as the lead VFX vendor on George Miller’s Furiosa, a project that the Made in NSW fund supported.

The NSW Government also played a central role in helping DNEG to establish its Pyrmont studio last November, its tenth studio worldwide, via the Job Plus Program. The expectation is that it will eventually employ around 500 artists.

In a statement, DNEG CEO and chairman Namit Malhotra said the proposed cuts are not only a disappointment for the entertainment industry, but will impact the NSW economy as a whole.

“The opportunity to create a central hub to collaborate with Australia’s many talented and experienced creative artists and production teams – as well as the support received from the NSW government – were key factors in the decision for DNEG to open a studio in Sydney last year,” he said.

“Our mission is to bring the very best VFX and animation services to filmmakers all over the world, but these proposed budget cuts will limit new business funding and economic opportunities in NSW. We hope they will strongly reconsider this decision.”

DNEG Sydney managing director Alaric McAusland told IF the team was “floored” by the government’s decision to cut screen funding programs, noting there was no industry consultation. He has since attempted to contact NSW Premier Chris Minns, Treasurer Daniel Mookhey and Arts Minister John Graham, though notes that none have as yet provided the opportunity to meet.

The impact of the announcement has been immediate on DNEG’s forward pipeline, he says.

“Projects are highly portable and will travel to other states… We had two projects which were budgeted for New South Wales and they’re now budgeting for Victoria and Queensland because the programs have been paused. There’s competition interstate and overseas and producers will go where the incentives are best, and jobs and businesses will go with them.”

McAusland adds that with the federal Location Offset now at 30 per cent, the NSW Government will potentially miss the opportunities that could have come from “piggybacking” the Made in NSW fund on top.

“We were already seeing additional PDV inquiries following that [Location Offset] increase. That’s certainly a strong driver for growth and a strong suggestion as to why the [Made in NSW fund] should be maintained,” he said.

“The Federal Government is also reviewing measures to regulate streamers to produce and show higher levels of Australian content, and this will lead to significantly higher levels of quality local production. NSW will now not benefit from that growth if the incentives are reduced; it’ll go to Victoria and Queensland where the conditions are more favourable.”

The company is one of many organisations to be critical of the NSW Government’s decision, with both Screen Producers Australia (SPA) and the Media, Entertainment and Arts Alliance (MEAA) condemning the cuts earlier this week. A NSW Government spokesperson told IF on Tuesday evening that Minister Graham will be meeting with the MEAA and SPA this week and hold an industry roundtable on September 26 to consider a revised approach to domestic and international screen support in film, television, and digital games.

According to the most recent Australian Bureau of Statistics (ABS) Film, Television and Digital Games survey, the NSW screen industry generated more than $3 billion in total income in 2021-22, and around half of Australia’s production companies and post-production businesses are based in NSW.

Any changes to the NSW PDV rebate, which offers 10 per cent on work over $500,000, will undoubtedly make the state financially uncompetitive for post-production when compared to the rest of Australia, given similar incentives exist in Victoria, Queensland, South Australia and Western Australia.

According to Screen Australia’s most recent Drama Report, since the launch of the NSW 10 per cent PDV rebate in 2019, the state’s PDV expenditure has increased from $148 million in 2018/19 to $313 million in 2021/22. NSW’s share of total Australian PDV expenditure rose from 40 per cent to as high as 58 per cent during this period. That the current rebate can be combined with the 30 per cent federal PDV Offset makes for a highly competitive international offer.

In addition to DNEG, the PDV rebate has helped to attract major global VFX companies like ILM to NSW. Indeed, ILM was instrumental in urging the NSW Government to originally establish a PDV rebate in order to match South Australia and Queensland.

DNEG estimates that the rebate has generated more than 1,000 jobs across the state since 2019. It argues that NSW VFX and animation studios’ contributions to the economy more than offset the rebate’s cost. In this sense, McAusland says the government’s decision to scrap programs that are “cashflow positive” is “baffling”.

“The rebates are paid after the money’s been spent,” he said.

The larger VFX and animation companies in NSW also play a significant role in skills development and training. Animal Logic is partnered with the University of Technology, Sydney (UTS) in the Animal Logic Academy, ILM runs the Jedi Academy traineeship program, and DNEG intendeds to roll out its training program Greenlight later this year. McAusland notes this ecosystem helps to build careers, but “those roles won’t exist and those programs won’t be run without the conditions being right in NSW.”

Looking ahead, McAusland said DNEG will be reviewing “any and all” of its strategic options.

“But I would say that we came here because we saw a huge near-term opportunity for NSW to grow its share of the global market. From our November ’22 launch, we’ve already created around 200 jobs in NSW,” McAusland says.

“We’re looking to expand the offering to create hundreds more jobs for young artists and creative technicians, and expand our graduate intake, but we can only do this if NSW itself is globally competitive in terms of its incentives and and projects, both local and international, continue to fly.

The 2023-24 NSW Budget will be handed down September 19.