26th October 2010: Ben Eltham on Currency Fluctuations and Australian Screen Production

Coauthor Ben Eltham and I recently had a paper published in Media International Australia (August) – ‘Boom and Bust in Australian Screen Policy’ – that discusses the impact of cross-border location competition, international tax arbitrage and financing structures on Australian screen production. MIA‘s university subscribers can download a copy here and non-subscribers can read a proof version here.

Our paper focuses on the Australian industry’s reliance on ‘runaway’ productions and the speculative bubbles in Australian screen policy. This includes discussion of the 10BA period during 1981-84; the founding of the Film Finance Corporation; comparison of film financing structures in the US and United States; and inter-state and international competition involving the studio production facilities in Sydney and Queensland’s Gold Coast.

Ben discusses the impact of currency parity between the US and Australian dollar, and recent coverage by the Australian Financial Review on the local film industry. He notes that — as our model would predict — currency parity means an outflow of foreign productions from Australia to Mexico, Canada, and competing states such as Louisiana and Texas. Ben’s reflection prompts some further questions: What sensitivity analysis do Australian screen policymakers do on their forecasts or pipeline for future deals? How is this sensitivity analysis used in actual negotiations and deal structuring with Hollywood producers? What enticements or trade-offs are given, when, and under what conditions? What, if any, currency exposure and hedging models are used in risk management strategies? How do these factors inform the decision-making of: (a) local producers; and (b) Screen Australia?

Our analysis also fits several other factors that Robert Shiller notes in his second edition of Irrational Exuberance (Crown Business, New York, 2006), which I just finished reading. In particular, Shiller warns about ‘new times’ thinking; the media as an amplification mechanism; and psychological biases that affect investment decision-making. We wrote the article in part as a rebuttal of the local media’s portrayal of the Australian screen industry and the lack of discussion about structural and international factors. Shiller’s ‘new times’ thinking such as the 1995-2000 dotcom and the 2003-2007 real estate bubbles, is evident in how 10BA, the FFC, and new studio production facilities were portrayed by the local industry, irrespective of the policymakers’ original intentions. We suggest psychological biases subtly influenced the FFC’s screen production portfolio, and the resource allocative decisions on local facilities and talent pools. Shiller’s overall patterns and observations closely fit our article’s analysis, and suggests that Australian screen policymakers can learn much from behavioural finance and macroeconomics.