It’s well known to those in the business of Visual Effects for film and high-end television, both those buying and those selling services, that territory-based incentives and subsidies have driven significant change in the geo-locational distribution of VFX firms over the past couple of decades:

Subsidies (whether tax-shield or grant based) help drive the placement of contracts. Contracts drive co-location decisions for firms fulfilling those contracts. Co-location drives accumulation and clustering of both firms and talent to the most significant cities in those locations.

Recent Production Incentive Changes Will, Once Again, Re-Shape The Landscape For VFX Firms

Of the 55 VFX firms researched for the 2023 Global VFX Index, the vast majority (84%) had business units operating in more than one location. Given that some of these firms had relatively low numbers of employees (58% of the firms with more than one location had less than a 500-person headcount), running multiple locations is a costly but necessary facet of the modern supply-side dynamics.

Figure 1: Firm size/number of locations graphic (click to enlarge)

Three of the most important cities in terms of global co-location are London and Montreal and Vancouver. The headcount of VFX firm employees for these three cities are the largest, and the clustering of top firms is the greatest, of all the 61 cities mapped in the Global VFX Index. All three are notable for the impact of their various production incentives (Canada has both federal and state-based incentives), which have proven to be both substantial and (perhaps more importantly) reliable over many years.

Figure 2: Share of VFX headcount by city (click to enlarge). Data from Global VFX Index 2023 (see disclaimer at foot of page)

So, the changes announced this March to both the UK and the Quebec tax incentives for film and television production present a very real impact and will, undoubtedly, have considerable significance in re-shaping the placement of VFX contracts, the co-location decisions of VFX firms, the accumulation and clustering of VFX talent in key cities in those territories.

Original content producers and commissioners have certainly benefitted from production subsidies, as have VFX firms in turn. But subsidies are politically administrated and outside of the norms of more market-based competition, part of the economic/fiscal toolkit of governmental policy-makers. They are designed to entice inward development and investment from a global marketplace, boosting the micro-economics of specific market sectors. Entertainment and film/TV production are of high value to the Canadian and the UK economies; in terms of jobs creation, skills development and subsequently in terms of export revenues and tax receipts.

But policies come under review and can change dependent on each government administration and the budgetary pressures they face. Both the Quebec and UK government budget announcements in March detailed impending changes to Film/TV production incentives, citing a desire to adjust the balance of the local production industry in some way. The UK budgetary changes were made on the basis that:

“even more could be invested in our world-leading visual effects sector if we increased the generosity of … tax credits for visual effects” (Jeremy Hunt, Chancellor of the Exchequer, UK)

For Quebec’s administration, the changes announced were to:

“… help attract foreign film shoots to Québec” (Eric Girard, Quebec Minister of Finance)

The subtext of both statements is worth mentioning here, for those who are less familiar with the industry: Quebec has done extremely well in attracting VFX business over the past decade but its “all-spend” rule on eligible expenses for VFX contracts has not resulted in attracting an equal amount of physical production business to the territory. The UK, on the other hand, has built a very significant physical and VFX production industry over the past two to three decades, but has been challenged in the past decade by the cap on eligible expenditure (at 80%) and the strength of Canada’s various provinces’ incentives being a significant draw for VFX contracts (most especially those in Montreal, Quebec and Vancouver, British Columbia).

(this article continues after the illustrations below…)

Illustrations:

The tables below highlight some of the changes to recent Film/TV production relief levels for the UK and Quebec announced last month…

Table 1: Illustrative changes to the UK’s Film Production Incentives, from January 2024 (click to enlarge)

Table 2: Illustrative changes to Quebec’s Film Production Incentives (assuming 65% labour), from March 2024 (click to enlarge)

(Cont’d…)

It remains to be seen to what extent the landscape of VFX in Montreal and London (as well as many other locations within the Quebec the UK which are home to VFX firms) will change as these new adjustments are ushered in but, very probably, the balance will shift materially for the first time in at least ten years. Possibly in London’s favour, as the removal of the 80% cap on eligible expenses is arguably as powerful as the increase to the subsidy value itself, even if the net value of the new AVEC remains marginally lower than the combined net value of Canadian provincial and federal incentives. But also, possibly in favour of Vancouver… and even Toronto (the potential combined Ontario-specific and federal incentives might now be the most advantageous in Canada).

Table 3: Illustrative comparison of 3 major Canadian Film Production Incentives (assuming 65% labour), from March 2024 (click to enlarge)

You can read more about the dynamics of Global VFX in the Global VFX Index Report…

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  • Statistical data quoted from The Global VFX Index is indicative only: based on research, of publicly available data sources, from a sample of 55 firms, conduced between June and August 2023. It is not intended to be conclusive or exhaustive and should not be read as such.

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