It is clear that there was a poor return on the island’s £50m investment in the film industry, a Tynwald committee has concluded.
And the public accounts committee report finds that opportunities were missed that could have prevented the £26m losses from the Media Development Fund.
The committee inquiry was first set up by Tynwald as far back as 2018 following a motion by the then Douglas South MHK and Liberal Vannin leader Kate Beecroft.
It had agreed that further investigations were needed but its final report has only now been published, with delays caused by changes to committee membership and a potential for perceived conflicts of interest.
More than 100 films and TV shows were produced in the island, generating many tens of millions of pounds in VAT and other taxes.
But when the VAT rules changed in 2007, the number of films made here dwindled.
That year management of the film industry and the £50m in the Media Development Fund passed to CinemaNX. It made investments totalling £39,706,652 in 20 films.
More than £9m was lost on the Zac Efron film ’Me and Orson Welles’, which was partially filmed in the island.
Then in 2012-13, management of the fund, now depleted to £25m, was transferred from CinemaNX to Pinewood Film Advisors. Pinewood invested £20,019,662 in 10 films.
In total, £20.6m was written off on films made during the time CinemaNX was managing the Media Development Fund.
A further £6.2m was written off on films made when Pinewood advisors were in charge.
The PAC report notes that had there been no further investment in film in 2007 and instead the £50m in the Media Development Fund had simply been invested and generated interest, the resulting balance could have been just in excess of £60m.
The committee acknowledged it had the benefit of hindsight.
It concludes: ’After 2007, it is clear that there was a poor return on investment, but that is a very one dimensional view and it would be easy just to criticise when what was clearly in play were strenuous efforts to diversify the Manx economy.
’However, there is no doubt in our minds that there were opportunities to stop which were missed in 2007 and 2012 before the £26m losses occurred.’
decision
The decision to create CinemaNX did not go before Tynwald.
Tynwald did, however, approve the 2012 decision to team up with Pinewood.
This was because, before 2007, the Isle of Man was able to keep all of the output tax accrued on film-making activities that had taken place in the island.
The PAC said it was ’regrettable’ that in 2012 the pre-2007 income figures were still being quoted in order to support assertions of financial sustainability, ’when in reality there was a new model in which the films invested in were not delivering tangible cash returns’.
It said in 2007 and 2012 a proper business case which included some costed options would have assisted decision makers.
The PAC report concludes that CinemaNX negotiated favourable terms for its work between 2007 and 2012 and that, had the details of the scheme been subject to Tynwald approval in advance, scrutiny may have ’identified and provided a robust challenge’ to the level of funding being made available.
It said it understood the political reluctance to walk away from a long-standing investment programme which had generated economic activity.
But it said that had there been clear targets and an agreed way of measuring success and the return on investment, used to develop a business case for the CinemaNX proposal, it would have shown that the new model would be highly unlikely to sustain the fund.
’We conclude that insufficient attention was paid to the financial basis for the CinemaNX proposal and that there was little justification for continuing to use public money in high-risk investments, where there was little prospect of individual film projects generating a profit,’ notes the report.
It concludes that the prospect of working with Pinewood Shepperton went some way to explaining why Treasury persisted with what in 2007 appeared to be a poor investment proposition.
The committee acknowledged that the 2012 decision to take a hedging investment in the Pinewood shares did return £10m, which covered the £6m write-offs for the 2012-2017 period - and again with hindsight, this could be seen as a good proposition alongside the riskier investment in the film projects.
In a second part of the report, the committee considered the current processes for government investment in the business sector.
It concluded that there is nothing to prevent a £50m investment in one project being introduced and voted on as part of the budget today, but this is less likely to occur as business support schemes, with investment limits, exist.
The PAC said it anticipated that any investment proposal of this magnitude would be brought to Tynwald for a standalone vote.
’We conclude that good governance dictates that investments using public funds must be reviewed annually to ensure that due consideration is given to whether any profit should be realised or reinvested,’ it concludes.
Manx Independent comment, see page 16.