Good performance from local film investments

Greased curls, tight black jeans and night fever dance moves mix with cliched, Aussie 'wog' lines in Australia's latest foray into the world of film The Wog Boy. Box office takings and anecdotal evidence suggest Wog Boy is likely to be an outstanding Australian success.

Greased curls, tight black jeans and night fever dance moves mix with cliched, Aussie 'wog' lines in Australia's latest foray into the world of film The Wog Boy. Box office takings and anecdotal evidence suggest Wog Boy is likely to be an outstanding Australian success. So successful in fact, that it may spell the end of international film critics scoffing at our earlier attempts (Yahoo Seri-ous's Reckless Kelly, and Nicole Kidman's BMX Bandits spring to mind).

Our cinematic slump it seems is over and the days of producing unprofitable and over budgeted films are no more. Christened the 'New Hollywood', Sydney has enough talent and creative genius to compete on an international level.

And Macquarie Bank subsidiary Macquarie Film Corporation Limited (MFC) has been one of the first to recognise it.

MFC is one of only two companies registered under the film licensed investment company (FLIC) and quickly spotted a link between Australia's investment market and the film industry.

Brian Lowe, chief executive director of MFC has been researching the film indus-try for three years, examining certain investment opportunities. This year, MFC launched its first investment opportunity to investors.

The company aims to invest in commercial films with budgets ranging from less than AUD1 million to approximately AUD15 million. Its primary objective is to maximise returns to its members by investing in a range of qualifying Australian films and television production.

To qualify productions must meet MFC's standards.

"We have been looking at the track record of the director, what they have pro-duced as profitable films, and then reach a professional view if they have de-livered quality in the past," Lowe says: "As there is never any guarantee as to the commercial success of a film or television production we look to make our profits out of distribution guarantees. This way the film has already made profit for investors by the selling of it to distributors all over the world."

Add to that the fact that under the FLIC Act, film investors are entitled to a 100% tax deduction for the subscription amount paid for film investments like MFC shares and investing in film starts to look attractive.

"There is a tax deduction, which [investors] will receive in the year of the investment," says Lowe. "We have not specified the returns as yet. It is hard to predict the average level of return, however, very attractive commercial re-turns can be received."

But some financial planners, perhaps remembering the not-too-distant past, have yet to be convinced.

"The alleged tax advantages largely are an illusion," Robert Keavney, CFP, In-vestor Security Group says.

"In a conventional investment when you outlay your capital, you don't get a de-duction for it and when you get a return of your original capital you pay no tax on it. In tax driver schemes you can get a deduction for your capital outlay but you pay income tax on it if you ever get it back," he says.

Keavney says everyone has focused on the deduction and seems to fail to notice the tax impact on the profit. He says, by doing this, it actually makes the al-leged tax advantages close to non-existent.

James Doogue, CFP of James Doogue Securities, Western Australia agrees. He says he would not recommend investing in the Australian film industry, as most of the very good film projects are financed by those already involved in the film in-dustry.

"The tax deductibility, particularly in past years when more than 100%

deductions were allowed or when no recourse or limited recourse loans were

used to gear up the deduction, it simply meant that film projects that should

never have got off the ground, did so," says Doogue.

Lowe says otherwise.

"I would disagree with that. We recognise that there have been a lot of previous films that have been profitable," he says. "[However] the way we are working with the model of investments and risk sharing with investors we believe we have suitably reduced the risk. We think we offer investors something exciting and new. A portfolio spread of risk."

And there's no arguing that MFC has done its homework.

To gauge its market, they have been looking at past distribution successes such as Australia's own Crocodile Dundee which returned 50 fold the production cost.

"The film industry is very healthy indeed," says Lowe. "The Australian market is only three to four per cent of the world film market. It must succeed on the world market."

Lowe should know what he's talking about - he has 20 years' experience in the film industry, working both locally and internationally. He has worked with Vir-gin Group, Granada Television International and Thames Television. He has been responsible for acquisitions, distributions, marketing and the production of nu-merous studio and independent film distributions.

"Macquarie is a niche player and looks at sectors in a slightly clever and inno-vative way. We are leaders rather than followers. There is private equity in the world of film and television. There aren't many people working and investing in that area because it is a complex and esoteric sector and expertise is needed," he says.

Australia, he believes, has finally been recognised as an untapped resource for international industries, especially the film industry.

"Australia is at the cutting edge. It is cheaper to produce in Australia and there is talent in front and behind the camera, this makes for a really competi-tive advantage that applies to Australian or overseas projects."

And if the financial community still needs convincing, Lowe argues that there is more for investors than the promise of healthy managed portfolio project returns - there is also the knowledge that they are boosting an Australian industry.