#WEANIMATE MAGAZINE

Danish animators call for financial incentives

Denmark is one of only two EU countries that have yet to introduce financial incentives. As international studios ramp up production and the industry emerges from lockdown, Danish animators are worried about being left behind.

"We miss out on so much work"

– Erik Wilstrup, CEO at Wil Film, the studio behind the first 7 seasons of the wildly popular animated LEGO Ninjago series.

Danish animators call for financial incentives

Denmark is one of only two EU countries that have yet to introduce financial incentives. As international studios ramp up production and the industry emerges from lockdown, Danish animators are worried about being left behind.

When some of the first financial incentive schemes were introduced in Canada in the 1990s, they were seen as a weapon to attract “footloose” American productions to a fledgling film industry. Today, there are major production hubs in Toronto, Montreal, and Vancouver, and film incentives have become so commonplace they have become the price of admission in a globalized production economy.

Along with Luxembourg, Denmark is the only EU country that has yet to introduce an incentive scheme – Sweden, another long-time holdout, introduced a regional production rebate of 30% in 2019, while Bulgaria jumped on the bandwagon with a 25% production rebate in 2021.

The effects of this competitive disadvantage in the industry have been widespread and corrosive – not least on animation.

— written by Niels Jakob Kyhl Jørgensen

 

A concrete case of how production rebates would help the Danish animation industry grow and generate jobs.

Produktionsrabatter til animationsbranchen er ikke bare selvbetalte, men genererer indtægter til statskassen.

We miss out on so much work

For nearly a decade, the Copenhagen-based animation studio Wil Film partnered with Lego on animated projects, producing nine seasons of the TV series Ninjago, as well as two seasons of Lego Star Wars: The Freemaker Adventures. But eventually, the Danish toymaker was lured away by tax credits and shifted production – to Canada.

“We miss out on so much work,” sighs Erik Wilstrup, founder and CEO of Wil Film. At its peak in 2016, his company was able to employ a staff of 125. Today, only 50 remain. “We could attract so much more work if we had financial incentives.” Money talks and neither Danish companies nor international clients such as Netflix can justify spending millions more on production in Denmark if the same content can be produced cheaper elsewhere.

Indeed, studios scour financial incentive schemes worldwide, letting the potential discount on production become the deciding factor in deciding where to place an order. “Before they even ask about the bottom line, they ask us what sorts of incentives we can offer,” says Erik Wilstrup.

But more often than not, he never even gets the call. As more countries worldwide adopt incentive schemes, it becomes harder and harder for even well-established industries to compete. For Wil Film to attract work, like their current production for Playmobil, they have to match the price in other ways. “We don’t have any incentives, but we have lower wages, and we’re more efficient. That’s the only reason we’re sometimes able to compete.”

 

A brain drain of animators

Losing business over financial incentives has become a common refrain in the animation industry.

After gaining industry-wide recognition as a co-producer on the Oscar-nominated film Song of the Sea (2014), the Viborg-based animation studio Nørlum scored a contract to animate the first season of Big Hero 6: The Series – but only the first one.

“There were no hard feelings, but they told me early on they wouldn’t be able to do that again,” explains Claus Toksvig-Kjær, Nørlum’s co-founder and CEO. “Seasons 2 and 3 were made outside of Denmark since we have no financial incentives.”

Not only that, but most of the fresh graduates from The Animation Workshop in Viborg that were hired to work on the show left not just the studio, but the country after production wrapped. “I asked them if they would have stayed on if we had gotten another season, and nine out of ten said that they would have,” says Toksvig-Kjær. “But we didn’t.”

Animators receiving a first-rate education in Denmark before moving abroad to start their careers highlights a weakness in a film industry that is able to foster world-class talent but is unable to attract high-level projects to keep them employed. And, as Toksvig-Kjær points out, this brain drain of gifted young animators is likely to be permanent. “If you work five, six years abroad, you might start a family, and you might not come back.”

The animation producer is quick to add that he doesn’t begrudge animators the opportunity to work for some of the world’s largest animation studios. But having once brought a world-class production to Denmark on talent alone, he can’t help but feel frustrated that it’s no longer economically viable for big studios to partner with Danish production companies. “If this was just the way it was, that would be fine,” says Claus Toksvig-Kjær. “But when all of your neighbors have an incentive scheme, you’re no longer competing on an even playing field.”

“We might be the first priority for a given job, but then we can’t offer tax credits, so the work goes to Belgium. And then my colleagues in Belgium call me up and say: ‘We wouldn’t have gotten it if it wasn’t for you!’”

 

WHAT ARE FINANCIAL INCENTIVES?

Financial incentives for the audio-visual sector might sound like a third-year economics course, but the details of these subsidy schemes are nearly as easy as they are important to understand.

Once conceived as a weapon to lure “footloose” production money away from its home market, financial incentives have become so commonplace that they’re increasingly becoming the price of admission in a global production economy. 

In short, financial incentives are discounts offered by national states hoping to host foreign film or television production. Within the EU, this discount typically ranges from 20-35% on expenses within the host country and can be paid either as a tax credit, which can be subtracted from the amount of taxes owed to the host state, or a cash rebate, which is paid as a lump sum following an independent audit of production finances.

As opposed to many national subsidy schemes, where consultants pore over script revisions and animatics, these financial incentives are automatically awarded to eligible projects. This makes them more predictable for producers preparing budgets and scouting locations, with the important caveat that states often cap incentive schemes, either per project or on the scheme overall. Germany, for instance, has a per-project cap of either €4M or €25M, depending on the scheme, and an overall annual budget of €120M.

While such caps are intended as a precautionary measure, some argue that they are largely superfluous, since financial schemes effectively pay for themselves, so long as more taxes are paid on the incoming investment than are repaid to the production company.

 

“Cash rebates can never replace cultural subsidies”.

Despite the lack of financial incentives, it’s important to note that the Danish state does not exactly leave the film industry to fend for itself.

In 2020, The Danish Film Institute (DFI) supported national film production to the tune of some €54M (however, according to a 2022 report, between 2014 and 2021 only 6,8% of the money from DFI went to Danish Animation), and some have argued that financial incentives are superfluous in an industry where the industry is already largely propped up by direct state aid.

But, as everyone interviewed for this article has stressed, it’s important to draw a hard line between direct subsidies for the production and promotion of national culture, and financial incentives intended to foster industry-wide growth.

“Cash rebates can never replace cultural subsidies. That would be shooting ourselves in the foot because it’s through our systems for cultural support that we’re able to support talent development,” says Erik Wilstrup. “And that’s the reason why we have such qualified labor in this country.”

Some of this labor force finds work on homegrown productions that are, in part, financed by national subsidies. Wil Film, for instance, has been able to tap cultural subsidies awarded by the Danish Film Institute to produce feature-length animated films for the home market, even as production for foreign clients has mostly dried up.

For Erik Wilstrup, that’s the side of his business closest to his heart – but it’s not the one that keeps the lights on. “Nobody in Denmark, or very few, will get rich making an animated feature film. They do it because they have something they want to say. That’s why we need cultural subsidies.”

“Making a TV series for Playmobil, or for Netflix, to my mind, that’s business, not art. And we could double that business if we were able to offer financial incentives.”

 

Hvilke andre lande i Europa har produktionsrabatter, og I hvilken størrelsesorden.

 

A net profit for the state

The same sentiment is expressed by Jan Neiiendam, CEO of the cluster organization Vision Denmark which promotes Danish digital visual industries, including games, films, television, animation, and Expanded Reality (XR). “Financial incentives are not cultural politics,” says Neiiendam. “They are a business initiative intended to put Danish producers of animation and all visual communication on an equal footing with foreign competition. What these incentives are intended to do is to grow more jobs. It’s important that we see it, not as support, but as an investment.”

It’s a sound one, too, since financial incentives are largely self-funding. For instance, if a foreign production company were to spend €10M in wages to a Danish production company, then given a financial incentive of 25%, the state would repay the production €2,5M directly from the state budget. But assuming a tax rate of 35% – which for Denmark is very low – the state would collect €3,5M in income tax, netting a profit of €1M.

And even if that hypothetical example is a little optimistic, it covers only the direct impact of such incentives, and not indirect effects such as increased income for the supply chain or increased spending within the industry. Given that financial incentives are only paid out following an independent audit of qualifying expenditure in the host country, an incentive of 25% would require foreign investment of four times that amount, benefitting each link of the supply chain.

 

No racing to the bottom

Of course, business and culture are not mutually exclusive, since attracting more of the former will help develop knowhow and secure financial stability to pursue the latter.

But acting as a subsidiary industry rather than a generator of content often leads to fears that incoming productions will simply go to whichever country can offer the most generous credit.

Jørgen Ramskov, head of the Danish Producer’s Association, has for years been part of efforts to lobby politicians to introduce a Danish incentive scheme, but despite the wealth of research indicating the economic benefits, he has found himself preaching to deaf ears. “I’m often met with the argument that incentives will lead us into a ‘race to the bottom’: that if we offer an incentive of a certain size, someone else will top it, and so on.”

These longstanding fears about financial incentives suggest that national industries compete only on price, not taking into account factors such as infrastructure, experience, established connections, and a robust talent development system that continually renews a qualified labor pool.

A race to the bottom might occur among less-developed film industries, but in Denmark, says Jørgen Ramskov, ”we have so much qualified talent that that simply wouldn’t be the case.”

 

How long can we wait?

That talent is more sought-after than ever.

With the launch of major new streaming services such as Disney+, HBO Max, and Apple+, demand for content is skyrocketing. And as lockdowns are eased around the world, and the industry goes back to work, it has never been costlier to be left out of the competition.

“We can see that in many countries, states have decided to ramp up financial incentives as a way to restart the industry,” says Jan Neiiendam. “That just underlines that they are good for business.”

And while the issue is still being debated in Denmark, there is a risk that these industries will simply consolidate outside the country. “That’s what I call ‘the quiet death’”, Neiiendam says. ”We should be on that train already, and we might feel like we are since so many people are busy, but my hypothesis is that we could have been even busier if producers had been able to check that box, too.”

The role of Vision Denmark is not to lobby for financial incentives, but merely to advise on their viability. But as its CEO, Jan Neiiendam can’t help but worry that if policymakers don’t make a decision soon, it will be made for them. “We once were able to attract large, global industry players, and if we can’t keep on doing that, our credentials are, all things being equal, going to be less crisp than they were.”

“If nothing else, it becomes harder for young players in the field to get a share. The largest businesses might be able to get by, but new ones never see the light of day.”

In Denmark, financial incentives are still on the agenda, but not exactly at the top. A planned impact analysis by the Ministry of Industry, Business, and Financial Affairs has been put off until at least 2022 due to limited resources during the pandemic.

But for Danish animators, the question remains: How long can we wait?

 
 

OTHER RELEVANT RESOURCES

Dansk Erhverv

Dansk Erhverv produktionsrabat til visuel indholdsproduktion one-pager

Vision Denmark

Faktaark – Produktionsrabatter