To co-produce or not to co-produce

TV productions, in particular using the medium of animation, can be very costly and take a significant amount of time to be finalised. We are often contacted by content producers and IP creators asking us to help them secure a partner to share the burden of the overall production.

When assessing the decision to enter into a co-production agreement with another producer several factors should be assessed, putting on the scale both potential benefits and drawbacks.

An international co-production is ultimately a joint-venture development of content where production companies from different territories share resources (in the form of cash, goods, or production services) and expertise as well as risks.

Typically, production companies can expect to extract the following benefits

• Combine financial resources

– Producers can raise funds from another territory beyond their own, helping them generate a pre-sale (which will form part of the production budget) to a broadcaster or distributor. They are likely to insist though on some creative influence).

• Access to another territory's incentives and subsidies

– When an official co-production agreement is in place, the project can be structured to count as local content in respective markets, making the production eligible to local government subsidies and tax incentives.

• Better access to another territory

– The coproducer is likely to have better knowledge to distribute content in their local market and better connections to key players.

– They will also have better understanding of audiences in their market and can help structure the project to meet their demands. Particularly relevant for a cultural product such as animation.

– The co-production can count as local production and bypass quota restrictions for foreign productions even with local production limited to 15% - 30% of the total.

• Access to a third territory

– A co-producer can facilitate access to a valuable third territory. For this reason, Canada is a very popular co-production partner to anyone hoping to enter the U.S. market, thanks to close cultural ties, a shared language and connections to key US players.

• Learn from a co-production partner

– They may have greater experience in creative, technical or business aspects. The expertise gained could be exploited in future projects.

• Risk reduction

– Given the difficulty in predicting success for creative projects, having partial involvement in several projects rather than a larger investment in one can reduce your overall risk profile.

• Cheaper production costs in another territory

– A co-production is one method of facilitating access to cheaper foreign resources. However this could also be achieved by sub-contracting part of the production to this territory.

While these benefits may be compelling, production companies should also consider the following potential drawbacks

• Transaction costs & time

– It can take months if not years to negotiate a co-production deal, and producers should budget for the associated legal and financial costs.

– Co-ordinating the production and distribution brings additional costs, and also additional administrative burdens, such as dealing with more than one government.

• Loss of creative control and cultural specificity

– A co-production inevitably involves compromises concerning the character of the program and the creative talent employed.

– A project that has to make several compromises, rather than appealing to audiences in both territories, may appeal to neither. This can lead to financial or artistic failure, or to both.

• Loss of financial control

– Additional checks are needed to verify how the co-producer is accounting for costs and reporting for revenues while understanding the flow and timing of potential tax credits.

• Partial loss of IP ownership and future revenues

– A co-producer will typically be granted all rights (TV, Merchandising, Music, Events, etc.) in their local territory, plus they will probably demand rights for other territories.

– The rights assigned to your co-production partner may end up being the most valuable.

Overall, we found that when production companies enter in their first co-production agreement, they may overestimate the potential to reduce their overall financial contribution to the project (often because tax credits may end up being less than they expected). At the same time, they may underestimate the additional costs they have to incur to manage a complex relationship with another producer, who will want to contribute not only financially but also from a creative point of view.

While cost-reduction and access to tax subsidies may be one of the primary considerations to assess a potential co-production partner, the importance of production values should not be forgotten. Securing distribution and gaining global audience of the premiere platforms in the world will be dependent also on the overall quality of the production in visual story-telling.

If you are still inclined to go through a co-production route, there are several countries offering incentives to reduce the overall cost of local productions. While every co-production treaty will have different rules, bear in mind that typically only the production elements that take place in that territory are eligible for tax subsidies.

In conclusion, we recommend our clients to assess partners that first of all share the same creative vision and then take into account all these factors in their production strategy. All the relevant costs as well as savings should be allocated to a co-production, and other options (such as sub-contracting part of the production) that allow producers to retain greater financial and creative control should be considered.