Starz Ani strikes banking deal for tax credits

Fast-track tax rebates for studios and indie producers

TORONTO -- Starz Animation Toronto has come up with a novel way to allow studio and indie producers to reduce their film financing needs as they pocket Ontario tax credit savings up-front.

The 3D animation studio has struck a five-year, $12 million financing deal with the Royal Bank of Canada, the country's largest bank, to interim finance local tax credit refunds.

"In an environment where the ability to gain access to credit has been constricted, we're able to reduce their cash requirements," Jeff Young, vp of finance and business development at Starz Animation, said.

Foreign producers that shoot in Ontario typically wait for 18 months to two years to receive tax rebates based on local production costs.

The RBC loan agreement means Starz Animation will use its financial strength and expertise to bank the tax credits, cut a cheque for the producers and reduce their overall production costs as they bring computer animation work to the Toronto studio.

Starz Animation will also handle all tax credit applications, eliminating time-consuming bookwork for producers.

The banking deal is also the latest move by Starz Animation, which opened in 2007 as a division of Burbank-based Starz Media, to exploit local subsidies, tax breaks and local artistic talent to provide its clients with around 45% in production cost saving on a typical $20 million animated feature.

Those customers include Focus Features and Tim Burton, for whom the studio completed work on the animated feature "9."

"We're going against the economic trend by offering high-quality CGI animation in a manner producers expect from a big-budget studio movie," Starz Animation studio head David Steinberg said.

The instant tax credit savings to producers is welcome as Canada's favorable exchange rate is disappearing as the Canadian loonie and the American greenback move towards anticipated parity.

And Starz Animation is aiming to lend Hollywood producers confidence as rival U.S. states either scrap, reduce or debate their film subsidies in hard times.

Steinberg argues Starz Animation has been able to grow after the 2008 market meltdown as other animation companies contract, in part by offering top-tier talent and making 3D animated movies for anywhere from a third to a half the cost of a big-budget studio picture.

"When the economy shifts, companies that offer value will not only survive, but be in a position to grow and thrive when good times return," he argued.

The Ontario government appears to share that confidence.

As Hollywood producers increasingly shift animation production to Asia to lower labor costs, the province's government last May moved to stem the outsourcing tide by pouring CAN$23 million ($20.5 million) into the Starz Animation to retain local high-tech jobs (HR, May 26).

As part of that agreement, Starz Animation agreed to invest another CAN$130 million ($116 million) in the Toronto digital animation studio over five years.

The result has the 45,000 square foot 3D studio currently staffed up to around 300 employees at work on "Gnomeo and Juliet," an animated feature co-produced by Miramax Films and Elton John's Rocket Pictures.

The Toronto facility also completed work on "Hoodwinked Too: Hood vs Evil," from Kanbar Entertainment and The Weinstein Company, and Universal Pictures' "The Pirates Who Don't Do Anything: A Veggie Tales Movie."

On the TV side, Starz Animation animated the CBS Christmas special "Yes, Virginia," produced by Macy's, JWT and The Ebeling Group and with voicing by Neil Patrick Harris, Jennifer Love Hewitt and Alfred Molina.

" 'Yes, Virginia' and other TV work allows us to bring the same screen value to different size screens," Steinberg said.

Besides enjoying relationships with sister companies that include Film Roman, movie studio Overture Films and the Starz and Encore premium movie channels, Starz Animation is also developing its own animated projects.

The studio is developing the original screenplay "Q" from "Toy Story" screenwriters Alec Sokolow and Joel Cohen.

The buddy comedy, inspired by "Don Quixote," portrays marionettes in Central Park that escape from their theater to go on a fantastical adventure.

Steinberg, who will oversee the Toronto production on "Q," with Sokolow and Cohen producing, said Starz Animation is moving cautiously into proprietary production.

"We're not over-developing, but being strategic, and applying passion and attention to each project," he said.