The Telegraph
Since 1st March, 1999
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Hollywood’s German cash cow to dry up

Berlin, Aug. 11 (Reuters): Hollywood blockbusters like Terminator 3 could see a big source of funding dry up as cash-strapped Germany plans to impose restrictions on media funds that invest hundreds of millions of euros in Tinseltown.

About 20 per cent of Hollywood’s entire production budget is financed through German media funds, experts estimate. But these cash payments, dubbed “stupid German money” in Hollywood, have long been a thorn in the side of the Berlin finance ministry.

At present, investors can write off 100 per cent or more in initial losses against tax, making the media fund an attractive option for thousands of well-heeled private investors.

But a new ruling by the German government, starved of tax revenues as the economy has stagnated for almost three years, plans to raise hurdles for media funds such as Deutsche Capital Management’s IMF 3 fund, and Chorus ApolloMedia funds.

It aims to remove existing tax breaks except in cases where investors take an active part in choosing the screenplay and the cast of a film — conditions Hollywood moguls may find difficult to accept, and which will make sending cash to Hollywood more time-consuming and complex.

“This includes all significant measures in film production, in particular selection of the film’s plot, the screenplay, the cast, calculation of the costs, the screen plan and financing,” reads the ruling.

Fund companies criticise the changes, due to come into effect next year. Karsten Mieth, of media fund provider Chorus GmbH said: “Big US firms just won’t accept having their cast determined in such a way.”

Michael Oehme, head of the Federation of German media funds, said: “We will see a massive slump in investments in big US film projects.”

Germans invest about two billion euros in media funds per year, with about 70 per cent of the money going to US projects.

Andreas Konle, chief financial officer at Internationalmedia, which helped produce Terminator 3 with money from German media funds, said the ruling would complicate processes, but it would not mark the end of media fund financing.

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