Australian producers just had to sit on the ground at Cannes this year and a queue would form,' recalls leading Melbourne film lawyer Bruce Menzies.

He is only half joking. Thanks to the introduction of one of the most generous financial incentives in the world, Australian film-makers now rank among the world's most desirable production partners.

The producer offset allows film-makers to claim back 40% of their Australian expenditure, whatever the budget, wherever they shoot, as long as they pass a cultural test. International projects can access the offset as long as they are set up as an Australian co-production.

The offset has been officially in place since July 1 last year but the rules governing it have not. Many Australian producers have been slow to get to grips with the new financing mechanism until the last few months when the doors slammed shut on the Film Finance Corporation (FFC).

But now real engagement is underway as film-makers grapple with the challenge of finding the rest of the money and cashflow, as well as taking advantage of their new-found independence.

This brave new world of Australian film-making not only hinges on the producer offset but also on a whole new super-agency, Screen Australia, which has replaced the FFC and two other agencies. Details have been scarce up until now but new draft guidelines on how it will spend its annual $68.3m (a$100m) are now on the table.

The most pressing problem with the offset has been finding banks willing to lend against it at affordable rates: Australian banks have little familiarity with the film business and several of the international players who do have been affected by the global economic crunch. Many Australian producers are also challenged by the complex deal-making required to finance films using the offset. But more experienced producers are fully aware of the opportunities.

Geoff Brown, executive director of the Screen Producers Association of Australia (Spaa), says the upside of the new offset is the leverage it gives producers, and therefore its flexibility.

But he has concerns. 'We are moving from a cultural to a commercial model and are being expected to do it practically overnight,' he says. 'It is a transition that is proving to be difficult, especially with the financial markets in meltdown.'

The Australian government wants film-makers to stand on their own two feet. 'The producer offset was developed to build a more sustainable film and television industry and to grow levels of Australian production,' said Australian arts minister Peter Garrett recently.

Screen Australia's only involvement in some projects using the offset may be checking their eligibility - its investment arm is quite separate - but it too is required to be more commercial.

Garrett wants Screen Australia to be an agent for change that balances its support for projects of cultural merit with the development of commercially focused businesses, he said. Put frankly, he wants film-makers wrenched from the government teat and made to find alternative financing.

The underlying hope is to produce more films capable of attracting the mainstream local audiences that have not been tempted by their own cinema of late. Attracting Australia's name directors and actors home from Hollywood is a big aim.

(Connecting with audiences is an area of expertise claimed by Screen Australia's new chief executive Ruth Harley, the former head of the New Zealand Film Commission, who starts her new job on November 17.)

Most Australian films are made for less than $6.8m (a$10m). The offset gives producers a real opportunity to undertake more ambitious films with commercial elements, as it provides them more access to finance - the previous cap on FFC funding was $3.4m (a$5m). But they will have to find and develop projects seen as having real audience appeal.

The offset will be a huge windfall for Baz Luhrmann's $100m-plus Australia, backed by Twentieth Century Fox. The project easily qualifies as Australian (it is an Australian story, shot in Australia, with an Australian cast, crew and director). But blockbusters like Australia will remain a rarity because very few Australian directors and producers work with budgets that high outside Los Angeles.

And grey areas persist: George Miller's superhero prequel, Justice League, backed by DC Comics and Warner Bros, has failed to get a provisional certificate for the producer offset. Miller is arguing this decision is wrong on the grounds he is Australian and will shoot the film in Australia.

The Australian film-makers set to thrive thanks to the offset will be those who have previously managed the complexities of official co-productions or those who can learn to be clever deal-makers, as well as those directors and producers with international connections and/or sources of private finance.

'There are a lot of Australian producers who, up to now, have just relied on the Film Finance Corporation, and the producer offset is making them think more commercially and understand international financing more,' says James Michael Vernon, who arranged cashflow and gap finance for David Caesar's trucking drama Prime Mover, which is in the usual under $3.4m bracket and is now in post-production.

Producer Emile Sherman and former Baker Street executive Sharon Menzies, now based in New Zealand, have launched a similar financing outfit under the banner Fulcrum, as have producer Heather Ogilvie and Graham Buckeridge, under the name Abacus.

Ogilvie is negotiating with several institutions about a financial facility secured by the offset. Abacus' original deal with the Bank of Ireland was put on hold on the eve of its first $10.3m (a$15m) drawdown because of the credit crunch. These players are confident the offset is going to invigorate production despite the jittery state of global financial markets.

For both local and international film-makers, the big question is how Screen Australia will help projects with strong commercial intent.

Sherman and two co-signatories said in a submission during the agency's consultations that the offset really only equates to 26% of the budget, as some budget items are not regarded as qualifying Australian production expenditure (Qape), and that is not enough subsidy on its own. Investment from Screen Australia still has to be seen as a critical trigger, they assert.

The other big question is about culture, where minefields abound. Investing in a talented first-timer's risky, culturally rich low-budget film, rather than a high-budget horror by a mediocre director, seems a no-brainer, but most projects lie somewhere in between. And deciding which production entities will succeed - building sustainable businesses is the current Australian catchphrase - is a difficult game.

It seems Screen Australia does want to support the best with more resources, rather than spreading money too thinly and in an egalitarian fashion. Recognition of talent - whatever the budget size and genre, and whoever is paying the production bill - has to be a good thing.


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