Spain’s Hiked Incentives Usher in New Toon Dawn

Of all Spain’s film sectors, none has grown its international impact in recent years more than animation. At January’s Annie Awards, “Klaus,” made at Sergio Pablos’ Madrid-based SPA Studios, which produced with Spain’s Atresmedia Cine, won best feature, having just snagged an Academy Award nomination.

“Buñuel in the Labyrinth of the Turtles” took an Annecy Jury Award in 2019. The first two installments of “Tad the Lost Explorer” scord at the Spanish box office. “Another Day with Life” won best animated feature at the 2018 European Film Awards.

70% of the total turnover of Spanish animation companies comes from outide Spain, according to Spanish Federation of Animation and VFX Producers (Diboos). However, much Spanish talent, and the country’s technical capacity, is still not working at full capacity, the trade body argues.

Suddenly, however, in the midst of COVID-19 confinement – though social distancing hardly slowed output in Spain – Spain’s animation sector has received a tremendous boost which puts it even more on the international radar: New tax rebates which triple and more the new cap for reimbursement on an international shoot in Spain – whether live action, animation or VFX work – to €10 million ($10.9 million), up from a prior €3 million ($3.3 million). Deduction rates have also spiked five percentage points from 25% to 30% for the first €1 million ($1.1 million) of local spend by a foreign shoot, and 25% (from a prior 20%) thereafter.

Can the new incentives bring with them a new toon dawn?

Given the sector’s weighty budgets, amped-up incentives  are crucial. In the past, animation work would run through Spain until the incentive was exhausted, then transferred abroad.

In addition, in the case of animated productions, the maximum Spanish state aid available has increased to 75% (from 50%) of total budgets, for projects whose budgets don’t exceed $2.8 million, a move aimed at “supporting those who back more independent films and emerging talent,” ICAA director Beatriz Navas told Variety. Minimum budgets required to access such aid has been dropped from $1.1 million to $226,000, opens up far more possibilities of films benefitting.

“We were losing out on the possibility of getting involved in many projects budgeted below this limit [of $1.1 million]. A big-budget project needs several years to secure financing, so we don’t have producers coming to our doorstep every day on such films. But there are tons of opportunities to partner on small-to-medium projects or out-house animation,” Wise Blue Studios’ Nathalie Martínez pointed out.

The reduction on minimum budget eligibility “will be incredibly positive because many small-size companies will have access to these incentives. It’s time to generate an industry, something we’re not yet doing in the VFX sector,” says Gonzalo Carrión, operations director at prominent Spanish VFX company El Ranchito.

Incentives will, however, give an important boost to VFX companies and those involved in CGI image creation. Video games, however, are left out of the new financing scheme, while receiving state aid in other European countries such as France, Italy and the U.K. Spain’s Total video game industry punched annual sales of $1.028 billion in 2019.

“We’ve created a very wide range of measures, think they’ll prove attractive,” Navas added. “It’s too early to measure, but as far as we know, they’ve already had a positive impact. Finally, animation projects that would have otherwise headed to other countries due to a lack of competitive incentives, will now be carried out here.”

“We’re now at one of the most competitive animation industries in the world: We’re highly qualified, have good pricing and wonderful tax incentives,” Diboos president Nico Matji told Variety, noting that in the past, chances of working on productions such as “Despicable Me” or “Happy Feet,” among others, had been lost. Spain’s animation sector, he adds, is not only proving attractive to the U.S., but also -and very much so- to Russia and China. “These markets generate business,” says Matji.

“The work volume on these productions is so big that it’s normal to distribute it and diversify risk in order to maximize tax benefits,” Matji explains, adding: “Under the old plan, Spain missed out on its share of the cake on big international productions.”

May 5’s new incentives spikes tax relief on foreign production animation work carried out in the Canary Islands to an extraordinary 45%-50% of local spend.

Now, Spain has the opportunity to  translate into domestic law the European Commission’s Audiovisual Media Services directive (AVMS) which can require streaming services targeting Spain to invest a percentage of annual revenues from this business in Spanish and European productions. Streamers’ major preoccupation with Spain looks like live-action drama series. Animation, however, is a valuable way to limit churn on SVOD services.

“The big challenge is to make investment obligations which are in one with consumption trends of catalogues and channels, while protecting independent producers,” said Francisco Menéndez, a media lawyer at Spanish law firm Welaw.

“We’re working on having a draft ready as soon as possible, so can’t announce anything right now,” Naval says. “What we can say,” she adds, “is that the work is being carried out jointly with Spain’s Ministry of Economy, in constant dialog with platforms, TV broadcasters and producers.”

For the time being, the sector is upbeat. According to many sources, a new toon dawn is about to bow over Spain.

“We’ll definitely see a consolidation of the sector,” Matji concludes, mentioning much-awaited animated productions such as “Dragonkeeper,” “Tad the Lost Explorer and the Curse of the Mummy,” “Dogtanian and the Three Muskehounds,” “Evolution” and “Inspector Sun.”

SPANISH PARTICIPATION AT ANNECY

Shorts:

Camila Kater’s “Carne” (in co-production with Brazil),

Alberto Vázquez’s “Homeless Home” (alongside France)

Izibene Oñederra’s “Lursaguak”

Begoña Arostegui’s “Me”

Perspectives

Maria Lorenzo Hernández’s “Urban Sphinx”

Graduation Films

Arden Colley, Asil Atay, Isabel Emily Katherine Wiegand, Kellie Fay “Unraveled” (Spain, Canada, UU.S., Italy, Turkey)

Commissioned Films

Ralf Karam’s “Followfood In Your Hands”