CARIBBEAN BUSINESS THURSDAY, JUNE 23, 201132

BY ANGELA VARGASangelav@caribbeanbusinesspr.com

The benefi ts of the recently en-acted Film Industry Economic

Incentives Law, which allows for generous tax credits for productions with budgets upwards of $100,000 for feature-length fi lms and $50,000 for short fi lms, are mostly out of reach for local productions, which can’t raise the hefty funds needed to meet the law’s budget requirements.

Nonetheless, a new generation of local fi lmmakers is looking beyond the incentives to its own talent pool to realize their vision—affordably—through technology.

There is little doubt that the new law, which expands the defi nition of eligible projects to include docu-mentaries, short fi lms, music videos, video games and live shows, among other types of productions, repre-sents a signifi cant contribution to the island’s economy. The numbers are there: 2010 investments doubled from $32 million in 2009 to $65 million, and 19,841 local jobs were created during 2010, with 11 fi lms produced on the island.

Sources at the Puerto Rico Film

Commission say there is no way to track in what stage of production these jobs were created, however. The commission’s code of ethics al-lows it to provide consulting only in choosing locations, not in choosing personnel, creative or otherwise.

As reported March 5 in CARIBBEAN BUSINESS’ online edition (www.caribbeanbusinesspr.com), Gov. Luis Fortuño dedicated the signing event for the law to fi lm-makers and students at the College of Cinematography, Arts & Television (CCAT) in Bayamón by saying: “This is for you, so Puerto Rico can do it better in the realm of fi lm.”

Since CCAT offers programs in editing, sound, illumination, camera-work and general production, with-out delving into visual effects at all, the governor’s blessing raises certain questions in the local fi lm commu-nity, including: What “realm” is that, exactly? Will the law be viable for local productions? Do the incentives cover the entire fi lm-production pro-cess, or just parts of it?

Meanwhile, celebrities support-ing the law—most prominently Hollywood power couple Jennifer López and Marc Anthony—speak

of plans to establish state-of-the-art soundstages and studios to at-tract more A-list movies and TV-production projects to Puerto Rico.

However, discussion of local pro-ductions has been absent, and out-sourcing of big-budget fi lms’ post-production services to local fi rms appears to have not even been fath-omed during the drafting of the law. In the latter case, the reason should be clear: post-production in Puerto Rico is considered sub par.

VISUAL EFFECTS EXIST!Enter professionals like Jorge

Castillo López, a visual-effects su-pervisor based in Puerto Rico who creates animated scenes and graphics you have probably seen, but wouldn’t have believed were made here.

“The comment I usually get is: ‘That wasn’t made here.’ Well it was, and we’re right here,” Castillo said defi antly. With his specialty, Castillo is one of the scant few individuals who tend to the visual-effects niche in the local fi lm industry.

A chemical engineer by training, Castillo is currently a professor of animation & video-game design at Atlantic College, and has created

visual effects for two full-length mov-ies that have yet to be released. One of the fi lms, “Barricada,” launched the 3D artist into a small but signifi -cant island fi lm community.

Through this fi rst project, Castillo met another self-taught artist, Kaell Matías, a peculiar brand of director who creates his own visual effects.

“When I started all those years ago, I wished for a Castillo,” Matías said jokingly. “I wanted that ‘Pixar but-ton’ that would make what I saw in my head possible. It wasn’t happen-ing, so I started experimenting.”

Matías’ short fi lms include “Guerra mia,” which he directed and co-wrote, and “Cuarto oscuro,” on which he functioned as both director and writer. He also has directed music videos for such bands as Plaza 5 and Eva Cautiva. To all of these projects Matías added his special knowledge of quality post-production.

In an exclusive interview with CARIBBEAN BUSINESS, both art-ists talked about the challenges and rewards of creating art in a neglected, and often misunderstood, segment of local moviemaking.

“To this day, what I see most are

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Puerto Rico-based visual-effects specialists aim to re-animate a struggling local movie industry largely passed

over by new Film Industry Economic Incentives Law

Vision quest

For his newest short fi lm to be released in 2012, Juanchi González directs actor Rafa Álvarez for virtual settings.An establishing-shot concept image by William Núñez portrays the fi rst minutes of González’s short fi lm.

and it is well known that much of the money was spent on cars, vacations and other expenses unrelated to business development.

Currently, 70% of these loans are either in default or uncollectible, a great disservice to the borrowers, since they didn’t develop the skills to operate a business and ended up losing money and ruining their credit rating.

In addition to the irregularities in loan disbursements, the process was long and tedious, often taking as long as a year or a year and a half to obtain loan approval.

Following recent improvements, completed applications are reviewed in an average of 38 days. The EDB receives more than 1,000 completed applications for fi nancing every year, of which some 60% are approved.

“Llave para tu negocio” morphed into the new Development for the People program (“Desarrollo para tu pueblo,” or DPP). Final approval of funding now takes an average of only 20 days.

Minimizing administrative expens-es is another target for reform, and the bank already has reduced oper-ating expenses by more than 30%, which liberates funds to make ad-ditional loans.

The timing couldn’t be better. As the Puerto Rican economy begins to show signs of recovery, the EDB has become a signifi cant piece of the government’s overall strategy to encourage the creation and growth of small and midsize companies and stimulate entrepreneurship.

Otero, formerly vice president of fi nance & operations at the EDB, replaced Lizzie Rosso, who resigned as president to return to the private sector, after taking the fi rst steps toward the professionalization of the bank.

Otero plans to step up the process and make it permanent, building on her studies in fi nance and banking at the University of Puerto Rico and more than 20 years in the banking industry, most notably at Citibank.

It is a record that has earned her strong backing from her new direct supervisor.

“As a member of the EDB team for the past two years, Otero has been key to the bank’s success during this administration in helping small

businesses in Puerto Rico,” Gov. Luis Fortuño said in a statement. “I have no doubt that as president, Ivonne will continue to apply her vast experience in the fi nancial sector toward better economic development and job creation for all Puerto Ricans.”

PRIMARY LENDING PROGRAMSOne of the steps taken by Otero

was to eliminate outmoded loan programs, keep those that still work and launch new ones to fi ll additional niches.

“We have to evolve with the times,” she said.

Created under Law 22, which took effect on July 24, 1985—in an effort to develop innovative fi nancing strategies for small and midsize businesses—the EDB provides fi nancial support through asset-based loans and participation loans with private fi nancial institutions or under the U.S. Small Business Administration (SBA) 504 loan-guarantee program.

The bank also provides mezzanine fi nancing (a hybrid of debt and equity fi nancing often used to fi nance the expansion of an existing company) or capitalization loans, offers fi nancing for tourism projects, and encourages entrepreneurship and self-employment through a variety of fi nancial programs.

The EDB’s principal fi nancing programs are:

EDB-Direct Loan Program: Up to $5 million for small and

midsize companiesFor real estate, a maximum of

80% of the value of the property can be fi nanced. For machinery and equipment, the rate is 75%, 60% of the appraised value of the equipment if it is used. The bank may require collateral. Operating capital must be paid back in a maximum of fi ve years. Purchases of machinery and equipment have a maximum seven-year duration on the term of the loan. Permanent improvements to real property are capped at 10 years, and the purchase and/or construction of real property can be fi nanced for a period of up to 30 years.

An example of this program’s benefi ts is Automeca Technical College, with campuses in Bayamón, Aguadilla, Caguas and Ponce. It was founded with the mission of

developing mechanics capable of fi nding employment in the automobile industry. The 30-plus-year-old company recently received a $500,000 EDB loan to expand its operations, which currently employ 170 people.

New Entrepreneur Program:Up to $500,000 for start-ups

The entrepreneur is required to contribute at least 10% of the total cost of the project, and the EDB may require additional loan guarantees from state and federal agencies such as the SBA and the Department of Economic Development & Commerce (DDEC by its Spanish acronym).

Las Flores Metalarte in Coamo was founded in an effort to create job opportunities for unemployed young people. Today the company is one of

the largest furniture manufacturers on the island, employing 140 people. The company was recently provided a $725,000 loan and has converted into a cooperative whose employee-owners all have a personal stake in its success.

Female Entrepreneur Program:Up to $500,000 for Pymes owned

by womenThe EDB is focusing on women,

since this segment of the population has demonstrated signifi cant interest in self-employment.

According to the U.S. Census Bureau, Puerto Rico is the only U.S. state or territory where women earn more that men. Women in Puerto Rico make 103% of what men earn on the island, and their income is growing at a faster rate than men’s.

The EDB’s Female Entrepreneur loan requires a 10% commitment on the part of the borrower and covers operating capital for fi ve years, the purchase of machinery and equipment for up to seven years, permanent improvements up to 10 years, and real property up to 30 years.

This program can be combined with other EDB programs like DPP and loan guarantees from the SBA.

“Female entrepreneurship can be demonstrated by the Development for the People program, where a considerable number of applicants are women,” Otero said.

The bank also provides a variety of targeted loans aimed at stimulating entrepreneurial activity in a variety of areas. These loans include:

TOURISM IN VIEQUES, CULEBRAIn an effort to stimulate economic

activity in the island municipalities of Vieques and Culebra, the EDB has committed $2 million in loans not to exceed $25,000 each.

Thus far, 50 loans have been issued in Vieques and 15 in Culebra. The loans have been taken by entrepreneurs seeking to provide goods and services directed at encouraging tourism activity.

However, this doesn’t imply the loans are exclusively for kayak rentals, guided tours, scuba diving and the like. Loans have been issued for auto-parts distributors, plumbers, electricians, small restaurants and other businesses that complement

Continued from previous page

17 CARIBBEAN BUSINESS THURSDAY, JUNE 23, 2011FRONT PAGE

Continued on page 18

“We have completely re-engineered and restructured our

procedures.”—Ivonne Otero, president of the Economic Development Bank

BY ALEXANDER LÓPEZalopez@caribbeanbusinesspr.com

It has long been an article of faith in the banking industry that sound

credit analysis begins and ends with management. If business’ owners can’t demonstrate that they know what they’re doing, don’t make the loan.

Provided the credit risk is good and the loan is made, the second article

of faith is to keep track of the client to make sure the loan doesn’t go bad, and if it does, deploy a strong collection effort.

Historically, the Economic Devel-opment Bank for Puerto Rico (EDB) has had a spotty, on-again, off-again record of following these precepts. Ivonne Otero Guzmán wants to change that.

It’s part of the renewed professional-management effort the recently

named president of the institution has initiated to ensure industry-standard best practices at the bank far into the future—practices the seasoned veteran of the banking industry hopes will keep the EDB from committing many of the mistakes that have plagued it in the past.

“We have completely re-engineered and restructured our procedures to speed up the cycle time,” Otero noted. “Our staff had to be properly

trained for them to be effective in their output.”

The big wake-up call came following the “Llave para tu negocio” (Key to Your Business) program in the mid-to-late 2000s. Approximately 1,000 loans were issued, and regardless of the business, the loan amount was $50,000.

The loans were loosely monitored,

16 CARIBBEAN BUSINESS THURSDAY, JUNE 23, 2011

Continued on next page

Economic Development Bank steps up changesto reduce delinquency, improve effi ciency and expand loans, right on time for the recovery

The timing couldnot be better

local directors who are extremely ap-prehensive about telling me what they want to see on the screen,” Castillo explained. “They are used to toning down their vision to fi t budget and time constraints.”

Matías agreed, adding that local di-rectors’ self-imposed limitations—justifi ed or not—are a big impedi-ment to the artistic and commercial growth of Puerto Rican cinema.

“There are directors who shudder at the mere mention of green screens, but the reality is we must deal with this fear if quality productions are ever to come out of the island,” he said.

MONEY IN THE WRONG HANDSCastillo describes the local fi lm-

making industry as a polarized gath-ering of haves and have-nots.

“On one side you have people who have no idea what they’re doing with all the resources and investors at their disposal, which makes them sell their equipment as if it were abil-ity,” Castillo said. “And on the other side, you have people who have the technical know-how who are basi-cally paralyzed.”

“You either keep your day job or you hunt for contacts, and in these economic times, you need your day job,” added Matías, who happens to be a government employee.

For Castillo and Matías, the long and short of it is: garbage in, garbage out. No matter the equipment—if the footage wasn’t fi lmed correctly, no manner of post-production will make the fi nished product anything but substandard.

“The Red cam is not a silver bul-let, and expensive gadgets will never mask bad fi lmmaking and worse ani-mations,” Castillo said. “The problem is that with every botched island pro-duction, the less likely it is that inves-tors will come out of the woodwork to support local projects.”

It is no secret that advertising agen-cies and the who’s who wishing to in-vest in 2D and 3D animation usually outsource these types of projects to Latin America or North America.

Having had fi rsthand experience with local artists’ migration, Castillo frowns on the whole practice and believes that this segment of island fi lmmak-ing is grossly underrepresented—and

ripe for cultivation. “There is always a lot of talk [from

the government] about what an as-set island talent is, but in reality we have to wave a fl ag and say, ‘Hey, we do visual effects, too,’” Castillo said. “It’s an industry that would bring money into the island and create jobs for a whole generation of artists who are migrating to the outside to fi nd employment.

“Everywhere, big productions look to outsource smaller projects, so why not here? If we have a fi lm industry that’s basically in diapers, why are we looking to take away the few jobs that can actually be done here?”

A DIRECTOR’S DREAM: PREVISUALIZATIONS

As a director, imagine being able to experiment with your fi lm’s look, camera movement, pacing and edit-ing without actually incurring any production costs. This is what previ-sualizations are for.

Also known in the industry as “previz,” the term encompasses all

techniques aimed at visualizing the scenes of a movie before actual fi lm-ing. Storyboards are considered part of a movie’s previz, but what Castillo advocates, and what big-production fi lms now practice, is full-on digital previsualization.

Juanchi González, a locally ac-claimed director, acknowledges hav-ing only recently lost his longstand-ing fear of visual effects.

“They [visual effects] have always fascinated me, but I have kept them at a distance because I respect them greatly,” González told CARIBBEAN BUSINESS. “After ‘Los unos y los otros’ [2009], I met Castillo in be-tween jobs and the chance encounter opened my mind to a number of pos-sibilities, a visual world that can be totally controlled within an affordable price range.”

Known in the local independent-fi lm circle as a true “actor’s director,” González awed Puerto Rican critics with his short fi lm “Los unos y los otros,” a psychological thriller with powerful performances and an im-pressive arsenal of cinematographic tricks that challenge the viewer.

“Los unos y los otros,” which was made with a $5,000 budget raised within the production group, has been shown in Chicago, Italy and Madagascar, where it was interpreted in a political context. Aris Mejías won Best Actress honors and González was named Best Director at Cine Fiesta in 2009, among other awards and selections garnered by the fi lm.

In conjunction with Work in Motion, Castillo’s digital production and multimedia studio, González and his team are currently immersed in post-production for a new short fi lm, scheduled to be released in 2012. And this time, previz was the norm.

“This time around, the process has been remarkably effi cient; I have

hardly changed a thing while fi lm-ing,” González said. “Concept draw-ings and 3D visualizations have made it possible to clearly imagine the fi lm’s pace and mise-en-scène.”

Work in Motion focuses on the cre-ation of groundbreaking visual effects and 3D animation for the feature-fi lm, advertising, architectural, previsual-ization and video-game sectors.

FREEING A FILM’S VISION AND PRODUCTION VALUE

“You say ‘visual effects’ and people automatically picture “Transformers” and Michael Bay’s 360-degree shots, but this is the last thing I’m referring to,” Castillo explained. “I’m talking about, for example, a director imag-ining a cottage somewhere in the background and someone saying, ‘Yes, we can do that digitally.’ It is about freeing the director’s vision.”

Matías, with singular experience on both fronts, added, “When used correctly, these visual techniques become essential to storytelling and can transcend all types of limitations that can unhinge a director’s style, such as budget, locations, equipment, etc.”

Given the fi lm-industry’s adrena-line-infused bias recently, Castillo follows Matías’ thought with a state-ment that might seem paradoxical to many of today’s moviegoers.

“The best special effect is the one you can’t spot,” he said. “The one that’s there for the story and is mostly invisible, that’s what we should ulti-mately strive for.”

Castillo and his team of local pro-grammers, 3D artists, concept artists and designers are leading the way in high-end visual effects on the is-land in terms of their complexity and quality. Steadily, with what he has accomplished so far, and with what he is currently working on, he is add-ing value to local productions and reawakening an independent-fi lm community that could very well be described as “down on its luck.”

“The projects we are working on now are designed to make a state-ment,” Castillo said. “We want to prove we can create visual effects of the same caliber as big productions with a fraction of the resources these companies have.

“The pitch is, ‘We created this with next to nothing, now give us support and let’s see what we are capable of.’” �

CARIBBEAN BUSINESS THURSDAY, JUNE 23, 201133

Continued from previous page

Castillo production team on the set

“Everywhere, big productions look to outsource smaller projects, so why

not here? If we have a fi lm industry that’s

basically in diapers, why are we looking to take away the few jobs that can actually be done

here?” —Jorge Castillo López