Incentive State Stupidity is Hurting Entire Nation...
Sad news from Michigan. But many, including myself, saw this one coming from the beginning. Raleigh’s Pontiac Studios, the flagship state-of-the-art $80 million studio complex is reportedly going to default on a bond payment next month and, tragically, the state’s pension funds are on the hook for over $600,000. From The Detroit News:
Michigan’s largest film production studio will likely default on a bond payment due in two weeks, sticking the state’s pension funds with the $630,000 obligation.
Sources close to Raleigh Studios in Pontiac told me Wednesday that the owners have not made their required monthly escrow set-aside payments since October, and won’t have the money to meet their biannual bond obligation when it comes due Feb. 1.
The only thing that could change that, the source said, is if the studio books a major production in the next few days.
“The bondholders will be paid,” the source said. “But unless we get a booking, the pension funds will have to make the payment.”
That’s because the deal quarterbacked by former Gov. Jennifer Granholm in 2009 made the state employee pension funds the guarantor of the $18 million in bonds sold to help build the $80 million studio, located inside the abandoned facilities of the old General Motors Centerpoint truck complex.
If the studio can’t pay, the pension funds have to.
And since Michigan subsidized “Oz” to the tune of $40 million, I doubt another major project will be booking Raleigh’s Pontiac Studios. Raleigh is not the first movie studio to have financial issues that not only effect the studio, but also end up costing the Michigan taxpayers. The people in Allen Park, Michigan, got burned when a planned studio project blew up in their face, leaving the city unable to pay for things like their fire department (which they had to close). Then there was the Hanger42 case, which smelled like fraud, but prosecutors were unable to convince a judge to agree with them. Don’t worry Michigan, you are not the first state to have trouble building movie studios and sound stages.
Louisiana got burned by Louisiana Film Studios llc and the LIFT Studios fiasco. Massachusetts’ has watched the inept backers of the planned Plymouth Rock Studios project prove their incompetence time and time again. And in New Mexico, Albuquerque Studios has spent almost all of its existence in debt and bankrupt (though they have emerged from that, for now).
What film backers in these incentive states (and many others) need to start realizing is that no matter how much film industry infrastructure these places build, the key to their ultimate survival is a steady flow of productions. The infrastructure is not, and never will be, the key to drawing that steady stream. The only draw that has ever mattered is the money they (the filmmakers) get from ridiculously massive film incentives. No incentives means no Hollywood. It is literally that simple.
Film backers who support film incentives as an economic development tool to foster a film industry make their pitch using, as Cornell’s Susan Christopherson calls it, “stage theory”:
The scenario laid out by proponents of this economic development strategy follows well-worn “stage theory.” First, industry projects will be lured to a region by significant direct financial subsidies, demonstrating its good business climate. Second, the region is charged with developing and maintaining an infrastructure, including capital facilities and a skilled labor force, to sustain industry presence. Third, with these investments, the regional industry eventually becomes self sustaining and globally competitive, no longer requiring subsidies. While the reports that evaluate the economic impact of the tax-based subsidies for the film and television production industry echo this theory, they offer little information regarding how such an industry infrastructure is constructed.
In short, film backers in the incentive states don’t know what the hell they are talking about (even if they sound like they do). Film backers counter that it will “take time” to establish sufficient infrastructure. Christopherson points out it will take lots of time–got 100 years anyone?:
In New York and Los Angeles, this infrastructure has taken over one hundred years to build, and requires considerable ongoing public investment to maintain. Without this infrastructure, a state that subsidizes footloose film or TV production projects has little chance of building a sustainable local industry. This is demonstrated by the continuing difficulty of even those states (other than New York and California) that
have been trying to establish a viable film and television production industry for the longest time—North Carolina, Texas, Florida—in maintaining the crew depth needed to support more than a few productions at a time.
I keep trying to tell people in these states that they are wasting their time and money, but they refuse to listen. Maybe they should listen to the smart people in Canada who engineered the modern film tax credit/incentives now being copied in almost 40 states.
Film incentives, like any weapon of war, were designed to cause maximum damage to the intended target. For example, Canadian-designed film incentives cause runaway production by attempting to erode the comparative advantages the U.S. has from its concentrated industry clusters in California and New York. These clusters are the key to the U.S. film industry’s global dominance, and policymakers in the U.S. seem completely oblivious to this monumentally important fact. If the United States has a national interest in preventing runaway production to foreign nations, then having all fifty states competing with each other is not only counterproductive, but it is financially devastating to numerous state governments unable to sustain the huge amount of funds needed to pay for production incentives. As the smart people in Canada said:
In business, as elsewhere in life, Darwin’s rules apply. The first group to establish itself in a market generally attains an insurmountable height from which to hold down competitors. The governments of Canada, Ontario and Toronto recognized many years ago that to build a Canadian screen-based industry, public funds had to flow. Only the public could afford the risks of entry into the well established screen business. Hollywood got into the screen business in the 1920s and established its hegemony with massive investments in infrastructure and talent in Los Angeles, at a time and in a place where more days per year of reliable sunshine was a business advantage for a technology that needed available light.
Recognizing that Hollywood’s established hegemony was a result of its decades-long concentration in one place (Los Angeles), policymakers in Toronto understood the importance of creating their own concentrated industry cluster and warned that policies which encouraged production in other parts of the nation not only hurt Toronto, Canada’s leading
production center, but threatened the viability of the industry in the entire nation:
But some industries, particularly screen arts, don’t lend themselves to being spread thin. In fact, they grow best in big Creative Cities where talent is concentrated, and there is a sustaining supply of work.
Screen arts, like other art forms, are only mastered by doing. They require a sophisticated infrastructure, including state-of the-art studios, post production facilities, and schools that train sufficient newcomers to supply the business as it grows. But screen arts infrastructure is expensive, and can best be afforded
where capital costs can be amortized through constant use. . . .Instead of supporting Toronto as a world-class centre of excellence, policies have begun to tear it down. If Toronto fails, the viability of the industry across the country will suffer.
The same warning expressed above applies in this nation. The concentration of the film and television industries in Los Angeles is the main reason Hollywood enjoys unrivaled global dominance. No one anywhere else has been able to compete. The world-class concentration of talent and infrastructure in Los Angeles cannot sustain itself without a
constant level of movie and television production. Runaway production to other nations is a national concern because it weakens this concentration, which is the one thing that makes Hollywood such a global juggernaut.
As I say in my latest law review article (at the printers this moment), the foolishness of the film backers and the costly incentive war must end:
What should have been a national solution to runaway production, using a single film incentive to protect the potent concentration of the Hollywood industry cluster in Los Angeles (and, to a lesser extent, New York), was bastardized into a state level tool that serves self-interested short-term “benefits” to individual states. In the short term, jobs remained in the U.S. as opposed to going to Canada, but this was achieved by selfish, outrageously expensive and unsustainable policies that served to hurt not only the cash-strapped states enacting them, but also the entire nation. The race to the bottom of U.S. states enacting film incentives has been a costly distraction from the threat runaway production poses from other nations. Film incentives are a weapon that the nation can use to defend itself. But like any weapon, the nation needs to understand how to operate it. With film incentives, the fundamentals are like that of a gun. Instead of pointing the gun at the other nations causing runaway production, the U.S. has been shooting itself in the face.
The Canadians know the key to toppling the dominance of the US film industry is to hollow-out and weaken Los Angeles and their incentives were designed specifically to do that. With the exception of New York, every state trying to build a sustainable film industry will fail. In the meantime, it’s time to start pointing out that they are only helping Canada and film industries in other nations achieve their goal of ending US dominance at the global box office.
Policy makers in the incentive states thought they were being smart copying the Canadian film incentives. But had these state lawmakers in the US taken the time to understand and study the overall goal of the Canadian plan and the intent of enacting film incentives, they might have realized they were not being clever at all. The ignorance is breathtaking. And now its costing us all.
Brilliant.
As one of the many professionals in Hollywood struggling with financial sustenance between productions while juggling the spinning plates of elusive lures here, there and everywhere – that often aren’t there when you get there – it would be nice if we all worked together on or in a much more financially viable (and sane) model.
Thank you!
Excellent analysis. It does seem breathtakingly stupid that filmmakers that moved to LA to be close to the heart of the most major filmmaking center of the world, find themselves forced to budget their films for states that have no infrastructure nor are likely to sustain their incentives from year to year. This has weakened Hollywood and brought only short term bonanzas to other states which may not be able to sustain growth.
A national incentive would mean real job growth and a way to sustain the major filmmaking centers in the US (LA and NY), and allow us to make films where they were written to be made and not try to shoehorn every movie into Michigan or Louisiana or New Mexico or Toronto or Vancouver. I can’t tell you how many times I’ve been asked to find NYC in another state or Canadian City.
Of course, union issues and labor rates are another factor in our perennial race to a new place.
Thank you for the kind words. I could not agree with you more. I am for runaway production based on creative reasons 100%. If set in Louisiana, by all means shoot in Louisiana etc. If you don’t mind me asking, are you Jonathan Sanger the producer/director?
Heather,
Thank you for reading and for the kind words. Its my hope we can and will all work on a more sensible solution to the problem. I posit my thoughts on potential solutions on the “about” page of this site. My new law review is an exhaustive look at the current state of affairs and i hope it influences lawmakers at all levels. But i am not holding my breathe.
I think your article nails it except for one thing, I believe the problem began when actors started making such outrageous salaries. I have worked on films that where budgeted at 70 million dollars and 40 to the actors and only 30 to make the film and of course accountants ( also studio Heads ) are going where the rebates are, it only makes fiscal sense. I don’t believe in a national incentive ( what good will it really do )? I do believe that the work will return to Hollywood and I know this is where the real talent and infrastructure is and thats in every aspect of the industry. Many of my crew are 2nd and 3rd generation and they know what to do, I have built sets all over the world and my L.A. based crew made everyone else look like they were standing still. I’ve heard the argument that the L.A. unions drive up the cost and that is bunk! unions here just want the work and they do whatever is required to stay on budget and on schedule, I have personally work over 100 days straight 15 hours days many times to make it happen and we LOVE it. I do feel bad for the State pension fund in Michigan but many people in Hollywood are experts at blowing smoke up your ass and making promises that never intended to keep. California needs a better incentive program to bring this work back NOW !
I’d love to see your law review on the subject. Yes, I am the same person. I made the first incentive based film in New Mexico and the first incentivized movie in NYC. I do what I have to do and incentives are lays a lure, no matter how wrongheaded they are created. I have movies I’d love to make in L.A. but the lack of an intelligent incentive has weakened my ability to do that.
Dan,
Thank you for reading and I appreciate your comments. I do agree with you about the high pay for top actors, but there is nothing that can be done about it. It’s not the talent’s fault the studios feel compelled to pay so much for a given celebrity. It seems clear that a film’s success at the box office does not depend on the presence of a big name. I think corporate ownership of the studios has meant a new mentality at the majors. They think a big name will hep them sell their product (the film) and will pay them the big bucks to make sure that happens. Anyways, that’s out of everyone’s control except the talent and the studios/producers. I’d take $20 million if I could, so I don’t blame them.
I think things will slowly continue to get better. Whether it will remains to be seen. I think we have to work together to make sure the situation improves rather than just hoping it will on its own. Apathy among many of the film crews in LA is a problem. I understand it, but such apathy is not helping. That said, I agree with you about the skill and work ethic of the workers in LA. I think all of the filming in other locales is making many directors realize just how hard-working, efficient and tireless the LA crews are. Few can handle the demands and those who can are in LA (or NYC). And I don’t think anyone questions this. In my experience, the directors and producers readily admit the quality, skill and speed of the workers in LA.
As far as a national incentive, I think I can persuade you. Read a post I wrote last year and let me know what you think: http://www.stop-runaway-production.com/2011/03/25/national-u-s-film-incentive-would-be-effective-weapon-against-runaway-production-to-canada/
Jonathan,
I am always flattered when someone wants to (or has) read anything I write, whoever they may be. So thank you. I will email you an electronic copy of my new article on Monday if you like, or I would be happy to mail you a physical copy of the journal when they send it to me in the coming weeks (they provide the authors with about 25 bound copies of their individual journal article).
I appreciate your candor about the incentives and totally respect and understand your position. I do not blame anyone for taking advantage of film incentives, as it would be fiscally irresponsible not to. I do, however, make a distinction between filmmakers who take advantage of film incentives and those who actively lobby for them. I wrote about this distinction here: http://www.stop-runaway-production.com/2011/05/25/who-is-to-blame-for-runaway-production/
It seems that you are more like Gavin Polone (at least on this particular issue), who came out against incentives (but freely admits using them because it is simply the way things are right now). Indeed, I think it was appropriate to commend such a position, as was done in this article: http://filmworks.filmla.com/2011/12/22/enriched-by-incentives-major-hollywood-producer-says-state-film-incentives-need-to-stop/
With Mission Impossible 4′s budget, you think they could have shot the scenes at the end of the movie at Seattle’s waterfront (the film’s location in these scenes), rather than Granville Island, Vancouver B.C.
Burrard Bridge prominently in the bg, as well as the Granville Island Market complex, etc.
The crews working in these other states for the most part have one thing in common…. An 818 area code
You have clarified some very sad but true points. It’s all about money, and it’s a hard task when sacrifices have to be made in budgeting films (which is always) – so we seek the quick and easy way out by taking advantage of competing state or foreign incentives, and we don’t think about the big picture (pardon the pun). The larger budget films are getting harder and harder to recoup from and the financially successful projects are few and far between compared to the thousands of films made every year.
A national incentive is an interesting idea that I would like to see explored. In the meantime… While everyone fights for the big budget film business, they are overlooking the opportunities that lie in developing a variety of OTHER content – which can (and is) be(ing) produced in every town: documentaries, cable TV, web-based series, video and MGD elements for business and arts, reality shows, regional programming, sports, infomercials and much more. This content is exploding due to changing technology and access – and is surely surpassing ‘filmmaking’ in what is being made today, yet is largely ignored as an ‘industry’. It does not require Hollywood sound stages and expensive budgets, and it provides employment opportunities and an economic impact to the region. This emerging industry should be developed and supported… As a start, local and regional incentives should be created and our film commissions and film business development folks should incorporate this alternate content. For traditional filmmakers and producers, these regionalized benefits can go far in complementing the current state incentive(s) – or a national program to come in the future.
I find that every now and then we have to stop and evaluate why we do what we do. And in most cases, we just keep doing it as that is the easier path. That is not ok.
Laurie, I agree 1000%. I have felt the same way and appreciate your articulate comment, which I think adds to this post. Thank you for reading.
As a person that’s had a career in television and film, and still lives in Los Angeles, I’m from Michigan and know first hand of the situation there.
You did not address that the new Republican governor took away the film incentives shortly after it was implemented by governor Granholm, and took away all of the momentum that was creating jobs and improving the state economy immediately, it didn’t take a 100 years to see the effect it was having on the state.
By the way, you didn’t mention the incentives that film and tv production gets here ongoing in California. The state tax is somewhere around 3.5% for most expenditures, that’s not incentive?
Raleigh Studios would not be in such a deep hole if those incentives were still in place. Tell the whole story please!!
Donna,
I believe I did tell the whole story. Much of the economic impact you mention came at a very, very heavy price. Snyder did Michigan a favor. You fail to see the point I was trying to make: without incentives, Michigan will never be a viable location. Period. That is not a sensible or sustainable economic policy. Please take time to look at the following two posts:
http://www.stop-runaway-production.com/2011/05/03/detailed-expenditures-for-michigan-film-incentive-show-excessive-cost-of-program-benefit-to-out-of-state-residents/
http://www.stop-runaway-production.com/2011/03/04/michigan-spending-40-million-on-one-single-movie-sets-new-record-for-state-spend-on-single-production/
Snyder was smart to cut Michigan’s losses now (and party affiliation is not relevant–Louisiana and Georgia and many others have film incentives under Republicans). As for California, I am not sure what you are talking about with the low tax rate, which California is not known for, at all. California does have its own film incentive, but it is capped at $100 million each year. Unlike the Michigan film incentive (and all others, sans NY), California’s film incentive was designed to stop runaway production, not cause it. Any jobs Michigan may have added came at the expense of people already working in California (or NY). From a national perspective, no new net jobs were added….they were just moved around–and at a very high cost to the taxpayers in Michigan. I recognize being from Michigan may cloud one’s ability to be objective, but I beg you to do so. Michigan’s film incentive, just like any other state, is unsustainable, costly and not rational.
Adrian,
Thank you for your quick response!. I did read your article on a national incentive and i’m still not convinced. I feel the competition is not with Canada or Australia so much any longer as it is based on the world economic situation. I do agree that it’s a matter of time before all incentive states will realize that it’s a losing proposition except Louisiana maybe they might be financed by BP and the federal government ? ( how else can they be so generous…). I hope that I don’t sound apathetic because i’m not, I Love my job ( over 30 years ) and I Love location. I really think the problem is California State government not stepping up it would mean so much if they came up with at least a competitive incentive program . I was on a film early last year but because of some delays they now cannot do it in LA they will not make the date for the 2012 incentive so it my go to Atlanta even though the film is about LA and all the producers, actors and director want to film here. I have a thought why can’t deals be negotiated within the cities of LA County for location rates ( limiting what people can ask ) and rebates for money spent. I had a chance a few weeks ago to ask the Mayor of os Angeles and he completely pushed it all off on the state.
We can agree to disagree Dan. I think the evidence is quite clear. A national US incentive that replaces all of the state incentive will solve the problem. Empirically, the evidence bears this out.
Adrian,
I wouldn’t tell filmmakers in Michigan that Snyder did anyone a favor.Jeff Daniels and Mitch Albom are fighting tooth and nail to keep the incentives going in that state. For every $1 in incentives the state gets back $6.No industry can do that off the top. I do understand your opinion about it being a national problem, but I don’t agree. LA is so overcrowded now and many people say that the only reason they live here is because of work…like me. If this was around when I was starting out, I would have stayed in my home state…
Thanks for the hearing my side of the conversation.
Donna,
The same report you are getting the $1 for $6 figure from (ernst & young) also shows the state is hemorrhaging money on the program. A private benefit in the private economy is not the same thing as a return to the state. Also, less than half of that $6 stayed in Michgan. As the links I shared with you show, the “benefit” is leaving the state. Again, this a matter of fact….not opinion. Mitch Albom, BTW, is a tool. A true storyteller gets his story told without a government handout. He could have demanded his projects stay in Michigan, but did not.
From what I understand he ,(Mitch) didn’t take a handout and did have his projects stay in MI. I might be wrong but I’ll forward this to him and see what he says. I’m not going to point/ counterpoint this any longer and I’m sure you know much more about this subject then I, so I’ll do more research … thanks again.
And I think you are correct. Mitch did not get the tax credit. But artists can stipulate where their projects are made. I think Mitch could have done this as well. And, for the record, Mitch also recognizes Michigan is losing money on the program. I appreciate the exchange. Take care
I appreciate the article you have written and am very sad to see what is happening in Michigan as with other states seeking to have more films produced in their states. Laurie Pederson’s comments were excellent and if the artists who wish to develop and prosper with their art within their homestate are passionate enough to see this “OTHER content,” as Laurie outlined, made in addition to the big films than perhaps they will regardless of the incentives their homestate does or does not offer. Yes, I realize that NYC and LA hold the near monopoly on this industry but there are many talented cast, crews, writers, etc throughout the US that do not need to run to the already overflowing states of CA or NY to bring their talent to the world. Yes, they can be fiscally responsible bringing their projects to market without the incentives and yes the incentives WOULD still be nice to have. But, artists please don’t believe you have to rush to CA or NY to do so.
By all means. Stay where you are and make art. 1000% agree.
Nice article and some good comments. I am lucky to be a migrant film worker – I often go on distant location though much of my LA crew is not allowed to come with me. (and Hi Jonathan if you are reading these comments!) I would agree with the basic arguments you make. I was NY based when the Wilmington “Hollywood of the East” got built up – ultimately it did not pan out, and I think your have described some of the reasons why these satellite film communities are not, ultimately, self-sustaining. I will point out, however, that the devil is in the details – different subsidies are structured differently. Michican’s tax rebates, for instance, were poorly written enough to be taken advantage of in ways that made it hard to show the state benefiting. It is not surprising that they were severely curtailed. At this point New Orleans has built up a reasonable crew base of ex Angelenos and ex East-coasters who have re-located based on what has now been a fairly long-running boom coupled with a relatively low cost-of-living relative to Los Angeles, New York, or Chicago. The quality of truly local crews is improving as well, though I have to say, though I came up as New York crew member and have worked on every continent but Antarctica, for sheer speed and efficiency in the throes of Production, a first string Hollywood crew is a wonder to behold… The idea of a national incentive is an interesting one, but I suspect that state-based incentives will continue to force a “race to the bottom” within the US.
Great, thoughtful, comment Mark. Thank you for reading and sharing your experience.
Mitch Albom’s last film got the incentive in Michigan, at 42%. Sadly, that was the last anyone has heard from him with regards to speaking out for the incentives. However, Michiigan’s incentives are back at a lower rate and will be phased out in five years. They are designed, ironically, to help Raleigh Studios. Too little, too late, it seems.
In Connecticut, the legislature budgets between $1 -$1.5 million for each job we can acquire from employers in other states. Globally we make too much crap to be consumed, and that includes movies and television. All states are hungry for jobs and they all realize there is a big cost involved with either creating or poaching them.
Film is no different…as the Isle of Mann has demonstrated, creating film jobs are great. The workers pay taxes and spend money while on the island, yet they live far, far away…therefore, no families or children are added to the school system or drain infrastructure resources.
If the goal of government was actually to create revenue from its investments…all tax credits would be insanity. They are money losers! Some tax credits are intended to build low income housing or fix infrastructure. Film tax credits are intended to create temporary jobs, and hopefully, add to tourism.
It doesn’t work in Connecticut because our legislature is dysfunctional and the program is poorly designed. However, now that Governor Malloy has made the precedent of luring NBC sports from New Jersey with a low interest, forgivable loan…I suspect it won’t be long until Governor Brown waves goodbye to Universal. I believe we are already stockpiling mohair bikinis to keep the ticket buyers warm as they sush down the water slides in January
Please don’t dump on Michigan because of one company’s financial situation. With A Twist Studio has been successfully growing in
Michigan with very limited help from incentives.
http://www.imdb.com/company/co0308662/
Keep quality as your business model.
-david burton
What you should really worry about (unless you are an actor), is that China has the technical pool and equipment and materials to beat the incentives of any country. There is no reason a producer would be prevented from taking all their actors to a studio shoot in China, and shoot all their interiors there more cheaply than in the USA. The could probably even find an English fluent crew.
Then, they need only shoot exteriors in the USA. Just wait, someone will do this.
Do film incentives ever pan out as profitable for the taxpayers that live in these state. It’s time to quit giving away money to film producers and let them raise capital on their own. Film industry doesn’t have a good record of providing any actual profit. I.E. Forbes 2010 “Top 200 film turkeys” report indicated only 4 film broke even. Broke even is not profitable.
Adrian:
I agree with your evaluation a 100%. The breakdown in your article spells out perfectly how the film and television industry is being undermined by tax credits / bribery.
I remember when the Canadian government only allowed tax credits for Canadian content production. Meaning, the director, a lead actor, the writer and most of the below the line had to be Canadian and it had to be set in Canada. It was a way to build their film industry. Give it a boost. Well, that was all the way through the 1980′s and somewhere in the early 1990′s the Canadian Ministry of Cultural Affairs found a loophole that would allow them to apply tax credits to non-Canadian content production. Anything that was good for the Canadian culture could apply for tax credits. And Hollywood films were good for the Canadian culture. That opened the floodgates for Hollywood and the rest is history.
I work in Visual Effects. What we see is that our jobs and projects are not only sent to Canada but to the UK, AUS, NZ and Asia in general. Our work exists now in binary code. It can be sent on a hard drive or over the internet to houses far and wide. Some for the tax credits and others for lower wages and tax credits. If the playing field were level, I’d gladly put our talent, infrastructure, management and pipelines up against any other anywhere in the world when it comes the quality of film making Hollywood expects and demands.
So many US companies have opened facilities in these other countries as a means to stay in business. It’s a band-aid fix to the greater problem at hand. All of this growth and expansion can’t be supported on the Hollywood Film Industry alone. Something is going to break and that is Hollywood itself.
Lower wages such as $1.95 to $2.50 an hour US in India is something we just can’t compete with. Studios, will go where ever they can to save a buck. There is no loyalty to anyone in this industry. Those who think they will always have a solid business relationship with Hollywood are drinking their own Kool-Aid. If the tax credit bribery were to be outlawed, producers would return to making and posting their project in Hollywood. Going on location would be because the script called for it. Not to shoot in Nova Scotia and then make it look like LA or NY.
I believe about 3 to 4 years ago the Canadian government was going to repeal their tax credit subsidy. They stated that the film industry up there was thriving after 20 years of support and should now be able to go it alone. Well, the entire film community stood up and cried allowed saying that if they did not have the tax credits Hollywood would no longer go up there and that they would lose their jobs and homes. Those people were right and Canada kept the tax credits. Americans lost their jobs and homes instead.
Bribery, in the form of tax credits, should not be allowed. No matter where they are handed out, they are what they are, bribes to lure Hollywood production out of the country or state. While it may seem like good business by the studios, it will do what you have written about. Undermine the very existence of Hollywood.
While it is true that many of the “new studios/soundstages” built in anticipation of massive influxes of Hollywood money are found to be futile/useless or of short duration at best, it is untrue that the presence of incentives at the state level do not have a beneficial effect on their scoieties and economies. The problem is that too manyof these initiatives/incentives concentrate solely onthe top of the pyramid, the blockbuster film/tentpole pic that will generate tesn of millions and the HUMAN infrastructure of film crew, actors, and production staff is not present or is forced to emigrate to the centers from lack of the bread-and-butter, or indy, production porjects that maintain a healthy film community. I reside in Pittsburgh, which was cruelly hurt by the initiatives of Canada for “runaway” production far more than Holywood or NYC. Our group, the PittsburghFilm workers’ association, saw its membership plummet from over 180 to 60 often dubious emails on a closed Yahoo list wee could not access as the former president who had set it up had left and we thus could not access it for some years. But it remained in existence and the local infrastructure is such with many schools offering film studies/performance arts degrees inthe region, a healthy in zombie-centric tradition with legislation and procedures in place to facilitate filming not hamper it, and the advantages of a diverse terrain with some photogenic impact. Most films do eventually break even, except for shorts, due to a lack of venue for sale of them/marketing them profitably. But it takes time, and the best incentives are those which help the small filmmaker not just attempt to lure the big Hollywood shows. For example, PA gives 40 MM out for big movies where 60% of it is spent in PA-that makes about 10 Hollywood-style movies of 30 MM production costs partially funded/year-each getting about 4 MM in credits on that scale, where 16 MM is paid out instate. Of it about 3-3.5 MM will filtrate through the economy over the 3 year period of the credit’s availability, with the funds from the credit remaining available to the state until paid out-with the interest and the liquidity that provides them. So it is essentially a 20 million subsidy…but the different aspects of employment of often unemployed otherwise, spurts to local economy, etc. results in a net gain of about 44 million when everything is lined out and calculated in.[i.e. a basic 10% ROI]. Before Ed Rendell came in with his sweetheart deal for Hollywood which began at 74MM PA had a similar 25% program but it was a rebate for state costs and taxes etc. This actually helped the smaller producer more since there was no potential top cap and they would always be guaranteed some benefit, whereas now when the limit is reached, if ever, that is it.[It usually is not, just from people being spooked away from applying for it
]. But the larger productions did result in temporary boosts to the labor pools of qualified crew and staff and assisted the indys that way….talent still largely imported in a costly way through snobbery and sloth on the main producers’ parts.[Amazing the number of Hollywood productions who think they can come here to get extras for free, yet will pay NYC and LA ones higher rates plus airfare to come when if they gave a fair wage here they'd be swamped. Or hired a local bit or extra wrangler rather than import them(sample mistake-wanting poorer city dwelling extras to register for non-union wage in a hotel deep in the suburbs with no easy bus, or car access, or "upscale suburbanites" in a downtown hotel with no available parking between 9-5)] [No, you will NOT get what you want. Do you fish for trout in salt water? Sea bass in the local pond?]. A better use of part of the money would be to allocate grants for no-interest loans for the smaller indy productions wholly filmed in the area, and renewal of the rebate process which even Hollywood could take advantage of once the cap was reached. that culd maintain a constant flow of work and provide the human infrastructure, which so much more than the physical plant, is needed for a healthy industry. A soundstage is a soundstage is a soundstage anywhere inthe world. The coastal centers have the vast advantage with those types of investments. For other locales, they should be shrewdly calculated from places that will not cost too much to renovate. And cities should be wary of the big talker types whosay this abandoned piece of dreck property is perfect for makingmillions. It will cost millions to renovate, usually into their pockets, and may not recover what is spent for decades. Not sayingit cannot or shouldn’t be done, tried to convince our locale to do it myself for a perfect spot[ex-madhouse] but the realistic likely spots are few and far between.
Mark,
I am so glad the people in the visual effects industry have taken to this article. I see your group laborers in Hollywood as one of the most affected by this issue, and that sucks. You have my sympathy. In my opinion, the work VFX does is the future of the industry. To have that work, or an evaluation of it, skewed by artificial film incentives that distort the playing field just plain sucks. I don’t know what else to say other than I agree with everything that you said. Thank you very much for reading.
I don’t see the evidence where 25% profit has been realized for taxpayers asked to invest in (bribe) film producers that don’t/can’t raise 100% production cost funding on their own.
Sincityfinancier,
Can you clarify your comment? It’s not clear what the point you are trying to make is.
Approval for film incentive originates in state legislations. And the taxpayer is asked to essentially be an equity investor for these incentives. But professional equity investors routinely require 25% ROI. But taxpayers appear to be consistently shafted.
But it does appear that more film producers are having difficulty in raising funds and thus desperate for any free money. Ironic the difficulty when $2.5B in film industry non-equity was approved in 2011. And MGM has already been approved for $500M this year.
Thank you Jeffrey, understood.
We live in a global economy now thanks to our political heavyweights in Washington who believe in free trade (not fair trade). Hollywood has fallen victim to it. Let’s admit that Hollywood is the most expensive place in the world to do production. Like Apple, GM, and many other major US Brands, Asia and India are cheaper to manufacture products than the U.S. So too Hollywood. It’s just too expensive even for the studios. Who were the first to head for Canada – Universal, Paramount, Fox, Warner Bros. Why – they could make a movie cheaper with better and more flexible labor and an exchange rate that gave them 10% in the late 1980s. At that time, a simple 10% tax incentive seem to open the flood gates. It actually started in British Columbia more than Toronto.
My point is that Hollywood will also look for places to go to shoot movies where it is cheaper than LA because LA costs and unions are just too expensive. I also think that, even though Hollywood is the major production center in North America, they physically don’t have the capacity to meet all the production demands. So a combination of costs and shortage of facilities drives production elsewhere.
As regards to Canada’s intentions, let’s not get too carried away with the economic war analogies. Business people in Canada where simply interested in competing with LA, NY, London, and elsewhere to build their indigenous film industry. The company I founded got the first ever advance tax ruling to attract foreign production to Canada in 1987 and along with the exchange rate made Hollywood looked north. But it took an enormous amount of promotion to Hollywood to get them to use it.
I really don’t know if a national incentive (replacing State incentives) will help much. IT will most likely setup an international incentive competition and the U.S. will lose because of labor rates, cost of living indexes, facilities costs and the list goes on.
As long as we live in a world economy that has different currency exchange rates cost of living gaps and labor costs the U.S. becomes relatively non-competitive.
Grant,
In fact, California–on a level playing field–is cheaper than virtually every location you mention. In a world free of trade distorting film incentives, California and New York captured the vast majority of the activity. High wages for the workers were not causing an appreciable level of activity to leave. Only after film incentives were enacted did things get out of hand, which is understandable as governments are footing the bill for 25-over 40% of a given projects budget. The exchange rate factor was always overstated and even the Canadians now admit that it was ALWAYS the incentives that were the draw, not the currency. Producers want certainty. Fluctuating currency does not offer it. Guaranteed cash payouts do.
And, since we have had 40 states offering film incentives, the upside has been a return of jobs and projects to the US from Canada. In fact, the levels in Canada fell to roughly their pre-incentive levels. Empirically, a national incentive WOULD do a world of good. This is no longer a matter of speculation. It’s a matter of fact. I believe the link to the evidence is in the comments above. Again, the only factor driving runaway production is massive film incentives. All of the other factors you mention are minuscule (even when combined) in comparison to film subsidies.
Thank you for reading.