New Study: How To Fight The Production Flight From Hollywood

California needs to seriously amp up efforts to reverse the flight of film production from the state, according to a new report from the Milken Institute, an economic think tank located in Santa Monica. The study, “Film Flight: Lost Production and Its Economic Impact on California,” paints a picture of a steady erosion in California’s share of North American production from 1997 to 2008.

The report, however, does not depict a dramatic hollowing out of Hollywood jobs over that period due to runaway production.  “Employment in California’s movie and video industry, (encompassing production, postproduction and independent artists), reached its peak in 1997,” according to the 46-page report. Since then, the state’s share of employment in the industry nationwide has declined from 40 percent in 1997 to 37.4 percent in 2008.

The drop of only 2.6 percentage points in California’s slice of the total U.S. and Canadian production pie over more than a decade, is relatively modest, considering how many states and provinces have put into place tax incentives to lure production.

But it has a bigger impact when measured in potential jobs lost, though not actual losses.

If the state’s entertainment industry had maintained its former 40% market share, 10,600 jobs would have been preserved here in 2008, and “those direct jobs would have had a broader economic impact, generating an additional 25,500 jobs after rippling through other sectors,” says the study. And the wages and output from the preservation of this number of these jobs would have pumped an extra $2.4 billion directly into California’s economy, and $4.2 billion from the multiplier effect.  And this is spread over 12 years.

First the big picture: “Make no mistake: Motion picture and television production remains strong,” the study states. “Hollywood is still the clear leader in terms of economic output and innovation, and California’s industry employment levels dramatically outpace the rest of North America.”

What’s wrong with the picture? “The high cost of living and doing business in California have prompted producers to look elsewhere. Producers are finding it more cost-effective to film in other locations, despite the fact that most of the industry talent lives in California. Smaller films made for limited release are rarely, if ever, filmed in the state these days, and even large-budget films have relocated to other states or countries to realize significant savings.”

The recommendations in the report are aimed at reversing the negative trend. The report notes that since the California Film and Television Tax Credit was enacted two years ago, 75 projects have been approved for credits, and they are expected to spend $1 billion in California. And this is projected to generate $500 million in wages for below-the-line workers.

However, the California program is “significantly smaller, and not as sweet, as many others,” says the study. The maximum credit is 25% and applies only to shoots and shows with budgets under $75 million. Expanding the credit to productions topping $75 million, which have more economic heft but have largely vanished, is suggested.

The “Film Flight” report says that California may be dominant in digital effects and video games but it is being challenged with the business moving to places as far flung as London and India or areas within this country like Austin, Tex.

The report recommends California:

• Design a balanced and sustainable two-tier film incentive program to maintain global competitiveness (with one set of benefits to engage big-budget studio films that are not covered under the current under the current incentive program, and another set to attract smaller independent productions, including those for cable).
• Expand the current tax credit for television production to encompass network and premium cable shows.
• Make tax incentive programs permanent, signaling long-term commitment.
• Consider implementing a new digital media tax credit to attract and retain developers of digital media tax credit to attract and retain developers of digital animation, visual effects and video games.
• More effectively track film production data, including how many days of production are spent within the state versus other locations along with the utilization rates of studio soundstages and similar facilities.
• Encourage long-term investments in infrastructure by implementing tax credits for building or upgrading studio or postproduction space.
• Improve the ability of local film commissions to coordinate with local city authorities in expediting the film permitting process.
• Create pro-active marketing and outreach strategies to communicate new incentives and initiatives.
• Establish cooperative relationships with civic and industry leaders beyond the state’s borders to attract and better facilitate foreign-funded productions.