Foreign government tax breaks, as they continue to expand and spread, have proved to be a powerful magnet for luring entertainment productions and jobs away from the United States, a new industry study concludes. “Subsidies, worldwide are having the intended effect of attracting US producers, especially the bigger-budget productions,” states the report from the Center for Entertainment Industry and Data Research.“The US economy has lost some 47,000 jobs per year and an estimated $23 billion in economic benefits related to the production of theatrical length films alone since 2000,” says Stephen Katz, co-founder of CEIDR and the primary author of the 82-page report. “Incentives have definitely worked for the countries that have tried them.”From 1998 to 2005, the study says, feature film production in Canada grew from $430 million to $1.2 billion, or 179 percent. For the same period, production in the UK and Ireland increased from $486 million to $809 million (66 percent); in Australia and New Zealand it rose from $113 million to $717 million (531 percent); and in Eastern Europe surged from $30 million to $308 million (927 percent). The report focuses on films with budgets above $500,000.Los Angeles remains the world center for the entertainment business, but it has been hit by a double whammy in terms of runaway production. On top of the foreign tax breaks, a growing number of states including New York, Louisiana, New Mexico and Illinois have put into place generous subsidies that have attracted productions away from California, a state that has yet to get on the subsidy bandwagon. The California state legislature last year nearly passed a bill to provide incentives to keep production from fleeing the state, but it was scuttled just before the session adjourned.“It appears that if the US hopes to retain a competitive edge in the global market for production, it will be necessary for the government to consider the enactment of an enhanced US federally based incentive program and for state government, particularly California, to do likewise,” the study says.One of the bright spots the report points to is the passage by Congress of the 2004 Jobs Creation Act. This first piece of federal legislation to ever include incentives for domestic film and television production has, according to Katz, had a positive impact, especially with regard to increasing production of scripted television shows and made-for-TV movies.Without the new tax breaks, these shows would have been made, for the most part, in Canada. But because the subsidies are limited to productions budgeted at $15 million or less—or $20 million if they are shot in a low-income area—high-cost theatrical films haven’t benefited and increasingly tend to be made overseas.“The overwhelming success of Canada’s 1998 production incentives opened the floodgates for imitators,” the report states. Foreign incentives more and more are designed to pull in the costliest productions. And it’s films budgeted at over $50 million that these days are most likely to be made abroad.“It’s the higher end projects that everybody wants, because they create the most jobs,” says Katz. He says the new CEIDR report should be viewed as “a total wake-up call” to the domestic entertainment industry and to various levels of government. “The jobs that are disappearing are the high-quality, skilled jobs that you want for your kids. Can you imagine the ricochet effect if these trends keep going in the same direction without abatement?”When it comes to features, the numbers are downright glum. The expansion of production incentives worldwide over the last eight years has resulted in significant geographic shifts of productions for theatrical release that “have been nothing short of astounding,” according to the study. Worldwide, production dollars spent on theatrical releases grew from $5.6 billion in 1998 to $7.2 billion in 2005. But despite the 30 percent growth in overall production, the dollar volume of feature film production in the US declined from $3.9 billion to $3.4 billion. To put it another way, the dollar volume of features filmed in the US plummeted from 71 percent of the global total in 1998 to 47 percent in 2005.The CEIDR report suggests that enactment of a 16 percent labor tax credit would cost the federal government $203 million, but would create nearly 34,000 entertainment industry jobs annually and add $3 billion in value to the country’s economy. Producers would be receptive to such tangible incentives, says the study, because they prefer to film in the US, if possible, because they have a deep and highly skilled talent pool to tap and most also live here.As it is, Hollywood—because of its concentration of skilled professionals and studio facilities—has been able to retain the lion’s share of theatrical feature film activity in this country. And California’s market share has actually gone up, notwithstanding the growth of state film subsidies. The number of features made in this country dropped to 46 in 2005 from 62 in 1998. But California accounted for 61 percent of the feature film activity in 2005, up from 50 percent in 1998.Meanwhile, continued growth in television production has worked to offset in part the flight of big-budget features, the report notes. Overall, scripted prime time one-hour and half-hour broadcast and cable television programs that aired in the US grew from 123 in 2000 to 152 in 2005, or a 24 percent rise. But the big pop was in reality shows. From 2000 to 2005 reality programs jumped from 24 to 174, or 625 percent.The stratospheric growth of reality television continues to prop up production statistics in Hollywood. Another report, covering production activity in Los Angeles during the first quarter of 2006 by Film LA, which issues permits, said there was a nine-percent increase in off-lot features and a seven-percent hike in television shoots for the period compared with a year ago.There were, however, some sobering qualifications. “The big jump in the reality sector, which tends to have lower budgets and less of an economic impact, helped to shore up our numbers,” said Steve MacDonald, head of Film LA, in early May. While the figures might indicate that LA is holding its own, he pointed to other jurisdictions with stronger numbers. New York City experienced a 36 percent increase in production spending in 2005, Louisiana had a 35 percent gain, and in New Mexico, production spending surged 348 percent. “When you take into account that other regions are just beginning to develop a talent pool and long-term infrastructure, LA’s modest growth is not that encouraging.”Glimmers of the next likely runaway trend are already visible on the horizon: the offshoring of postproduction to countries like India, made possible by digitization and internet connectivity.The CEIDR report notes that in late July two of India’s biggest corporate names launched a joint venture to offer editing, postproduction and archiving services to the world’s top media companies. NDTV (New Delhi Television) and the huge outsourcing specialist Genpact, which was launched and is now 40 percent owned by General Electric, said media companies could cut costs by at least 20 percent and potentially much more if the work was done in India. (And GE, it should be noted, is also part entertainment conglomerate and the owner of NBC and Universal.) Quoted in the report was NDTV chairman Prannoy Roy who noted recently, “We look at the cost of editing suites abroad and they are $140 an hour. In India it costs just $15. When you are editing 100 hours of footage, that makes a difference.”Beyond editing, Katz says, “special effects jobs, now a mainstay of Hollywood, are most likely to go abroad next.” He notes that the Weta production facility created by Peter Jackson, director of The Lord of the Rings trilogy and King Kong, is not only world-class
in special effects, but is located in New Zealand where substantial subsidies for postproduction are available.The CEIDR Report was funded mainly by Hollywood unions and some local production entities, which have an interest in maintaining or increasing entertainment production in town.They included: the International Cinematographers Guild, IATSE Local 600, Screen Actors Guild (SAG), International Association of Operative Plasterers and Cement Masons Local 755, Studio Utility Employees Local 724, Affiliated Property Craftspersons IATSE Local 44, Script Supervisors/Continuity & Allied Production Specialists Guild IATSE Local 871, production sound technicians, television engineers, video assist technicians, Studio Projectionists IATSE Local 695, Studio Electrical Lighting Technicians IATSE Local 728, The Animation Guild IATSE Local 839, Raleigh Studios, Hollywood Rentals, and private donors.Mark Rosenthal, president of Raleigh Enterprises, is a co-founder of CEIDR along with Katz, who won an Academy Award as the co-developer of Dolby Stereo.
Written by Jack Egan
