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Dollar Decline Impact on Runaway

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Canada Hurt by Weak Greenback; New York May Benefit Most
By Jack Egan
A two-year climb of some 30 percent in the value of Canada’s dollar relative to the skidding greenback has eliminated many of the financial advantages and overwhelmed the government subsidies that had lured scores of film and television shoots to “Hollywood North” in recent years.
The currency whiplash effect has become nastier as the dollar’s drop has accelerated—it now costs 12-to-15 percent more to film in Canada than it did just six months ago. As a result, Vancouver, Toronto and Montreal’s once-booming entertainment production sectors are at a tipping point. And sound-stage facilities, local guilds, and equipment rental houses are all having to retrench.
When studio executives in Los Angeles cost out locations, the decision to go to Canada because it’s cheaper is not nearly as compelling as it once was because of the sharp depreciation in the greenback against the loonie, as the Canadian dollar is known up north (the loon bird is on its C$1 coin).
Indeed, many Canadians believe the loonie has gone loony. But it’s not so much that their dollar has become fundamentally stronger as that the American dollar—due to this country’s need to borrow nearly $1 trillion a year to cover ballooning trade and federal budget deficits—has softened against a range of foreign currencies, including the euro, yen, British pound and Australian dollar.
The net impact of the swing, however, is the same. Things cost much more in Canada for American entertainment firms than they did a few years ago when the term runaway production came into common use to describe the flight to film north of the border because of the lower costs.
At the start of 2003, American movie and television companies needed to spend only 64 cents to buy a dollar’s worth of goods and services in Canada. Late last November as the greenback hit a 12-year low against the Canadian dollar, it took over 85 cents. The exchange-rate gap has since narrowed a bit to around 82 cents, but some are suggesting the U.S. Dollar and its Canadian counterpart could trade at par, or a one-to-one ratio, before 2005 is over.
“Each penny-change higher raises costs by around $250,000 for the average theatrical picture shot in Canada,” one numbers cruncher at a major studio who calls the shots on locations told Below the Line. “It’s starting to have a big impact,” added the exec, who declined to be named. “But it still makes sense to do some things in Canada, especially Vancouver, which is in the same time zone as Los Angeles and is still competitive on price for some things, though much less than it used to be.”
Meanwhile, hefty new tax breaks put in place by Louisiana, Illinois, New Mexico and—most recently and notably—New York as a way to attract more movie and television production, have also caught the attention of Hollywood executives, further skewing location choices away from Canada and toward some of these states.

The Perfect Storm
“It’s like the perfect storm,” said Paul Bronfman, the chief exec of Toronto-based ComWeb Group, specializing in providing studio facilities, equipment, and financing to Canada’s film sector. “We’ve got the higher dollar, we’ve got competition from American states, we’ve got the advent of reality television which has eliminated most traditional series work, especially in Vancouver, there’s political pressure in the United States to keep the jobs at home and after 9/11, there’s the of fear of traveling abroad, though some of that has dissipated. And Toronto also suffered briefly from a SARs scare in 2003.
“We’re all trying to figure out new ways to adjust the competitive landscape,” Bronfman said, adding: “We’ve just got to be smarter about it, we’ve just got to offer more value to producers and that’s what we’re going to do. The Canadian labor unions realize they have not done a good job in telling Hollywood that the labor rates up here have been cut by seven to 20 percent. The same with production services. Our rates are down 40 percent from a year and a half ago.”
The increasing sense of distress is being acted out in public. At the beginning of December, a convoy of production trucks, horns honking, drove around the Ontario legislature in Toronto. And 1,000 industry members stood in the snow, demanding a further hike in subsidies, claiming that other Canadian provinces like Saskatchewan, Manitoba and Nova Scotia had put into effect bigger tax breaks for film production, making Ontario less competitive. Greg Sobara, the province’s finance minister, warned the assembly that the crisis may have gone too far to solve with new tax breaks.
“It’s like being on the roller coaster and not seeing the next big curve,” observed Gerry Rutherford, the business agent for Vancouver’s camera Local 669. “Though this has been a long time coming, people are surprised this shift is here. I’m surprised that many are so unprepared.”
Because Canada’s cheap currency cushioned expectations for so long, instead of realizing that the boom wasn’t going to last forever, many people extrapolated the good times into the future “and crews got bloated, workers became less productive and expectations ran much too high,” he noted.
“People who haven’t put part of their paychecks away could be looking for another career,” said Rutherford. “The best thing that can happen is for the production business in the United States to stay real busy; then we can keep getting the overflow.”
Those feeling the biggest impact were not workers, but big, capital-intensive businesses with high fixed costs that had overexpanded. A few firms have supposedly been offering to customers a lower-than-market conversion rate guaranteed at 77 or 78 cents. That, in effect, amounts to a further price cut of around 10 percent, but could be risky and much larger if the loonie continues to surge. Equipment rental businesses like Panavision, which have traditionally priced in U.S. Dollars have also gotten hit.
Canada is still a magnet for some major shoots because it provides unique backdrops. Antarctica, financed by Disney, is currently filming in a part of British Columbia where snow and ice abound.
But it looks like the days when big movies with distinctly American subject matter—like the musical Chicago, which wound up being made entirely in Toronto because it was cheaper, or Universal’s Cinderella Man, about a U.S. hockey team that recently finished shooting in Canada for similar budget considerations—may be coming to an end.

New York to the Fore
New York may wind up the biggest beneficiary, following the recent passage of a 10-percent state tax break for productions made on the state’s sound stages, and the prospect of another 5 percent fillip from New York City that was recently under consideration by the New York City Council Finance Committee and may be enacted within the next few weeks.
“We know that incentives work,” Russell Hollander, the eastern executive director for the Directors Guild of America told the finance committee in a December 1 appearance as he plumped for the extra 5 percent. “After New York State passed its law, a major studio immediately made the decision to keep a TV series in this city instead of going to Canada. We all know the remake of The Producers will be shot in New York.”
“It made sense for a few extra dollars to be authentic and do The Producers in New York than spend a lot of money going to Toronto and making it look like New York City,” commented James Brubaker, Universal’s president of physical production, who made the decision to switch locales. He conceded that the sharp ascent of the Canadian dollar against the greenback made the decision easier, since “it’s really not that much cheaper going to Toronto anymore the way it used to be.”
Brubaker was also part of the contingent of producers and union officials who appeared with the DGA’s Hollander to persuade the New York City Council Finance Committee to approve the five-percent proposal. “I think it’s imperative,” he said. “That kind of incentive makes you think more than once whether you’re going to shoot in New York, especially with its great infrastructure and deep talent pool.” He also noted that lush tax breaks in Louisiana and New Mexico have also made them appealing locations to Universal.
“The major competition for Canada is not Eastern Europe or Australia,” ComWeb chief Bronfman noted. “It’s really the 40-plus American states that have taken the Canadian model and in one form or another have improved on that. What they used to call runaway production in Los Angeles was referring to Canada. Now runaway production is to the 40 American states that are grabbing for some of the non-L.A.-based production.”
For Los Angeles, the nub of the production flight debate has already been turning away from Canada, and more towards other states and localities that are leapfrogging each other’s tax handouts. “The real question,” said Brubaker, “is what is California going to be doing about all this?”

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