PREFACE In the early 1990s, important segments of the U.S. film

Letter dated September 19, 2000, to Norman Mineta, Secretary of Commerce, from U.S. Representatives

Mark Foley, Jerry Weller, Howard L. Berman, Robert T. Matsui, and Xavier Becerra.

PREFACE

In the early 1990s, important segments of the U.S. film industry became increasingly

concerned about the growing loss of film and television production to foreign shores. The

phenomenon of “runaway film production” began as a trickle, but has since become a persistent

trend that is affecting thousands of jobs in certain segments of the film and television production

industry, such as sound engineers, lighting technicians, assistant directors, unit production

managers, supporting actors, costume designers, and set designers. In addition, there may be an

even greater number of jobs affected that are connected to film and television production, such as

caterers, truck drivers, carpenters, electricians, construction workers, hotel employees, and small

businesses that provide services or material goods to productions throughout the United States.

Some industry observers fear that the exodus of film production could threaten the viability of

important segments of the film production industry in the United States, with potentially

devastating effects on local communities in many states.

Last year, the Department of Commerce was asked to examine the flight of U.S.

television and cinematic film production to foreign shores. In September 2000, Commerce

received an additional urgent request from a bipartisan group of Members of Congress to ensure

that the final report address the following issues:

(1) the impact of runaway production on the “below-the-line” employees throughout

the United States, including (but not limited to) caterers, drivers, costumers,

suppliers of props, grips, art directors, etc.;

(2) the trends in runaway production by type of production; i.e., television

programming, movies for television, animated films and feature films;

(3) the extent of new subsidized infrastructure and personnel training by foreign

countries to attract film production;

(4) the extent to which Canadian and provincial wage-related tax subsidies have

accelerated runaway production; and

(5) the updated and additional statistical information gathered by the Southern

California Chapter of the Association of Imaging Technology and Sound in its

study which tracks television movie production from the 1994/95 season through

1999/2000.

The Library of Congress conducted the initial research for this report on behalf of the

Department. In its research, the Library of Congress reviewed professional reports and industry

publications, and conducted telephone interviews with industry representatives. Department of

Commerce staff added additional information and data from their meetings in California, New

York, Texas, and Illinois, and from telephone conferences with representatives from North

Carolina and Florida. In their meetings, Commerce officials collected data from:

industry representatives, including major studio production companies and independent

film production companies;

trade associations representing production companies and film service providers;

unions and guilds representing directors, actors, film service providers, and technical

production staff, including construction and transportation support workers; and

representatives of state and local governments, including film commissions.

A number of factors has contributed to the loss of film production in the United States.

The report examines the causes of the loss of film production in the United States, particularly

with respect to key states such as California, New York, Illinois, Texas, Florida, and North

Carolina, and it gauges the effects of the loss on the economies and communities of the states

involved. The report looks at globalization in general, rising production costs in the United

States, and the effects of new technologies on the location of film production. It also examines a

number of practices, such as wage and tax credits and training programs, that various foreign

governments have instituted to attract film production to their countries. The purpose of this

report is not to quantify or weigh these factors, or even to segregate them in order of importance.

The purpose of the study is instead to gain a better understanding of the short- and long-term

factors that affect the location of U.S. film production and to identify areas where further study is

needed. Finally, the report reviews ideas generated within the industry to alleviate some of the

problems associated with runaway film production in a way consistent with the economic

realities of modern film production and sensitive to the needs of adversely affected communities

and workers.

iii

TABLE OF CONTENTS

PREFACE ................................................................... i

Chapter 1 OVERVIEW................................................... -1-

U.S. Losses from Runaway Film Production ................................ -1-

U.S. Production in the Context of the Overall U.S. Film Industry ................ -2-

Economic Effects of Runaway Production .................................. -2-

Other Countries Catch Up to the United States ............................... -3-

Foreign Governments’ Incentive Programs .................................. -3-

The Significance of Technology .......................................... -4-

Measures of the Size of the Film Industry in the United States ................... -5-

The Film Industry is Important Throughout the United States ................... -5-

Chapter 2 FROM BEST BOY TO BEST PICTURE: THE MAJOR IMPACT OF

FILM INDUSTRIES ON THE U.S. ECONOMY ..................... -9-

The Little Guy Behind the Big Production .................................. -9-

The “Floating Factory” ................................................ -12-

Key Elements of the Industry ............................................ -15-

The Three Parts of Creating a Movie................................ -15-

The Economic Importance of the Film Industry to the U.S. Economy ............ -16-

Employment Data in the Film Industry .................................... -17-

Census Data and the Bureau of Labor Statistics ............................. -18-

How Much Do U.S. Film Makers Spend on Production in Canada? ............. -19-

Indirect Benefits -- The Multiplier Effect .................................. -21-

Export Side -- Impact on Balance of Trade ................................. -24-

Importance of the Motion Picture Industry in Six Key States ................... -25-

California .................................................... -25-

New York..................................................... -25-

Texas ........................................................ -25-

Florida ....................................................... -26-

Illinois ....................................................... -26-

North Carolina ................................................. -26-

Chapter 3 ECONOMIC LOSSES FROM RUNAWAY PRODUCTION .......... -27-

Impact on Movies of the Week .......................................... -28-

Creative vs. Economic Runaways ........................................ -29-

Loss Estimates ....................................................... -30-

Loss of Film Production Expenditures .................................... -30-

Loss of Employment .................................................. -31-

Effect of Runaway Production on Local Tourism ............................ -32-

The Effect of Runaway Film Production on Primary Film Production States ....... -33-

California ..................................................... -33-

New York..................................................... -35-

North Carolina ................................................. -38-

Florida ....................................................... -40-

Texas ........................................................ -41-

Illinois ....................................................... -43-

Chapter 4 PRINCIPAL FOREIGN DESTINATIONS OF RUNAWAY FILM

PRODUCTION AND THE GROWTH OF FOREIGN FILM

INDUSTRIES ................................................. -46-

CANADA .......................................................... -46-

British Columbia ............................................... -48-

Ontario ....................................................... -50-

Quebec ....................................................... -52-

UNITED KINGDOM .................................................. -53-

AUSTRALIA........................................................ -54-

IRELAND .......................................................... -55-

Growth in the Film Industry Abroad ...................................... -56-

Chapter 5 GLOBALIZATION AND TECHNOLOGY ........................ -59-

Globalization Hits the U.S. Film Industry .................................. -59-

Cost Competitiveness of the United States ................................. -59-

Rising Production Costs in the United States ............................... -62-

Technological Changes in the Industry .................................... -65-

The Film Culture ..................................................... -65-

Technology and Post-Production Activities ................................ -66-

Software, Computers, and the “Box”...................................... -67-

Virtuality, Not Proximity .............................................. -67-

Location Shooting Without the Locale .................................... -68-

Animation and High Definition Video Cameras ............................. -68-

Training for the Digital Age ............................................ -69-

Digital Television..................................................... -70-

Chapter 6 INCENTIVE PROGRAMS IN OTHER COUNTRIES ............... -71-

CANADA .......................................................... -71-

UNITED KINGDOM .................................................. -77-

AUSTRALIA........................................................ -79-

Queensland.................................................... -80-

New South Wales............................................... -80-

South Australia................................................. -80-

Tasmania ..................................................... -80-

Victoria ...................................................... -81-

IRELAND .......................................................... -81-

THE NETHERLANDS ................................................ -83-

SOUTH AFRICA..................................................... -84-

OTHER COUNTRIES ................................................. -85-

Chapter 7 CONCLUSION ............................................... -86-

Many Players Involved ................................................. -86-

Ongoing U.S. Efforts on Behalf of the Film Industry ......................... -86-

Industry Ideas to Alleviate the Problem of Runaway Film Production ............ -88-

Toward the Future .................................................... -90-

The Monitor Company, “The Economic Impact of U.S. Film and Television Runaway Film Production,”

June 1999, p. 8-13.

Ibid.

Stephen Katz & Associates (SKA) of Los Angeles, “1999 Motion Picture and Movie of the Week

Production Survey.”

The Canadian Film and Television Production Industry; Profile 2000. PricewaterhouseCoopers.

February 2000.

Ibid.

-1-

Chapter 1

OVERVIEW

U.S. Losses from Runaway Film Production

Over the last several years, increasing numbers of made-for-television productions and

feature films by U.S. companies have been produced outside the United States, particularly in

Canada, but also in Europe and Australia. One study estimates that, from 1990 to 1998, the rate

of U.S.-developed film and television productions produced abroad almost doubled from 14

percent to 27 percent, while the economic losses from runaway production increased five-fold

from $2 billion to $10 billion.

The losses have been particularly acute in made-for-television and miniseries

productions. The same study estimates that, in 1998, out of a total of 308 U.S.-developed made-

for-television movies, 139 were produced abroad -- a significant increase from the 30 produced

abroad in 1990.

Another study shows that, while the number of U.S.-developed made-for-

television films produced in the United States increased from 67 to 70 between 1998 and 1999,

the number of U.S.-developed made-for-television films produced in Canada increased from 122

to 154 in the same time period.

The total value of film and television production in Canada reached over $3.5 billion in

1999, a 20 percent increase over the previous year and triple the amount for 1992-93.

While this

represents only a fraction of the total film production in the United States, a considerable portion

of it is focused on the television and miniseries film production market, which has been the

major growth market in the film industry over the last 10 years. Foreign location shooting in

Canada, the majority of which is presumed to be U.S. production, totaled $1,096 million in 1999,

an increase of 34 percent over the previous year and an almost five-fold increase since 1992.

-2-

U.S. Production in the Context of the Overall U.S. Film Industry

As this report will discuss in Chapter 2, the film industry in the United States is large, diversified,

and made up of many segments, starting with the pre-production phase and continuing through

production, post-production, and distribution. Many segments of the industry today are strong

and vibrant. The industry employs many thousands of people around the country, contributes

billions of dollars to the domestic economy, and earns billions of dollars in export revenues. By

several measures of the industry’s financial health, such as box office receipts and export

revenues, several segments of the U.S. film industry are growing rapidly.

This report deals with one aspect of the enormous film industry in the United States-- the

migration of the production of U.S.-developed films to countries outside the United States, and

the effect of this migration on many small businesses and workers who depend on domestic film

production. At a time when worldwide film and television production is booming, production of

films in the United States has leveled off.

It is true that production of films in the United States still dwarfs that of most other

countries. However, even though there is a lack of comparable data across countries, all of our

research indicates that the rates of growth in many foreign countries, particularly English-

speaking countries, may well have considerably outstripped the growth rates in the United States

throughout the last decade. This is especially apparent in movies-of-the-week (made-for-

television movies) and miniseries productions made for television, the most dynamic part of the

film production industry. Because of the worldwide explosion in cable television access,

television programming has experienced the highest rates of growth in recent years. Already

most movie-of-the-week production intended for the United States is taking place overseas, and

programming for cable intended for the United States is increasingly taking place overseas. If the

most rapid growth in the most dynamic area of film production is occurring outside the United

States, then employment, infrastructure, and technical skills will also grow more rapidly outside

the United States, and the country could lose its competitive edge in important segments of the

film industry. Many industry observers believe that the United States has already lost its

competitive advantage in movies-of-the-week production. Some fear that there is a danger that

these recent trends could lead to a downward spiral for certain segments of the industry in which

more and more U.S. film production moves overseas, taking with it thousands of jobs,

infrastructure, technical and artistic expertise, and U.S.-developed technology.

Economic Effects of Runaway Production

Even the relatively small portion of the U.S. film industry that began to move abroad in

the early 1990s had an economic impact that was not immediately obvious. Production facilities

and production-related services gradually began to lose the advantages of the economies of scale

they had enjoyed when they were operating at full capacity. Many of the specialized trades

involved in film production, particularly in the post-production phase, as well as many of the

secondary industries that depend on film production, such as equipment rental companies,

require round-the-clock, year-round demand in order to operate profitably. When sound stages in

California, New York, Illinois, Texas, Florida, North Carolina, and other parts of the country

-3-

began to operate at less than full capacity, not only did the production companies experience

higher costs, but a whole host of secondary and tertiary companies hit upon hard times. The

impact was felt especially by small and medium-sized companies, many of which went out of

business as the decade wore on.

Other Countries Catch Up to the United States

At the same time, it was not obvious ten years ago how quickly and successfully other

countries would develop an infrastructure and skilled labor pool capable of competing with the

most sophisticated sound stages and the best technicians in the United States. The American

film industry developed gradually and painstakingly over nearly the entire 20

century, starting

with the silent movies in the 1910s and 1920s, flourishing during the heyday of Hollywood in the

1930s and 40s, and reaching unprecedented technical mastery in the latter part of the century,

with a worldwide distribution network that is second to none. The gradual development of the

film industry produced artists, technicians and craftsmen with highly specialized skills in editing,

sound engineering, lighting, imaging, camera work, filming, set design, special effects, and many

other areas. These skills were developed over many years, and were often passed from

generation to generation in the same families, or from master to apprentice in guilds and unions

organized to protect and preserve the expertise of their members.

Yet within a matter of just a few years, many other countries have developed technicians

with a level of technical expertise comparable to that of American workers’. Also, other

countries have constructed sound stages and production sets that rival their American

counterparts in size and sophistication. To be sure, some of this rapid development can be

attributed to the legacy of U.S. production companies bringing their own experts and set designs

with them as they went overseas to produce movies. However, this is only part of the story.

Many countries have invested heavily in education and training programs to develop a skilled

labor force; they have offered incentives to both local and foreign investors to produce films

locally; and they have entered into bilateral co-production agreements and other innovative

cooperative arrangements to encourage local production.

Foreign Governments’ Incentive Programs

Many foreign governments have recognized the many direct as well as intangible benefits

of developing a film production industry. They have found that the quickest and most efficient

way to develop the infrastructure and skilled labor pool required for a serious production effort is

to lure companies from foreign countries with a highly sophisticated industry, particularly from

the United States. Canada has developed the most extensive incentive program, with a wide

variety of wage and tax credits, financing packages, and funds for equity investment. Other

countries, including the United Kingdom, Ireland, and Australia, are offering similar programs.

The goal behind the incentive program is to develop an indigenous industry. The

following discussion, from a recently issued report by the Florida Office of the Film

Commissioner, describes in general terms how the process works. Although the discussion uses

Canada as the example, the experience of many other countries is similar.

An Economic Assessment of the Florida Film and Entertainment Industry, MGT of America, January

2001, p. 2 - 8.

-4-

With a relatively non-developed film industry, a country such as Canada attracts

initial production through a series of tax incentives, building the basic

infrastructure for film development. As the industry relocates in small amounts at

first, below-the-line cast and crew become trained, making them part of the

infrastructure used to attract future productions. As more films begin to relocate,

more infrastructure is developed (film studios, sound stages, recording studios, set

developments, etc.). It then becomes easier for a project to relocate. At this point,

the country can then offer tax incentives for using local labor, providing even

more cost savings to relocations. The end result, as is the case in Canada, is a

group of production “clusters” that can attract a large number of both locally

developed productions and runaways. In Canada, Montreal, British Columbia,

and Toronto have all been developed as viable filming locations for U.S.-

developed productions. As this has happened, Canada has attracted more and

more runaways in the 1990s.

The Significance of Technology

A technological revolution in the industry has changed the nature of film production to

such an extent that physical proximity is no longer a requirement for the many persons and sub-

industries involved in the film production chain. In times past, film editors would splice and dice

reels of actual film, using an unimaginable combination of complex machinery to put together a

polished product. Directors, actors, producers, and other specialists and technicians had to be at

hand or within reach to review and approve the painstaking work being done by the various

levels of film editors. Nowadays, once a film is shot, it is transferred to videotape format,

digitalized, transmitted over the internet, and editors sitting at any location in the world can use

powerful computers and sophisticated software programs to perform their tasks. The editor can

then get feedback almost immediately from directors, actors, and others, no matter where they

happen to be, and re-edit the “film” to produce the final product. Long distances and

geographical borders are simply not as important as they once were. This phenomenon holds

true for many other specialists involved in film production, particularly those involved in the

post-production phase.

The ease of transmitting data over long distances and in short periods, combined with the

addition of technical infrastructure and a skilled labor force, has enabled film makers to take

advantage of lower labor and production costs in other countries. Ten years ago, it would have

been inefficient to produce a film in many foreign countries, even if the country had lower labor

costs. Indeed, the lack of infrastructure and a skilled labor force would have forced studios to

transport capital equipment and technicians in order to produce a film of sufficient quality.

Today, however, this is not the case, as many countries have developed appropriate infrastructure

and skilled labor.

Source: Information from U.S. Census Data, as cited in the Florida Film Report. Ibid.

-5-

Measures of the Size of the Film Industry in the United States

Decades of experience, creativity, and growth have made film production and distribution

one of the most economically important industries in the United States. Unfortunately, our

official statistics are woefully deficient due to the intangible nature of the industry and the

fleeting, temporary, and seasonal aspects of the production process. However, we do know that

film production and distribution generate at least $18 billion in direct and indirect export

revenues for the United States, constituting a substantial portion of our overall trade surplus in

services. Even though we do not have reliable industry-specific information on the indirect

impact of the film industry on the economy, we know that film production and distribution

generate well over $20 billion in economic activity in the United States, and probably much

more. Film production is a “locomotive” industry, similar to housing construction and

automobiles, in that the number of production workers directly working in the industry belies the

true impact of the industry on the economy because so many upstream, downstream, and

peripheral industries depend on the primary production plant. While several studies have

attempted to estimate the “multiplier” effect of film production on the economy, ranging from

twice to triple the figures cited above, many industry insiders believe that these estimates

underestimate the true economic impact.

Official labor statistics indicate that 270,000 jobs in the United States are directly

involved in film production – more than the number of workers directly employed in the steel

industry. Once again, these statistics do not measure the number of workers in secondary and

tertiary industries that are indirectly involved in film production. This would include carpenters,

electricians, caterers, drivers, seamstresses, movers, construction workers, and many other

professions that may not be exclusively or primarily devoted to film production. Furthermore,

film production has a disproportionate impact on certain large metropolitan regions, notably Los

Angeles, New York, Chicago, Dallas, Orlando, Miami, and Wilmington, North Carolina.

The Film Industry is Important Throughout the United States

Thirty years ago, the economic benefits from the film industry accrued overwhelmingly to

California, except for certain niche markets, such as television commercials, where New York

was long the industry leader. Then, a dramatic change took place, and the California film

industry began to fan out across the country. Independent filmmakers and production companies

emerged and major film industries developed in New York, Texas, Florida, Illinois, and North

Carolina. Many other states have growing film industries, including Nevada, New Jersey,

Arizona, Utah, Louisiana, Washington, Massachusetts, and others (see Figures 1 through 4).

Most of these states report that film production and distribution have been among the highest

growth industries in the last decade.

-6-

Figure 1

Figure 2

-7-

Figure 3

Figure 4

-8-

More than an Economic Issue*

Some industry insiders consider the significant increase of American television and

film production moving offshore to be more than an economic issue. They point out that,

throughout the twentieth century, democratic and free market ideals were the cornerstone

of American films successfully produced, exhibited, and distributed throughout the world.

In addition to serving as one of our most lucrative exports, the entertainment industry

provided the world’s population with a clear understanding of a democratic society.

America exported stories defining a system of government that could withstand open

criticism and still grow stronger (Mr. Smith Goes to Washington, Gentleman’s Agreement);

stories demonstrating that talent and hard work could surpass birth into a social class as

determinants of wealth or fame (Rocky); stories about one person’s ability to make a

difference (Norma Rae), and to overcome persecution and prejudice (To Kill a Mocking

Bird); stories exploring the impact of American slavery and prejudice and the struggle to

transform society into one of equal rights for all (Roots). Many of these American films

and television programs have helped promote freedom and democratic values, the same

values that encouraged throngs of people throughout the world to rise up and challenge

repressive governments, contributing to the end of the Cold War, the destruction of the

Berlin Wall, and the events in Tiananmen Square before the crackdown.

Many foreign incentive programs were initially created to encourage production that

reflected the local language and characteristics of that population. However, these

incentives, particularly when paired with quotas, often require that the major creators and

artists be citizens or hold passports of the country providing the funding, limiting the

opportunity for Americans to participate in the production. In addition, these incentive

programs bring with them a requirement to consider the creative opinions of the local

partner, whether a broadcaster or a governmental entity. Some American storytellers have

questioned whether their messages will have to change in order to meet the financial

incentives created by foreign interests.

*This section is adapted from an essay by Meryl Marshall, Chairman of the Board and Chief Executive Officer of the Academy of

Television Arts and Sciences.

-9-

Chapter 2

FROM BEST BOY TO BEST PICTURE:

THE MAJOR IMPACT OF FILM INDUSTRIES ON THE U.S. ECONOMY

The U.S. film and television industry is a significant component of the U.S. economy. It

provides an important source of economic growth and employment in a number of sectors not

conventionally associated with the glamor of Hollywood and the polished finished product of a

major motion picture. The creative process of putting a story onto film is a complex, expensive,

and labor-intensive business operation. Thus, like any major business operation, film and

television productions require a wide range of services and scores of workers – from front-line

actors and directors to the behind-the-scenes employees like sound engineers, set designers, and

caterers. In addition, there are hundreds of small businesses and independent contractors,

ranging from equipment rental companies and talent agents to electricians, construction workers,

and even local gas stations, that provide materials and services to film and television production

companies. In meeting these material and resource demands, companies provide substantial

economic benefits to a wide range of industries in the locality where the production takes place.

This section explores the wide economic impact of a film and television production operation

and its contributions to the U.S. domestic economy and international trade balance.

The Little Guy Behind the Big Production

Hollywood, the movies, and television often evoke images of glitz and glamor

surrounding marquee name producers, directors, actors and actresses. For these individuals, the

location of film production does not matter because they are paid enough to follow the

production set anywhere in the world. However, behind the polished, finished film product there

are tens of thousands of technicians, less well-known actors, assistant directors and unit

production managers, artists, specialists, post-production workers, set movers, extras,

construction workers, and other workers in fields too numerous to mention. These workers are

the backbone of the industry. They are known in industry jargon as “below-the-line” workers (as

opposed to the “above-the-line” workers, which generally refer to the producers, writers,

directors, and principal actors). Below-the-line workers generally do not travel to foreign

production sites, but are hired locally.

Many people do not sit through all of the film credits at the end of a movie, but those who

do will see a long list of persons with job titles that range from the mundane to the arcane. There

are drivers, caterers, carpenters, painters, and makeup artists. There are grips, gaffers, and best

boys. These below-the-line workers are the people who make film and television production

happen. They build the sets, find the props, run the cameras, hang the lights, do the makeup,

keep everyone fed, and perform dozens of other jobs to ensure that the project runs like

clockwork. Then there are those highly skilled individuals who work in post-production

processes, such as editing, sound, and color imaging. By one industry estimate, 70 to 80 percent

of these below-the-line workers are hired at the location where the production is filmed.

-10-

Some of these workers are highly skilled artisans, others are manual laborers. But they all

have one thing in common: they cannot move to Canada or Australia at the drop of a hat to

perform jobs that are as routine to film production as those of skilled workers are to the

production of steel or automobiles. These businesses are stationary, and their work is local. In

some cases, national immigration and labor laws would prevent these workers from crossing

borders even if they were otherwise willing and able to do so. One industry source estimates that

90 percent of the production budget for below-the-line expenses are spent on location.

Below-the-line workers tend to own or be employed by small businesses, or work as

independent contractors. One important feature of some of these small businesses is that below-

the-line services often require heavy capital investment. For example, companies that provide

such services as lighting, equipment rental, and special effects require hundreds of thousands of

dollars of inventory and equipment because they must be able to provide on demand a specific

piece of equipment or special effects machine. Just like any other business, these companies

must be able to cover their expenses, which means working on at least a minimum number of

productions. Yet, because of their small size, many of these below-the-line companies and their

workers are particularly vulnerable to decreases in demand for their services.

-11-

WHO DOES WHAT: Breakdown of Motion Picture & Television Personnel

ABOVE-THE-LINE

-Writer

-Executive Producer

-Producer

-Co-Producer

-Line Producer

-Associate Producer

-Director

-Casting Director

-Talent

Stars

Supporting Cast

Day Players

Stunt Players

Extras:

Atmosphere

(SAG or Non-union)

-Travel & Living

Cast/Crew

Transportation

Cast/Crew

Lodging

-Atmosphere

General Atmosphere

Teacher/Welfare Worker

Atmosphere Cast

-Fringe Benefits

SAG Pension & Welfare

IATSE

BELOW -THE-LINE

-Production

First Assistant Director

Second Assistant Dir.

Second Second

Assistant Director

Production Accountant

Production Coord./Mgr.

Production Secretary

Office Production

Assistant (PA)

Set Production

Assistant (PA)

Script Supervisor

Assistant to the

Producers & Director

-Art Dept./Set Dressing

Production Designer

Art Director

-Construction

Set Construction

Construction Foreman

Carpenters/Painters

Greensman

-Set Dressing

Set Dresser

Set Decorator

Lead Person

Art Swing Gang

Purchases

Rentals

-Prop Department

Property Master

Assistant Property

Master

Rentals

Purchases

Animal Handlers/

Wranglers

Animals

Weapons Specialist

-Camera

Director of

Photography (DP)

Camera Operator

First Assistant Camera

Second Assistant

Camera

Steadicam Operator

Still Photographer

Rentals

-Sound

Sound Mixer

Boom Operator

Supplies

Walkie Talkies

-Stage & Studio

Rental

Labor

Equipment

-Electrical

Gaffer

Best Boy Electric

Third Electrician

Swing Electric/

Grip Day Players

Generator Rental

Rentals (including trucks)

Expendables

-Grip

Key Grip

Dolly Grip

Best Boy Grip

Third Grip

Dolly/Cranes

Rentals (including trucks)

-Wardrobe

Costume Designer

Key Wardrobe

Coordinator

Assistant Wardrobe

Cleaning

Rentals

-Makeup & Hairdressing

Key Makeup/Hair

Assistant Makeup

Assistant Hair

Supplies

-Special Effects/

Pyrotechnics (FX)

Makeup Effects

Pyrotechnics

-Laboratory & Film

Negative Film Stock

Developing Negative

Polaroid Film

Stills Rawstock

-Food

Caterer/Chef

Assistant Chef

Craft Service

Late Meals

Water and Ice

-Transportation

Transportation

Coordinator

Transportation

Captain

Drivers

Honeywagon Driver

Vehicle Rentals

Picture Vehicles

Water Truck

-Locations

Location Manager

Asst. Location Manager

First Aid

Police

Fire Safety

Security

Loss & Damage

Restoration

Telephones/Car Phones

-Editorial

Editor

First Assistant Editor

Apprentice Editor

Post Production

Supervisor

Film Cutting

Purchases

POST PRODUCTION

-Music

Composer

(Music Editor)

Music Clearance

-Sound

Sound (ADR/Foley/

Sound EFX/Mix)

-Film/Lab Work

Title & Opticals

(Stock Shots)

MISCELLANEOUS

-Publicity

Publicist

-Insurance

Completion Bond

Workman’s

Compensation

-Legal

Lawyer

-12-

The “Floating Factory”

Below-the-line workers, like workers in any other industry, have defined skills, some

requiring more artistry and craftsmanship than others, and report to work regularly. And while

they tend to work locally, as do workers in other industries, their actual place of work takes them

to many different physical locations. While an auto worker may report to the same factory on a

daily basis, a film worker may report to a production set that changes at least with each film

project, and quite probably several times during the course of a single film. In fact, the

production set is often referred to as a “floating factory” – the same workers with the same skills

produce the same products using the same “machinery” (sets, lights, cameras, etc.), but the

production set, or “factory,” moves around, depending on the requirements of each scene in the

film.

Nowadays, location shooting and off-lot production are increasingly common,

particularly with feature films. This is in contrast to the heyday of Hollywood, when most films

were produced in the major studios, with controlled environments and elaborate “sound stages”

(studio production sets with built-in equipment, lights, cameras, and other equipment needed to

shoot a film).

Whether the filming is done downtown in an urban area or in the desert will determine

just how much will have to be built from the ground up. But even in a major city, a location

shoot requires extensive preparation. It is not uncommon to see entire buildings built from

scratch, blocks of city streets refaced, stores turned into theaters, churches, or other buildings and

existing buildings completely transformed or developed to meet the creative demands of the film.

Additionally, the set must have the necessary utilities, such as electricity, and fuel for vehicles,

equipment, heating or cooling, trucks, and trailers. Temporary buildings provide transportation,

storage, offices, and lodging for equipment, cast and crew. Crew specialists must control the

amount of light and sound on the set. Even the contents of shops and stores will likely be moved

out and replaced with more appropriate items. Bus stops, street signs, vehicle logos and license

plates all must match the setting of the movie. With all of the expenses included, each “floating

factory” may cost millions of dollars and require the services of scores of local workers to

construct. However, when filming is completed, the sets and “factory” will be gone.

Since there are no distinct, physical locations for making movies, it is difficult to quantify

all the skills, equipment, technology, or even number of workers that contribute to the production

of a film or television show. Films and television productions tend to be short-term projects

lasting only a few months. Often there are different combinations of crews and workers involved

in different projects. Because of these factors, motion picture and television production is less

visible than a stationary manufacturing facility, such as an automobile plant. Moreover, in

“floating factories” film workers tend to be relatively fragmented, belonging to literally dozens of

professional associations and unions, and lacking a unified national identity akin to workers in

the steel or auto industry. Correspondingly, when production is lost, it neither generates the same

-13-

tangible, visual image of unemployed workers standing outside the fence of a shuttered physical

factory, nor does it elicit a cohesive nationwide industry response. However, the economic

impact and job loss are no less real or important to local communities.

-14-

Below-the-Line Workers Speak Out

I have been a member of the I.A.T.S.E. Local 705 for the past 20 years. For 14 of those years I

have also been a small business owner in the entertainment industry. I am supposed to be living the

American Dream. Instead, after 20 years of hard work I am on the verge of living the American

Nightmare. I hear about potential jobs all the time. Unfortunately, they are in Canada or Australia.

Jean Rosone, IATSE Local 705

My husband and I have worked in the film industry for over 20 years. We are now seriously

considering closing our doors, losing our modest home and facing bankruptcy. It is infuriating for

production after production to request bids from our company only to take the work out of the

country.

Jennifer E. Manus, Sticks and Stones Studio

The film business is a driving economic force [in] California. The monies spent on filming filter

down through our Community creating jobs in related industries and providing sales and income

tax revenues.

Gary Jackson, President, Jackson Shrub Supply,

While we are small employers in the entertainment industry, we have already been forced to reduce

our staff by 10% and anticipated that further cuts of up to 25% will be necessary in the near future

if this problem is not addressed.

Raymond Claridge, President, C.P. Enterprises

In its first season back in California, X-Files spent $328,494.74 in rentals and expendables, and

another $168,000.00 in manufacturing and graphics from our companies. Our company employs

95-125 people with salaries greatly varying. We can’t afford to lose even one SHOW.

Gregg, H. Bilson, Jr.,Executive VP/CFO , Independent Studio Services, Inc.

During the past 12 months, Omega experienced a significant drop in revenue. Moreover, first

quarter 1999 figures are down 10% from 1998. Normally studios have several feature films in

production in the Spring. Currently we are working only on one feature in U.S. production, and

Omega is working closely with the set decorator to control costs.

Barry Pilchard, VP/General Manager, Omega Cinema Props

My business in the past year has seen a decrease of $500,000.00 in revenue resulting in layoffs and

consideration of a permanent down sizing.

Frank Uchalik, President, ALPHA Medical Resources, Inc.

I lost three movies in four months with producers I have worked with for years. I only made $1800

in the first four months of 1999.

David Lewis, Director of Photography, Age 53

For 24 years I have worked as a costume designer making between $80,000 and $120,000 in a

good year. I have lost two jobs to Canada in the last year. I did a commercial for three days in

January and that’s the only work I’ve had since last March. We’re scared of losing our home.

Betty Pecha Madden

I’m trying to stay afloat, but it’s tough because of all the money I owe. What I’m finding is a lot

of business going toward Canada and out of state. When I do sell something, I have to cut the price

by 50 - 60 percent.

Jesse Hurtado, Owner, Prima Equipment (lighting business)

Source: Letters written to California Governor Gray Davis, Money & Careers magazine (April 5, 1999), and The New

York Times (Monday, May 10, 1999)

The web sites of these associations are www.mpaa.org and www.afma.com. The MPAA’s member

companies are: Walt Disney Company; Sony Pictures Entertainment, Inc.; Metro-Goldwyn-Mayer Inc.;

Paramount Pictures Corporation; Twentieth Century Fox Film Corp.; Universal Studios, Inc.; and Warner Bros.

Harold L. Vogel, Entertainment Industry Economics, A Guide for Financial Analysis, Cambridge

University Press, 1994

-15-

Key Elements of the Industry

U.S. film and television production is performed by the major film studios and numerous

smaller production companies called “independents.” The major studios are members of the

Motion Picture Association of America (MPAA). Any film production company that is not a

member of the MPAA is considered in the industry to be an independent. Many independent

film companies are organized into the American Film Marketing Association (AFMA).

The

Bureau of Labor Statistics reports that total employment in 1999 in the motion picture production

and allied services industry was just over 270,000.

The Three Parts of Creating a Movie: Pre-Production, Production, and Post-Production

The process of creating film and television program is generally divided into three parts.

“Pre-production” generally refers to activities that are performed and paid for before shooting

begins. This includes script development, set design, casting, crew selection, costume design,

location selection, and preparation of a budget. Once these preliminaries are accomplished, then

the second part, “production” – the actual shooting of the film – can begin. The third part,

“post-production,” is generally considered to include film editing, color imaging, making of

soundtracks, special effects, musical scoring, titles and credits, and dubbing (see “Who Does

What” text box).

The term “film and television production” covers several types of production, notably:

full-length feature films,

movies-of-the week (or made-for-television movies),

series television programming,

television commercials, and

music videos

Full Length Feature Films: Of the film and television productions, full-length feature films (also

called “theatrical films” in the industry) produced by both major studios and independent

companies operate on the largest scale and generally require the greatest resources. The MPAA

reports that, for 1999, 441 feature films were released in the United States – 213 by the major

studios, and the remaining 229 by U.S. independent producers and distributors of imported

foreign movies. Based on MPAA estimates, total feature film expenditures in the United States

1997 Economic Census

-16-

in 1999 reached $11 billion, with $10 billion coming from major studios and $1 billion from

independents.

Television Programming: Television production includes programming of one-hour long and

half-hour long episodes, movies-of-the-week (MOWs), and miniseries (a MOW of two or more

parts). All the major film studios and many independents are involved in producing television

programming.

Movies-of-the Week (MOWs): Due to the rapid growth of the cable industry, the production of

MOWs (or “made-for-television movies”) has been an area of sizable growth in recent years.

MOW production has probably been more affected by runaway production than any other type of

film production because it is most sensitive to cost factors. The costs associated with filming

MOWs are generally far lower than those of feature films, often more in line with those of

filming series (or episodic) television programming.

Television Commercials: The industry standard for television commercials is the “30-second

spot,” although 15-second and 60-second commercials are also used. According to one industry

source, the production budget for a 30-second commercial can easily approach $500,000, and

some may cost as much as $1 million. Although some small businesses in the industry may

specialize in commercials, most small businesses who work below-the-line consider television

commercials to be an interim source of work that is essential to sustain their companies between

feature films and MOWs.

Music Videos: Record companies, mostly belonging to the Recording Industry Association of

America, produce music videos. This is by far the smallest segment of the motion picture and

television production market.

The Economic Importance of the Film Industry to the U.S. Economy

The entire business operation of a film or television program, with its diverse and varied

resources and service demands, provides substantial economic benefits to the locality where it is

produced. In the United States, data from the 1997 Economic Census, the most recent available,

show that the motion picture production industry directly employs over 270,00 workers, with an

annual payroll of $10.4 billion.

Additionally, the motion picture production industry represents

15,000 establishments countrywide.

Major Group 78 of the Standard Industrial Classification (SIC), entitled “Motion Pictures,” includes

establishments producing and distributing motion pictures, exhibiting motion pictures in commercially operated

theaters, and furnishing services to the motion picture industry. The term “motion pictures,” as used in this major

group, includes similar productions for television or other media using film, tape, or other means. Industry Group

number 781, Motion Picture Production and Allied Services, is broken down into two industry numbers, SIC 7812

and SIC 7819.

Industry group number SIC 7812 includes establishments primarily engaged in the production of theatrical and non-

theatrical motion pictures and video tape for exhibition or sale, including educational, industrial, and religious films.

Included in the industry are establishments engaged in both production and distribution. Specific examples are

audiovisual motion picture program production, cartoon motion picture production, commercials, television tape or

film production, educational motion picture production, industrial motion picture production, motion picture

production and distribution, music video production, non-theatrical motion picture production, religious motion

picture production, tape production, video or motion picture, television film production, training motion picture

production, video tape production.

Industry group number SIC 7819 includes establishments primarily engaged in performing services independent of

motion picture production, but allied thereto, such as motion picture film processing, editing, and titling, casting

bureaus, wardrobe and studio property rental, television tape services, motion picture and video tape reproduction,

and stock footage film libraries. Specific examples are motion picture casting bureaus, developing and printing of

commercial motion picture film, independent directors of motion pictures, editing of motion picture film, motion

picture film processing, motion picture laboratories, motion picture consultants, motion picture reproduction, rental

of motion picture equipment, studio property rental for motion picture film production, television tape service, (e.g.,

editing and transfers), titling motion picture film, video tape or disk reproduction, and wardrobe rental. SIC 7819

covers many below-the-line film occupations.

The NAICS (North American Industry Classification System) will soon replace the SIC.

-17-

Employment Data in the Film Industry

The U.S. Standard Industrial Classification (SIC) system is the official U.S. Government

mechanism for categorizing and tracking data by industry.

The Bureau of Labor Statistics

(BLS) monitors employment data in the motion picture industry by tracking employment in two

SIC categories: (1) Motion Picture and Videotape Production and (2) Services Allied to Motion

Picture Production. Both categories include production for television or other media.

Although BLS data are helpful, an examination of only these two SIC codes does not

provide the entire picture for the impact of runaway film on employment. First, these SIC codes

include only those functions that are directly tied to motion picture production, and these

functions constitute only a portion of the jobs that actually go into making a movie or television

show. Dozens of other establishments (composed of, e.g., carpenters, accountants, caterers,

cleaners, electricians, hair and makeup stylists, and car rentals) are tracked in other SIC

categories, even though workers in these fields may work predominantly, if not exclusively, on

motion picture or television production. A second problem with these categories is that they do

not break out production of feature films from production of television programming. This is

significant because the two categories include establishments involved in tape and video

production not related to film or television, such as educational, industrial, institutional,

-18-

Independent motion picture and television

productions create high-quality, high-wage jobs,

attracting the skilled technicians and professionals

crucial to a robust economy. Independent

producers will always seek out an established

production infrastructure and a skilled labor pool

which matches their needs.

Jean M. Prewitt, President of AFMA,

Representing the Independent Motion Picture and

Television Industry Worldwide

religious, and training videos. This is a growing segment of the industry that could mask some of

the effects of runaway production on theatrical and broadcast production.

Census Data and the Bureau of Labor Statistics

In film production and allied services, employment data collected by the BLS in its

covered “Wages and Employment” program differ from employment data that the Bureau of the

Census publishes as part of its five-year Economic Census. For comparative purposes, it is

necessary to use data from 1997, when the Bureau of the Census last conducted the U.S.

Economic Census. A comparison of the data reveals that, for 1997, BLS reported employment in

“Motion Picture Production and Allied Services” as 236,152, whereas Census reported it as

271,936. This discrepancy may be explained by differences in methodology, although both BLS

and Census collect data on an establishment basis.

More difficult to explain are the differences between the BLS and Census reports for the

two sub-groups to film production and allied services, “Motion Picture and Videotape

Production” and “Services Allied to Motion Picture Production.” Briefly, BLS reports a high

number for film production and a low number for allied services, whereas Census reports a low

number for film production and a high number for allied services. Specifically, BLS reported

film production employment as 172,715, and employment in allied services as 63,437. Census

reported film production employment as 83,558, and employment in allied services as188,378.

Although some differences in employment data from BLS and Census is generally

expected, the differences in film production data are unusually large. The two agencies have

discussed discrepancies in data, but have not yet resolved. them. In any case, the differences,

especially in the data for the sub-groups, show the difficulty in collecting data that will give a

clear view of employment in the film production industry and the employment effects of runaway

film production.

In addition to the number of

people employed, BLS also reports wage

data. Jobs in motion picture and

television production require high skills

and pay high wages. The average wage

paid in motion picture and television

production, at $20.57/hour, is

significantly higher than the industry

average for private service industries at

$13.44/hour, making it difficult for those

specialized workers to find equivalent

paying positions if they are out of work.

“Unaffiliated” means that the U.S. company has less than a 10 percent interest in the foreign company to

which it has made the payment.

Bureau of Economic Analysis, U.S. International Services, Cross-Border Trade in 1999 and Sales

Through Affiliates in 1998, Survey of Current Business, October 2000, Table 1, Private Services Trade by Type.

“Disbursements to fund production costs of motion pictures” and “Disbursements to fund production costs of

broadcast program material other than news” are two of seven categories of disbursements reported under the line

item “Miscellaneous disbursements.” Data for “Disbursements to fund production costs of motion pictures” and

“Disbursements to fund production costs of broadcast program material other than news” are not published, were

made available by BEA, and are available on request..

-19-

How Much Do U.S. Film Makers Spend on Production in Canada?

When a U.S. company goes to Canada to produce a movie, the payments that the

company makes to Canadians are considered to be a U.S. import of services. Those payments

when made to “unaffiliated companies”

are reported as part of services trade data collected by

the Department of Commerce’s Bureau of Economic Analysis (BEA). These data are reported

under two headings: “Disbursements to fund production costs of motion pictures” and

“Disbursements to fund production costs of broadcast program material other than news.” For

“Disbursements to fund production costs of motion pictures” payments were $207 million in

1996 and rose to $355 million in 1999. For “Disbursements to fund production costs of

broadcast program material other than news,” payments were $67 million in 1996 and reached

$278 million in 1999.

Payments by U.S. companies to affiliated Canadian companies for film production could

occur following a U.S. company’s investment in a film studio in Canada. In this case, the U.S.

company’s payments to its own affiliate to fund film production are counted in aggregate

services trade data, but cannot be disaggregated from all other private services. The data on

services trade between affiliates is collected as part of BEA’s survey of U.S. foreign investment,

and services data are collected in less detail than services trade between unaffiliated companies.

While we do not know the percentage of total payments made to unaffiliated companies,

industry observers believe that payments to unaffiliated companies are probably over 80 percent

of total payments for film production. In the case of motion picture production, if the $355

million in unaffiliated payments in 1999 were 80 percent of the total, then the total was about

$445 million for all countries. If, as the Monitor report concluded, Canada’s share is about 80

percent, then in 1999 U.S. companies spent about $355 million on film production in Canada.

In the case of non-news television production, applying the same methodology leads to the

conclusion that in 1999 U.S. companies spent about $278 million on non-news television

production in Canada. Accordingly, total payments to Canada in 1999 for motion picture and

non-news television production were about $630 million.

Stephen Katz & Associates, “1999 Motion Picture and Movie-of-the-Week Production Survey,” 2000

Stephen Katz & Associates maintains a database of film starts, production locations, and other industry information.

All industry sources interviewed consider his database to be very accurate. The year 1999 is the most recent year for

which detailed survey results are available.

These estimates are based on SKA’s information on of 41 of the 54 film budgets.

-20-

How do these official government data relating to payments for film production in

Canada compare with industry estimates of U.S. runaway films produced in Canada? Stephen

Katz & Associates, in its report “1999 Motion Picture and Movie-of-the Week Production

Survey,” provides data on U.S. films produced in Canada. Katz & Associates note the

importance of feature film productions lasting six weeks or longer, since these films have “on

average a considerably higher budget than the shorter length productions.”

Katz & Associates

noted in their survey that in 1999, of 161 of these six-weeks-or-longer productions made in North

America, 101 were made in the United States (55 in California) and 60 in Canada. Films with a

higher budget usually are films made by one of the major studios. According to the Motion

Picture Association of America, the average cost in 1999 to its member companies of making a

feature film was $51.3 million.

Katz estimates that 54 of the 60 films were U.S. runaway films, and that about $27

million is the average cost of a high-budget feature film made in Canada.

These estimates

would translate into approximately $1.4 billion in production costs for high-budget feature films

imported from Canada in 1999.

According to the survey of Katz & Associates, in addition to the films in production six

weeks or longer, 54 feature films in production less than 6 weeks were produced in Canada in

1999. If we estimate that just half of these films were U.S.-developed, and that the average cost

for a low-budget film was $2 million, then this would translate into an additional $54 million in

payments for “Disbursements to fund production costs of motion pictures.” Thus the survey

leads to estimates of about $1.5 billion in payments for all kinds of feature film production in

Canada.

Similarly, official government data relating to payments for production of non-news

television material are at odds with industry estimates. For television production, the Katz

survey covers MOWs, but neither series (or episodic) television programming nor commercials,

where runaway production is also taking place. According to Katz, 154 MOWs were made in

Canada in 1999. Since the MOW is the category of film production which by broad consensus

has experienced the most runaway production, a reasonable estimate is that about two-thirds, or

100, of the 154 MOWs filmed in Canada were U.S.-developed. If the average expenditure per

MOW was $3 million, then the total expenditures on MOWs in Canada were about $300

million.

The $200 million is a modest estimate based on available figures for runaway production and the

proportion of filming in California in various film formats. By way of comparison, the Monitor report found a “$2.8

billion loss in direct production spending” from runaway film production in 1998, and attributed 80 percent of the

total, or $2.24 billion, to Canada.

Finally, the benefits of the multiplier effect are lost to the U.S. economy on wages and services paid to

Canadian companies.

Industry Source

-21-

Thus, based on the Katz & Associates survey, a sound estimate for the total budgets for

feature films and non-news televison material is at least $1.8 billion ($1.5 billion for feature

films and $300 million for television). In fact, the number must be somewhat larger, since the

total for non-news television material excludes both series television programming and

commercials. If these two items were $200 million, then the total budgets for runaway

productions in Canada would be about $2 billion.

Available data do not indicate how much of the budget of a runaway film or runaway

television material is spent in Canada. It is undoubtedly less than 100 percent, since above-the-

line workers, including the director and at least some actors, would travel from the United States

and be paid for the filming whether the production were made in the United States or Canada. If

just half the film budget is spent in Canada, then according to these estimates, the amount spent

in Canada for film and television production would be about $1 billion, or a bit less than twice

the estimates based on official data for disbursements made for film and television production.

What is clear from this discussion is that the official data on disbursements and the

industry data collected and analyzed by Katz & Associates, produce different results for total film

import figures from Canada. The analysis of U.S. payments for film and television production in

Canada suggests that the payments may be considerably higher than what the official import

statistics would seen to indicate. Thus, if the Katz data are accurate, and most industry

observers believe that they are, once again, official import data do not give a satisfactory picture

of what is happening in the industry.

Indirect Benefits -- The Multiplier Effect

In addition to the substantial economic benefits reaped by direct, contracted employers

and expenditures made by film production companies, the indirect benefits of a film or television

production are substantial. As any local Film Commissioner knows, motion picture and

television production brings with it a significant “ripple” effect that can have a positive economic

impact throughout a community in a wide range of industry sectors. For example, production for

the film Tin Cup, which required ten weeks to film in Houston, incurred expenditures of $22,000

on dry cleaning, $121,000 on hardware and lumber, and $498,000 on location fees to privately

owned establishments.

In another case, one transportation coordinator reported spending over

$300,000 on fuel alone (from local gas stations) in the course of two movie productions.

Arthur Andersen LLP, “Economic Impact Study for the Chicago Film, Television & Commercial

Economic Development Coalition”, September 1997.

-22-

Big Bang for the Buck: Non-film Expenses for Features Add Up

In addition to personnel employed from the local film industry itself, an average of 300 different non-film

businesses also provide goods and services for each production. The following list illustrates the variety of

non-film expenditures for a recent feature motion picture filmed in Texas. The identity of the film cannot be

released for reasons of confidentiality, but it is a good example of the impact on the general Dallas/Fort

Worth economy.

Private Residence Rental - $136,000

Hotel Rentals - $291,000

Short-term Crew Lodging - $98,000

Car Rental - $420,000

Freeway Tolls - $22,000

Set Dressing/Props - $127,000

Wardrobe - $128,000

Furniture Rental (production office)- $49,000

Party Rents - $32,000

Airline Tickets - $350,000

Lease (production office-5 months) - $105,000

Gas/Oil/Vehicle Maintenance - $60,000

Crane Rentals - $70,000

Utilities (production office) - $25,000

Construction Materials - $31,350

Janitorial Services - $50,400

Waste and Trash Removal - $24,462

Outhouses/Dumpsters - $20,000-$30,000

Catering/Food & Beverages on set - $186,851

Office Supplies - $17,000

Mailing/Express mail - $7,000-10,000/wk.

Telephones (equipment & calls) - $111,000

Cell Phone Use - $66,000

Arts Supply - $3,500

Film - $3,000

Local Transportation/Limo service - $6,000

Printed Forms - $2,500

Courier Service - $5,000

Locksmith - $4,000

Store employees - Over 50 checks to store

employees for OT, allowing stores to remain open

for all-night filming.

Source: Dallas Film Commission

In 1997, the Chicago Film Office commissioned a study of the economic impact of one

production in Chicago.

The production on which the study was based was shot primarily on

location in Chicago, used a predominantly Chicago-based crew, had a local production budget of

$14 million, and spent approximately 15 weeks filming for a total of 90 production days. The

direct economic impact of the production was calculated at over $12.5 million, while the indirect

impact was estimated at over $21 million, almost twice the amount of the direct expenditures.

Efforts to measure the indirect impact of film and television production are described in

the box on multipliers.

-23-

A Multiple of Multipliers

The multiplier is a coefficient that determines how much the input-output level of an economy

will change as a result of a given change in investment spending. A multiplier of two would

mean that a given investment would lead to total input-output equal to twice the size of the

investment. This multiplier effect occurs because the economy is characterized by repetitive,

continuous flows of expenditures and income. In recent years, several multipliers applicable

to all or part of the film industry have been used.

The lowest of these multipliers is 1.798, which the Department of Commerce’s Bureau of

Economic Analysis computed for “Amusements and recreational services,” industry number

76, in the industry classification used for the National Income and Product Accounts. The

Bureau of Economic Analysis published this multiplier in its input-output accounts of the U.S.

economy for 1996. The multipliers published in the input-output accounts range from a low of

1.22 for owner-occupied dwellings, to 3.04 for livestock and livestock products. The highest

multiplier is 3.71 for “employment’ in general. This is the figure that the Regional

Economics Applications Laboratory furnished to Economics Research Associates, which then

used it in its own study of filming television commercials in Chicago.

A number of other multipliers have been used for the film industry. The Monitor Company, in

its report on runaway film production, used a multiplier of 3.1 for wages and a multiplier of

3.6 for goods and services. These numbers are taken from the Regional Input-Output

Modeling System II (often referred to as RIMS II) created by the Bureau of Economic

Analysis. Ernst & Young questioned the use that Monitor made of the RIMS II multiplier,

asserting that more appropriate multipliers would be 1.99 for California, and 3.02 for the

United States. Other multipliers include 2.12 for “both the income and labor effects

attributable to the independent film industry;” which Arthur Andersen Economic Consulting

used in its study of independent film making performed for the American Film Marketing

Association. Finally, multipliers of 2.33 for the output effects and 2.61 for the earnings were

used by the Economics Research Associates used in its study of television commercials in

Chicago.

There appears to be widespread disagreement among economists over the correct multiplier to

apply to the film production industry. These differing numbers suggest the need, noted by

many industry participants, for further study to apply a more accurate multiplier and more

consistency in the collection of data on the film industry.

Sources: Bureau of Economic Analysis, Arthur Andersen Economic Consulting, Economic Research

Associates, Monitor.

Bureau of Economic Affairs, U.S. Department of Commerce, U.S. International Services, Cross-border

Trade in 19999 and Sales Through Affiliates in 1998, Survey of Current Business, October 2000. See the BEA

website at www.bea.doc/bea/ai1.htm

-24-

Export Side -- Impact on Balance of Trade

U.S. international sales of filmed entertainment are a significant and growing component

of our overall surplus in trade in services. Export revenues from U.S. films and related services

have been on the rise throughout the last decade as foreign demand has skyrocketed. U.S.

movies continue to dominate international trade in motion pictures, including film rentals (the

percentage of box office receipts the exhibitor pays the distribution company), videocassette

rentals and sales, and sales of television rights (including pay television).

Data on trade in filmed entertainment are collected as part of overall services trade data

by the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce. BEA reports

two types of foreign sale: (1) the cross-border sales of film rights between a U.S. seller and a

foreign buyer abroad, and (2) the sales of rights to a foreign buyer by a majority-owned foreign

affiliate of a U.S. company. The major studios in particular use foreign subsidiaries to distribute

film rights abroad. Although only the cross-border sales are counted as exports, the sum of

cross-border sales and sales of foreign affiliates of U.S. companies give total sales of U.S. filmed

entertainment to foreign buyers. In most cases, the rights sold by the foreign subsidiary of a U.S.

company are related to films produced in the United States.

BEA film trade data show that since 1987, total sales of filmed entertainment to foreign

buyers increased from about $4 billion to nearly $17 billion in 1998, with some ups and downs

along the way. According to the BEA, U.S. revenues from cross-border sales of film and

television tape rentals were roughly $7 billion in 1998 and $7.6 billion in 1999. Foreign

affiliates of the major U.S. film companies play a crucial role in distributing American films

abroad. BEA data show that in 1997 foreign affiliates of U.S. companies sold $7.8 billion worth

of rights to motion pictures, including film, television tape, and home video. The MPAA has

concluded that, in1999, foreign sales of rights to U.S. films, both cross-border sales and sales by

foreign affiliates, accounted for just over 42 percent of total revenues for all U.S. film

companies.

The distribution of U.S. films and television programs overseas contributes substantially

to the U.S. trade surplus in services, but the problem of runaway film production could

undermine this positive position because runaway film production is counted as an import of

services into the United States. For a few services, an import into the United States is considered

to occur when the U.S. consumer travels abroad to consume the service. This is true of film

production, so that when U.S. film production companies travel to Canada and then export the

film to the Untied States, the United States is considered to have increased its imports of services

U.S. Trade Deficit Review Commission

-25-

The entertainment industry, including TV, film and

commercials, is one of the necessary engines driving

California’s economy, “ says Assembly-member Kuehl.

“Thousands of technicians, crewmembers, lab technicians,

independent vendors, local actors and directors depend on

this industry for their livelihood, and they, in turn support

their local economies as homeowners, car buyers and

consumers.

– California State Senator

Sheila James Kuehl

from Canada. The U.S. Trade Deficit Review Commission made note of this with reference to

the U.S. trade deficit with Canada of over $30 billion per year.

In theory, the potential increase in the services trade deficit would be offset to the extent

that lower production costs allow the U.S. industry to make more films and thus generate higher

export revenues through foreign sales. If this were the case, there could be an argument that it is

better to export more films that have some foreign inputs rather than not export them at all.

However, it is impossible to determine which films would not have been made but for their

location in Canada or another foreign country. Furthermore, to our knowledge, no studies have

been conducted that would attempt to measure this phenomenon.

Importance of the Motion Picture Industry in Six Key States

As might be expected, the motion picture industry is especially significant for several

state economies – California, New York, Texas, Florida, Illinois, and North Carolina. These six

states account for about 88 percent of national revenues generated directly by the motion picture

industry in the United States. They also account for almost four-fifths of total employment and

65 percent of the total number of establishments classified in the industry.

California – With the largest concentration of motion picture activity, California accounts for

about 70 percent of total revenues and 60 percent of the total employment in the industry

nationwide.

The California motion

picture industry represents

over one-fifth of information

industry establishments in the

state, and between 11 and 15

percent of total California

information industry receipts,

employment and payroll.

New York – This state hosts the second largest concentration of motion picture economic

activity, accounting for more than 13 percent of the state’s information industry establishments,

and supports approximately 43,000 jobs directly and perhaps more than three time s that figure

when indirect jobs are included.

Texas – The Texas motion picture industry accounts for over 4 percent of its information sector

establishments, and generates annual revenues of about $360 million.

-26-

Florida – The expanding Florida motion picture industry accounted for seven percent of

information sector establishments and payrolls of almost $100 million in 1997.

Illinois – The Illinois motion picture industry is a significant factor in the state’s economy,

accounting for some seven percent of the state’s establishments in the information sector, and

annual receipts of over $600 million.

North Carolina – This state’s motion picture industry accounts for some four percent of the

state’s information sector’s establishments and $84 million in annual revenues.

Monitor Report, p. 7.

-27-

Figure 5

Figure 6

Chapter 3

ECONOMIC LOSSES FROM RUNAWAY PRODUCTION

Over the past 10 years, the film and

television production industry has seen

significant growth worldwide. Yet,

despite nominal growth in the U.S.

industry during the same period, this

growth has not kept pace with that of

foreign competitors. This relative decline

has had a negative impact on U.S. market

share in the film and television production

industry, and has led to substantial losses

in potential revenues and employment

opportunities in key segments of the film

production industry.

One of the key indicators of this

trend is in runaway film production. In the

last decade, the number of U.S.-developed

film productions (both theatrical and

television) produced abroad has grown

significantly. According to the Monitor

report, 29 percent of U.S.-developed

films were produced outside the United

States in 1990, whereas by 1998, this

figure had grown to 37 percent (see figure

5).

The runaway film phenomenon

has affected various segments of the

industry differently. The television

industry has seen substantial growth in

runaway production over the past decade.

For example, although the percentage of

total U.S.-developed feature films

produced abroad only increased slightly

from 1990 to 1998, the number of U.S.-

Data derived from the Monitor Report.

Letter from Robert Solomon, Chairman, Governmental Affairs, Southern California Chapter of the

Association of Imaging Technology and Sound (ITS) to Michael Fink, Federal Research Division, Library of

Congress, July 5, 2000.

Solomon letter, July 5, 2000.

-28-

Figure 7

developed television programs produced abroad increased from 28 percent in 1990 to 42 percent

in 1998 (see figure 6).

Impact on Movies of the Week

The most dramatic shift from U.S. to foreign production occurred with respect to Movies

of the Week (MOWs). The Association of Imaging Technology and Sound (ITS) estimates that

domestic shoots of MOWs

made for broadcast on U.S.

networks and cable systems

declined over 33 percent in the

last six years, while MOWs

made for broadcast on U.S.

television and cable networks

shot at foreign locations

increased by over 55 percent.

Six years ago, 62 percent of

these productions were shot in

the United States. As of the

1999-2000 season, the figure

was 41 percent (see figure 7).

This increasing trend in

MOW production abroad may

have broader ramifications for

other types of film production,

including feature films. ITS

has concluded that foreign production centers have built the necessary knowledge and technical

infrastructure to compete for larger budget productions internationally.

For further discussion of

this issue, see chapter 5.

The duration of film production is very significant in economic terms: a production lasting six

weeks or more typically requires a budget in excess of $20 million. According to the survey’s

calculations, in 1999 Canada captured over a third of feature films lasting more than six weeks.

Monitor Report, p. 7.

-29-

1990

1991

1992

1993

1994

1995

1996

1997

1998

100

150

200

250

300

Creative

Economic

U.S. Developed Films Produced Abroad

Reason for Foreign Location

Figure 8

This trend may indicate that larger budget films are increasingly being produced in Canada, and

that runaway production has not been limited to television production in the past three years. It

also suggests that Canada has developed the infrastructure necessary to support both feature and

television production. Survey figures for Canada in 1999 suggest a trend towards that country’s

emergence as a successful competitor in the feature film market.

Creative vs. Economic Runaways

There are two major reasons that U.S.-developed films are produced abroad. The first

reason concerns creative aspects of the film, such as the need or desire for a particular setting or

“feel.” Such “creative” runaways have long been part of the industry and present fewer concerns

than the second type of runaway production, the “economic” runaway. Economic runaway films

are produced abroad, not for artistic reasons, but because of reduced production costs arising

from a variety of factors including reduced location costs, wage rate differentials and government

incentives designed to attract foreign film production.

An examination of runaway film production conducted by the Monitor Group shows that,

between 1990 and 1998, the number of films shot abroad for creative reasons has remained fairly

stable. During the same period, the number of films shot abroad for economic reasons increased

dramatically – from 100 films in 1990 to 285 films in 1998, an increase of 185 percent in just

eight years (see figure 8).

William Wilson and Chad Coalier, “A Review of the Monitor Group Report on the Economic Multiplier

for the U.S. Film and Television Production Spending,” Ernst & Young LLP, May 2000, 3. This report also provides

details on the exact economic impact model (i.e., IMPLAN versus RIMS II or REMI) used for evaluating the

multiplier effect in the film and television industry.

-30-

Ten of the 14 original movies show by the

Showtime cable network were made [in

Canada]. And despite its name, 14 of 23

films made for the USA Network were not

made in the United States.

New York Times, Monday, May 10, 1999

Loss Estimates

Although arriving at estimates for the overall economic impact of runaway film

production is difficult, most studies conclude that runaway film production leads to substantial

economic losses for the United States. This negative economic impact is measured both in terms

of direct production losses, and such indirect factors as post-production revenues, taxes, and

wages to below-the-line support workers that are necessary to producing a film but are not

officially categorized as film-related workers (i.e., production support workers, such as

carpenters, movers and loaders, and truckers and caterers). In particular, estimating the losses

attributable to indirect workers presents the greatest difficulties. Because such support workers

are not directly tied to film and television production, alternative employment opportunities may

readily exist, particularly when the economy is robust. As a result, the actual economic loss of

runaway film production on some indirect workers may not be the full cost associated with job

loss or underemployment. Instead, the cost may only reflect the lost wage potential associated

with the decreased demand for such workers’ services. However, if the local economy is not

strong, or in times of economic downturn when alternative employment opportunities are limited,

the economic loss incurred by runaway production associated with indirect production workers

will approach the cost associated with those workers’ unemployment.

Loss of Film Production Expenditures

While loss estimates vary

significantly, a number of studies, including

several conducted at the behest of those

individuals benefitting from runaway film

production, show substantial economic losses

to the United States resulting from runaway

film production. A study funded by the

Directors Guild of America and the Screen

Actors Guild, the Monitor Report, estimates

that $2.8 billion worth of direct expenditures

on U.S. film and television production was lost in 1998 through runaway production. The Report

also calculated an additional $5.6 billion loss in indirect expenditures and wages and $1.9 billion

in lost taxes, for a total estimated loss of $10.3 billion. Another study, commissioned by the

Directors Guild of Canada in response to the Monitor Report, derived a much smaller, though

still significant, economic loss of $1.74 billion.

For MOWs alone, the Association of Imaging

Letter from Robert Solomon, ITS, to Michael Fink, Library of Congress, July 5, 2000, pp. 6-7. ITS, a

trade association of post-production and digital media companies, has also studied runaway film production. The

ITS study concludes that the trends of runaway production have continued to increase into the 2000 television

season; that the loss of U.S. direct production revenues to foreign location shoots as compared to production levels

five years ago now exceed $200 million per year; and that profit margins in the post production industry have

declined by over 55 percent in the last three years.

Employment data on film and television production is an important indicator of the effects of runaway

film production. Researchers of runaway film production, however, agree that reliable data on the employment

effects of runaway film production are hard to find, and data comparisons from State to State are even harder to find.

As explained in Chapter 2, there are several reasons for the difficulty. First, even in periods of high production a

substantial number of film-related workers, both above-the-line and below -the-line, are without work at a given

point of time. This is because most production jobs are attached to a particular project, and begin and end with that

production. Accordingly, permanent employment is less common in film-related work than in most other sectors of

the economy. In addition, a significant portion of the employment stemming from film-making, is not exclusively

related to the film and, as a result, is not officially collected in the statistics regarding film and television

employment. This includes support workers, such as carpenters, movers, loaders, truckers and caterers which are

critical to film production but are categorized in other industries.

Chicago Film Office and the Illinois Film Office’s “Report on Production and Economic Activity by Film

U.S. Members”.

-31-

As film production companies flee America, they

leave behind assistant directors, unit production

managers, editors, cameramen and art directors -

people who have spent years mastering a craft they

depend on to support themselves and their families.

But there are also other, less obvious, victims -

caterers, post production houses, equipment

suppliers, property rental facilities, etc. - small

businesses who supply services to the entertainment

industry and whose existence is therefore

threatened.

Jack Shea, President

Directors Guild of America

Technology and Sound estimates that approximately $775 million in direct production and post-

production revenues have been lost to foreign production in the last five years.

Loss of Employment

The negative economic impact of runaway film production has a direct impact on

employment opportunities, especially for below-the-line support workers in the industry. A May

1999 report by the Film and Television Action Committee concluded that, if the State of

California were to lose a relatively

low budget, $18 million feature film

to a foreign location, it would lose $7

million and 592 jobs for both above-

the-line and below-the-line workers.

In its own study, the Chicago

Film Office estimated that for every

$10 million of lost or gained revenue,

2,500 jobs are similarly lost or

gained.

This tie between the

negative economic consequences of

runaway film production to job losses

is bolstered by the Monitor Report,

which asserted that “During the last

ten years, a total of 125,000 full-time

See “Spotlight on Clint Eastwood,” Hersh, Allison, Savannah Scene, available on “Midnight Links,”

www.savannahgeorgia.com;

and “Georgia - Showing in a Theater Near You,” Cruce, Jennifer, Focus, Spring 1999,

Center for Economic Development Services, Georgia Tech. The Forrest Gump bus stop illustrates the importance of

“authenticity” to the film fan or tourist. Although the movie scene was set in Alabama, fans still seek out the bus

stop bench filmed in downtown Savannah.

-32-

Georgia On My Mind

Over 400 films have been filmed on location in Georgia since 1973, generating substantial

revenues for the economy according to the state’s Film and Videotape Office. In addition to

the economic benefits associated with the film shoots, in a number of cases, Georgia has

retained long-lasting benefits from tourism associated with the film locales. The most

notable boost in tourism came about with the release of Midnight in the Garden of Good and

Evil, which was set and filmed in Savannah. Tourism to Savannah increased approximately

15 percent following the release of the book. Following the release of the movie, it was up

by as much as 40 percent. As Mayor Floyd Adams noted prior to the film’s release:

The economic impact of the “Midnight” movie is expected to be tremendous,

as millions of theater-goers around the world will be exposed to Savannah’s

lush, hypnotic beauty and to its quirky, vibrant people. Once people are able

to see it and visualize the beauty of Savannah, people will want to come and

see it. This is a major economic boom for us.

Midnight in the Garden of Good and Evil was not the first film shot in Georgia to bring with

it lasting economic consequences. Deliverance, filmed in north Georgia, resulted in a

dramatic boost in the area’s nascent tourism and white water rafting industry – one Rabun

County outfitter grew from a two-person operation to a $1.3 million business employing 60

people. Tourists also flock to other Georgia film sites including Juliette (Fried Green

Tomatoes), Covington (In the Heat of the Night), and probably the nation’s most famous bus

stop (Forrest Gump).

equivalent positions were lost due to economic runaway [film production].” The study concludes

that this trend is increasing.

Effect of Runaway Production on Local Tourism

There are also long-lasting economic consequences to runaway film production that are

even harder to quantify – such as the increase in local tourism that comes about with the

locality’s link to the film or television production (see text box on Georgia).

Southfork -- the

setting for the television series “Dallas”– located outside of Dallas, continues to draw hundreds

of thousands of visitors a year, long after the series ended in 1991. And tourists continue to visit

the Ponderosa Ranch in Incline, Nevada, near Lake Tahoe, even though the Cartwrights rode off

into the sunset more than 25 years ago.

-33-

So many people out there wrongly

think that this is a Hollywood issue.

It's not. It's a Chicago issue. It's a

Texas issue. It's a New York issue. It's

a national issue.

– Rep. Jerry Weller (R-Ill.)

Our economy has been shifting from an economy

based on capital or labor to one that is increasingly

based on knowledge and skills. In this environment,

particularly with the dependence of the entertainment

sector on the high tech industry, we have to begin to

think of arts and artistic excellence as part of our

economic plan, as deserving of the same

governmental support as any other activity which

creates jobs and contributes to our tax base.

California State Senator Adam B. Schiff, March

The Effect of Runaway Film Production on Primary Film Production States

While many people associate the

problem of runaway film with California,

other states have also been adversely

affected by runaway film production.

California, New York, North Carolina,

Florida, Texas, and Illinois are the

leading film and television-production

states. For example, the Midwest Office

of the Directors Guild of America, which

monitors production activity in both the

Midwest and the Southeast, observed a

15 to 20 percent drop in feature film and television production in these regions in 1998 and 1999

compared to 1996 and 1997.

Measures of trends in film and television production are varied, and include total

expenditures by the film industry, the number of film starts, productions taking place, use of

sound stages, off-lot shooting, and production days. A one-time joint venture is the dominant

business organization for making a movie, and although major studios may initiate the

production, a large number of small firms generally supply the goods and services. These

services come from the locality where the film is made and are provided by workers which the

industry classifies as below-the-line. These below-the-line firms and workers are those most

likely to suffer from the direct and indirect effects of runaway film production.

California

The State of California is the

historical and contemporary center of

the entertainment industry, both in the

United States and for the world.

According to a 1998 report released by

the Motion Picture Association of

America (MPAA), in 1996 the

entertainment industry in California

generated 226,000 jobs directly and

$27.5 billion in economic activity

statewide ($12 billion in industry

payrolls and $15.5 billion in purchases

of goods and services used in

entertainment production; personal income and sales taxes totaled $895 million.). Remarkably,

Los Angeles County alone accounted for $25.6 billion in economic activity ($11.2 billion in

industry payrolls and $14.3 billion in purchases of goods and services used in entertainment

production). Indeed, according to the Motion Picture Association’s report, in 1996, the

See Motion Picture Association of America, State of the Industry: The Economic Impact of the

Entertainment Industry on California, 1998, p. 2.

Monitor Report, p. 8-9.

These data from Katz & Associates cover much of the United States, but focus on California.

Data courtesy of Stephen Katz & Associates. Katz collected and verified production data from many

sources, including trade publications, production reports, casting information, state and regional film offices, work-

of-mouth, and logged the information into a database. Information was verified by consulting production companies

and their staff, crews, rental service companies, advertising agencies, and state and local film commissions. The data

track productions with multiple shooting locales, including those filmed both in the United States and Canada that

may be double-counted.

-34-

entertainment industry in California accounted for 81 percent of all motion picture starts in the

United States and 80 percent of television programming.

Such activity contributed significantly

to California’s emergence from the recession of the early 1990s.

However, as with the rest of the United States, California has been significantly affected

by runaway film production. The total economic impact on California of runaway film

production can be estimated by determining the type and amount of film and television

production flight taking place from 1990 to 1998. The Monitor Company report determined that

runaway production is “being driven increasingly by runaway television productions.” The study

notes that television production flight grew 230 percent from 1990 to 1998. The report points

out that “in general, productions that are running away are smaller-budget productions (telefilms

and feature films with budgets under $25 million), which represent 75 percent of the total

number of economic runaways.”

Stephen Katz & Associates of Los Angeles has also collected data documenting

production flight for California and the United States, and published the results in the “1999

Motion Picture and Movie of the Week Production Survey.”

Katz & Associates collected data

from trade publications, production reports, casting information, State and regional film offices,

and personal contacts. The Survey reported that 39 movies of the week (MOWs) were filmed in

California in 1998; that figure dropped to 36 in 1999. About half of the MOWs filmed in the

United States are filmed in California.

These figures are particularly compelling when compared to production growth in other

countries. For example, as MOW production decreased in California, Canada’s MOW

production increased from 122 productions in 1998 to 154 in 1999. A more telling statistic is the

total number of weeks of MOW production during 1999: California had a total of 152 weeks of

MOW production, whereas Canada had 696 weeks of production. Canada is also making inroads

on large budget feature film production. In 1999, in the category of feature films with a

production schedule of more than six weeks, Canada had 523 weeks of production compared to

California’s 569 weeks.

Although there is a similar methodology between EIDC data and the data compiled by Katz (both

contacted film offices and production companies to cross reference titles and productions), EIDC data only show

those movies that were aired by television and cable networks. Data collected by Katz concentrate on the number of

weeks in production during 1998 and 1999, as opposed to productions filmed for that season, and include titles that

were not aired.

Some anecdotal evidence suggests that high production costs in California may contribute to this

development. For example, Joel Silver, who produced The Matrix, Die Hard, and Lethal Weapon, points to the

pervasive culture of “price gouging” in Hollywood. Silver mentioned that within one year, the daily cost of renting a

parking lot jumped from $500 to $5,000.

New York State Governor’s Office for Motion Picture and Television, May 2000.

Data from the Mayor’s Office of Film Theater & Broadcasting, New York, New York.

<ww.nyc.gov/filmcom

Indirect economic impact was calculated using a multiplier

of 2.3

-35-

Other studies support these conclusions. For example, the Entertainment Industry

Development Corporation’s 1998-99 report on locations for MOWs (including made-for-

television and made-for-cable)

supports the conclusion that Canada has expanded its share of

the MOW market vis-à-vis the United States and in particular California. The EIDC data show

that the United States and Canada shared the MOW market equally in 1997-98, at 45 percent

each, with Canada logging in a slightly higher percentage in 1998-99 (46 percent as opposed to

43 percent for the United States). Location shooting in California (also known as “off-lot

production”) was down 8.3 percent in 1999 compared to the previous year, dropping from a high

of 13, 980 production days in 1996 to 11,542 production days in 1998 (EIDC data).

New York

After four years of strong growth, New York City, which claims the majority of film and

television production in the State, experienced declines in 1999 in feature film and television

production. Direct expenditures, which had risen from $2.4 billion in 1995 to almost $2.6 billion

in 1998, dropped back to $2.5 billion in 1999. Indirect expenditures followed a similar pattern,

rising from $4.6 billion in 1995 to more than $5.9 billion in 1998, and declining to $5.8 billion in

1999. In terms of total shooting days, for both film and television productions, the number of

days increased from 21,187 in 1995, to 22,851 in 1998, and dropped to 22,029 in 1999. Feature

film production saw the greatest decline, 5 percent, between 1998-99 in terms of total

expenditures,

although this figure may be related to a 20 percent overall decrease in U.S. studio

production. In 1999, television production filled some of that void, accounting for more than 50

percent of film and television production in New York City, worth nearly $1.3 billion.

The decline of New York feature film production can be traced at least in part to the

financial attractiveness of other venues, particularly Canada, due in part to government incentives

which lower production costs, such as those associated with labor. For example, the production

Emily Denitto, “NY Film Boom Skids to Halt After 5 Years: Hollywood Cuts, Canadian Incentives Fuel

Slowdown, First Layoffs Appear,” Crain’s New York Business, July 5, 1999, 1.

Boston Consulting Group, Building New York’s Visual Media Industry for the Digital Age - Findings

and Recommendations, June 2000. Reprinted with the permission of Arnum Mishkin of the BCG.

-36-

Figure 9

president for the film American Psycho contemplated shooting entirely in New York, but ended

up shooting only some exterior footage there prior to completing the film in Toronto. The move

to Canada saved $1.5 million to $2 million on a $10 million to $12 million budget, representing a

significant percentage of savings.

This past June, the Boston

Consulting Group (BCG) prepared a

study at the request of the New York

City Investment Fund and the New

York City Comptroller’s Office. The

report examines New York’s

competitive position in the industry

and assesses next steps to support and

expand its position. Total direct and

indirect spending in 1999 was

approximately $10.1 billion for the

film industry, which provided over

170,000 jobs in New York City (see

figure 9).

Information provided by

both the Mayor’s and Governor’s

offices supports these figures and

highlights the importance for New

York to attract film and television

production. The Mayor’s Office of Film, Theater & Broadcasting (MOFTB) indicated that film

and television production helps to support New York’s 78,000 freelance professional and

technical workers and some 4,000 production-related businesses.

Both the MOFTB and the Governor’s Office for Motion Picture and Television

Development maintain that the City has been losing business because of increased and what they

consider to be unfair competition coming from Canada. They refer to Canadian labor rebate

programs as the primary threat to New York’s and arguably the nation’s film and television

industry. Echoing this position, the BCG report also highlights the competition coming from

Canada. Canada has been the most aggressive country in providing direct production incentives.

As part of its recommendations, the report encourages New York to develop government

incentives, policies and priorities to protect its film production industry and ensure its continued

growth and success.

-37-

Figure 10

Figure 11

The Film Commissioner for the MOFTB indicated that, despite the tremendous

incentives already provided by the city, including concessions made by the unions, New York

cannot compete with provinces in Canada that provide significant rebates on labor costs. While

New York City provides incentives for items such as parking, permits, a sales tax exemption for

consumables, police service, and no-fee locations, New York City’s Commissioner of MOFTB

argues that this is still not enough to overcome the unfair advantages being provided by Canada.

During recent testimony before the City Council, Patricia Reed Scott, New York City’s

Commissioner from the MOFTB, expressed the difficulty of competing with cities like Toronto,

Montreal, and Vancouver, that provide direct rebates of 22 percent of labor costs. She reiterated

this position in her meeting with the Department of Commerce staff.

In 1997, Canada began to provide both national and provincial rebates to film and

television productions hiring Canadian labor. These rebate programs are beginning to make an

expanding and damaging challenge to U.S. film and television production centers. A national

slowdown in the volume of film starts began in 1999 and is more apparent in 2000. At the same

time, the MOFTB indicated that the full impact of the labor rebates are increasing for the first

time most rapidly among the major studio productions. In 1997, only two independent feature

films set in New York City were jointly filmed, or production was split between New York and

Toronto. More recently, the number of split productions has been increasing, particularly among

the major studio productions. In 1998, five features were split with Toronto (four independent,

one major studio); in 1999, eight features were split (five independent, three major studios); and

just this past year, another eight features were split (one independent, seven major studios) (see

figure 10). It is important to note that not only a shifting toward the major studios is taking

place, but the higher distribution of production spending is going to Canada (see figure 11). For

example, last year, of the $74 million spent on film production split between New York and

Toronto, approximately 65 percent or $46.8 million of the production budget was spent in

Toronto.

-38-

Comments reported in New York’s BCG report:

“Cost Consultants have boiled everything down to the

bottom line. Budgets are set and it is up to us to

meet the cost requirements.”

- Commercial Producer

“”50% of scripts already have a star or director

attached to them, and will be driven by artistic

requirements and star demands [intangibles]. The

50% of scripts without talent attached will be more

cost driven.”

- Feature Film Producer

“Location decisions tend to be a trade-off between

costs, script and talent...a script can drive the

decisions as can A-list talent, but without those

factors, cost will be the primary concern.”

- Feature Film Producer

“Our incentive is to make shows as cheaply as

possible so the studio’s risk is minimized. However,

there are certain things that I won’t compromise on,

like the energy of a location which you can’t fake.”

- Television Producer

The Film Commissioner for the State of New York argued that competition from Canada

has contributed to a change in dynamics within the industry. Costs today have become a

significant factor in determining the location of filming production. Historically, the studios used

to contact the city to arrange for filming. Today, the Office of Motion Picture and Television

Development says the city is finding that it

must aggressively lobby the studios to

encourage New York as a filming location.

New York’s industry representatives are no

longer negotiating with the directors or

producers; they are now negotiating with the

budgeting offices and accountants when

courting the studios.

North Carolina

Since 1985, North Carolina has, for

the most part, maintained the third-place

ranking among U.S. states in film and

television production. In that 15-year span,

North Carolina has attracted more than 500

features, six network television series, and

more that $5 billion in production revenues.

North Carolina’s success is seen as the result

of a heavy recruiting effort state-wide to

attract film and television production. North

Carolina has an industry infrastructure that includes six studio complexes, 27 soundstages, over

300 production and service companies and a working crewbase of more than 1,500 professionals.

Indeed, in the early 1980s, a significant amount of film and television production moved from

California to North Carolina.

The Wilmington area alone has hosted over 300 features, mini-series, movies of the week

and six television series (153 episodes), along with numerous commercials and music videos.

According to the Association of Film Commissioners International 1997 survey, Wilmington not

only generated more film revenue than all U.S. cities other than Los Angeles and New York, but

also did more business than 45 states. The film and television industry represents approximately

11 percent of the total area economic base.

Telephone interview with Bill Arnold, Director, The North Carolina Film Office, December 27, 2000 and

telephone interview with Randy Schumacker, Marketing Specialist, The North Carolina Film Office, April 14, 2000.

North Carolina Film Office On Location 2000, with revised 1999 data. Estimates do not detail specific budgets or

filming days/weeks. Web site: www.ncfilm.com.

Letter and table from Johnny Griffin, Director, Wilmington Regional Film Commission, to the U.S.

Department of Commerce, July 26, 2000.

-39-

Figure 12

We have lost a lot of MOWs and TV

series in recent years, but one positive, so

far, is the 100 percent increase in local

productions this year over last.

-- Bill Arnold, Director,

North Carolina Film Office

However, data on North Carolina show a trend toward decreasing revenues from film

production in the last three years.

The State saw a 25.2 percent drop in

production revenues from $440.0

million in 1996 and 1997 to $329.0

million in 1998. That drop

continued in 1999, with production

revenues that year at $300.2 million,

a decline of 8.8 percent from 1998

(see figure 12).

In North Carolina, as in other

states, productions of MOWs, rather

than major feature productions,

appear to be the type of production

most affected by runaway film

production. In 1996, 28 MOWs

were produced in North Carolina, six

in 1997, and four each in 1998 and

1999. According to the North

Carolina Film Office, a sizable

number of the lost MOW

productions have gone to Canada, though some have gone to other states (e.g., South Carolina,

Virginia, and Maine).

The Wilmington Regional Film

Commission (WRAC) has also supplied data

relating to runaway film production showing

that film production revenue dropped in the

Wilmington region by 63 percent from $242

million in 1996 to $89 million in 1999, with

the sharpest drops in MOWs, from 20

productions in 1996, to two in 1999. Feature

films numbered eight in 1996, increased to 10

the following year, and dropped to five in

1999.

Florida Office of the Film Commissioner, “An Economic Assessment of the Florida Film and

entertainment Industry,” January 2001.

Ibid.

John Brinsley, “Eyes Wide Shut,” Los Angeles Business Journal, August 2-8, 1999, 12. The data were

actually compiled by the California Film Commission - Florida’s Film Commission has only recently been

reestablished after a three-year hiatus.

Florida Office of the Film Commissioner, “An Economic Assessment of the Florida Film and

entertainment Industry,” January 2001.

-40-

Florida

The film and entertainment industry is a vital part of the Florida economy. In January

2001, the Florida Office of the Film Commissioner released a year-long study of the film and

entertainment industry in Florida.

This report provides detailed information on the industry

throughout Florida and how Florida compares to other states in relative size of the industry over

time. The report’s comparative analysis of the industry between states concludes that the film

industry is no longer just located in California. The film industry in Florida as a whole produced

approximately $3.9 billion in revenues in the state in 1999/2000, from a variety of different

segments and areas.

The film and entertainment industry accounted for over 3,500

establishments in the State and over 39,000 full-time employees in 1999/2000. Although the

state has increased its shares of employees, payroll and establishments in motion picture and

video production, the state has experienced a slowing of growth.

Feature film starts in Florida decreased from a high of 21 in 1996 to a total of eight in

1998,

the lowest number of feature film starts in the state throughout the 1990s. The Florida

Film Commission has noted that the bulk of lost productions in the past year are MOWs; only

one MOW was produced in the entire state in 2000. In this area, Canada is taking most of the

productions. As with the rest of the United States, runaway productions have become an

increasing problem for the state of Florida.

The largest sector in the entertainment industry in Florida is television and cable,

accounting for 47 percent, followed by motion picture and video at 24 percent. Although motion

picture and video is second to television in revenues, it has the highest concentration of

employees.

Because there are several large metropolitan areas in the state of Florida, the data

on the film and entertainment industry can vary between areas in the state. Orlando has had three

years of growth, beginning in 1997, and is a major contributor to the region’s economy.

According to Darrell Kelley, president and CEO of the Economic Development Commission of

Mid-Florida Inc., in the face of increased competition from foreign markets, “film and television

production has become one of the top five industries in Metro Orlando – fast outpacing growth

from other industries when it comes to employment, salaries, and revenues. The region’s solid

“Film and Television Industry Has Yet Another Solid Year in Metro Orlando,” Orlando Film and

Television Commission, February 17, 2000.

Based on data collected by Film US, a non-profit trade association representing film commissions

throughout the United States.

-41-

Lone Ranger Rides Away

Films scouted for Texas location, but filmed in Canada

CHEATERS 2000 $ 5 million

MISSION TO MARS 1999 $90 million

BEST IN SHOW 1999 $ 6 million

TEXAS RANGERS 1998 $30 million

YOU KNOW MY NAME 1998 $10 million

DUETS 1999 $15 million

WHERE THE MONEY IS 1998 $18 million

infrastructure, excellent crew base, facilities and variety of locations have all contributed to these

trends. Metro Orlando is competing for projects on a global level more than ever before.”

Orlando hosts a number of major studios, not the least of which are Disney/MGM, Universal,

and Nickelodeon.

Palm Beach has experienced steady growth, mostly because of television and episodic

productions.

These productions increased from 58 in 1997 to 98 in 1999. According to the

Palm Beach County Film Office, Palm Beach County ranks third behind Miami and Orlando in

total film and television production expenditures.

The Northwest Florida/Okaloosa-Walton Commission, although operating on a much

smaller scale, has also seen significant growth; expenditures went from $2 million in 1996 to

nearly $19 million in 1997, although the blockbuster film The Truman Show was responsible for

most of the growth. The years 1998 and 1999 were not as successful as 1997 in terms of total

expenditures. The commission also reported a gain of 20,000 jobs in the past three years. Most

production in the Okaloosa-Walton region focuses on commercials and magazine photography.

Texas

From 1995 to 1999, Texas saw both feature and MOW production, the largest contributor

to expenditures and jobs in the Texas film and television industry, drop substantially. The Texas

Film Commission claims that production has very likely fled to Canada to take advantage of the

incentives. Between 1985 and 1991, Texas hosted an average of 7.4 MOWs per year. Yet,

between 1992 - 2000, that number dropped by almost half -- to 4.8 per year. Incoming inquiries

from MOW production companies about filming specific MOWs in Texas have dropped off as

well, down from 25 in 1992 to 15 in 2000. Miniseries production has fallen from a high in 1994

of four with combined

budgets of $52 million, to

only one in the last four years

with a budget of $7 million.

The Texas Film Commission

has identified seven feature

films over the last four years

whose producers researched

Texas, but chose to film in

Canada. The combined

production budgets for those

Houston Film Commission, in Film US report on production and economic activity by Film US members.

-42-

Figure 13

We’ve had extreme cases, where producers,

having opted to shoot Texas scenes in Canada,

call us up to request Texas license plates to give

the scene an “authentic feel.”

– Texas Film Commission

seven films exceeded $170 million.

According to the Houston Film

Commission, total film

expenditures in the Houston area

during 1999 were $13 million, less

than half the 1998 expenditures.

Television production in

Texas has also declined by more

than half since 1995, with the

biggest declines coming after 1997

(see figure 13). In 1996, Texas

hosted 10 national series for

network or cable television; by

1999, that number was down to

three. The number of television

specials and pilots has followed the

same downward trend. In 1997,

there were four television specials

and three pilots filmed in Texas.

Since 1997, there have been only three television specials (one each year), and only two pilots in

the last three years. The Dallas/Ft. Worth Film Commission reported a drop in television

movies, series and miniseries from nine in 1995 to only one in 2000.

Representatives of motion picture and television production companies and unions

reported that they are seeing increasing

numbers of producers scouting in

Texas to gather material and research

that they intend to use on productions

in Canada. Many in the industry invest

significant resources in helping a

producer scout in order to make the

best pitch possible for shooting in

Texas. One production manager

reported working at no charge for a full month on one production, only to learn the producer

chose to film in Canada. Data from the Houston Film Office indicate that this is a growing

problem. Between 1994 and 1998, approximately 10 to 15 percent of the shows that scouted in

Texas ultimately filmed there. In 1999, only three percent chose Texas. Of particular

disappointment to the Texas industry, and an exceptional illustration of the runaway film

phenomenon, was losing the feature film Texas Rangers to Canada, given that the movie was set

in Texas and about the founding of these Texas icons. Industry representatives also noted that

The Illinois Film Office included videos in its computing of total expenditures.

-43-

Figure 14

Texas traditionally received a significant amount of repeat business from producers. Some

expressed concern that if Texas is unable to compete for the “first” film, they would of course be

less likely to win the follow-up work.

Illinois

Feature film production appears to drive the Illinois film and television industry, which is

centered in Chicago. The fact that Chicago captures the majority of productions in the state no

doubt explains why the Chicago Film Office and the Illinois Film Office reported nearly identical

data on both feature and television production and total expenditures. Both film offices reported

that, with the exception of 1998, total expenditures on productions (including features, episodic

productions, and MOWs)

have increased since 1995. In 1995, expenditures were $22 million;

in 1996, $100 million; in 1997, $104 million; in 1998, $83 million; and in 1999, $124 million.

Despite the generally increasing expenditures in the Illinois/Chicago film and television

industry, the evidence suggests that the state has experienced lost production. There are reports of

producers scouting Chicago, but then shooting in Toronto, and of producers and production

companies in Toronto querying Chicago authorities on how to replicate Chicago scenery. Unlike

North Carolina or Florida, locales in the Illinois region are easy to duplicate north of the border.

The Chicago Film Office

reports a decline of 33 percent in

total shooting days between 1998

and 2000. In 2000, total shooting

days were 619, down from 928 in

1998 (see figure 14). This decline

was driven largely by a loss of 260

shooting days for television.

Because feature films are a large

part of the Illinois/Chicago

industry, runaway production

takes a significant amount of

revenue away from the State.

Additionally, while the number of

feature films shot in Chicago has

remained relatively constant, the

number of films set in Chicago but

actually filmed in Canada is

increasing. The following are

specific examples of feature film

-44-

Gone With the Wind

Films set in Chicago, but filmed in Canada

LAKEBOAT Filmed in Toronto Budget $9 million

ANGEL EYES Filmed in Toronto Budget $18 million

ROLLERBALL Filmed in Montreal Budget $50 million +

THE CHEATING SCANDAL Filmed in Toronto Budget $7 million

DUETS Filmed in Vancouver Budget $15 million +

LADIES MAN Filmed in Toronto Budget $20 million

THREE TO TANGO Filmed in Toronto Budget $25 million

and television series that have been set in Chicago but shot in Canada for financial reasons:

Similarly, several television series written with Chicago locations in mind have been shot

in Canada. “Due South” and “Falcone” (Toronto) were Chicago-based stories. Budgets on these

projects were $12 million. “Soulfood,” the television series based on George Tillman’s feature

film of the same name (which was shot in Chicago), is being produced in Toronto.

The effects of lost production are taking a toll on Chicago’s motion picture and television

production industry. During a Department of Commerce field hearing conducted December 20,

2000, local representatives in motion picture, television, and commercial production companies

relayed their personal stories. Most reported that their businesses were being threatened by

increased competition from Canada, particularly by the wage credit program. One participant

had already been forced to close his business, and others were not sure whether they would be

able to stay in business much longer.

Chicago’s Show magazine found that when it began printing the latest edition of its

Annual Production Bible (a directory of Chicago companies in the industry) more than 70

percent of the firms listed in the previous edition published only 15 months earlier were no

longer in business. Even with the emergence of new technologies in the industry, the

replacement rate for new companies was only 25 percent.

Production of commercials has been an area where Chicago held a longstanding cost

advantage. According to a study recently commissioned by the Midwest Chapter of the

Association of Independent Commercial Producers, commercial production in Chicago in 1999

contributed almost $60 million in direct economic impact and 693 equivalent full-time jobs.

Commercial production does not generally meet the minimum dollar requirements to qualify for

Canada’s wage credits and other incentives.

However, Chicago’s commercial production is increasingly threatened by lower-cost

Canadian productions. The burgeoning movie and television industry and its accompanying

infrastructure in Canada are leading to increasing commercial production north of the border.

-45-

This is particularly troubling to the industry because many in the industry rely on commercials to

sustain their businesses between feature films and other larger projects. Without a robust

commercial industry to sustain these businesses, the infrastructure to support motion picture and

television production in Chicago may no longer be available. According to the Chicago Film

Office, the number of production days for commercials dropped 64 percent from 297 in 1997 to

107 in 2000. Participants in the Chicago field hearing expressed great concern for the future of

commercial production in Chicago if this trend is not reversed.

Pamela Brand, National Executive Director, Directors Guild of Canada, letter dated May 29, 2000. It

should be noted that the total value of U.S. production in Canada as measured by the DGC is based solely on the

number of films registered with the Commission.

Monitor Report, p.3. The figure of US$2.24 billion of lost U.S. production to Canada is calculated as 80

percent (representing the share of U.S. production the Monitor Report attributes to Canada) of US$2.8 billion, the

total amount the Monitor Report estimates as lost to runaway production.

Fiachra Gibbons, “Tax Could Make Film Industry a Sleepy Hollow,” The Guardian [Manchester],

February 7, 2000, 6.

Australian Film Commission, National Production Survey 1998/1999, 25.

Audiovisual Federation of IBEC, The Economic Impact of Film Production in Ireland–1998, 1.

-46-

Chapter 4

PRINCIPAL FOREIGN DESTINATIONS OF RUNAWAY FILM PRODUCTION AND

THE GROWTH OF FOREIGN FILM INDUSTRIES

The principal destinations of U.S. runaway production are Canada, the United Kingdom,

Ireland, and Australia. These countries have four main traits in common, they are all English-

speaking, they all have a skilled workforce, they each offer a variety of incentive programs to the

film industry, and they all have rapidly growing film markets. Of these countries, Canada is by

far the largest host to U.S. film production. The estimated value of U.S. production in Canada

ranges from US$573 million

to US$2.24 billion in 1998.

Either way, this value is significant.

In addition, there is a clear trend towards an increase in U.S. film production in Canada. (See

charts below.) The second largest destination, the United Kingdom, reported the value of U.S.

filming to be US$647 million in 1999

, also a significant value. In Australia, the best estimate

of U.S. production is close to US$175 million per year,

while in Ireland, U.S. filming in 1998

reached US$53 million.

The growth and significance of the film market in each of these

countries are described in detail below. The role of incentive programs in the issue of runaway

film production will be discussed in the next section titled Incentive Programs in Other

Countries.

CANADA

The Canadian film industry has grown rapidly in the 1990s, and U.S. filming in Canada

has increased significantly during this period. However, U.S.-origin productions are widely

recognized as making an overwhelmingly significant contribution to the growth of the Canadian

film industry.

According to Profile 2000, a Canadian industry publication, film and television

production in Canada reached over CAN$3.6 billion (US$2.4 billion) in 1999. This figure

represents an approximate 20 percent increase over the previous year (1997-98) and a tripling

Figures are reported by fiscal year, which is April to April (therefore, for example, 1998-99 figures are

3/4 from 1998, 1/4 from 1999), and reflect PWC estimates based on data from various Canadian government cultural

organizations. Because this study concentrates on feature and television drama films, “other” productions, such as

“broadcaster, specialty and pay television in-house production and non-CAVCO certified production estimates,”

which are included in the Profile 2000 report, are not included here. Source: Based on information from Canadian

Film and Television Production Association and l’Association des producteurs de films et de télévision du Québec,

Profile 2000, February 2000, 19.

Pamela Brand, National Executive Director, Directors’ Guild of Canada, letter dated June 6, 2000.

Profile 2000, 30.

-47-

Figure 15

since 1992-93 (see figure 15).

Profile 2000 further reports that the Canadian film and

television industry supported approximately 100,000 direct jobs in Canada in 1998-99, an

increase of 13 percent over the previous year. Foreign location shooting, the majority of which

can be presumed to be U.S. productions,

totaled CAN$1.1 billion (US$740 million), an

increase of 34 percent over the previous year and an almost five-fold increase during the period

1992-98.

Canada has been very successful in building a domestic film industry based largely on the

activities of U.S. film makers. In fact, Profile 2000 states that “penetration of foreign markets is

likely a necessary condition to drive an expanding base of film and television production in

Canada.”

“Penetration of foreign markets” would result both from export of Canadian filmed

entertainment, and from foreign film makers making films in Canada.

Source: Based on information from Canadian Film and Television Production Association and

l’Association des producteurs de films et de télévision du Québec, Profile 2000, February 2000, 7.

-48-

Figure 16

British Columbia, Ontario, and Quebec are the three largest film- producing provinces in

Canada, comprising over 90 percent of total production dollars in 1998-99 (see figure 16).

more detailed profile of film and television production by Canadian province is available from

most of the provincial film commissions. The following analysis is based on information

provided by the three leading film production provinces: British Columbia, Ontario, and

Quebec. Note that reporting methodologies vary from province to province. The figures

included below are not intended for a precise comparison, but rather to characterize the industry

in each province.

British Columbia

Over the past decade, British Columbia’s film industry has grown by approximately 469

percent. In 1999, a total of CAN$1.07 billion (US$ ) was spent on 198 productions in the

province. Of this amount, Canadian production activity accounted for $405 million. This

represents a 14 percent increase from 1998, with a total of 116 Canadian productions filmed in

British Columbia. This included 32 feature films, 10 television movies, mini-series, and pilots,

B.C. Film Commission, “Breakdown of 1999 Productions Shot in British Columbia,” March 1999,

<http://www.bcfilmcommission.com/filminfo/break99.htm>

Table1 Source: Based on information from the British

Columbia Film Commission website <http://www.bcfilmcommission.com> and Ministry of Small Business, Tourism

and Culture, “B.C.Film Production Tops $1 Billion,” News Release, February 8, 2000.

-49-

Figure 17

Source: US&FCS

and 10 television series. Foreign

activity for this period accounted for

CAN$664 million, representing a 50

percent increase from 1998. In 1998,

foreign film production accounted

for 54 productions and jumped to 82

in 1999 (see figure 17). This

included 22 feature films, 50

television movies, mini-series, and

pilots, and 10 television series.

In terms of the number of

productions, foreign features and

television dramas doubled from 1998

to 1999. In 1999, the production of

the 22 foreign features hosted by

British Columbia was worth

CAN$338 million (US$228 million)

– half of total production expenditures – in the province, and the 50 foreign television

movies/mini-series/pilots, was worth CAN$207 million (US$139 million) – about 60 percent of

total production expenditures – to the province (see table 1).

Table 1. British Columbia Film Production, 1995-99

Year

Production Dollars Spent in the

Province (million CAN$), including

Features, TV Mini-Series, Movies,

Pilots, and TV Series

Number of Productions

Canadian Foreign Total Canadian Foreign Total

1995 114.3 318.51 432.81 35 60 95

1996 175.06 361.84 536.9 35 67 102

1997 206.06 424.53 630.59 38 63 101

1998 314.75 439.21 753.96 49 48 101

1999 364.82 664.09 1028.91 62 82 144

B.C. Film Commission, “Quick Facts about the BC Motion Picture Industry,”

<http://www.bcfilmcommission.com/filminfo/qfbcmpi.htm>

-50-

Figure 18

Source: US&FCS

A surge in production followed closely with the introduction of provincial production

credits in June 1998. British Columbia boasts of 70 post-production facilities, 50 shooting

stages, and the infrastructure and crew to support 35 projects simultaneously.

Ontario

For several years, Ontario has been the second-largest Canadian film production center

and rival to Chicago and New York for U.S. television movie production, reporting production

expenditures of CAN$934 million (US$629 million) in 1999 (see figure 18). This represents a

25.7 percent increase from the previous year’s expenditures of CAN$743.2 million (US$501

million). Of this amount, CAN$442.7 million (US$298 million), or 47 percent, is attributed to

foreign production. This is nearly half of the production dollars spent in Ontario in 1999.

Foreign production projects included 21 feature films, which had expenditures of CAN$215

million (US$145 million), and 58 television dramas, with expenditures of CAN$178 million

Source: Based on information from the Ontario Film Development Corporation <http://www.ofdc.on.ca>

and Ontario Film Development Corporation, “Ontario Film and Television Production Reaches New Heights in

1999,” News Release, January 26, 2000. Includes features, television mini-series, movies, pilots, and television

series.

-51-

Figure 19

(US$120 million). In 1998, foreign production jumped 57.2 percent; and in 1999, the increase

was 27.6 percent (see figure 19).

For the first six months of 2000, production value in Toronto was already up by 15.2

percent when compared to the same time period the previous year. Production in Toronto

through June 2000 was valued at CAN$352.8 million (US$238 million) compared to

CAN$306.2 million (US$206 million) through June 1999. These figures do not include

production value for television commercials, animation or special effects. In total, there are

approximately 550 new projects at 1,587 locations, accounting for a total of 3,229 shooting days.

For the year 2000, 61 percent of the production shooting taking place in the province originated

from the United States -- the remaining 39 percent are Canadian (see figure 20). These figures

are all up from the previous year. The industry employs approximately 10,000 people directly,

another 10,000 indirectly, and it helps to keep Ontario as one of the largest film and television

production centers in North America.

Connie Irrera, “Canada - Opportunities in Film Industry - IMI991014 Market Research Reports:

International Market Insights (IMI),” USDOC, International Trade Administration, October 14, 1999, 2.

David B. Zitzerman, et al, Location Canada: A Guide to Producing in Canada and Doing Business with

Canadians, (Toronto: Goodman Phillips & Vineberg, March 2000), 2.

-52-

Figure 20

Quebec

Film production statistics for the Province of Quebec are neither complete nor easily

comparable with national or other provincial film production statistics. The Quebec film market

is unique in that the provincial government stresses and heavily supports French-language

programming. As a result, Quebec attracts less U.S. film production than do British Columbia

and Ontario. The Quebec film and television industry remains concentrated in Montreal due to

its pool of specialized workers, facilities and equipment. Almost all production shoots in the

province are filmed in Montreal, with some productions filmed in Quebec City. Both locations

are able to recall New York, Paris, or small New England town scenes that make them an

attractive alternative to filming in the original locations. Montreal ranks fourth among 13 North

American metropolitan regions in the entertainment industry, after Los Angeles, New York city,

and Toronto. Spending related to local film and television production was reported to be

CAN$695 million (US$468 million) in 1998, 80 percent of which was domestic and the

remainder U.S. (CAN$139 million; US$94 million). In that year, “economic spinoffs” of the

film industry were reported at CAN$1.5 billion (US$1.01 billion).

In 1999, Quebec surpassed

Ontario and has taken second place in total film production in Canada, with reported film

production revenues of CAN$725.4 million (US$488 million).

U.S. production expenditure figure calculated using a 1999 exchange rate of .6180 (see table 2). Original

figure of U.K.

400 million taken from Fiachra Gibbons, “Tax Could Make Film Industry a Sleepy Hollow,” The

Guardian [Manchester], February 7, 2000. Total foreign investment figure reported in Adam Dawtrey, “U.K. Pic

Investment Up 35% in 1999,” Variety, February 7, 2000, 25. Source for Figure 12 is based on information from the

British Film Commission.

-53-

Figure 21

UNITED KINGDOM

The United Kingdom has a history of attracting U.S. film production, although it is

usually ranked behind Canada in terms of total foreign production expenditures. In 1999 alone,

U.S. motion picture production in the United Kingdom amounted to some US$647 million out of

an estimated US$919 million in total foreign investment, a 35 percent increase over 1998 (see

figure 21).

The foreign companies working in the country usually focus on feature film

production.

The U.K. motion picture industry, like the Canadian film industry, has realized

tremendous growth. The foreign feature films being produced in the country have taken over the

large studios, and domestic production of domestic films is increasingly taking place in smaller,

previously underutilized studios. Studio space has expanded significantly, and Britain now

boasts the largest studio space in Europe. The United Kingdom has also become a dominant

force in post-production and special effects technology. Films shot entirely in the United States

do post-production work in Britain because of the quality of the service there as well as of lower

See “Working in the U.K.,” on the British Film Commission (BFC) website, <www.britfilmcom.co.uk>

Jennifer Johnson, “Australia - Film Production - ISA980401,” Market Research Reports: Industry Sector

Analyses (ISA) USDOC, International Trade Administration, <www.stat-usa.gov> April 1, 1998, 5.

-54-

Figure 22

costs.

The British Film Commission established a Los Angeles Liaison Office in 1998 to

further promote the U.K. film industry.

AUSTRALIA

Australia is another major foreign location for the U.S. film industry production. The

Australian film industry, however, is characterized as having a generally weak, and unprofitable

domestic sector that is highly subsidized by the government. At the same time, the industry has a

growing foreign and co-production sector. According to the Australian Film Commission, from

1997-98 to 1998-99, foreign film production in Australia more than doubled in terms of total

dollar (Australian) value, and co-productions tripled.

The production of U.S. made-for-television movies in Australia has surged since the latter

part of the 1990s – from two movies in 1995 to six movies in 1998 (see figure 22). What has

perhaps drawn attention to U.S. filming in Australia is the fact that U.S. productions shot in

Australia have been

successful at the box

office -- among them

are blockbusters such

as The Matrix, The

Thin Red Line, and

Star Wars 2.

Producer Rick

McCallum also plans

to film Star Wars 3 in

Australia.

Foreign film

companies are

attracted to Australia

by a growing film

production

infrastructure and

lower costs (including

labor rates that are

reportedly 25 to 35

percent less than in

the United States).

James Bates and Robyn Dixon, “Hollywood Is Beating a Path to Australia,” Los Angeles Times Business,

July 11, 1999, C17.

Audiovisual Federation of IBEC. iv, 1.

-55-

We were contacted by Mel Gibson’s people, who

said they had a wonderful time making “Braveheart”

in Ireland, and gave us some contact numbers. So we

made a few calls, the Irish army volunteered their

services, and we were able to make our movie.

– Steven Spielberg

Director, “Saving Private Ryan”

Other factors include English as the native language, availability of highly skilled technical

workers, reverse seasons, and varied location terrains, including cities, jungles, deserts, and

mountains. Australia has stepped up its campaign to attract foreign film production. Ausfilm, an

organization tasked with promoting filming in Australia, was created in 1994 and opened an

office in Los Angeles in September 1996.

Australian officials actively seek to draw production from Hollywood inasmuch as U.S.

films and television shows make up a large proportion of the Australian viewing fare. According

to an article in the Los Angeles Times in July 1999, “They [Australians] argue that the

entertainment business is an international one and that the U.S. should expect to share production

with other countries.”

This argument appears to resemble that made by the Canadians.

IRELAND

The Irish film industry is comparatively small. Nonetheless, Ireland is ranked in the top

ten countries for production of U.S. films abroad. In 1998, U.S. investment in the Irish film

industry totaled IR£ 37.4 million (US$53 million), an increase of 82.4 percent from 1997.

Ireland considers U.S. film makers the “most important” among non-Irish investors: U.S.

investment makes up over 25 percent of total funding for the Irish film industry.

The Minister

for the Arts, Heritage & the Islands, indicated that production spending in Ireland had already

exceeded the US$61.9 million spent in 1999, even without the final numbers for 2000, which

include several projects certified and others awaiting approval.

The Irish are actively

courting the U.S. film industry and

are willing to take extra steps to

attract film makers to their shores.

In February 2000, the Irish Minister

of Arts and Heritage for Gaeltacht

and Islands, spent four days in Los

Angeles marketing Ireland as a

prime location for filming. During

the trip, the Minister visited 20

Century Fox, Warner, MGM, HBO, and the Locations trade fair. This was the third such visit by

the Minister to Los Angeles.

AFMA Newsletter, First Quarter 2001

Figure 20 data is based on value of production in Canada. Figure 21 data is based on quantity of

production in the United States and quantity of U.S. production overseas.

-56-

Figure 23

A number of factors has improved the Irish film industry’s position recently: the

extension of incentive programs; favorable exchange rates; the Minister’s concerted efforts to

attract U.S. films; the involvement by the current James Bond actor, Pierce Brosnan, in the

Screen Commission’s Board, and the establishment of his Irish Dreamtime production company;

and the success of such films as Braveheart, Saving Private Ryan, Angela’s Ashes, and Moll

Flanders, which were filmed

all or partly in Ireland. One

additional factor that was

highlighted by a U.S. film

producer which helped entice

his company to film in the

Emerald Isles was the

establishment of a quota by

the European Union (EU)

limiting the number of

foreign films. These quotas

are primarily aimed at the

United States. Therefore,

filming in Ireland exempts

the movie from the EU

quotas and provides greater

access to the EU market.

total, film production is on

the rise in Ireland, and the

country is beginning to

present itself as a very

attractive location and viable

option for shooting U.S. film production (see figure 23).

Growth in the Film Industry Abroad

There has been tremendous growth in the film industry over the past few years in Canada,

Europe and Australia. Although the U.S. film industry has also grown during the same period, it

appears, based on the research of this study, that the rate of production growth abroad has

outstripped the rate here at home (see figures 24 and 25).

Nonetheless, although the basis for

comparison may not be identical, we believe that available information is useful in identifying

trends and showing the differences in relative growth rates among countries.

-57-

Figure 24

Figure 25

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The difficulty in assessing growth trends with any precision is that most countries do not

track, in any uniform way, domestic production. The data we have identified tend to rely on

different measures. For example, some data are based on production days, some on the number

of actual productions, and some on industry employment. The examples in Figures 24 and 25

illustrate our contention that foreign production growth rates are outstripping those in the United

States. Figure 24 shows the growth, in Canadian dollars spent, of all film and television

production in Canada. Figure 25 shows film and television production data for the United States

in terms of number of films made. Figure 25 suggests that production in the United States

experienced only moderate growth, while both total Canadian growth in film production and U.S.

production abroad experienced very heavy growth rates. Further, the figure shows that the

growth rates of both total Canadian production and total U.S. production abroad are almost

identical -- approximately 100 percent.

While the analysis has focused on the top destinations for runaway film, there are many

other countries ( e.g. Mexico) that are presenting themselves as very attractive locations for

filming. These countries have recognized the potential of this industry and have begun to take

steps to attract U.S. film production, which is necessary to develop a competitive industry. This

will most likely exacerbate the problem of runaway film in the future.

IMF Staff, “Globalization: Threat or Opportunity?” Issues Brief, April 12, 2000,

<http://www.imf.org/external/np/exr/ib/2000/041200.htm>

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Chapter 5

GLOBALIZATION AND TECHNOLOGY

Globalization Hits the U.S. Film Industry

The International Monetary Fund (IMF) defines globalization as “the increasing

integration of economies around the world, particularly through trade and financial flows. The

term sometimes also refers to the movement of people (labor) and knowledge (technology)

across international borders.”

In a sense, the globalization that has had such a profound effect

on other U.S. industries over the last few decades has belatedly reached the film industry.

Film production has been on the rise all over the world. As countries increase film

production, they develop the infrastructure and technological expertise required to maintain a

viable film industry. These developments increase the competitive pressures on traditional

industry leaders, mostly in the United States. Indeed, ten years ago, it was difficult and

inefficient to produce a film in many countries because of the lack of infrastructure (such as

adequate sound stages) and the lack of a skilled labor force. However, as various countries have

built an infrastructure and developed technical expertise, other competitive advantages that they

may enjoy, such as lower labor rates, suddenly come into play.

A number of factors have encouraged U.S. film production to move abroad, including

growing worldwide consumer demand for filmed entertainment, construction of new state-of-the-

art studios abroad, favorable financing and tax incentives from foreign governments, the

formation of international production companies, and new technology that has both led to the

replacement of some U.S. film workers and facilitated the movement of high-quality film

production to nontraditional locations. Film budgets are increasingly consumed by high

production costs both above and below the line and by increased emphasis on marketing. At the

same time, the meteoric expansion of television channels worldwide via cable has brought huge

demand for productions that typically require lower budgets. Foreign film industries have seen

the window of opportunity that these circumstances have opened and, with the help of

government programs, have moved in to claim their share of the action. All of these factors have

transformed what used to be traditionally American television and feature film production into an

increasingly widespread global industry.

Cost Competitiveness of the United States

Many people in the film industry talk about exchange rates and runaway film production,

attributing runaways to the dollar’s purchasing power abroad. They often cite Canada as an

That is, if costs (in U.S. dollars) are lower now in Canada than they are in the United States, but have

always been lower and by the same amount, then that fact alone cannot explain runaway film production.

Movie production cost data were not available for Canada, the UK, Ireland, and Australia. Therefore, to

estimate changes in cost in each of the five countries (the four above plus the United States) on a consistent basis, we

used CPIs.

A value of R greater (less) than one does not mean that the total cost of production in the foreign country

is greater (less) than the total cost production in the United States.

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example, where the current exchange rate of U.S.$.65-$.70/Can$ gives U.S. movie producers

significantly more purchasing power in Canada than in the United States.

We take this concern about purchasing power essentially to be one about cost. More

specifically, the concern is about the cost competitiveness of the United States relative to other

countries such as Australia, Canada, Ireland and the United Kingdom, as a location for making

movies. We note first that exchange rates are only one determinant of total cost (measured in

dollars). Prices are also a fundamental determinant of costs. We should therefore consider both

prices and exchange rates in analyzing the issue of cost.

Our analysis of cost necessarily focuses on changes in costs over time, since cost

differentials alone certainly would not explain runaway film production.

A complex regression

analysis would be required to test whether cost differences were in fact driving runaway

production, a task that is beyond the scope of this paper. Instead, we have examined in the most

general terms whether there is evidence that costs (in U.S. dollars) in all five destination

countries declined relative to costs in the United States.

In table 2, for the time period 1985-2000, we have calculated percentage changes in the

exchange rate (e), measured in US$ per foreign currency unit, and the U.S. and foreign country

Consumer Price Indexes (USCPI and FCPI, respectively). The CPI serves as a proxy for an

index of total movie production costs.

Three-year moving averages of the underlying variables

were used to smooth the data, and we assumed that all costs were incurred in the currency of the

country in question. Using these percentage changes, we calculated values for the statistic R,

which is a rough measure of the change in the total cost of production in the foreign country in

question (in US$) relative to the change in the total cost of production in the United States. R is

given by the following formula:

R = (1 + %

)

FCPI)*(1 + %

)

e)/(1 + USCPI).

A value of R greater than (less than) one means that the total cost of movie production

rose (fell) in the foreign country relative to the total cost of production in the United States over

the specified time period.

From table 2, we see that costs for the 1990-2000 period essentially

remained unchanged in relative terms in the UK and fell somewhat for the other three countries.

For the more recent period, 1995-2000, we see similar patterns. In the 1985-1995 period, we see

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evidence that costs in the four destination countries increased or remained the same relative to

costs in the United States. Overall, we see no clear, consistent evidence that cost in all four

destination countries declined relative to cost in the United States.

Table 2

1985-1990 Exchange Rate USCPI FCPI R

Canada 9% 20% 24% 1.12

UK 24% 20% 30% 1.35

Ireland 35% 20% 21% 1.36

Australia -6% 20% 54% 1.21

1985-1995 Exchange Rate USCPI FCPI R

Canada -3% 43% 43% 0.97

UK 11% 43% 62% 1.25

Ireland 33% 43% 38% 1.29

Australia -13% 43% 81% 1.09

1985-2000 Exchange Rate USCPI FCPI R

Canada -13% 61% 54% 0.83

UK 15% 61% 85% 1.33

Ireland 1% 61% 54% 0.96

Australia -24% 61% 100% 0.94

1990-2000 Exchange Rate USCPI FCPI R

Canada -20% 34% 25% 0.74

UK -8% 34% 43% 0.98

Ireland -25% 34% 27% 0.71

Australia --19% 34% 30% 0.78

1995-2000 Exchange Rate USCPI FCPI R

Canada -11% 13% 8% 0.86

UK 4% 13% 15% 1.06

Ireland -24% 13% 11% 0.75

Australia -13% 13% 11% 0.86

Source: IMF International Financial Statistics. Data based on three year

moving average. Year 2000 data is an average of the first three quarters.

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Figure 26

This somewhat oversimplified analysis that we have done is no substitute for the complex

analysis that an economist would do to determine whether differences in relative costs have

caused runaways. In fact, we are not addressing this question. We are merely suggesting that it

is not immediately apparent, based on the data we have examined, that there were significant and

sustained changes in relative costs in the four destination countries, owing to changes in prices or

exchange rates, in the last 15 years.

Finally, there are transaction and relocation costs that could create natural relocation

barriers, which can be overcome only when the magnitude of the relative change in production

costs is large enough and not thought to be short-term. However, in the new digital age, natural

relocation barriers almost certainly are lower, and dollar-minded movie producers are likely

becoming more sensitive to changes in relative production costs across borders. If relative

changes in the cost of production are not of a magnitude sufficient to induce movie producers to

relocate production, they at least help the process along. If relative changes in production costs

are not sufficient to induce runaways, other factors could be at work, e.g., newly constructed

movie studios or the development of specific labor skills, changing movie producer interest in

country-specific natural resource endowments (majestic mountains, roaring rivers), or newly-

established incentive programs.

Rising Production Costs in the United States

While the previous section discusses changes in relative costs among the five countries

examined, this section deals with absolute changes in production costs, in only one country, the

United States. Over the last decade, the major Hollywood film studios and independent

production companies around the country have faced a period of decreasing profits, as domestic

costs for production and distribution rose substantially. Between 1990 and 1999, average

“negative costs” (total costs related to the acquisition and production of a movie prior to its

release) almost doubled, going from $26.8 million to $51.5 million (see figure 26). At the same

time, the average distribution cost for new feature films more than doubled, going from $11.97

Motion Picture Association of America, <http://www.mpaa.org.>

Elizabeth Lesly Stevens and Ronald Grover, “The Entertainment Glut,” Business Week, February 16,

1998, <http://www.businessweek.com/1998/07/b3565001.htm>

Stevens and Grover.

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Figure 27

million in 1990 to $24.53 million in 1999 (see figure 27).

Over the period 1987 to 1997,

operating margins (operating profit including depreciation but excluding interest divided by total

revenues) for the major studios were down considerably. Margins went from 25 percent to 19

percent for Disney Studios and from 13 percent to less than 6.5 percent for Viacom. News

Corporation (parent of 20th Century Fox) and Time Warner showed similar declines.

By the end of the 1990s, rising costs and lower operating margins led U.S. studio

executives to conduct a major restructuring of their business practices in order to remain

competitive. As one media analyst described it, studio executives found themselves “... in a race

between the slower growth of their profits and their ability to restructure their balance sheets.”

The restructuring included aggressive cost-cutting, personnel layoffs, the introduction of more

sophisticated market research, entry into strategic joint ventures, experimentation with risk-

reducing financing alternatives, the production of fewer films, and, inevitably, moving

production abroad. As a result of these measures, costs have in fact come down since 1998.

In the face of increasing production costs in the United States, many producers have

turned to increasingly competitive foreign production sites. As a result, opportunity has opened

up for countries, such as Canada, to move into the film market. Taking advantage of exchange

rates, government-backed incentives, lower wage rates and lower costs in general, many foreign

countries have been able to attract film productions that in the past would most certainly have

stayed in the United States. The situation is expressed succinctly by Matt Miller, President of the

Matthew Miller, “Don’t Panic Over Runaway Production. Do Something!” Shoot, July 16, 1999, 27.

Orwall and Lippman.

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Association of Independent Commercial Producers (AICP), in an open letter published in a

number of film industry journals in July 1999:

American production is being challenged by emerging markets in a way we have never

experienced before. While these markets don’t have the infrastructure yet to go toe-to-toe

with us, they are aggressively – and successfully – luring production away, based purely

on cost effectiveness. We are entering a time in this industry’s evolution when the

American production community needs to be an aggressive competitor.

An additional source of increased film costs in the United States has been wage rates paid

to both above-the-line and below-the-line workers. Industry restructuring has affected big-name

film stars and directors. For example, Universal Studios persuaded Kevin Costner to waive his

usual $20 million fee and instead be paid based on the success of the film For Love of the

Game.

As a general matter, wage rates for major talent, e.g., directors and marquee actors, are

fixed. Major talent is paid the same regardless of where production takes place, whether in the

United States or abroad.

Wage rates for below-the-line workers, who are largely represented by the International

Alliance of Theatrical Stage Employees, Moving Picture Technicians, Artists and Allied Crafts

(IATSE) and the International Brotherhood of Teamsters, have also risen in recent years.

However, both these unions are made up of over 500 chapters in both the United States and

Canada, and wage contracts for both countries are often negotiated for similar durations and with

similar terms. Although the parent unions have the same interests for all of their workers,

whether they are located in the United States or Canada, local chapters do have some autonomy

and the ability to compete with each other at the margin. Different advantages accrue to workers

on both sides of the border. On the one hand, wage contracts in Canada are often more

restrictive from the point of view of the employer than those in the United States, giving

Canadian workers more rights. Furthermore, a higher percentage of workers in Canada is

unionized than in the United States. On the other hand, the absolute level of wages in Canada is

lower than that in the United States, and even if similar terms are negotiated in both countries,

Canadian workers will still emerge with lower wages than their U.S. counterparts. For these

reasons, collective bargaining agreements do have an effect on the producer’s overall costs, and

wages remain higher in the United States than in Canada, but wage costs have been rising on

both sides of the border because both U.S., and Canadian workers have negotiated for similar

terms.

Finally, as discussed in chapter 3, the growth rate for U.S. film production has slowed,

leading to reduced economies of scale for U.S. studios and independents. According to data

from the Motion Picture Association of America, after hitting a high in 1997, the number of films

Bruce Orwall and John Lippman, “Cut! Hollywood, Chastened by High Costs, Finds a New Theme:

Cheap – Major Studios are Making Fewer Movies – for Less; Will ‘Mr. Limpet’ Swim? – Becoming Costner-

Conscious,” Wall Street Journal, April 12, 1999, A1.

The material in this section is based on an unpublished essay by Robert Solomon, Senior Vice President

of the Encore Group in Santa Monica, California, and Chairman of Governmental Affairs of the Southern California

Chapter of the Association of Imaging Technology and Sound, an association of post-production film companies.

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released in the United States in 1999 was only 12 percent higher than the number of films

released in 1990. In April 1999, the Wall Street Journal reported that some individual studios

had made numerous cuts in output in the 1990s. Walt Disney Studios reduced film production

from its previous level of more than 30 films to fewer than 20, Universal Studios cut production

to fewer than 20 films from over 35, and 20th Century Fox reported more than a 40 percent

reduction in movie deals.

Technological Changes in the Industry

Within the last decade, exponential advances in technology have created dramatic

changes in the way film entertainment content is produced. New tools and processes have been

introduced which have enhanced the film maker’s ability to entertain audiences. These new

technologies and tools may well be contributing to the increase in the amount of foreign

production of U.S. entertainment programming.

The ease of transmitting data over long distances quickly, combined with the addition of

technical infrastructure and a skilled labor force, has enabled film makers to take advantage of

lower labor and production costs in other countries. Ten years ago, it would have been

inefficient to produce a film in many foreign countries, even if the country had lower labor costs.

This is because the lack of infrastructure and a skilled labor force would have forced studios to

transport capital equipment and technicians in order to produce a film of sufficient quality.

Today new technologies have allowed the film production process to become unbundled – it is

no longer necessary to have all of the people in the extensive chain of film production together in

a single location.

The Film Culture

In order to have a viable production market, it is necessary to build and maintain a certain

level of technological infrastructure and a skilled labor pool. The production process is

inherently labor-intensive and detail-oriented. Furthermore, the availability of trained staff and

technical infrastructure creates an intangible feeling of what film industry insiders refer to as a

“film-friendly culture.” Although difficult to define, the film “culture” or “environment” is

extremely important because the creative and technical process of producing film entertainment

is a collaborative effort that requires input and cooperation from many different sources,

including very creative artists and highly skilled technicians. To create quality film

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entertainment content, film production workers seek a culture that is conducive to this type of

experience.

Technology and Post-Production Activities

New film production centers have developed abroad in part because advances in

technology have enabled them to train a labor force, build the necessary technological

infrastructure, and create a film-friendly culture with a speed and ease that has never before been

possible. Most of the technological advances in the production process revolve around the ability

to “post-produce” film entertainment content electronically. Post-production is a term of art that

refers to important processes, such as editing, color correction, sound engineering, and creation

of computer-generated images (CGI) and combining (or “compositing”) CGI with live action

visual images. Post-production processes generally occur after the film has been shot.

Certain elements of the production process have remained relatively stable throughout

these recent advances in technology. For example, the original capture of visual images has

continued to be done through the medium of film, which is a technology and process that has

existed for many years. Historically, film makers have had to work with the actual, physical film

medium in order to manipulate or enhance visual images that they captured in the shooting of

that film. For contemporary filmmakers however, electronic post-production allows them to scan

film images at high resolution onto a videotape format. The quality of the scanners or

“telecines,” which are high-speed film scanners, and the videotape formats themselves, has

continued to improve. It is now possible to capture and store more visual detail with new

compression algorithms, such as MPEG 2 and 4, as well as many proprietary methods that allow

for the storage of a higher quality of visual and audio information. Today’s videotape formats

allow for the storage of high definition visual images and multiple tracks of audio and other

information as data on the videotape. Once the original film’s visual images have been

transferred into one of the videotape formats, technological advances have given post-production

artists the ability to create, enhance or supplement the original visual images captured during the

filming process. The artists use powerful computers with the large amount of storage space

necessary to work with and manipulate files that store these visual images.

Another development has been the move of post-production facilities from their historical

large production centers. The facilities were geographically fixed due to the complex

construction and infrastructure necessary to connect all of the disparate pieces of specialized

equipment that were configured to perform certain processes. Given the amount of capital

investment required to build these facilities, economic realities often required operating these

facilities around the clock to generate the amount of revenue necessary to support the facility.

These facilities required a large pool of potential customers -- the film producers who would be

shooting at nearby sound stages. In fact, there was a mutual dependence created between the

sound stages, which required geographically proximate post-production facilities to attract

production, and the post-production facilities, which required a sufficient amount of local film

production to support the substantial capital investment in their plant and equipment.

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Software, Computers, and the “Box”

Software developers have capitalized on the availability of affordable and powerful

computers and the advances in storage capacity by writing new software programs that provide

artists with the tools necessary to do their work on a computer. Previously, such post-production

work as dailies editing, sound engineering, and visual effects were done at large post-production

facilities that contained many different pieces of specialized equipment. The large post-

production facilities would often be required to be physically proximate to the production site, as

many of these processes would happen concurrently with production and required the input of

individuals who were also at the set. Today’s combination of high-powered computers, storage

space, and specialized software is often referred to in the industry as a “box” environment. The

“box” refers to the compressed space where all of the tools are available to do post-production

work, i.e., only one box is needed rather than the many pieces of specialized equipment which

could only be used in conjunction with other pieces of specialized equipment.

Today’s “box” environments do not require the same technical, physical infrastructure as

the large post-production facilities that are becoming increasingly outdated. In fact, the “box”

environments are remarkable for the ease with which data can be transported over long distances

and the ease with which specialists working on different aspects of the post-production process

can collaborate over long distances. Nowadays, once visual information captured on film is

converted to a digital format, it can be transferred throughout the world using fiber optic

networks. These networks are capable of transferring large files of data quickly and securely

over long distances.

Virtuality, Not Proximity

noted earlier, the process of creating film entertainment content is inherently

collaborative. In times past, directors, producers, directors of photography, sound supervisors,

visual effects supervisors and many other specialists would physically supervise or review most

of the post-production functions. This review process would require that the individuals be

geographically proximate in order to make the collaboration possible. Contemporary

technologies however now make it logistically feasible for individuals from all around the world

to collaborate and participate in the post-production process, no matter where they happen to be

located.

One of the results of these technological changes is that filmmakers now have a much

larger pool of potential post-production service providers. They can continue to use the facilities

that are geographically proximate to their production site or they can look for smaller facilities in

new markets. Managers of new production facilities that have emerged around the world have

been able to train operators on new “box” equipment and enable them to market their services

around the world as well as locally. This has allowed new production markets to build a

technical infrastructure without relying solely on local production. Once a certain level of

technical infrastructure is in place, these new markets can build sound stages and attract

production that would require some local post-production services.

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Location Shooting Without the Locale

Technology has also allowed film makers to eliminate the necessity of certain types of

location shooting. The production costs associated with filming in a sound stage versus location

shooting are dramatically different. In a sound stage, film makers can be located anywhere in the

world and are able to work in a controlled environment. With location shooting, film makers

incur many additional costs because of transportation, logistical and environmental factors that

can affect bottom line costs as well as the production schedule.

Film makers now have the option of shooting higher quality “green screen” scenes in a

sound stage. A green screen, which is a technology that has existed for many years, is shot with

the actors and certain props being filmed against a green background. With new technologies,

film makers can now more realistically isolate the actors or props and “composite” or place them

against a different background. With these tools available, they can film more scenes in a sound

stage.

In addition, new digital tools make it more economically and technically feasible to shoot

at certain locations which can be digitally converted to appear like other locations. For example,

a producer could film in a large foreign metropolitan area and digitally replace license plates,

billboards, signs, and other elements in the scene to make them appear like their American

counterparts. The ability to create the visual image of another location has provided film makers

with increased flexibility in choosing production locations.

Animation and High Definition Video Cameras

Two additional examples of the profound effect that technology is having on film

production are animation and the new high definition video cameras that have been introduced

into the market during the last year. The United States once dominated the animation field, but

today, little animation is done in the United States. One of the reasons is that new digital ink and

paint technologies allow working digitally, rather than individually drawing and painting each

cell, as was the historical practice. Concerning video cameras, one of the most stable of elements

of the film-making process has been the use of film to capture the original visual images. This

has been a consistent process for many years. For many television-based shows, once the visual

images have been captured on film, they are “scanned” or transferred into a videotape format

called “dailies.” Once the dailies have been transferred, they allow directors and actors to review

and approve the recently shot scenes. Film does not provide the director or actors with any

immediate feedback on the scenes they have just captured. For that reason, dailies are usually

time-sensitive, i.e., the film must be transferred to a videotape format to allow for the director,

actors and others to review the scenes shot to see if they are acceptable. Since sets must be

broken down and actors released depending on whether the scene was captured to their

satisfaction, the timeliness of dailies is an important element in the production process.

Many foreign production centers did not have the local film processing ability and

telecines (high speed film scanners) necessary to produce dailies. Until recently, this has limited

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the viability of foreign production centers. The cost and technical expertise required to process

film and operate a telecine can only be obtained at a cost of millions of dollars and years of

training.

Given current advances, including the recently developed ability to capture visual images

in high definition video that is coming closer to emulating the look and feel of film, film makers

can avoid the dailies process. With high definition video, they would have the ability to

immediately “review” the scenes shot by rewinding the videotape rather than waiting for the film

to be processed and subsequently transferred to videotape. This eliminates the advantage of

having a local technical infrastructure capable of producing dailies.

Training for the Digital Age

Another aspect of the traditional film making process that has been affected by new

technologies is training. Many of the individuals who participate in an entertainment production

would refer to their skills as a trade. Traditionally, practitioners often developed their trades in a

union environment, which facilitated an individual’s development of the necessary learned skills

through apprenticeships and on-the-job experience. Today, many of the processes performed by

a post-production artist have remained the same but the tools utilized to perform these functions

have changed dramatically. As the medium of the work product has changed, i.e., working with

data files as opposed to an actual physical film, the skills of the post-production artists require

different backgrounds and technical training. The changes in the tools that are utilized to

perform these post-production functions have presented opportunities for new post-production

markets to appear with newly trained workforces that have bypassed the historical

“apprenticeship” programs that have existed in Hollywood for many years. This new workforce

consists of individuals who have attended technical schools or government-sponsored programs

that provide the required training to operate the new generations of equipment.

For example, historically the learning curve associated with developing the skills to

become an on-line editor was substantial. As such an editor was required to understand and

work with up to 20 different types of manufacturing equipment, all with different user interfaces

working in conjunction with one another to create the desired effect. Today’s computers utilize

common user interfaces and software tools to combine many of these tasks. This has greatly

reduced the learning curves associated with becoming an on-line editor. This reduced learning

curve, when combined with formal training through government-sponsored school programs, has

allowed many foreign production centers are able to gain the necessary expertise to staff

productions with local workers at a substantially lower cost than having U.S.-based workers

travel to the foreign production site. This has increased their ability to attract foreign production,

and these trends are continuing today.

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Digital Television

A significant portion of domestic production shot in foreign locations is production

intended for television. The U.S. post-production community which makes up the backbone of

the entertainment industry’s technical infrastructure is an industry that has developed over many

years. The industry has successfully incorporated new technologies into its work flow process.

With each new major technology shift, opportunities are created for new entrants in the

marketplace. The new entrants have a competitive advantage to the extent that they are able to

build facilities based on these new technologies. Existing facilities must continue to use the

previous generation of equipment until it is depreciated or paid for. As a result, their ability to

quickly adopt new technologies is often hampered by the significant economic investment in

prior generations of equipment.

The Federal Communications Commission (FCC) has implemented a plan to transition

the nation’s television broadcast system to one that is digital and high definition capable. The

level of resolution that a post-production facility will work at is often determined by the intended

venue for the programming. If broadcasters intended to broadcast high definition television

programming, this requires the post-production facility to work in high definition rather than

standard definition.

Currently, much of the film footage that is transferred to videotape (the standard way of

producing television programming) is transferred in at standard definition. This means that the

existing post-production facilities equipment is capable of working at a lower amount of

resolution than would be required to work in a “high definition.” Transitioning an existing

standard definition post-production facility to one that is high-definition-capable requires a

complete replacement of the facility’s existing post-production equipment. This “technology

shift” has created new opportunities for competition with new facilities being built to be high-

definition-capable while existing post-production facilities struggle to transition to high

definition while carrying a substantial investment and usually corresponding debt related to their

standard definition infrastructure.

This report examines a number of practices that various governments have instituted to attract film

production to their countries. The analyses and conclusions here are not intended to address the consistency of any

of the government practices discussed with either U.S. laws or international rules.

The Ernst&Young Guide to International Film Production, 1999 Edition, p. 129-130.

“The Government of Canada Announces Its New Feature Film Policy”, News Release, Canadian

Heritage, http://www.pch.gc.ca/culture/cult_ind/film-video.htm.

-71-

Two reasons are often cited for the shift in

production to foreign locations - government

incentive programs and lower production costs.

Many Canadian incentives in 1997-1998 affected

the1998-1999 season.

“[It is] possible the U.S. film industry has taken

advantage of Canadian subsidies to the fullest extent

possible for them at this time. Limitations on

shooting in Canada could include personal

preference by talent or producer, equipment

limitation, or Canadian workforce saturation.”

-- Entertainment Industry Development Corp.

Chapter 6

INCENTIVE PROGRAMS IN OTHER COUNTRIES

Foreign governments around the globe increasingly recognize the tangible and intangible

benefits of attracting film production to their countries. Many have taken steps to actively attract

film production, primarily from the United States, through financial incentives.

Indeed, many

of the top destinations for runaway production previously outlined, Australia, Canada, Ireland,

and the United Kingdom, offer substantial government incentive packages. These incentives

have contributed to the propensity of the U.S. film industry to produce U.S. films abroad in

recent years.

CANADA

The Canadian government (federal

and provincial) offers a number of

programs in support of the country’s film

industry. As highlighted in the Ernst &

Young “Guide to International Film

Production”, the support of the film

industry through Canadian government

incentive programs is a “well-known

national legacy”.

In October 2000, the

Minister of Canadian Heritage announced a

new Canadian Feature Film Policy. This

policy establishes several new incentive

programs and nearly doubles the federal

government’s investment in Canada’s

feature film industry from C$51 million to

C$100 million.

As part of a comprehensive program to encourage growth in the domestic film industry,

both Federal and provincial governments in Canada offer a wide range of incentives to both

assist domestic producers and attract foreign production. These packages may include direct

financial and tax incentives, labor credits, and aggressive marketing campaigns promoting

Monitor Report, p. 23 and Exhibits 22 and 23.

MPA Seeks Incentives in Mexico

David Robb, undated, 2000 Back Stage and BPI Communications, Inc.

Jeffrey Gentleman

“Trying to Keep the Movies From Moving, Runaway Film Production Issue Is

National, Congressmen Say”, Los Angeles Times

Valley Edition, January 20, 2000

David B. Zitzerman et al., March 2000, 8.

Based on conversations with industry representatives, these credits result in dollars being reimbursed to

production companies notwithstanding tax liability and without the need to file tax returns some months later and

then wait for the refunds. This reduces the amount of financing required and makes the credits more valuable.

-72-

Canada as a destination for production. According to the Monitor Report, U.S.-developed

productions located in Canada have been able to realize total savings, including incentives and

other cost reducing characteristics of producing in Canada, of up to 26 percent, with

approximately 60 percent of the direct savings coming from below-the-line labor cost

differences.

The Canadian incentive programs have been so successful, that it appears that the

Canadian incentive system may be used as a model for other countries in the future that are

attempting to build a film industry.

At the federal level, the Canadian government offers tax credits to compensate for salary

and wages, provides funding for equity investment, and provides working capital loans. At the

provincial level, similar tax credits are offered, as well as incentives through the waiving of fees

for parking, permits, location, and other local costs. While these programs at both the federal

and local levels sometimes require Canadian establishment, Canadian-controlled corporations,

and/or a threshold of costs incurred in Canada, these programs have become less stringent over

time. Many have argued that Canada has utilized their cultural exclusion under the NAFTA to

defend such programs, but there is much debate on the validity of such cultural claims. For

example, Congressman Jerry Weller of Illinois, concerned with the application of this exemption,

pointed out that a movie filmed in Canada starring Dennis Rodman and set in Chicago was

labeled Canadian cultural content.

U.S. film makers appear to benefit the most from Canada’s federal and provincial

Production Services Credits. These credits “are designed to promote and encourage foreign

production in Canada, and thereby develop and grow Canadian production service industries.”

The Federal Production Services Credit, announced in October 1997 and effective in 1998,

provides an 11 percent refund on qualifying Canadian labor expenditures.

Assuming that labor

expenditures total about 50 percent of production costs, such a credit can mean a potential

savings of 5.5 percent (11 percent of 50 percent) on total production costs. There are no

Canadian content requirements; U.S. producers qualify primarily through contracting for

production services directly with Canadian companies. Expenditure criteria determine eligibility:

a minimum of CAN$200,000 (US$135,000) per episode for a television series or pilot

production, or CAN$1 million (US$675,000) for any other type of film or television production,

The Sins of Cinar, The Montreal Gazette, March 17, 2000, and Odile Tremblay, L’Oeil du Cyclone, Le

Devoir, November 6, 2000.

-73-

All of these Canadian cities [Toronto, Montreal and

Vancouver] directly rebate 22 percent of the labor costs to

each and every production they attract.

-- Commissioner Patricia Reed Scott

Testimony by the Commissioner of the Mayor’s Office

of Film, Theatre & Broadcasting before the New York

City Council

“In some provinces, production houses get a tax

credit of as much as 35 percent for money they

spend on labor. In Ontario, the figure can be 50

percent. Couple that with generally lower costs in

Canada and a strong U.S. dollar, and the result is

the defection of productions to Canada.”

Source: The Washington Post, November 5, 2000

including a feature film. All ten Canadian provinces have implemented similar measures. These

credits can be combined with federal credits up to a certain maximum level (see Canadian

incentive table below).

Foreign film makers can also take advantage of Canadian tax shelters, which were phased

out in 1997, but reintroduced in 1999. These shelters allow Canadian financiers to offer

structured film-financing incentives of three percent to four percent of non-Canadian labor

expenditures (NCLE), in

addition to production services

tax credits. Because taking

advantage of the NCLE tax

shelter requires complex film

financing arrangements, typically

only large U.S. studios use the

shelter arrangement.

Canadian experience

suggests that administering tax incentive programs is not without problems. Cinar Corporation

of Montreal, a producer of children’s programming, has been under investigation since early in

2000 concerning whether the company falsely claimed film tax credits. The primary allegation

has been that Cinar put the names of Canadian authors on screenplays in fact written by U.S.

authors. As of the end of the year, the investigation was not yet completed, but the scandal has

shaken the Canadian administration of film tax credits.

The Canadian government, particularly at the provincial level, has actively advertised

their incentive packages and other benefits to producers. Many provinces have elaborate websites

to highlight the benefits for companies willing to shoot their productions in Canada. Ontario’s

website is a good example. The

province’s website not only

highlights the tax breaks, the local

support and incentives, but provides

extensive information on local

companies, wages and salaries,

listing of locations that provide the

appearances of U.S. and

international settings, and even an

exchange rate converter between

two currencies--the U.S. and

Canadian dollar.

Dave McNary, “U.S., Canada Film-Production Brouhaha Advances a Frame,” Daily News [Los Angeles],

B1.

Financial assistance comes from the Province of British Columbia through the Ministry of Small

Business, Tourism and Culture.

The Market Incentive Program was closed in November 1998. Funding commitments, however, have

extended beyond this closing date.

-74-

Encouraging B.C.’s domestic film and

television industry as we head into the 21

century is an important government priority.

– Ian Waddell

Minister of Small Business, Tourism and Culture

Press Release: January 6, 2000

Announcing BCF Commitments for 1999/2000

According to information from provinces where foreign film production data is readily

available, U.S. film production surged after the introduction of provincial tax credits. For

example, in British Columbia, foreign production growth, in terms of percentage change from

year to year in production dollars spent in the province, was in the teens in 1996 and 1997; that

growth percentage slumped to 3.5 percent in 1998 and then grew 51.2 percent in 1999. The

British Columbia Credit was enacted in June 1998. For the fiscal year ending March 31, 2000,

the British Columbia Film Commission (BCFC), the provincial government’s domestic film and

television tax credit program, issued tax credit eligibility certificates totaling $9.7 million to

production companies and supported 51 film and television projects, representing $112 million

worth of production in British Columbia. In July 1999, the province announced a CAN$50

million (US$34 million) expansion program for sound stages in Vancouver, CAN$14 million

(US$9 million) of which are in the form of a government loan from the province.

In a press release this past summer,

the British Columbia Film (BCF), the

province’s film development agency

announced production commitments for

2000/2001. The agency has already

committed CAN$2.5 million (US$1.68

million) in equity financing to produce 35

film and television projects through its

Television and Film Financing Program

(TFFP) . In addition, nine television series

and 3 feature films are to receive production support, 22 broadcast singles/documentaries have

financing commitments, and 2 projects, a feature film (Protection) and a documentary special

(Lilith Fair), will receive support through completion funding. This announcement by the BCF

relates to funding commitments made through British Columbia’s TFFP and the Market

Incentive Program (MIP)

and does not include activity through the provincial government tax

credit programs Film Incentive BC and the Production Services Tax Credit.

Similar to British Columbia, where foreign film production had dropped in 1997, Ontario

saw a 65 percent surge in 1998. The Ontario production credits, specifically the services tax

credit (OPSTC), were introduced in November 1997. Similarly, film production credits were

introduced in Quebec in February 1997. Notably, provinces with less-developed film production

-75-

infrastructures (Manitoba, Saskatchewan, and Nova Scotia) are attempting to boost their film

production industry by offering incentives of over 20 percent.

CANADA

INCENTIVE PROGRAMS FOR FILM PRODUCTION

Federal

Film Production Service Tax Credit (PSTC

): This is a tax credit equal to 11% of salary and

wages paid to Canadian residents, with no cap on the amount. Eligibility: Available to taxable

corporations with a permanent establishment in Canada whose primary business is the production of

film and videos. Production costs must be at least C$1.0 million for a film, or C$100,000 for a pilot

or episode of less than 30 minutes.

Canadian Film or Video Production Tax Credit (CPTC):

This credit is equal to 25% of eligible

labor costs, to a maximum of 12% of total production costs. Total production costs are reduced by

provincial tax credits and other grants. Eligibility: Available to Canadian-controlled taxable

corporations whose primary business is Canadian films and videos. A minimum of 75% of

production costs must be paid to Canadian individuals and 75% of production must take place in

Canada.

Canadian Television Film (CTF) Fund

: An equity investment program, with a budget of C$200

million per year, to enhance the Canadian broadcasting and production sector’s capacity to make

and distribute television programming in the two official languages. (Generally, foreign co-

production companies cannot qualify for CTF funds.)

Culture Industries Development Fund (CIDF

): Provides loans from C$20,000 to C$250,000 for

working capital, expansion projects, and special initiatives for Canadian-owned cultural businesses.

(Foreign-owned companies cannot generally use this program.)

Feature Film Fund

: This fund, which is administered by Telefilm Canada, assists the development

and production of English- and French-language feature films destined for theatrical release.

Multimedia Fund

: This fund supports the development, production and marketing of educational

and entertainment multimedia products intended for the general public and is administered by

Telefilm Canada.

Feature Film Distribution Fund

: This fund is aimed chiefly at recognized Canadian distributors,

providing lines of credit for use in acquiring the distribution rights to Canadian feature films.

Versioning Fund

: This fund serves to make Canadian works more widely accessible in both official

languages, on television and in movie theaters.

Canadian Production Marketing Fund

: This fund has two components: national (test marketing,

launch, advertising and promotion) and international (promotional campaigns, advertising in

specialized publications, marketing, etc.).

Alberta

Film Project Grants

: The Alberta Film Commission offers grants of up to C$500,000 per project

per year.

British

Columbia

Film Production Services Tax Credit

: A credit of 11% of the labor costs paid to taxable Canadian

residents and corporations. Taxable Canadian corporations or foreign-owned corporations with

permanent facilities in British Columbia are eligible for this program. Production costs must be at

least C$1.0 million for a film, or C$200,000 for an episode of a series.

“Certified Canadian” Film Incentive BC Tax Credit

: A tax credit of 20% of labor costs, which

are capped at 48% of production costs. An additional 12.5% regional credit for doing principal

photography outside of Vancouver. All claimants must be BC-based production companies and

75% of production and post-production must be done in British Columbia. The film must be

“certified Canadian” by meeting four out of ten “Canadian content criteria.”

Manitoba

Film Production Tax Credit:

Rebates 35% of approved Manitoba labor expenditures, up to a

maximum of 22.5% of eligible production costs.

Winnipeg Film Incentive Package:

Free parking, waivers of permit fees and location fees.

Deeming Provision:

If there are no qualified production personnel available in Manitoba, then

production staff can be brought in from outside the province, as long as training is taking place. If

this is the case, salaries will be considered for the Film Production Tax Credit.

-76-

CANADA

INCENTIVE PROGRAMS FOR FILM PRODUCTION (Continued)

New

Brunswick

Labor Incentive Tax Credit

: The credit is equal to 40% of wages paid to New Brunswick

residents, up to a maximum of 50% of total production costs of a film. The eligible film production

company must have permanent facilities in New Brunswick and have less than C$25 million in

assets.

Film Development & Production Assistance

: Up to C$500,000 available per project to New

Brunswick-controlled corporations.

Newfoundl

and &

Labrador

Labor Tax Credit

: The amount of the credit is 40% of the eligible Newfoundland/Labrador labor

expenditures, to a maximum of 25% of the total production costs. Eligible labor must be resident in

Newfoundland/Labrador, though in some cases the residency requirement may be waived. There is

an annual tax credit maximum of C$1.0 million per project, and C$2.0 million per associated group

of corporations.

Nova

Scotia

Film Tax Credit

: For production in the Greater Halifax Region, the amount of the credit is 30% of

eligible Nova Scotia labor expenditures, up to a maximum of 15% of total production costs.

(Outside of the Halifax Region, this is 35% and 17.5%, respectively.) This credit is available only to

Canadian taxable corporations with a permanent establishment in Nova Scotia.

Ontario

The Ontario Film Development Corporation (OFDC

) administers a tax credit program worth an

estimated C$50 million a year. The OFDC administers four tax credits based on eligible Ontario

labor expenditures.

Ontario Film & Television Tax Credit

: A rebate of 20% on labor costs, available to Canadian-

controlled, Ontario-based production companies.

Ontario Production Services Tax Credit

: An 11% refundable tax credit on Ontario labor costs,

available to foreign-based and domestic productions. A bonus of 3% is provided for projects with at

least five production days in Ontario, and at least 85% of production days outside of the Greater

Toronto Area.

Ontario Computer Animation & Special Effects Tax Credit

: A 20% rebate of qualifying labor

expenditures. Available to Canadian or foreign-owned corporations.

Ontario Interactive Digital Media Tax Credit

: This 20% refundable tax credit on labor costs is

eligible for projects involving interactive digital media.

Prince

Edward

Island

Development Loan Programs

: Loans are available to qualifying companies that are provincially or

federally incorporated and which have headquarters on PEI. Though no tax credits for labor are

available, loans are available to finance development and production of film or video projects on

PEI.

Quebec

Film Tax Credits

: An 11% refundable tax credit for film or television productions, applicable to

labor costs. There is also a special 31% tax credit for certain labor expenditures related to computer

animation and special effects. Minimum production costs are C$100,000 for a 30-minute TV

episode, C$200,000 for a longer episode, and C$1.0 million for a film production.

Refunds of Provincial Sales Tax

: A refund to non-residents of the 7.5% tax on the cost of goods

and services.

Quebec City Film Incentives

: Granted to foreign film producers when billing for municipal

services. This eliminates the 20% administration fee, as well as approximately 30 % of the gross

cost of municipal services provided.

Saskatche

wan

Film Employment Tax Credit

: A rebate of 35% of total wages of all Saskatchewan labor, up to

50% of eligible production costs. There is additional 5% bonus for Saskatchewan labor expenditures

for productions based in smaller centers and rural areas.

Deeming Provision:

If there are no qualified production personnel available in Saskatchewan, then

production staff can be brought in from outside the province, as long as training is taking place. If

this is the case, salaries will be considered for the Film Employment Tax Credit.

Source: Research conducted by the US&FCS – December 2000 and Canadian Audio-Visual Certification Office Information Bulletin

-77-

Figure 28

A study conducted by the Boston Consulting Group on behalf of the City of New York

identified the criteria evaluated by industry when selecting a production location (see figure 28).

While the information collected indicates that minimal consideration is given to government

policies and incentives, the study also shows that significant consideration is given to the cost of

labor. In Canada, where significant rebates are provided for labor costs, the study would indicate

that when considering to shoot production in Canada, government policies and incentives would

play a very important role in attracting production. The labor component received an importance

weighting of approximately 24 to 31 percent, which clearly suggests that labor rebates would be

a key determinant in deciding a production location. Canada’s labor rebates provide a

tremendous incentive for producers to take their work north.

UNITED KINGDOM

The United Kingdom (U.K.) has been successful in attracting foreign investment

in the film industry through an array of programs offering taxation assistance, investment and

financing arrangements. One of the major incentives is a 100 percent tax write-off for both

feature film and made-for-television production, which is provided if specific criteria are met:

majority use of U.K. or European Union nationals or residents for production purposes, use of

U.K. studios for production, and supply of half of all technical production equipment by U.K.

companies. The United Kingdom imposes no minimum cultural requirement qualifications.

For a detailed summary of the benefits covered, see Michael F. Dell et al., The Ernst & Young Guide to

International Film Production: An Overview of Business Incentives and Tax Matters (New York: Ernst & Young

LLP, 1999).

The British Film Council’s role as lottery distributor means that its annual budget depends on how many

lottery tickets are sold. Partial proceeds from the sale of lottery tickets are distributed to the Council for further

distribution under its programs. These lottery funds are also used to finance projects in England, Northern Ireland,

Scotland, and Wales.

-78-

Additionally if a foreign production cannot qualify for a 100 percent tax write-off, it can apply

for benefits under a U.K.-sponsored “leaseback” scheme. In a “leaseback” transaction, a non-

qualifying foreign production company sells its film rights to a leasing company, which, in turn,

leases back the film rights to the production company. The transaction allows the U.K. lessor to

take advantage of tax relief; the value of the benefits is divided between the U.K. partner and the

foreign production company.

In addition to the tax incentives, the U.K. government established in April 2000, the

British Film Council (BFC) under the umbrella of the Department of Culture, Media and Sport.

The BFC serves as a lottery distributor

for film production and is responsible for :

• The British Film Commission (promoting inward investment) ;

• The Arts Council of England's Lottery Film Department (investing in film

production)

• The British Film Institute's Production Department (investing in film production)

• British Screen Finance (a publicly supported film investment company, which will

be incorporated into the Film Council)

• The British Film Institute (BFI) (an independent body funded by the Film Council

to deliver cultural and educational opportunities for the public).

Various incentive programs are available under the auspices of the British Film Council

and range from providing funds for development including writer’s, writer’s research fees, and

other aspects of development of the production to providing production funds for commercially

viable projects. According to the BFC, generally funding is repaid to the BFC either through

premiums on its loans, or through a profit sharing role taken by the BFC commensurate with its

participation in the project. Some of the programs administered by the BFC are available to

individuals; however, most of the funded programs are available only to companies or

corporations. In addition, though funding is targeted at the British film industry, foreign

production companies may be eligible for certain programs. Specific programs funded by the

BFC include the New Cinema Fund and the Premiere Fund.

Other programs offered in Britain are:

• 100 percent capital allowances write-off in the first year on expenditures on (1)

production and acquisition of British films with budgets under a certain amount, (2) film

franchises financed by national Lottery funds, and (3) grants for British film production

100

Geitner, Paul, “EU Bank to Help European Media,” Associated Press, December 19, 2000.

101

For more information, see European Investment Bank press release on December 19, 2000 which can be

found at: http://eib.eu.int/pub/press/2000/sp021.htm

-79-

• ‘Sale and leaseback’ arrangements are offered by British banks, while other financial

institutions offer portfolio investment in the form of risk capital spread across a parcel of

films

• British Screen Finance (British Screen) offers commercial loans for film projects from

British film makers which are unlikely to receive commercial backing. Investments are

offered up to $810,000 per project or 30 percent of its budget, whichever is lower.

• The ECF is administered by British Screen and offers funding for production companies

based in Britain whose film project qualifies as British under the terms of the 1985 Films

Act.

Regional programs that are offered in the United Kingdom include:

• The Moving Image Development Agency (MIDA) which funds Liverpool-based and other

film production companies which spend at least twice the level of any investment made

by the fund in the Merseyside area in North West England.

• Glasgow Film Fund which supports productions filmed around Glasgow. Funding is

available for film production companies in the region, or produced by or with a Glasgow-

based company.

• Yorkshire Media Production Agency, which provides for production loan financing to

feature and short films and to television and multi-media projects. Some funding is

available to media production and companies which are based outside the region,

provided they agree to spend in the area at least double the amount of money they receive

as a loan.

• The Manx Scheme (Isle of Man Film Commission) is aimed at low and medium-budget

films. It offers tax credits for film producers. To qualify for this program, at least 20

percent of the production costs have to be spent on the island using island-based

companies and individuals.

Finally, the European Union announced in mid-December 2000, that it had earmarked

EUR 50 million (approximately $45 million) in a Venture Capital for Creative Industries fund

“to help European media companies compete with Hollywood and Silicon Valley.”

100

The

money will be provided by the European Investment Bank (EIB), in cooperation with the

European Investment Fund, over three years in the form of loans, credit lines, and backing for

venture capital funds in order to support small- and medium-sized film production companies

with low-cost loans, and for larger recipients to build high-tech studios and digital

installations.

101

This money may aid state and regional programs as well.

AUSTRALIA

Although the Australian government is a major financial supporter of its domestic film

industry, it appears to offer few federal incentives to foreign producers. Australian film

102

Information found on Screen Tasmania website, available at:

http://www.screentas.tas.gov.au/funding/guidelines/general.html

-80-

incentives at the federal level for feature or television films have requirements for Australian

content as well as significant participation of Australian partners. Australian state-based

incentives, however, do not always have such restrictions. In fact, state-based incentives ranging

from payroll tax rebates and exemptions to producers appear to be very attractive to foreign film

makers.

Queensland

The Pacific Film and Television Commission in Queensland, with the assistance of the

Queensland State Government, offers payroll tax rebates and cast and crew salary rebates for

productions filming in Queensland. The Queensland payroll taxes are fully refunded for projects

spending at least $A3.5 million (US$2.0 million) in Queensland with no Australian content

requirements or restrictions on foreign film companies. Cast and crew salary rebates of 8 percent

to 10 percent are available only for below-the-line workers. The exact rebate amount is based on

the value of the production’s expenditures in Queensland. Queensland also offers free police and

fire services during production.

New South Wales

Payroll tax rebates are available for certain productions filmed at Fox Studios in Sydney.

In addition, the New South Wales Film and Television Office (FTO), which is funded by the

New South Wales government, provides financial assistance and other aid to productions filmed

in New South Wales. While some of this aid is specific to Australian productions, such as the

Regional Film Fund which begins January 1, 2001, other production aid may be available to

foreign filming companies.

South Australia

Payroll tax exemptions are available for feature films shot mostly in South Australia. In

addition, the South Australia Film Corporation, a government-financed organization, provides

loans, grants, and other funding opportunities.

Tasmania

The state government in Tasmania offers payroll tax exemptions and funding for film

productions through a state agency, Screen Tasmania. Funding guidelines for Screen Tasmania

indicate that priority is given to funding Tasmanian projects or projects which will benefit

Tasmania. Although projects originating outside Tasmania may apply for aid, the project must

be primarily filmed in Tasmania and generate “substantial employment opportunities for the local

industry.”

102

Funding from Screen Tasmania may be provided for production, (equity investment

or loan), script development (Screen Tasmania will share in copyright ownership), producer’s

assistance (limited recourse loans which are repayable on the first day of filming at an interest

103

Hugh Linehan, “Whatever Happened to the Irish Film Industry?” The Irish Times, July 30, 1999,

<http://scripts.ireland.com/search/newspaper/features/1999/0730/fea4.htm>

-81-

rate to be determined by the board), and industry and cultural development, including marketing

assistance (grants).

Victoria

Victoria’s newly established Production Investment Attraction Fund (PIAF) is available

for productions that spend a minimum of 70 percent of their total production budget in Victoria

and spend a minimum of $A3.5 million (US$2.0 million) in the state. In addition, a Regional

Victoria Film Location Assistance Fund (RLAF) was established to provide $A100,000

(US$57,000) annually to promote filming in regional Victoria. Projects considering a regional

Victoria location (i.e., outside of Melbourne) for filming for a duration of at least one week may

apply for funding.

IRELAND

Ireland is becoming an increasingly attractive country for international film production.

Due to the unique countryside, the weakened currency, the generous tax incentives, and

avoidance of the EU quotas, more and more producers are considering Ireland for their film

production. In an effort to cultivate a healthy foreign and domestic film industry, the Irish

government offers the Section 481 tax incentive ((S481) formerly Section 35), a non-refundable

subsidy of up to 12 percent for film production. With Ireland’s government ratifying the EU Co-

production Convention, films produced in Ireland not only gain access to the 20 European

countries, but to the support measures provided by each of these countries as well. However,

government support for Section 481 has been erratic, which has made U.S. film makers uneasy

about filming in Ireland. In fact, Section 481 has been gradually reduced since 1996, and until

2000 was being extended only for one year at a time.

Given that Hollywood production planning is done 12 to 18 months in advance of the

start of filming, a one-year tax incentive that had suffered cutbacks stimulated little interest

among U.S. studios. In fact, Kevin Moriarty, managing director of Ardmore Studios, a major

Irish production facility, blames the uncertainty surrounding Section 481, along with increasing

competition from Australia and Canada for U.S. films, for a drop of more than 50 percent in

activity at his studios in 1999.

103

A Film Industry Strategic Review Group came to the same

conclusion in August 1999. Referring to the report, Irish Screen Commission Chief Executive

Roger Greene commented:

The single most important issue for the inward production industry (foreign or U.S.

companies wishing to produce here) is the recommendation to renew Section 481 for a

further seven years. . . . Long-term tax incentives are vital for the industry as a whole –

indigenous and incoming. Because of the uncertainty about the future of S481 this year,

foreign producers have shied away from Ireland as a potential location. The impact of

104

Screen Commission of Ireland. “August – Statement from the Screen Commission of Ireland on the

Report from the Film Industry Strategic Review Group,” referring to recommendations in The Strategic

Development of the Irish Film and Television Industry 2000-2001, Final Report of the Film Industry Strategic

Review Group to the minister for Arts, Heritage, Gaeltacht and the Islands (Dublin: August 1999), 13, 18,

<http://www.screencommireland.com/news~inx.htm>

105

From AFMA newsletter article.

106

Michael Dwyer, “Film Production Upsurge with 18 Planned Projects,” The Irish Times, May 20, 2000,

<http://scripts.ireland.com/search/newspaper/ireland/2000/0520/hom13.htm>

-82-

“Although production costs are roughly

equivalent to those in the United States,

Irish tax incentives make filming there

very attractive.”

– Roger Corman

President of New Concorde

Source: AFMA Newsletter January 2001

“.....Needless to say, the financial incentives were the

real driving force.”

-- Mark Amin

Chairman and CEO of Trimark Pictures

Comments regarding his decision to shoot

production in Ireland.

Source: AFMA Newsletter Jan 01

this, coupled with a general downturn in production world wide, has meant a considerable

reduction in production in Ireland for 1999.

104

Today, however, Section 481 has been renewed for another five years and helps to

maintain the tax relief level at 80 percent.

105

Since Section 481 was extended by the

Minister of Finance, production is reported to

have increased. In February 2000, 11 films

were reported in production or post-

production, and in May 2000, 18 films were

awaiting certification by the Department of

Arts and Heritage.

106

All 18 of the latter films

had applied for the Section 481 tax incentive.

Most recently, the Minister for the Arts,

Heritage, & the Islands indicated that with several projects already certified and additional

projects still awaiting approval, figures for the year 2000 (US$66.5 million) have already

exceeded 1999's production spending of US$61.9 million. The tax incentives, coupled with the

ability to avoid the EU’s quotas, have made Ireland an extremely attractive location to shoot

production.

Filmmaker and President of New Concorde, Roger Corman, has established a presence in

Ireland. Today, with the help of grant money from the Irish Government, Concorde has

constructed a state-of-the-art studio (Concord Anois) featuring two major sound stages, post

production facilities, full wardrobe and a manor house for cast and crew. This studio has shot 11

films with an additional four in pre-production. The studio has been very successful and Corman

has even rented out his studio and recruited others to film in Ireland. Mark Amin, Chairman and

CEO of Trimark Pictures indicated

that when Corman first suggested

Ireland for a location to shoot

Warlock, he was very skeptical.

However, after careful consideration,

financial incentives being the driving

force, he was pleased with the results

of filming in Ireland.

107

Information found on the website: http://www.filmfund.nl/.

108

Holland Film, “New Dutch film promo scheme launched; Rotterdam fetes 50+ Dutch films” Found at

http://www.hollandfilm.nl/news/014.htm

.. [ Holland Film, which is affiliated with the Dutch Film Fund, is the

official promotion agency for Dutch Film abroad. The organisation, financed from public funds, offers a wide

variety of services for Dutch film-makers and producers to enhance the perception of Dutch film-making worldwide.]

109

COBO Fund: The COBO Fund encourages co-productions between national broadcasters and

independent film producers.

[Found on Holland Film website at: http://www.hollandfilm.nl/factsfigures/index.htm

]

110

The Dutch Cultural Broadcasting Promotion Fund provides grants to encourage the development and

production of cultural radio and television programs. The programs concerned are mainly cultural programs, largely

of Dutch origin with a high degree of artistic merit and are to be broadcast by one of the national broadcasting

companies, an educational broadcaster, or a religious denomination with national broadcast time. Moreover, these

programs need to be in the Dutch language for at least 60 percent. The fund provides grants for the production of

programs, initiatives to develop them and to improve the quality of cultural programming in general.The budget

amounts for at least one sixteenth of the income from advertising on national public television. [Found on Holland

Film website at: http://www.hollandfilm.nl/factsfigures/index.htm

111

National broadcasting companies: The participation of one of the national broadcasting companies is

required to be eligible for the COBO- and the Dutch Cultural Broadcasting Promotion Fund.

[Found on Holland

Film website at: http://www.hollandfilm.nl/factsfigures/index.htm..]

112

EURIMAGES is the European Coproduction Fund in which 24 member States of the Council of Europe

participate. Its aim is to promote through financial assistance the coproduction, distribution, exhibition and other

forms of exploitation of creative cinematographic and audio-visual works

[Found on Holland Film website at:

http://www.hollandfilm.nl/factsfigures/index.htm

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THE NETHERLANDS

In the Netherlands, funding for film production is made available through the

government-funded Dutch Film Fund (Nederlands Fonds voor de Film) which is responsible for

coordinating national support to the film industry in the Netherlands. Various methods of

funding may be provided including loans for development, production and distribution of fiction

films, and documentaries, and animation films. Generally speaking, the loans are made available

through a Dutch-based producer and support for development is only available for essentially

Dutch projects.

107

In addition to film development assistance, the Fund also sponsors a

marketing and promotion program that directs as much as $30,000 per year in matching funds for

distribution purposes.

108

In 1998, the latest year for which data were available, the Dutch Film Fund, as well as

other publicly-financed organizations, significantly contributed to feature film production. In

addition to the Fund, aid is provided by the COBO-fund,

109

the Dutch Cultural Broadcasting

Promotion Fund,

110

national Dutch broadcasting companies,

111

Eurimages,

112

and others.

In addition to programs which are offered on a country-wide basis, there are some

regionally specific programs in the Netherlands. In Rotterdam, for example, the Rotterdam Film

113

Information found from Rotterdam Film Fund website at:

http://www.rff.rotterdam.nl/site/eng/rff/financieel.htm

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Fund (RFF) provides grants for the production of feature films, documentaries and television

productions made partly or entirely in the Rotterdam region. Funds for these grants are provided

by the Rotterdam Development Corporation. In addition to grants, the RFF also may provide

interest free loans and ‘extra development contributions’. Funds disbursed by the RFF may be

granted to Rotterdam-based producers, producers based elsewhere, and foreign producers with

co-producers based in Rotterdam. One of the conditions to receive aid under the RFF is that 50

percent of the sum that is borrowed must be spent in the Rotterdam region. Further conditions

include that of this fund, at least 25 percent must be used in the audiovisual sector (staff,

facilities, materials) and 25 percent in other sectors.

113

SOUTH AFRICA

In South Africa, the majority of funding for film is provided through the government-

developed National Film and Video Foundation (NFVF), established in October 1999. The

NFVF oversees film policy, public funding, promotion of South African films, and awards yearly

government funded grants for film development and production for features and shorts. The

NFVF offers funding in the form of grants or low-interest loans to individuals, companies, and

organizations for a variety of film- and video-related expenses, including: education and training,

development funding, production funding and marketing and distribution and is currently

discussing the possibility of funding in the areas of information, research, advice and

endorsement. Also, in certain cases, the NFVF may enter into equity arrangements with

companies whose production will yield commercial success.

The NFVF also provides aid in the form of grants or repayable loans for local and

international marketing and distribution purposes. In order to qualify, independent producers and

local distributors must be in possession of locally-produced, completed film and television

product. The following aspects of film marketing and distribution qualify for support:

• Test screenings

• Film launches

• Entry costs and freight costs for the submission of films to local and international

festivals and markets

• Travel to local and international markets

• Theatrical exhibition costs (print and advertising)

• Video promotion costs (launches, video sleeves, catalogues, posters)

• International film and video marketing costs.

In the case of production funding, priority is given to South African-owned production

companies that have reasonable experience and to new and emerging filmmakers that would not

otherwise have the opportunity to participate in the local film industry. Other criteria taken into

consideration include:

114

Information taken from the National Film and Video Foundation website at: http://www.nfvf.co.za/,

visited December 27, 2000.

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• Credible track record in production

• Distribution intent or financial commitment from other partners

• Guaranteed rural or township exposure on screen

• Language diversity

• South African perspectives and leading roles for South African actors

For commercial film production, the NVFV will fund a maximum of 25 percent of the

budget through an equity investment scheme. Qualified applicants include those with proof of

South African identity.

Foreigners may apply for NFVF funding, though they must be able to explain how their

project, organization, or skills would benefit the development of the South African film and

television industry.

114

Other criteria and priorities taken into consideration when funding is being

considered include:

• Positive impact on the local film industry

• Advancement of people from historically disadvantaged communities

• Projects or organizations that are of national importance;

• Proposals that contain local content

OTHER COUNTRIES

This chapter is intended to highlight the incentive programs being utilized by countries

that are the primary benefactors of runaway film production. What is clear is that many countries

outside the United States have recognized the importance of the film industry and have

developed programs and incentives to attract U.S. film production to their shores. These

incentives are particularly aimed at courting U.S. film production to overseas locations. While

the benefit and impact of the various incentive programs can be debated, it is undeniable that

these programs threaten the market position of the U.S. industry and jobs of the U.S. workers

they employ.

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Chapter 7

CONCLUSION

Although the precise impact is difficult to quantify, the data and anecdotes analyzed for

this report present a compelling case that the runaway film problem could threaten to disrupt

important segments of a vital American industry and the thousands of workers who depend on it.

Not only would this have a serious effect on local communities and families around the country,

it could also turn out to have an adverse impact on an important and influential aspect of

American popular culture.

Many Players Involved

The factors leading to runaway film and television production that we have identified in

this report – globalization, rising costs, foreign wage, tax, and financing incentives, and

technological advances – combine to tell a story of a substantial transformation of what used to

be a traditional and quintessentially American industry into an increasingly dispersed global

industry. The dispersal is as remarkable for its diversity of causes as it is for its diversity of

players. The players have for the most part reacted to global, economic, and technological forces

largely, though not exclusively, beyond their control. Production companies have taken

advantage of lower costs in other countries, but they have done so often to seek operating

efficiencies when the alternative may have been bankruptcies and even more layoffs. Unions and

guilds have sought to maximize wages and benefits for their members in order to obtain a higher

standard of living for their members

families and local communities.

Foreign governments may have stepped in to harness some of the forces for change, but

they certainly have not created all of them. Indeed, governments have gone beyond harnessing

the forces of global economic and technological advances by creating wage and tax incentives

that may have tipped the scales in their favor. Although it is not clear that foreign incentives

were the primary factor in determining the location of film and television production, there is no

doubt that, when combined with all the other factors discussed, government incentives

constituted an important consideration.

Ongoing U.S. Efforts on Behalf of the Film Industry

Expanding Markets for US. Films

International distribution of filmed entertainment, the natural result of film production,

has been a sensitive issue for several years in international trade negotiations. The United States

has generally taken the position that distribution of filmed entertainment should be covered under

existing trade agreements, notably the General Agreement on Trade in Services. The United

States achieved limited success in negotiating coverage of film trade in the Uruguay Round; yet

few countries made commitments in this sector. The European Union and Canada did not.

France and Canada have since proposed exempting cultural industries, including filmed

entertainment, from international trade rules. This proposal is contrary to the U.S. position that

115

“Remarks by Jackie M. Clegg, VP and COO, Ex-Im Bank of the US, “Independent Film Financing

Program, Beverly Hills, California, March 16, 2000.

116

Telephone conversation with Lew Horowitz, motion picture financier, April 13, 2000.

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trade in cultural industries, including filmed entertainment, should be subject to international

trade rules. As long as countries resist efforts to liberalize the distribution of films, many film

producers will be forced to produce films abroad where many of our trading partners maintain

film import quotas and other restrictions on film importation. The United States will continue its

strong efforts to include film distribution in discussions related to services in international trade

negotiations. By breaking down quotas and other trade restrictions on the free international flow

of films, the United States will remove another incentive for U.S. film producers to move

production sets abroad as a means of getting around film quotas.

As part of a recent World Trade Organization (WTO) submission laying out our services

negotiating objectives, the United States included a paper on Audiovisual and Related Services.

The paper calls on all our trading partners to make market access commitments for the

audiovisual sector, under the auspices of the General Agreement on Trade in Services, that

reflect the broader scope of the sector in today

s digital environment.

At the same time, at UNESCO headquarters in Paris, efforts by France and Canada to

create support for a proposal to remove cultural issues from the WTO and place them in a “new

instrument,” possibly UNESCO, found little support. The United States, although not a

UNESCO member, made an intervention strongly opposing this idea.

The Export-Import (Ex-Im) Bank Loan Guarantee Program

In March 2000, the Ex-Im Bank and the American Film Marketing Association (AFMA)

announced the Film Production Loan Guarantee Program.. The program provides government-

backed loan guarantees specifically for independent film projects, which are financed by loans

secured by pre-sales contracts with independent foreign distributors. The goal is to increase the

number of independent films produced in the United States and to boost job creation in the U.S.

film sector. In early 2000, the independent film industry was estimated to support 148,000 U.S.

jobs, with a $2.5 billion payroll.

115

The loan program is targeted at film makers looking to

produce films with budgets between $1 million and $15 million. One film financing expert

estimates that 15 percent or more of loans currently not being made would be extended because

of the loan guarantee program.

116

In an effort to stem runaway production, the program requires

that at least 50 percent of production costs must be of U.S. origin. As of December 2000, the

program is close to becoming operational, but must await resolution of details concerning

documentation.

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Small Business Administration Loan Program for Independent Film Production

On December 14, 2000, SBA Administrator Aida Alvarez announced an SBA loan

project to provide government-guaranteed backing for commercial loans to small independent

film makers. Alvarez and SBA officials signed partnership agreements with representatives of

film making associations in New York City and Los Angeles, pledging mutual assistance to help

small, independent film makers fund their creative projects. This project is designed to keep

production of small, independent films at home, reducing the exodus of U.S. film production to

other countries for financial reasons. The program recognizes intellectual property as collateral

to secure SBA-guaranteed loans. In order to qualify for the program, all production must be done

in the United States, and a portion of the distribution rights must be pre-sold. Loans requested

under this program will be funded according to the rules and provisions of SBA

s 7(a)

guaranteed loan program, which last year provided a record $10.52 billion in small business start-

up or expansion capital.

Some industry representatives point out that, while helpful, the effect of reduced

financing costs from this program amounts to only a fraction of the government economic

incentives offered in foreign countries.

Industry Ideas to Alleviate the Problem of Runaway Film Production

Full integration of audiovisual services into the WTO, as well as worldwide national

treatment and most-favored nation treatment with respect to the audiovisual sector, are extremely

important to our overall film industry. However, these goals would only partially address the

problem of runaway film production. Similarly, the government-sponsored loan guarantee

programs, while important, are too small to address the entire problem of runaway film

production. The problems we have identified in this report, such as globalization, foreign

government incentive programs, technological advances, and rising production costs, may need

to be addressed in some other fashion. We have compiled a list of the efforts made by industry,

unions, and government to address some of the problems caused by runaway film production,

and we have categorized the major proposals put forth by these individuals.

Improved Collection of Film Industry Data

There are almost as many methods for collecting film industry data as there are

organizations collecting the data. The short-term nature of most film employment, the tendency

of some film-related employment to fall outside of recognized employment classifications (i.e.,

dry cleaners, caterers, accountants, carpenters), and the collection of data at the local level by a

wide range of methods, make it extremely difficult to get a clear picture of the full economic

impact of film production in the U.S. economy, the overall health of the industry, and the real

effect of runaway film production. Current data collection does not address the full range of

professions involved in film production, there is no clear measure of the economic impact of

production (some look at production days, others production budgets, others the number of film

starts), and multipliers are applied inconsistently. Much of the data collection on production

days and budgets is done by local film commissions, but overall wage and employment data is

generally tracked at the state level. Getting aggregate data at the national level is even more

117

A number of states offer a variety of incentives aimed at encouraging or attracting local film production,

including sales tax exemptions on hotel stays over 30 to 60 days, sales tax exemptions on qualified production costs

(usually for equipment and supplies but not for labor expenditures), streamlined procedures for obtaining permits

and discounted rates for many city services (police, fire, and so on).

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difficult. While many of the improvements to data collection (e.g., definition of effective

measures and professions to include) need to be industry-led, there is room for coordination at

the national level among various film commissions, unions, government agencies, and trade

associations to collect and publish uniform and consistent industry data.

Government Incentives

Many industry observers have noted that foreign countries offer tax incentives to attract

foreign film production. Some industry observers have proposed that the United States or

individual states offer comparable tax incentives to encourage production in the United States.

Industry participants point out that the currently available U.S. state incentives for film

production are significantly less than the incentives offered by Canada, Australia, Ireland, or the

United Kingdom.

117

International Trade Agreement Enforcement Actions

Some industry participants suggested a potential trade action against certain foreign

government incentive policies. Other industry representatives are opposed to such action.

However, all industry participants agree that many complex legal questions would have to be

addressed first, such as whether international trade in film is subject to rules applicable to goods

or services, whether there would be sufficient industry support to satisfy legal requirements, and

whether the provisions in certain trade agreements regarding the safeguarding of national cultures

would apply.

Creation of a U.S. Film Commission

Several state film commissions have been pressing for the creation of a U.S. Film

Commission to marshal resources for, and attention toward, the film industry at the national

level. The United States is the only major county that does not have a federal-level government

organization tasked with addressing the business of the film industry. The commission could

coordinate with state film commissions on how to attract film production through streamlining

bureaucratic processes, simplifying access to government-owned property for filming, and

standardizing licensing and permitting procedures. It could help to resolve problems relating to

film production and employment data and assist with uniform data collection. Finally, the

commission could publish periodic economic analyses of the industry.

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Government-Sponsored Training Programs

Several industry observers suggested developing and promoting government-sponsored

training programs to ensure that new generations of artists and skilled technicians will always be

available in the United States.

Congressional Hearings

Some industry observers have suggested that Congress hold public hearings on runaway

film production in order to gain a better understanding of the causes and consequences of the

problem and its effect on local communities, small businesses, and employment.

Toward the Future

Important segments of the film and television industry agree that there is a growing

problem with runaway film production that needs to be addressed. A wide variety of public and

private sector actions has been suggested, ranging from direct responses to more circuitous

approaches. The proposals need further study, particularly to ensure that they are not mutually

incompatible. Many of the more favored direct approaches involve efforts to achieve economic

neutrality and level playing fields between countries by matching government incentives and

imposing similar regulatory structures. Many of the indirect approaches rely on industry-driven

programs or joint initiatives to address such problems as rising production costs. Most industry

participants support proposals aimed at removing trade barriers, including cultural content rules,

and they support the goal of improving market access for American films.