The present and future of post production business and technology | Philip Hodgetts

Feb/13

10

Why do we subsidize TV and Movie Production? [Updated]

The legacy media businesses are just plain bad businesses: they apparently never make a profit and require constant subsidizing from local and State authorities; they require constant legislative support for their legacy (and obsolete) business models, and yet the public get very, very little from this investment. There’s no share of copyright, there’s no real payback in money spent locally.  It’s time to let these business stand, or fail, on standard business grounds.

Over time business models change and the worst thing we can do as a society is to artificially prevent businesses changing (and yes, failing). The legacy media providers refuse to accept this reality, and for some reason, local and State authorities fall over themselves to subsidize these failing businesses, and yet it never works out.

Time and time again, we see States falling over each other to offer subsidies, and quite sensibly producers chase them. If a deal is offered, why not take it. But those deals shouldn’t be offered. In State Subsidies To Hollywood: Almost Every Program Has Been A Dismal Failure, Costing Taxpayers Mike Masnick notes:

The studios, with the help of the MPAA, of course, continually argue that these programs create jobs, jobs, jobs. However, as the NY Times investigation pointed out, those “jobs” really don’t seem to be appearing. Instead, film crews ship in a crew from LA or NY and hire just a couple of locals for low-level jobs… which last a few months and that’s it. The impact on the local economy appears to be minimal. And, basically, the studios just keep asking for more money playing different locations off of one another.

Adding more data:

Adam Thierer points to a survey of studies looking at how successful those programs have been in various states… and found that nearly all of them have flopped.

The exceptions are New York and New Mexico, where the the studies were at the behest of the local industry and came up with positive results.Except more data reveals that even New Mexico  a separate, independent study found the exact opposite to be true, and found that the subsidy resulted in significant costs to the economy.

In another article Masnick discusses the subject of $1.5 Billion In Taxpayer Funds Go Directly To Movie Studios Each Year… And Very Few Jobs Created. $1.5 billion would make a decent number of movies by itself: in fact if we assume there are about 400 movies made at an average cost of $50 million each, we only get to $2 billion, most apparently coming from subsidies that don’t help the local economy. Advance estimates never seem to pan out: take Michigan for example:

Within two months, 24 movies had signed up to film in Michigan — up from two the entire year before. The productions estimated that they would spend $195 million filming there, and in return they would be refunded about $70 million in cash. 

And how did that work out? With the results we’ve come to expect from the lying liars in the legacy studios. No-one was prepared to put job creation actually in a contract (how convenient).

And the promised jobs? Keep looking. Sure, some crews from LA flew in, but for locals? Almost none.

The studio had created only 200 positions by the summer of 2011, according to correspondence between the company and local officials. And when temporary construction workers were excluded from the tally, Pontiac’s records show, the studio reported only two employees in 2010 and 12 the next year.

Earlier, in the article, they note that this particular project was pushed through with the promise of 3,600 jobs. You don’t do that by hiring two people one year and a dozen the next.

And yet, the recent Fiscal Cliff deal included more ways to subsidize “Hollywood” with a tax break.

If a movie takes a substantial portion of its budget from a subsidy shouldn’t those putting up the money own a portion of the resulting movie? Seems fair to me, but it’s not what happened in New Zealand where The Hobbit was subsidized to the tune of $120 million.

The worst part is that, for most of the wannabe Hollywoods, it’s bad economic policy on every level. The productions bring in mostly low-end, temporary jobs, while the high-end jobs remain in Hollywood or New York. Call it the Curse of Harry Potter.

It’s such a sweet deal, that the producers are fighting the New Zealand government to prevent the details being released.

Given that these movies never make “profits” due to the shady business practices in the Studios, and that they keep getting more and more copyright protection to extend obsolete business models, surely it’s time to stop the stupidity and make these business stand on their own. It’s time for Star-struck Governors to stop sucking up to “Hollywood” and demand they pay their fair share, or go somewhere else: call their bluff.

[Update] It seems like I’m not the only one that wants to get rid of subsidies that don’t convey equity to the State. In a (worthwhile read) on why the VFX industry is in the state that it is (bad financially), Digital Domain founder and former ILM boss Scott Ross suggest the cure:

If I had a magic wand, here’s what I would do:

  1. Get rid of all tax subsidies & tax incentives – and if you can’t, offer them to the facilities, not the studios.

He continues with two other worthwhile suggestions.

 

 

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10 comments

  • John · February 10, 2013 at 12:08 pm

    My experience, having worked on probably 2 dozen Louisiana movies, is that while on big studio films everyone is shipped in from L.A. or N.Y., on the independent side, local crews are the norm. There is a large, experienced crew base that’s constantly working in Louisiana that wasn’t there before the incentives.

    Using the MPAA as a framework for this article misses the independent landscape, which is much more favorable to local job growth.

    • Author comment by Philip · February 10, 2013 at 12:12 pm

      A good point John, but it’s the studios that push for the subsidies by claiming “job growth” that they don’t deliver. If it wasn’t for the big media lobby, there’d be no subsidies for the independent either.

  • Eric Hansen · February 10, 2013 at 7:10 pm

    In the films that I work on, the subsidy is primarily from tourism. We feature great landscapes, terrain and cultures from different parts of the world. The tourism agencies from these areas will help pay for our expenses while there, and maybe pay for part of the overall production. I believe this is in everyone’s benefit as our films really play up the areas and people do go visit these areas because of our films. And believe me, I’m not talking about a lot of money here. It’s usually just comped hotel rooms and friendly customs agents in exchange for a location lower-third and a logo in the credits.

    But, I agree 100% about shipping in crews from LA and NYC. I live in Jackson, WY, and we have a fair share of studio work done here. The local producers take advantage of the tax incentives because their productions feature the natural landscape and employ locals end to end. WY has a great incentive for that and for local producers I think it works well. But the studio productions, most recently Django Unchained and Modern Family, feature our landscapes, but bring in their own crews and equipment, which leaves our local producers and rental companies out. The only locals that make money are the hotels and dude ranches that put the LA crews up. I’ve seen the local government bend over backwards for Hollywood producers, when the local benefit was dubious. I used to be involved with the local film office because I thought it would mean more work for locals. We even paid to train local producers to be grips for when Hollywood came calling. But when Hollywood comes, no locals are hired. Only a friend of mine that works as a location manager/scout seems to get any benefit.

    in my view, it’s a jobs program, but only for Hollywood.

  • Marc L. Grubb · February 12, 2013 at 6:55 am

    Philip, I agree that the film production business model is flawed. It seems to me that the crazy accounting studios perform to keep a movie from being profitable on paper is at least partly to blame. I also agree that Hollywood pressures both US states and foreign countries for tax credits that they do not necessarily deserve. Why should we sustain Hollywood if they cannot figure out how to make a fair profit?

    The reality, however, is that there is no magic wand. As soon as one state or country stops a tax incentive program, another will pop up.

    From what I can tell, there are many states participating in a race to the bottom – each trying to provide a bigger, more lenient tax incentive than the other. This is also an unsustainable business model.

    Tax incentive programs CAN work. The key is a *well-designed* tax incentive program which equally benefits each party, so that the major studios are not taking advantage of the states/foreign countries.

    The state of Massachusetts has a great program in place which brings big budget movies that would not otherwise film here. We don’t offer the biggest tax credit, but we do offer a compelling package when talented crews, and great locations. The most important thing is that it is designed to promote local job growth and local business growth. This is happening in our state!

    I’ve met at least a dozen VFX artists, makeup artists, producers, and stunt persons who have moved to Massachusetts for work. Many have returned here to be closer to their families.

    The increased business has literally kept small businesses such as lumber mills, restaurants, and hardware stores from laying employees off or closing.

    The location fees paid by production companies have kept zoos from closing and have provided needed repairs to public buildings and spaces.

    Local production companies also benefit from the tax incentives. Independent movies can be made more affordably and have a better chance at turning a profit in a highly competitive marketplace. Production companies can offer 5 shooting days when a budget only allows 4, offering better production value.

    Sustainability and job creation aren’t instant. There ARE growing pains. The local IATSE union has grown, yet must train to provide experienced crews when numerous features are shooting at once. Our state is FINALLY getting sound stages this Summer – an infrastructure improvement, foundational to further growth. And yes, production business has its ebbs and flows, like anywhere else.

    For Massachusetts, film production spending in our state is growing year over year and it has been a bright spot in a difficult economy. Our tax credit program has made this possible.

    • Author comment by Philip · February 12, 2013 at 9:25 am

      I knew the MA deal was fairly good – good enough for Leverge to move seasons 2-4 there (obviously Oregon’s deal was better for season 5)

  • Tom · February 12, 2013 at 8:27 am

    Not discounting the article at all, but the math is a tad off: 40 movies at $50M would equal $2B, not 400 movies. That’s still 40 movies though…

    • Author comment by Philip · February 12, 2013 at 9:24 am

      Ooops, still 40 movies that you own a cut of…

  • John Papola · February 12, 2013 at 7:02 pm

    Film subsidies are just corporate welfare, plain and simple. It’s a bank bailout by another name. The arguments about whether they “create jobs” necessarily ignore the fact that the money comes from somewhere. The people from whom it is taken would have done something else with it that could have added value for society and created jobs.

    It’s very unfortunate to watch our industry chase after these dollars extracted from the local community and use them for their own gains.

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