Richard J. Maturi (April/May 06)
The phrase "location, location, location" takes on new significance in the film production industry. A large portion of Hollywood production and the global filmed entertainment market has gone international, lured to overseas locations with low costs and financial incentives in Europe, Asia, and Canada.
PricewaterhouseCoopers' Global Entertainment and Media Outlook: 2005-2009 estimates that the global filmed entertainment market will grow at a compound annual rate of 7.1 percent through 2009 to $119 billion, up from $84 billion in 2004. While the United States remains the largest market of global filmed entertainment revenues, its compound annual growth rate of 6.6 percent will trail the torrid 8.5 percent compound annual growth rate anticipated for the Europe, Middle East, Africa (EMEA) market and the 8.4 percent pace projected for Canada.
States and localities are beginning to fight back with innovative programs. Recognizing the outflow of revenues from the United States, Congress also got into the act.
"The American Jobs Creation Act of 2004 permits immediate write-off of films produced in the United States. The new tax rule applies to films produced for $15 million or less ($20 million for low-income areas of the country), as long as three quarters of the budget is spent in here," says Rick Rosas, tax partner at Pricewaterhouse-Coopers in Los Angeles.
It's a win-win-win situation. Relatively low-budget independent films can be successfully produced in the United States, investors are rewarded with a faster and greater return on investment, and state and federal tax coffers rise with increased payroll and income tax revenues.
"A number of states took the lead with various financial incentives. The credits are only one piece of the overall puzzle. It is critical for states and localities to develop or rebuild a qualified labor pool. Credits are no good if your state does not have experienced film industry people. The incentives create momentum to build and retain a qualified labor force to attract future, larger productions on a consistent basis," says Rosas.
"We would rather shoot at home but you have to look at economics. You could not afford to shoot stateside. Now states are making inroads with financial and tax incentives," says Paul Hertzberg, founder and president of CineTel Films, Inc., a Los Angeles-based independent producer of action films.
"Since 2002, there's increasing acknowledgment of the importance of attracting competitive, high-wage movie industry jobs and the economic development that goes along with film and commercial production," says Steve Caplan, executive vice president of the Association of Independent Commercial Producers, Inc. in Los Angeles. "A number of initiatives by Arizona, Louisiana, New Mexico, and New York among other states are creating programs that help stem the tide of non-U.S. production. One of every four commercials is shot outside of the United States. With 20 percent of shooting taking place outside of the major centers such as Los Angeles and New York, there's plenty of work to attract to other stateside locations," he adds.
New Mexico Governor Bill Richardson made it a key priority to reinvigorate the state's film production industry. The New Mexico legislature passed a progressive film incentive program in 2002 that included a 15 percent tax rebate with a fully refundable tax credit, plus a $7.5 million investment/ loan for qualified approved film projects. As a result, film production in New Mexico surged from $8 million to $200 million in 2004. In 2005, Governor Bill Richardson signed off on legislation which expands the state's film tax rebate to post-production and film-related technologies, permits loan production company loans up to 80 percent of their expected rebate upfront, doubles the investment cap on film loans to $15 million, and establishes an industry job-training incentive program.
"Unique to New Mexico, loans to smaller production companies allow them to get production rolling. On most loans, the state asks for about 5 percent of the final profits of a show or movie thorough its loan program," says Eric Witt, director of Legislative/Political Affairs & Media Industries Development Initiative, Office of the Governor.
"In addition to incentive packages, New Mexico offers a variety of looks," says Lisa Strout, director of the New Mexico Film Office. "Within hours you can be at locations featuring the Rocky Mountains, Great Plains, or unique architecture that substitutes for New York or San Francisco. Our legislative initiatives helped boost our crew base from 66 to 800 since 2002. We are intent on building strong long-term relationships with the film industry and television production companies."