Area Development
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."

Arizona commissioned ESI Corp. to perform an analysis of its film and video industry. The report showed that employment in Arizona's film industry declined more than 26 percent between 2000 and 2003. ESI recommended a comprehensive plan establishing collaborative partnerships in the film industry, facilitating and promoting local film-making, establishing incentives with a return on investment, developing a marketing and promotion strategy, and creating a film office website.

"Arizona was experiencing a drain of industry talent, making it difficult to attract projects," reports Judie Scalise, president of ESI Corp. in Phoenix. "The Arizona Film Commission realized its efforts to attract business could not alone turn the tide. They needed legislature help to create an incentive and job training package to rebuild the state's film infrastructure. Incentives alone don't do the job," she stresses. "There must be a strong educational focus in all facets of multimedia production."

"The film and television industry has a firm basis in technology and entrepreneurship, thereby making it an economic catalyst," says Arizona Film Commission Director Harry Tate. "Incentives have supplanted locations as the number one consideration for many production projects, after scripting considerations. In fiscal year 2003, the film industry generated over $200 million in total economic activity and supported more than 1,700 direct and indirect jobs in Arizona."

With new legislation signed into law by Governor Janet Napolitano in October 2005, Arizona seeks to rebuild its declining work force and increase film industry revenues. In order to qualify for tax credits, production companies must hire a required percentage of its crew in-state.

"We had to reverse the trend," says Michael McGinn, president of the Arizona Film & Media Coalition. "Arizona not only lost industry jobs and revenues, we lost tourism dollars. With the new legislation, we are in a better competitive situation to increase film industry interest in the state. While it's still too early to assess the impact, we are excited about the future."

"New Mexico's success started a rush of states to recapture productions outsourced overseas," says Michelle Hartly, executive producer of FilmWest Productions in Tucson. "In order to help states determine industry needs and to help producers learn about incentive programs, the USA Committee of the Producers' Guild of America invited all state film commissioners and representatives for a July 2005 forum in Los Angeles. Getting the film producers and state film people on the same page is a big step in the right direction."

Not all incentive programs have moved along smoothly. Louisiana has had to regroup twice since instituting incentives that include sales and use tax exemptions for production expenditures, employment tax credits, and transferable investor tax credits.

"We were convinced that we could attract a lot of the overseas production activity to Louisiana's Hollywood South," says Tommy Kurtz, senior vice president of Jobs Development for Greater New Orleans, Inc. "As a result of the 2002 legislation, $20 million of film production business grew to $400 million this year. This has rebuilt our film industry work force with quality, high-paying jobs. Incentives are the hook, but you need a trained work force, great locations, and the supporting sound/edit stage infrastructure." Kurtz points out that "one of the features that makes Louisiana's incentive program stand out is the transferability of credits, allowing production companies unable to use all of their credits to effectively sell those credits to companies that have the ability to use them."

In 2005, Louisiana rolled back some of the credits and tightened requirements that the credits apply to the work performed in Louisiana. "We recognized that we were too generous in rewarding film production work performed outside of the state and brought those provisions back in line with the state's desire to build our film industry infrastructure," Kurtz says.

Hurricane Katrina forced the evacuation of film productions from New Orleans and other locations. State film people worked hard to convince film production people that the whole state was not submerged.

"Film industry people have been very receptive to moving to other state locations. Our film crews are busy and we are determined to keep as many productions in Louisiana as we can," says Alex Schott, director of the Governor's Office of Film and Television.

The efforts are paying off. The production company for Warner Bros.' The Reaping, starring Hilary Swank, moved to Baton Rouge to finish shooting. "Before we chose Louisiana for filming The Reaping we looked at a number of world settings," says Herb W. Gains, producer of The Reaping. "Louisiana gave us a look far superior to other locales. The right combination of financial incentives and creativity sealed the deal. After Katrina we had a lot of thoughts about leaving. We did a damage assessment and looked at options and came to the conclusion to stay in Louisiana to keep people employed and working."

Long a favorite location for feature film and television production companies, New York City fights for market turf against Canadian and overseas locations. As a result of 2004 legislation, qualified film and television productions that meet a 75 percent requirement of work performed in New York can avail themselves of a refundable tax credit (10 percent from the state and 5 percent from the city).

To further enhance its competitive position, Mayor Bloomberg initiated a 2005 "Made in NY" incentive program with a 15 percent tax credit for qualified productions, a marketing credit for free advertising on city-owned media equal to 1 percent of New York production costs, and a production company discount card for hotels, car rentals, banking services, and goods and services from other participating vendors.

"New York City's film and television production industry employs 100,000 New Yorkers and generates $5 billion for our economy on an annual basis," says Kara Alaimo of the NYC Mayor's Office of Film, Theatre and Broadcasting. "The `Made in NY' incentive program has seen over $300 million in new film and television production business since January 2005, with employment of 6,000 New Yorkers.

California is under the gun to compete with huge stakes. According to a Los Angeles Economic Development Corp. report - What Is the Cost of Run-Away Production? - motion picture production sustains employment for 245,000 people with earnings of $17.2 billion in California. A big-budget feature film generates $70 million in production spending, nearly $200 million in economic output, 1,300 movie industry jobs, and state taxes in excess of $10 million.

Despite backing by Governor Arnold Schwarzenegger, Hollywood labor unions, and key Democrats, Assembly Bill 777 - designed to attract production back to California with a 12 percent refundable credit against income or sales tax - met with stiff opposition. As a result, action was tabled until 2006.

According to the Entertainment Industry Development Corp., the number of feature film on-location days in Los Angeles dropped from nearly 14,000 in 1996 to slightly more than 8,700 in 2004. On October 20, 2005, Los Angeles Mayor Antonio Villaraigosa announced, "We cannot stand idly by while other states enact incentives to lure jobs away from California."

Even less populous states are taking action. The Wyoming Film Office is helping craft a bill with up to 15 percent rebate for qualified film production expenditures in Wyoming.

"We are exploring several incentive programs that would work within our tax structure, constitution, and labor force expertise while offering production companies competitive savings," says Michelle Howard, manager of the Wyoming Business Council Film, Arts & Entertainment Office. "The recent loss of two films with Wyoming storylines to production in Canada prompted this initiative."

To be sure, the incentives game will continue to evolve as localities, states, and countries seek to persuade production companies to yell, "Lights, camera, action" at their locations.