How the government influences a film’s location

What are they and how do they work?

I guess the first question to tackle is if the government influences such a decision.  Coming across an interview about state tax stimulus packages, stimulated me enough to do a little digging.    Basically, states are now in competition to lure productions their direction by offering tax incentives.  According to the Film Tax Incentives website, tax incentives are the new backbone of film financing equations and can be offered as tradable tax credits, refundable tax credits, film tax rebates and reductions in state taxes.  To put it more simply, if producers find it economically beneficial to film in a particular state because they have to pay less money to the government and therefore have more money to put towards their project, chances are, they’re going to take the state up on its offer.   In 2008, productions that were shot in Michigan could be reimbursed by the state for up to 42% of their expenses.  That’s like making a movie for half price.  All of a sudden, filming in Detroit versus Los Angeles doesn’t seem so bad.

How they started

These tax incentives originally came about in order to lessen the number of “runaway productions”- projects that went overseas to film because it was cheaper.  Although not overseas, Canada was the most successful, which built Vancouver and Toronto into major North American Production Centers.  The States started coming up with tax based incentive programs in order to keep the jobs at home.  What ended up happening was states like Louisiana, Michigan, and New Mexico began making it seem so appealing to bring a project to their state that they saw an influx of applications by producers desperately trying to get ahold of some of these tax credits.  Although the state governments were offering hundreds of millions of dollars in incentives, the benefit and effect of luring these productions their way began paying off dramatically in the long run, at least for the most part, but we’ll get to that later.   

The benefits of local production

The rapid influx of millions of dollars into local economies served as lucrative economic stimulants that the governments, film industry, and local beneficiaries of the tax incentive found highly desirable.  For instance, Louisiana has established themselves as a top competitor and has landed tons of deals, third only behind Los Angeles and New York City.  And because of the experience they are gaining from having so many films produced in their state, more than 50% of projects are local productions, using Louisiana film crews and facilities, which shows what kind of impact the tax breaks can actually have.  Nick Paleologos, former head of Massachusetts’ Film Office until December of last year, pointed to the $452 million spent by movie productions in the state in 2008, but says that’s not even close to capturing their full impact.  In addition to the jobs they generate, he talks about the “multiplier effect”- the money spent by film crews on hotels and restaurants and other services that keeps cycling through the local economy.  He also talks about the interest generated for a particular location if a film is produced there.  The trailers and lights and cameras and “movie stars”… it’s all very exciting, especially if you’ve never experienced it before.

Poor California

So, as states wave incentives under the noses of producers, we can’t forget about the people being left behind- the original film crew- those in California.  Although Hollywood and cinema go hand-in-hand, 40 other states are after the industry due to the economic gain it brings.  Ironically, California had to follow suit and offer tax incentives so films would stay.  The program in California began three years ago and is up for renewal this month.  The Motion Picture Association of America commissioned a study that determined that California’s tax breaks generated 20,000 jobs and contributed $200 million in state tax revenue.  With the state’s deficit however, some people wonder if it’s worth it to set aside $100 million in tax breaks.  

Are they worth it?

Several other states have scaled back on their packages as well because facing unprecedented fiscal pressures, some lawmakers question whether handing out dollars to Hollywood is the best use of increasingly limited public funds.  According to the Associated Press, all totaled, states issued $1.8 billion in incentives and tax credits from 2006-2008.  That’s a lot of money on the table, especially since there have been some issues about how the money actually was spent.  For instance, currently, Tom Wheeler, once head of the Iowa Film Office, is on trial for allowing the misuse of funding.  He inadvertently cost the state millions in legal liability and lost economic development.  And remember Nick Paleologos?  He is now the former head of the Massachusetts’ Film Office after being booted due to controversy and abusing his position.  Some people just can't seem to handle all of the money and subsequent power that comes with it, which has proven to have devastating effects on certain states.

The downside

But there’s a major downside to pulling the funding.  After creating all of these jobs, if a state stops offering incentives to production companies, causing movies go to cities that are offering incentives, all of the local people relying on working on those projects will be jobless.  And here's the irony:  You'll have these people standing in line at the unemployment office, collecting government dollars, instead of paying taxes and working on a project that could be generating significant money for the government instead.

Where do we go from here?

So, as our country continues to battle the impending doom of the national deficit, each state’s decision as to whether or not to offer generous tax breaks, and if so, for how much, remains a debate.  Although I personally think it’s exciting and healthy to see productions spread throughout the nation, there is still just something that makes movies and Hollywood seem right.  But, these tax incentives seem to be too enticing for many states and most producers to pass up.  I’m going to have to fit my clients with radio tracking devices just so I can locate them while they’re working.  Either way, I’d like to think it’s safe to say that Hollywood will always remain the entertainment hub of the world, which means managers like myself will still have a home base.  With technology these days, all communication can be done remotely, but I’d much rather have a reason to live by the beach than to bare a Midwestern winter.

Technology's Effect on Entertainment Stocks

In an earlier post , I talked about Netflix and how the company was branching out and taking a different approach on things, having decided to release its own television series- the first of its kind.  I must have inadvertently kept their concept in mind, because whether it was subconscious or not, since then I've found myself continuously drawn to news stories about companies using Netflix and other new distribution platforms, stirring up traditional media and discovering original avenues of generating revenue through new forms of media.  

Because I am currently studying entertainment business finance in graduate school, I'm trying to make a dedicated effort to incorporate finance into my daily life and routine, hence the mentions in this blog entry.  I'm constantly looking for correlations between the subject and the entertainment industry, particularly my field of interest as an artist/talent manager, considering a vital responsibility of many managers is to advise their clients as to how to invest their money.  Establishing a solid financial background myself can and will definitely benefit me personally as well, so the more knowledgeable I become, the better .  

I began researching different entertainment and media companies after learning second quarter earnings were released earlier this week, and kept coming across articles mentioning CBS Corporation because their reported earnings were more than double that of last year.  Most analysts attributed this significant increase to the fact that CBS has decided to release many of its older hit shows such as Frasier and Cheers to Netflix.  Now internet users and Netflix subscribers can watch and enjoy CBS owned content at their leisure, where it was simply not available to them before.

Utilizing new methods of distribution not only offers more opportunities and freedom for the networks and studios, but it also offers more opportunities for actors, since with new media platforms, there is more room for additional projects, and more projects ultimately means more roles (and therefore more work for managers like myself).  The key is to think outside of the box because the opportunities are there, and with time and some patience and recognition, the opportunities are going to keep coming.  As a manager with clients just breaking onto the scene, harnessing the potential from these new media platforms can serve as a goldmine in securing my actors work.

In an August 2^nd article in Reuters, author Paul Thomasch writes that Les Moonves, the Chief Executive of CBS Corp., announced that deals could also soon be in the works with Apple Inc., Google Inc., Microsoft Corp., and Dish Network Corp.  Sam Schechner of the Wall Street Journal  writes that media executives hope that CBS’ bold and forward thinking moves “will be an arms race among technology companies to buy content to feed a new array of tablet computers and Internet-connected televisions”, mentioning that Amazon.com Inc. has already positioned itself to begin to compete with Netflix and has struck deals with both CBS and Comcast Corp’s NBC Universal as of late.  It seems as if everyone is beginning to realize that utilizing new forms of media can be advantageous to all parties involved.  This day and age, with all of the new developments in media distribution, has the opportunity to revolutionize the way consumers access and view programming.  The pioneers of these new avenues are at a major advantage, as can be seen by the significant increase in profits for companies such as CBS.

As I read through countless articles commending CBS for their non-conformist strategies, I became convinced that by taking chances and utilizing the not-so-traditional forms of distribution, they would continue to flourish, no matter what happened with the stock market and other outside influences.  And as quickly as I came to that conclusion, all of my beliefs were turned upside down.

As we all know, the stock market took a serious nose dive on Thursday, August 4^th, 2011, plummeting over 500 points.  Whereas many analysts were convinced (or at least trying to convince their readers and more likely than not, themselves as well) that the well-being of the entertainment and media companies was independent and not affected by the financial market, all of their theories were refuted in an instant.  Ironically, out of all of the entertainment stocks, CBS was hit the hardest, dropping over 9% over the course of that one day.  I guess when investors panic and want to get out, it doesn’t matter who they are or where they have their money.  If they think they may lose it, they are going to pull it and head for the hills, groundbreaking new distribution methods or not.

I want to come clean and confess that my knowledge of the stock market, investing, and finances at this point is probably comparable to that of a goldfish.  Actually, I probably shouldn’t even give myself that much credit.  Trying to wrap my head around the ups and downs of the market reminds me why I content as a biology major in college.  But, I am hopelessly optimistic that with a little guidance (okay, with a lot of guidance), that soon I’ll understand what is going on and why.  In my defense, from what I’ve read, which has been a considerable amount lately, even the most educated and experienced analysts seem to get as blindsided as the rest of us.  If I have learned anything so far, it’s that our economy and everyone who invests in it, is as fickle as they come.  Of course, if I had my life savings relying entirely on the fate the stock market, I have to assume I would be pretty fickle myself.

But, back to CBS and to Netflix and to these new forms of media and distribution.  Despite the major hiccup everyone experienced the other day, I am confident that the entertainment and media companies looking to take chances and utilize new technology and advancements in order to produce and distribute their programs are going to prevail.  It’s a well-known wives tale to not put all of your eggs in one basket.  CBS and Netflix are definitely following that advice.  The more avenues they pursue, the less affected they’ll be if an avenue fails and the greater chance of success they’ll have if an avenue is proven effective.

Personally, until I get a better handle on stocks and finances and investing in general, I’m going to look solely at the facts.  And the facts are, that technology is changing.  Everything we do and how we go about doing it is changing at lightning speeds.  Ironically, the only portion of CBS that did not see an increase in profits was their book publishing division, which simply proves that digital distribution is the way of the future for books as well as television and movies. I can say with great confidence that with such advancements as streaming online content and video on demand, there is endless potential for entertainment and media companies- what they produce and how they choose to distribute it.  And with this endless potential comes new and exciting opportunities for actors, their managers, investors, and viewers alike.  Stay tuned though, because it may be a bumpy ride.