California – and Hollywood in particular – has long been synonymous with the motion picture industry. It is big business. The Los Angeles County Economic Development Corporation (LAEDC) reports that the entertainment industry accounts for 176,700 jobs and $30bn in spending in the Southern California region alone. The 2012 Otis Report on the creative economy of the Los Angeles region says that the arts, design, and entertainment industries combined account for $230bn in revenues and rank fourth out of 66 industry clusters in Los Angeles county.
The potential of this industry is being realised elsewhere, however, and the Los Angeles region has started losing film and television productions to other locations that compete aggressively for a piece of this lucrative industry. A 2005 California Film Commission report found that for every 10 feature films – those with budgets greater than $70m – that find an alternative location, there is a loss of $106m in state revenues, not to mention the loss to high-value jobs and income to small supporting businesses such as hotels, restaurants, dry-cleaners and others.
FilmLA, a not-for-profit organisation that helps coordinate and process permits needed for on-location productions, says that the problem is the region’s permit process. “One of the constant refrains I hear from film-makers is the need for predictability and uniformity in the film permit process,” says Paul Audley, FilmLA's president.
Setting the stage
In 2012, LAEDC, FilmLA, the California Film Commission and the Southern California Association of Governments (SCAG) joined together to adopt a 'film friendliness initiative' to urge the 191 cities and six counties within the SCAG region to make California more attractive to the industry. A framework of policies were put in place that included eliminating business licence requirements for film productions, adjusting film permit structures, assisting industry needs to help with notifying businesses and residents of filming, and surveying and requiring law enforcement only on an as-needed basis.
In 2009, the state also enacted a film and television tax credit, which generated more than $3.8bn in economic output and supported more than 20,000 jobs in the state during its first two years. According to LAEDC, this activity will return to state and local governments an estimated $201m.
Industry experts contend that government support encourages a critical mass of production activity. New York City has been one such example of this theory. In 1966 it established the Mayor’s Office of Film, Theatre & Broadcasting, as well as becoming the first city in the world to offer one-stop permits and expedite requirements for production companies seeking to use public locations. As a result, the city has become one of the world’s largest production centres for film, television, commercial, musical and theatrical productions.
More recently, its 'Made in NY' initiative offers film and television productions incentives, such as tax and marketing credits, to make filming in the city's five boroughs more attractive. New York state also offers a 30% film production tax credit for qualified production expenditures, as part of a programme that is due to run until 2014, and allocates $420m a year. Today, New York City generates an estimated $7bn in revenues from the industry.
Other cities, states and regions are waking up to the benefits this industry. According to the Motion Picture Association of America, film and television production is benefiting communities in all 50 states in the US. Nationwide, the industry generated 2.1 million jobs in 2010 and nearly $143bn total wages – $42.1bn of which represented direct industry wages with salaries 32% higher than the national average.
While cost, convenience and creativity remain critical to the production site-selection process, industry experts expound that tax incentives have become the number one driver of production decisions. “The first question film-makers ask is about incentive programmes,” says Gary Bond, director of the Austin Film Commission in Austin, Texas.
Texas offers a 20% cash grant to projects of $3.5m or more, in addition to a further 2.5% grant for shooting in underutilised areas. “At least 25% of the shoots go to those areas,” says Mr Bond. “Typically, a film will drop about one-third or one-half of its budget in the location where its shot.”
Austin has found success in attracting film shoots. Among the latest productions made in Texas are True Grit, Transformers 4 and Tom Hank’s John F Kennedy feature Parkland.
Louisiana also offers highly competitive incentive programmes. It was something of a trailblazer in offering tax incentives to the film industry when, in 2002, it became the first state to adopt an incentive programme, in a move that was followed by 40 other states.
“I think ours is the best, as we have built up a consistent, stable and reliable programme,” says Chris Stelly, executive director of the Louisiana Office of Entertainment Industry Development. “Based upon the amount of tax credits we issued in 2012, there were more than $1bn in business sales generated, nearly $718m in household earnings and more than 14,000 jobs supported by production activity.”
Mr Stelly predicts that activity in 2013 will either meet or exceed these levels. Among the most recent films made there are The Butler, 12 Years a Slave, Dallas Buyers Club, Rise of the Planet of the Apes, GI Joe II, and Oblivion.
“Incentives are one piece of the puzzle,” Mr Stelly explains. “Also important is creating the necessary tools for film-makers, providing a skilled workforce, a mature and growing infrastructure, film-friendly communities, artistic ambiance, and a unique joie de vivre that keeps creative talent coming to Louisiana.”
Into the limelight
Outside the US, the UK, particularly London, offers strong competition with its tradition in film-making and award-winning films. The British Film Commission (BFC) estimates that feature film productions directly contributed more than £10bn ($16.23bn) to the UK economy over the past 10 years, as well as creating thousands of jobs.
The UK film industry directly employs about 44,000 people, up from 36,000 in 2009, and supports 117,000 direct and indirect jobs, up from 100,000 in 2009. The UK film industry employs more people than both the fund management and pharmaceutical manufacturing sectors, and a massive 70% of its workforce are graduates.
The UK’s film, high-end television, and animation tax reliefs are essential in attracting inward investment productions to the UK. Several schemes offering cash rebates are available to films produced in the UK. For those films with a total core expenditure of £20m or less, there is a payable cash rebate of up to 25% of film production expenditure within the UK; for those with a core expenditure of more than £20m, a rebate of up to 20% is available. For scripted television projects with a minimum core expenditure of £1m per broadcast hour, a rebate of up to 25% of qualifying UK expenditure can be claimed.
Adrian Wootton, chief executive of the BFC and Film London, maintains that the UK’s lucrative tax reliefs, coupled with a favourable sterling to dollar exchange rate, puts the UK on a comparatively level playing field with its competitors. “However, it is our creative and technical expertise that really sets us apart from other locations,” he says. “The UK is home to first-class studios, an extensive and experienced crew base, Oscar-winning visual effects facilities and world-class post production, along with unique and diverse locations throughout the country.”
He adds that production spend coming from abroad accounted for 80% of total UK production spend in 2011, with record levels of spend contributing £3.7bn to the UK's GDP and £1bn to exchequer revenues. With the vast majority of international production still originating from the west coast of the US, the BFC maintains offices in both London and Los Angeles.
“The BFC team in LA are the first point of contact, in their own timezone, for the most prolific and successful producers of major features and high-end television in the world,” says Mr Wootton.
India represents an enormous market for growth opportunities, particularly given its population. Best known is Bollywood, the Hindi-language film industry and India’s largest film contributor. Overall, the media and entertainment industry in India is presented across more than 600 television channels and watched by more than 100 million pay-TV households. There are 70,000 newspapers and 1000 films produced in the country annually. India also offers diverse content markets and an evolution of consumption of digital content.
According to global services firm Ernst & Young, India’s favourable regulatory environment and recent reforms are creating investment opportunities. For example, entry restrictions for foreign companies have been relaxed and FDI caps have been increased in sectors such as direct-to-home television and radio.
“International film studios such as Warner Bros, Disney, Fox and Dreamworks have entered collaborations with local film production houses to develop Hindi and regional movies,” Ernst & Young wrote in its LA India Film Council report, Film Industry in India: New Horizons.
In February 2012, for example, Walt Disney acquired a controlling interest in UTV Software Communications, one of India’s leading media and entertainment companies, through a buyout that enables the US company to further establish itself in India’s television and movie business.
Further afield, Nigeria is emerging in film, largely because of entrepreneurship and digital technology. Known as Nollywood, the film industry there produces about 500 and 1000 movies a year – second only to India’s Bollywood. But films in the country are produced on shoe-string budgets of approximately $15,000 with the average production taking only, on average, 10 days. The industry represents, however, a $250m-a-year industry that employs thousands of people.