During a California Legislature informational hearing last month in Los Angeles (SHOOT, 12/14, p. 1), Frank Scherma, co-proprietor of bicoastal/international @radical.media, and the recently elected national treasurer of the Association of Independent Commercial Producers (AICP), gave a spotmaking industry perspective on the flight of U.S. filming to Canada and overseas.
The strength of the dollar globally is difficult to compete with, testified Scherma, noting that exchange rates can equate to 25 percent cost savings on projects when shooting in Canada as compared to the U.S. "But," Scherma pointed out, "if the state legislature could, for example, work out some sort of rebate in payroll taxes so that the difference was reduced from twenty-five to ten percent, you’d see much more work staying here. The convenience of being in Los Angeles, where you can work with the best, most efficient crews anywhere, would then take hold, helping to offset a ten percent gap. Twenty-five percent is a different story."
During the informational hearing, a public official noted that California is in the midst of tough economic times, meaning that it would be difficult to gain passage of tax break incentives to keep more filming business in the state. However, Scherma branded that as "short-term thinking. People need to look beyond their terms. There’s a real need to keep us here by closing the gap. … By keeping filming here, revenue is generated in so many ways—taxes on food that’s bought, on lumber, et cetera. Money comes back to the state’s coffers in many different ways."
Since that legislature hearing in early December, we’ve seen developments that make Scherma’s testimony prophetic—on both positive and negative scores relative to the runaway issue. Two weeks ago, Gov. Gray Davis (D-Calif.) proposed an initiative that would, if passed, offer a wage tax credit to designated productions that lens primarily in California, effective in 2004. At the same time he submitted a state budget for fiscal year ’02-’03 that includes a $10 million appropriation to continue Film California First (FCF), an anti-runaway program that’s received favorable reviews from its users in the commercialmaking community. Some speculated that the funding for FCF might have been jeopardized, in that California is facing a budget deficit estimated to exceed $12 billion in the coming fiscal year. However, Davis reasoned that FCF was worth the investment given its results in helping California keep and attract production. The FCF program provides reimbursements of certain film-related costs incurred by qualified production companies when lensing on local, state or federal property in California. Eligible projects include commercials, TV programs and theatrical features. Additionally, Davis instituted revisions in the FCF guidelines, which took effect immediately, and should translate into further savings for qualified producers (SHOOT, 1/18, p. 1).
On the flip side, the short-sightedness referred to by Scherma in his testimony has surfaced in the State of Washington, which like many states, is looking down the barrel of huge budgetary problems. Due to an expected state budget shortfall of $1.2 billion, Gov. Gary Locke (D-Wash.) has called for a series of cutbacks, including the elimination of the Seattle-based Washington State Film Office. Locke proposes that the film commission be closed on June 30, thus saving its annual, relatively modest operating budget of $375,000 (SHOOT, 1/11, p. 1). It’s estimated that during the last fiscal year the film industry spent some $55 million in the State of Washington. And for every dollar in its budget, the Washington State Film Office has generated in excess of $100 on average over the past 10 years, as computed by the state Office of Trade and Economic Development (OTED).
Additionally, the OTED estimated that if the Washington State Film Office is shut down, it could eliminate 1,500 to 2,000 jobs statewide for such workers as truck drivers, caterers, technicians, retail clerks, hotel employees, waiters, bankers, accountants, lawyers and actors.
Though the proposed Washington State Film Office closure is clearly penny wise and pound foolish, the fact is that film commissions throughout the country could be facing the prospect of decreased budgets. According to the National Conference of State Legislatures, 44 states reported revenue coming in well below projections thus far this fiscal year. This could make it difficult for some state film commissions to get increased funding, and might not bode well for the development and passage of state and local financial incentives designed to attract filming. Ironically, this comes at a time when runaway production has emerged as a major issue, underscoring the importance of state and local film commissions to the health of the American economy.
ENCOURAGED, NONETHELESS
Still, AICP president/CEO Matt Miller is encouraged by the big-picture momentum he sees building on the anti-runaway production front. He describes the FCF program and Davis’ wage tax credit proposal as "incredibly positive steps that a lot of states should look at."
However, industry vigilance is required. For example, at press time it still wasn’t yet known if the Davis-endorsed wage tax credit would include commercials. The thrust of the proposal seems to apply to projects such as TV and cable movies with budgets under a certain level—probably $10 million. The amount of the tax credit would be 15 percent of the first $25,000 in qualified wages per worker. In order to be eligible for the incentive, employees would have to perform all or nearly all of their services in California.
The AICP intends to monitor the proposal’s development and take a proactive role, according to Miller and AICP senior VP, external affairs Steve Caplan. "We’re waiting to see the details of the proposal. It’s still early in the process. Our intention, though, is to see that commercials will be included, and we will work to see that they are. We plan to be engaged in the process."
Preliminary industry feedback to the wage tax credit proposal has been positive, though skepticism has been expressed in some circles about the political timing. Facing re-election this year, Gov. Davis has strong ties to the labor movement, which could be a key swing factor in the gubernatorial race. For labor, runaway production has become a pivotal issue. Jobs and revenue have been lost as an increasing amount of filming has gone outside California—and for that matter, outside the U.S.—in recent years.
Again, part of the industry role is vigilance and ongoing dialogue with legislators to help avert a scenario in which the proposed wage tax credit fades away after this year’s election—whether or not Davis gains a second term in office.
GRASSROOTS
Miller’s aforementioned enthusiasm over recent anti-runaway developments extends to industry efforts. This includes the initiative by Heads of Production—a four-year-old organization consisting of ad agency production heads and executive producers, mainly from New York shops—designed to try to keep more work in the Big Apple.
Entering into a cooperative relationship with representatives from other sectors of the business—including production companies, editorial houses, unions, suppliers and support services—Heads of Production has committed to, whenever feasible, producing commercials in New York (SHOOT, 10/19/01, p. 1). The rationale is that this will give a boost to a New York economy that’s been hit hard by the Sept. 11 terrorist attacks. Spearheading the Heads of Production push are four group mainstays: Ken Yagoda, managing partner/ director of broadcast productions at Young & Rubicam, New York; Peter Friedman, senior VP/director of broadcast productions at McCann-Erickson, New York; Nancy Axthelm, executive VP/ director of broadcast production for Grey Advertising, New York; and David Perry, executive VP/director of broadcast production at Saatchi & Saatchi, New York.
The Heads of Production effort has been folded into and done in concert with The Advertising and Entertainment Industry Coalition—a.k.a., the We Love New York Coalition (SHOOT, 10/5/01, p. 1)—which includes the AICP; the Association of Independent Creative Editors (AICE); the Association of Music Producers (AMP); the New York Production Alliance; the New York City Mayor’s Office of Film, Theatre and Broadcasting; the Empire State Development Corp.; the New York State Governor’s Office for Motion Picture & Television Development; the American Association of Advertising Agencies (4A’s); industry unions; and individual production houses, post facilities and supplier companies. At press time, the Coalition had added such members as representatives from the Motion Picture Association of America and Advertising Women of New York. The Coalition was borne out of an ad hoc meeting called shortly after 9/11; among the participants were such movers as Miller; former national AICP president Jon Kamen, co-proprietor of @radical.media; and Bob Bailin, CEO of Feature Systems, New York.
Early returns on the impact of the industry grassroots movement show positive results thus far. As recently reported (SHOOT, 1/4, p. 19), Axthelm conducted an informal survey of her counterparts at other New York agencies, and determined that at least 80 commercial shoots had been done in New York—generating in excess of some $17 million—from just after Sept. 11 into early December. While the numbers are rough estimates, they are encouraging and represent, Axthelm believes, a greater amount of production than usual in New York during the time period.
For example, Perry was instrumental in convincing two Saatchi clients—Oil of Olay and Tylenol—to shoot in New York work that was slated to go elsewhere.
Prior to the end of his term as New York mayor, Rudolph Guiliani sent signed thank-you letters to executives and brand managers of those advertisers who decided to film in New York post-9/11. Recognizing them for helping the New York—and the U.S.—economy, the letters represent, says Miller, another tangible form of positive government involvement. "For mayors, senators and governors to drop a note—even if it’s just a form letter—to those responsible when a big production comes into town raises awareness among corporations about the importance of their filming decisions. It’s about competition—and customer service, as reflected in these notes, is a big part of competition."
Raising consciousness among advertisers regarding their decisions about where to film is pivotal. "Maybe we’re starting to get through a little more to the clients and agencies so that they understand the ramifications that they can have—both positive and negative—in terms of where they spend their money," relates Miller. "An ad investment means jobs, the solvency of companies, the health of the economy and the industry infrastructure."
The original Heads of Production mission statement describes the organization’s initiative as being a collaborative effort that is "fiscally responsible and emotionally responsive" to the current economic situation in the U.S. and, specifically, New York. When the Heads of Production initiative was unveiled, Axthelm acknowledged, "We are probably not going to keep one hundred percent of the business here. Production business was generally way down before Sept. 11. But if we could bring back fifty percent, even twenty-five percent of the work that was leaving here, that could make a big difference. … By spearheading this in New York, we hope that it will radiate out to the rest of the U.S.—to keep more business in the country and to help strengthen the American economy."
Tom Mooney, partner/executive producer of bicoastal Headquarters, says agencies generally seem to be more open minded about staying in the U.S. to shoot. He reports that over the past couple of months, Headquarters has been busy on numerous jobs—none of which has been filmed outside the country, which is a significant departure from what had been the norm.
LEGS?
But will the industry initiatives and increased receptiveness to staying in the U.S. prove to have legs? Certainly, in light of 9/11, there’s been more of a reluctance to travel—particularly overseas. There’s also been a push to support the American economy. But the almighty dollar—and saving as many of them as possible—remains a strong motivating force in a capitalist, free enterprise system. Several staff and freelance agency producers conjecture to SHOOT that there will eventually be a return to pre-9/11 normalcy because clients cannot ignore the savings realized by shooting in Canada and overseas—savings that encompass not only favorable exchange rates, but also possible talent buyouts.
And the dynamics over the past several years prior to 9/11 cannot be ignored—most notably the six-month (May-Oct. ’00) actors’ strike against the advertising industry. Before the strike, there was already a trend towards advertisers and agencies exploring cost savings by bringing production to foreign countries. The strike only served to exacerbate the situation. Many advertisers left the U.S. to avoid pickets and protect their production investments. This in turn created a new alternative for many that had never before been looking to work abroad. Ironically, many of these were clients who had viewed shooting outside the U.S. as a boondoggle, but thanks to positive experiences creatively and in terms of cost savings, had come to regard Canada and other foreign destinations as viable filming options.
The prospects remain real that this viability won’t be forgotten, so it’s imperative that during this in-part-9/11-triggered stemming of the runaway tide, incentives emerge to make clients and agencies think twice about returning to normal production travel itineraries.
As earlier reported (SHOOT, 9/28/01, p. 1), some believe that the 9/11 dynamic has prompted greater scrutiny of the runaway issue in Washington, D.C. Pittsburgh Film Office director Dawn Keezer, chairwoman of Film US—a group of nearly 200 state, county and city film commissions—says that this factor has helped to drum up additional Congressional support for the U.S. Independent Film and Television Production Incentive Act, which was introduced on July 31 in the U.S. Senate (SHOOT, 8/10/01, p. 1), by Sen. Blanche Lincoln (D-Ark.). A companion bill hit the House of Representatives in October, authored primarily by U.S. Rep. David Dreier (R-Calif.), chairman of the House Rules Committee; Rep. Charles B. Rangel (D-N.Y.), ranking Democrat on the House Ways and Means Committee; and Rep. Howard L. Berman (D-Calif.).
The tax credit would apply to qualifying projects with total wage costs between $200,000 and $10 million. The amount of the wage tax credit, in most cases, would be 25 percent of the first $25,000 in qualified wages per worker. Under the House bill, a production would have to shoot 75 percent of its principal photography days in the U.S. The Senate version requires that a majority of filming take place in the U.S.
The proposed legislation in both the House and Senate covers feature films as well as TV and cable programs. Commercials are not granted the tax break under the measures’ current language. The AICP is backing the legislation despite the exclusion of spots from tax relief. Caplan noted that the AICP has a watchful eye on the progress of the bills and is keeping its options open. At some point, commercials might figure in the mix, depending on how the bills evolve.
According to some insiders, the bills have not progressed as much as had been initially hoped, but the jury is still out on the measures. A prime concern among federal wage tax credit supporters is that there simply may not be enough money left to fund the anti-runaway incentive after massive expenditures in such areas as military and security, as well as measures to fight biochemical terrorism and to bail out the airlines industry.
A prevalent school of thought is that the chance for anti-runaway incentives to take hold is better on state and local levels, á la the aforementioned FCF program. Proposals are emerging in a number of states (see separate story, p. 32).
Interestingly, while 9/11 has been a catalyst in the development and implementation of anti-runaway endeavors—on the aforementioned grassroots and legislative levels—the terrorist attacks indirectly cut the legs out from under a progressive New York State measure that at one point seemed a fait accompli. Last year, majority members of the New York State Assembly called for the creation of a $10 million Motion Picture Investment Fund, $3 million of which was earmarked for the coming fiscal year. Designed to help the state keep and attract more filming, the fund would have helped to pay for an extensive marketing/promotions campaign, would have provided partial funding for qualifying independent films, and would have created training programs for established, New York-based industry workers, as well as talented newcomers.
Money for the program was to come out of the state discretionary fund. The only way the Motion Picture Investment Fund could be derailed, according to its backers, would be if some pressing unforeseen expenditure arose in Assembly budget negotiations, requiring discretionary funding. That unforeseen event was 9/11. Word at press time was that funding had to be diverted to more pressing 9/11-related needs, thus tabling the anti-runaway program.
