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"Runaway production" is a term used by the film industry to describe motion picture productions and television shows that are "intended for initial release/exhibition or television broadcast in the U.S.marker, but are actually filmed in another country."

In a 2005 production report by the Center for Entertainment Industry Data and Research (CEIDR), the trend of runaway productions are more frequently linked to American films and television being lured away from U.S. locations to out-of-country locations. A large reason for these productions leaving are foreign subsidies offered to American companies ultimately reducing the cost of making the film. According to the CEIDR report, "The analysis reveals that, while there are certainly general economic factors at play, such as relative labor and exchange rates, the data over the past several years strongly suggests that proliferation of production subsidies around the globe has been one of the most significant factors affecting the choice of production venues for a significant volume of production."

The report further states that "the connection between the advent of Canadian Production subsidies in late 1998 and the dramatic increase in production that occurred in the following year (as reflected by the 144% increase in dollar volume for the 2000 release year films) appears unassailable as there were no appreciable changes in exchange rates or labor rates to justify this dramatic shift from one year to the next, other than the subsidy programs".

Hollywood

Los Angeles California plays a large role in the United States and international film history. The first American film companies emerged in New Jersey and New York. However, because films were shot in sunlit glass studios at the time, poor weather could easily hamper production. This started a trend toward the west and midwest United States as ideal locations for shooting. Los Angeles, California during the early 1910s was an advantageous location for filmmakers. It had very clear, dry weather that "permitted outdoor filming for much of the year. In addtition, southern California offered a variety of landscapes, including ocean, desert, mountain, forest, and hillside"

Creative and economic runaways

A report commissioned by the Directors Guild of Americamarker (DGA) defined two classes of runaway productions. "Creative runaways" are film and television projects that are produced, in part or in whole, outside the United States based on requirements of the script, setting, or due to preferences of the actors or director. Alternatively, "economic runaways" are productions produced in other countries to "reduce costs." This type of production typically involves films that are set (written to be shot) in the United States but which instead have been outsourced to other countries such as Canadamarker, Australia, Fijimarker, Germanymarker, Hungarymarker, Irelandmarker, New Zealandmarker, South Africa, and the United Kingdommarker.

According to CEIDR, Canada receives 90% of U.S. runaway productions, and offers the bulk of the government subsidies. A subsidy is defined as financial contributions or kickbacks where "government revenue that is otherwise due is foregone or not collected", according to GATT – General Agreement on Tariffs and Trade.

Canada's subsidies and the effect on American workers

According to a 2001 U.S. Department of Commercemarker report by Commerce Secretary, Norman Mineta, "Runaway film production' has affected thousands of (U.S.) workers in industries ranging from computer graphic to construction workers and caterers. These losses threaten to disrupt important parts of a vital American industry."

American film industry workers are unable to compete with the Canadian government which is essentially dumping cheap subsidized labor onto the North American market at reduced rates of almost 50% . In the European Union, this type of labor dumping is referred to as the "Polish Plumber" syndrome. Many feel that besides being unfair and uncivil that this is a direct violation of Canada's and the United States trade agreements including the North American Free Trade Agreement (NAFTA) and rules of fair trade developed by the World Trade Organization (WTO).

The U.S. film industry has voiced concerns about this outsourcing trend which began in the mid to late 1990s, and which coincided with increased Canadian government subsidy programs.

A DGA-funded study confirmed that the Canadian government has engaged in a comprehensive and aggressive, long-term strategic campaign to lure U.S. productions to Canada. The report estimates that runaway productions cost the United States over 50,000 jobs and at least US$10 billion in production monies annually.

At least $13 billion is doled out annually in corporate welfare to the business sector in combined Canadian federal and provincial subsidies and tax breaks, according to the Canadian Taxpayers Federation (CTF), a conservative tax watchdog. The CTF released a report saying that from 1982 to 1997, the Canadian federal government handed out $11 billion in 32,969 grants and loans to the provinces earmarked as business subsidies or directly to corporations.

Conflicting employment data on the U.S. motion picture industry

In 1992, the MPAA claimed 164,000 Californians were directly employed in entertainment production, rising to 226,000 in 1996. Furthermore, in 1996, the estimated number of California jobs indirectly generated by the entertainment industry ranged from 233,000 to 253,100, which brought the "industry's total employment to well over 450,000." The MPAA claimed that entertainment production in California during 1996 generated $27.5 billion in economic activity for the state. The astonishing economic growth from 1992 to 1996, according to the MPAA, exploded for two reasons: (1) as the growth of multiplex theaters and cable television rose, it created a higher general demand for more entertainment media productions; and (2) "the possibility that this new production activity would occur outside California, or in other countries, did not materialize."

In 2004, the MPAA reported employment numbers for the entire United States. The employment numbers were broken into three categories: production and services (P&S), theaters and video tape rental, and other. In 1995, the total number of Americans employed in the motion picture industry was 283,700 (135,200 in P&S); in 1997, total employment was 323,000 (159,600 P&S); in 2000, total employment was 351,600 (182,100 P&S) and; in 2004, total employment was 367,900 (198,300 P&S). Hence, in 1997, according to the MPAA 2004 report, total U.S. motion picture employment of 323,000 represents a huge discrepancy from the MPAA's earlier claim that, in 1996, the industry employed over 450,000 workers in California alone. Adding to the confusion, The Commerce Report—which used the same BLS data cited by the MPAA—claimed 236,152 workers were employed nationwide in motion picture production and allied services in 1997.

In August 2005, the Los Angeles Economic Development Corporation (LAEDC) released a report commissioned by the California Film Commission on the economic impact of runaway productions. The report compared motion picture employment numbers gathered from the MPAA and the United States Census for the same year, 2002. The data from the MPAA and the Census was divided into two categories: (1) overall motion picture employment in the United States and; (2) the amount of motion picture employment in California—how much California captures of the total U.S. figure. In 2002, the Census reported that 153,000 people worked in the motion picture industry in the United States and, of that amount, 88,500 worked in California. The MPAA data for 2002 reported 353,076 workers in the motion picture industry in the United States, with 245,900 of those jobs in California.

The MPAA, in 1996, claimed that the film industry employed 750,000 Americans, a number that remained on the MPAA's Web Site in 2008.

Competing subsidies

"Who is representing the interests of taxpayers here?" asked CTF Saskatchewan director David MacLean. "The film industry is playing the Saskatchewan government like a worn-out movie script, drawing them into bidding war with other provinces. It's a race to the bottom where nobody wins except film producers."

When faced with the prospect of a worldwide subsidy war, Ron Haney, executive director of the Directors Guild of Canada is quoted as saying, "Everybody can compete with tax credits now... It's absolutely frightening."

According to a study by the Canadian government, productions are beginning to "run away" from Canada as well. Productions are now going to countries that have introduced competing and/or counter-incentives and/or subsidies. Many productions are starting to return to the United States due to recent legislation to counteract runaway production.

While film and television employment attributed to foreign location spending and actual spending levels by such productions increased in 2008, the state film incentives enacted in U.S. states showed clear increases in the number of productions shooting in the respective enacting U.S. jurisdiction.

Several Canadian companies are also pulling their support for Canadian Television Fund (CTF) because, "(It) was never intended as a permanent source of funding" to subsidize broadcasters and programmers. One Canadian company stated that, "Our understanding was that after the initial five-year period, the fund would be self-sustaining and self-financing from a return on investment in successful productions."

"The Vancouver Sun's Michael McCullough points out that California not only has the world's highest production costs it also has no tax credits. How do they do it? That's the question BC's film industry should be asking, rather than looking to taxpayers to buck up... The tit for tat tax credit game is one with only one loser, the taxpayer. There will always be other jurisdictions that will out-subsidize BC. Louisianamarker offers a straight 20% subsidy for production costs, is that the next industry demand? It is not the job of the government to keep up with incentives but the industry's role to remain competitive."

Other U.S. attempts to end runaway production

The movement of industry jobs to other jurisdictions has led to the formation of non-profit U.S. industry groups, such as the Film and Television Action Committee (FTAC) as well as other groups such as the Directors Guild of Americamarker (DGA), the Screen Actors Guild (SAG) and others, who have been lobbying state and federal governments to introduce American legislation and counter-incentive programs. Several studies have concluded that foreign government subsidies for film and television production put American film industry workers and companies at an extreme disadvantage.

FTAC believes that foreign government subsidies such as those Canada uses to support its film industry labor are in violation of the WTO rules restricting or prohibiting the use of government subsidies to prop up previously undeveloped industries (such as the Canadian film industry). On September 4, 2007, the FTAC filed a Section 301 complaint with the United States Trade Representative (USTR). In the petition, the FTAC argued subsidies offered by Canada to lure production and filming of U.S.-produced television shows and motion pictures were inconsistent with Canada's obligations under the WTO. Six weeks later, October 19, 2007, the USTR rejected FTAC's petition. In a press release, the USTR's office stated:

"As provided under USTR regulations, the petition was reviewed by an interagency committee of trade and economic experts.
Based on a thorough review of the economic data, other facts, and legal arguments set out in the petition, the interagency committee unanimously recommended that the USTR not accept the petition because a dispute based on the information and arguments set out in the petition would not be effective in addressing the Canadian subsidies."


Countervailing efforts in the United States

In recent years, some members of the United States Congress have attempted to counter the runaway production situation with counter-incentives.

The Jobs Creation Act of 2004 was just such legislation. The language in the bill allows U.S. producers of films with budgets under $15 million ($20 million if shot in a low-income neighborhood) to immediately write off their costs in a single year (if 75% of their principal costs are incurred via shooting in the U.S.) It also allows producers to be taxed at a capital gains rate of 15% (rather than at the higher 35% personal income tax rate). Previously producers had to amortize those costs over several years. It is not a cost "subsidy" program, but an indirect benefit by cutting down the red tape and taxes to encourage American film and television productions.

Local and state governments have also implemented counter-incentive programs in an effort to encourage domestic film productions to remain in the United States and the federal government has attempted to rein in all outsourcing with legislation to support and defend American jobs from unfair foreign competition.

Louisiana and New Mexico reaped tremendous benefit of being "first movers" to offer film incentives, which established a robust film and television production industry in their respective states. As other states noticed the success New Mexico and Louisiana were enjoying, they began enacting their own film incentive programs in the hope they could attract Hollywood productions as well. By August 2005, according to The Los Angeles Times, roughly 15 states had enacted film incentives. In February 2009, that number jumped to 40 states, with each incentive getting more generous to stay competitive.

Industry trends

While the problem of runaway production has not gone away, there have been recent occurrences that have helped keep American film productions in the U.S.

The SARS scare

Severe Acute Respiratory Syndrome (SARS) originated in southern Chinamarker in November 2002. By March 2003 cases were seen in people returning to Canada from Hong Kong, particularly in Toronto – a major runaway production location. According to the World Health Organization (WHO), at the time there were 774 worldwide deaths related to SARS and Canada saw 438 probable SARS cases, with 44 deaths. According to Rhonda Silverstone, Toronto's film commissioner, Canadian production suffered a drastic downturn as American productions stayed home or located elsewhere. SARS scare aside, according to the Center for Entertainment Industry Data and Research, if it weren't for large subsidies, most U.S. producers prefer to stay home and shoot in the United States anyway.

Canadian labor disputes

In early 2007, a six-week strike by members of the Canadian actors association ACTRA initially affected productions in Ontario, later spreading to Manitoba, Quebec, and Saskatchewan. The labour dispute led to the cancellation of two major film productions scheduled to shoot in Torontomarker.

The labor dispute was resolved on February 21, 2007, with wage increases to bring Canadian performers on par with their American counterparts. One of the primary issues involved establishing compensation for Internet use of productions. American studios were reluctant to agree to a deal when no similar agreement exists with U.S. actors. According to ACTRA's chief negotiator Stephen Waddell, "we're the first union that has a collective bargaining agreement that specifically covers this area."

Walt Disney Motion Pictures Group had decided against shooting in Montreal and Toronto "for fear of a strike or lockout," allegedly threatening to shift those shoots back to the U.S. According to the Canadian Film and Television Production Association, at least three large scale U.S. productions have canceled plans to shoot in Canada due to concerns over the possibility of a long strike and the lack of predictability of Canadian labor. "It's an absolute disaster," said Paul Bronfman, chairman and CEO of the Comweb Group, a leading supplier of film services and equipment in Canada, "Our industry is in deep, deep s---." According to a National Post article, "Mr. Bronfman said the strike could kill Toronto's once-bustling film industry, already suffering after 9/11, SARS, the rising dollar and growing international competition. I am currently in Los Angeles making the rounds with major and independent studios, and everyone is giving the same message: You guys are not competitive anymore, (and) your actor strike is the final nail in the coffin for avoiding Canada like the plague," Mr. Bronfman said."

The September 11, 2001 attacks and aftermath

In an attempt to reconstruct the film industry in New York after the September 11, 2001 attacks, many new ""Made in NY" counter-incentives have been developed to lure film productions back to the "Big Apple". According to the film industry trade magazine Variety, after installing counter-incentives New York City hit a record high for production, re-upping its number of shooting days 10% from 2005.

Inspired by the success of New York's campaign to regain lost jobs, Los Angelesmarker Mayor Antonio Villaraigosa is hoping to initiate counter-incentives to lure film productions back to Los Angeles.

The reality television boom

Although feature filmmaking in Los Angeles is still negatively affected by runaway production, the reality TV boom has meant that many U.S. television productions are more likely to be shot where they are situated, in the United States.

See also



References

  1. The Center for Entertainment Industry Data and Research – Year 2005 Production Report, p 1.
  2. The Center for Entertainment Industry Data and Research – Year 2005 Production Report
  3. Thompson, Bordwell
  4. [1] Gatt definition of subsidy
  5. Eye Weekly – 11/11/99 – "The great Canadian pig-out: Some of Canada's biggest and most profitable corporations are also our biggest welfare bums" by Bruce Livesey
  6. Reprinted in University of Pennsylvania Journal of Labor and Employment Law: "Through the Looking Glass: Runaway Production and Hollywood Economics" by Adrian McDonald
  7. Canadian Taxpayers Federation "Corporate welfare too much for Saskatchewan taxpayers" – November 03, 2005
  8. [http://www.stop-runaway-production.com/?page_id=498
  9. "Shaw could kill TV fund" by Antonia Zerbisias Jan 23, 2007
  10. "Film Credit Follies" January 18, 2005
  11. October 19, 2007
  12. ACTRA, producers reach new tentative agreement in labour dispute
  13. [2] Reuters – Canada "Court orders arbitration in Canadian actors' strike" Wed Jan 31, 2007
  14. CNW Telbec
  15. National Post "Strike devastating film industry: Producers say job action has cost city about $400M" by Sarah Matthews February 01, 2007
  16. 1/19/2007 – "Shooting hits record high in Gotham" Variety (subscription)
  17. 11/6/2006 – "Reality boom boosts TV prod'n" -by Dave McNary, Variety (subscription)


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