Runaway production

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A 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., but are actually filmed in another country."^{[citation needed][1][1][2][3]}

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." ^[4]

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" ^[5]

Contents 1 Background of the American Film Industry & Hollywood 2 Runaway films and productions: defined 3 Canada: A Program of Aggressive Labor Subsidies and Corporate Welfare 3.1 Definition: Corporate Welfare 3.2 Canada's subsidies and the effect on American workers 4 Competing subsidies 5 Countervailing efforts in the United States 6 Industry trends 6.1 The SARS "Scare" 6.2 Canadian labor disputes 6.3 The September 11th, 2001 attacks and Aftermath 6.4 The reality television boom 7 References 8 See also 9 External links

[edit] Background of the American Film Industry & Hollywood

Film and television production is a 100-year-old-plus American industry that was originated in and thrived largely in Hollywood, California. Tourists still come from around the world to see the sights and sounds of Hollywood: the movie studios, the stars on the Hollywood Walk of fame, the footprints in front of Mann's Chinese theater, the Hollywood sign. Hollywood is the place where movie stars live and where movies have been made and crafted for decades and where legions of film industry workers have worked for generations, honing and refining their crafts.

The result of foreign-government subsidized runaway productions has been devastating to Hollywood and other long-standing U.S. filmmaking production locations and American film industry workers. "Filming that used to be done almost exclusively in California is now seeing competition from outside the state, where filmmakers enjoy government subsidies, tax credits and other incentives."^[6]

The non-profit group The Film and Television Action Committee (FTAC) reports that the problem of runaway production is "not based upon rational economic factors such as productive “A” list crews, infrastructure and the availability of (foreign) production facilities but on the basis of how much (foreign) governments offer to pay the 6 major studios and media corporations in the form of subsidies and other economic tax based incentives." ^[7] FTAC studies state that "in just the past six years, the film production subsidies ranging as high as 44% of payroll, have removed three quarters of U.S. long form television production and one quarter of U.S. feature film production from our (U.S.) shores. These films are now shooting in the 19 foreign countries that offer these subsidies. The economic impact of this crisis has been devastating to the 250,000 (American) film workers, and the 10,000 small businesses that derive their income from the production of American filmed entertainment products." ^[7]

[edit] Runaway films and productions: defined

A report commissioned by the Directors Guild of America (DGA) defined two classes of runaway productions.^[1] "Creative runaways" are film and television projects that are produced outside of the United States (in part or in whole) based on requirements of the script, setting, or due to preferences of the actors and/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 instead have been outsourced to other countries such as Canada, Australia, Fiji, Germany, Hungary, Ireland, New Zealand, South Africa, and the United Kingdom. ^[5]

According to CEIDR, Canada receives 90% of US runaway productions, and offers the bulk of the government subsidies. ^[5] 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. ^[8]

[edit] Canada: A Program of Aggressive Labor Subsidies and Corporate Welfare

[edit] Definition: Corporate Welfare

Corporate welfare is defined as any action by local, provincial or federal government that gives a corporation or an entire industry a benefit not offered to others. It can be an outright subsidy, a grant, real estate, a low-interest loan, government service or a tax break. ^[9]

"In a broader sense, corporate welfare has probably reached its worst point," says Peter Bleyer, executive director of the Council of Canadians. "It's no longer just about subsidies, but access to resources and influence. It's really more about shifting power overall than it is about money changing hands." ^[9]

"There isn't any question that tax incentives are absolutely the equivalent of a government writing these folks a cheque," says Neil Brooks, a professor of tax law and policy at Canada's Osgoode Hall Law School. "It's correct to call it corporate welfare." ^[9]

"Walter Robinson, the CTF's federal director, says the government should not be spending public monies in this manner. "We just don't believe in the government playing venture capitalist or financier for any industry," he says. "Either leave that money in taxpayers' pockets or, if you are hell-bent on spending it, spend it on social infrastructure -- put it into hospital beds, into university transfers or the pensions of seniors." ^[9]

[edit] Canada's subsidies and the effect on American workers

According to a 2001 U.S. Department of Commerce 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."^[10]

American film industry workers are simply 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 illegal, unfair 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).^[7]

It is therefore no surprise that the U.S. film industry has voiced concerns about this outsourcing trend which began in the mid to late 1990s and which coincided with the aggressive Canadian government subsidies programs. ^{[5] [11]}

A DGA-funded study proves that the Canadian government has engaged in a comprehensive and aggressive, long-term strategic campaign to lure U.S. productions to Canada. ^[12] The report estimates that runaway productions cost the United States over 50,000 jobs and at least US$10 billion in production monies annually. ^[12]

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. ^[9]

[edit] 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.” ^[13]

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."^[14]

According to a study by the Canadian government, productions are beginning to "run away" from Canada as well.^[11] Productions are now going to countries that have introduced competing and/or counter-incentives and/or subsidies.^[11] Many productions are starting to return to the United States due to recent legislation to counteract runaway production.

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." ^[15]

"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. Louisiana 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." ^[16]

[edit] Countervailing efforts in the United States

Runaway production is largely still an issue of fair trade, and one that continues to cost the U.S. jobs and lost revenues, in addition to doing serious long-term damage to America's filmmaking culture and tradition. The potential loss of a hundred-year old industry and the siphoning of U.S. jobs has not gone unnoticed in the U.S. filmmaking community. This 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 America (DGA), the Screen Actors Guild (SAG) and others, who have been lobbying state and federal governments to introduce American legislation and counter-incentive programs. Due to the attention put onto the subject matter, numerous studies have proven 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). ^[5]

In recent years, some members of the U.S. Congress has attempted to counter the runaway production situation with counter-incentives.^[17] 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 reign in all outsourcing with legislation to support and defend American jobs from unfair foreign competition.

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.) ^[5] 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. ^[5]

[edit] 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.

[edit] The SARS "Scare"

Severe Acute Respiratory Syndrome (SARS) originated in southern China 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^[18] related to SARS and Canada saw 438 probable SARS cases, with 44 deaths.^[18] According to Rhonda Silverstone, Toronto's film commissioner, Canadian production suffered a drastic downturn as American productions stayed home or located elsewhere.^[19] 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. ^[5]

[edit] 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.^[20] The labour dispute led to the cancellation of two major film productions scheduled to shoot in Toronto.

The labor dispute was resolved on February 21, 2007, with wage increases to bring Canadian performers on par with their American counterparts.^[20] 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.^[20] 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. ^[21] 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.^[22] "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---." ^[23] 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." ^[23]

[edit] The September 11th, 2001 attacks and Aftermath

In an attempt to reconstruct the film industry in New York after 9-11, 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.^[24]

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

[edit] 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.^[25]

[edit] References

[edit] See also

• Cinema of the United States
• List of movie-related topics
• List of movies set in Los Angeles
• List of television shows set in Los Angeles

[edit] External links

• FTAC - Film and Television Action Committee web site
• The Creative Coalition - member’s advocacy work against runaway production
• CEIDR - The Center for Entertainment Industry Data and Research
• CEIDR -The Center for Entertainment Industry Data and Research - "Year 2005 Production Report"
• "The New Rules Project" By Simona Fuma Shapiro Fall 2000 "The Culture Thief"
• DGA/SAG Commissioned Study Shows Total Economic Impact Of U.S. Economic Runaway Production Reached $10.3 Billion In 1998 (June 25, 1999)
• 2001 - Commerce Secretary Mineta Releases Report on the Impact of the Migration of U.S. Film and Television Production
• 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
• Canadian Taxpayers Federation "Corporate welfare too much for Saskatchewan taxpayers" - November 03, 2005
• Canadian Taxpayers Federation "Film Credit Follies" January 18, 2005
• National Post "Strike devastating film industry: Producers say job action has cost city about $400M" by Sarah Matthews February 01, 2007
• The Rocord.com - Insider - "Another Twist in ACTRA Strike Drama" (Feb 2, 2007)
• 2003 - Congressmen Dreier, Berman Re-Introduce Runaway Production Legislation
• Reuters - Canada "Court orders arbitration in Canadian actors' strike" Wed Jan 31, 2007
• 2004 - Governor Schwarzenegger Joins with Other Big State Governors to Push for Federal Incentives Package to fight runaway production
• Variety 7/31/2006, 2006(subscription) "Runaway drain? Study: Pic biz in big production pickle"
• Los Angeles Times January 22, 2007 "L.A. airports fly high with film shoots" By Tony Barboza, Times Staff Writer
• 11/6/2006 - "Reality boom boosts TV prod'n" -by Dave McNary, Variety (subscription)
• 1/19/2007 - "Shooting hits record high in Gotham" Variety (subscription)