Lights, camera... Cut! Where's the action?
August 16, 2011
It's not news that a lot of the action in entertainment is heading to states other than California and outside our borders. The market advantages of outsourcing exert such a strong pull that producers are teaming up with international film commissions that entice filmmakers beyond the U.S.

"We wish it were easier to make films in Los Angeles, and we're very concerned about the extent to which production has left L.A.," said film producer Marshall Herskovitz at the third annual "Produced By" Conference. "Nevertheless, we have to deal with the world as it is. Films are made all over the U.S. and the world right now, so there's no reason for us not to provide those opportunities to our members."

Major economies such as China and India, as well as others such as Mexico and Colombia, are all generating great quantities of increasingly high-quality local content using local talent along the entire production continuum. And, locales such as the U.K., Australia and Eastern Europe have become production sites of choice due to various incentives.

There's no denying it: As American (both in terms of language and culture) content dwindles in prominence and as producers use overseas providers for a range of services due to lower costs, the little movie-lot go-carts are cruising out of Hollywood, out of the U.S. and to lands far, far away. The question is, can we get the go-carts to come back, not only with our own crews but with the crews of foreign production teams?

Individual states have tried to stem this tide by using tax incentives to attract projects (see our research report on the subject). California, for example, dominates the industry, but had lost more than 10,000 entertainment jobs prior to the initiation of a tax incentive in 2009. The strategy worked, reversing the trend, but was mainly used to counter the incentives being offered by other states. This policy has worked to help protect the industry already in the state and limit the loss of productions to competing states and countries, though further mechanisms are required to ensure the sustainability and growth of the industry in the future.

Tax incentives do generate jobs and revenue. But in my view, they've become weapons in a civil (price) war. Instead of fighting over the last slice, it's time to focus on making the pie bigger.

How can entertainment companies grow the market rather than merely gain market share? The best defense is a good offense -- or, to take a metaphor from Avatar, you don't stand a chance if the big bird attacks you. Carry out a preemptive strike, attack the big bird and it'll never know what hit it. So what can we attack with? Even though English-language films still dominate the global arena, the U.S. cannot count on successfully competing forever against local talent for local markets both in terms of language and content. As technology evolves and education improves in developing nations, local talent pools in markets around the globe will quickly catch up with the U.S. if we do not boost our competitive advantages.

Our real strength lies in establishing high-quality production infrastructure such as studio spaces, special effects and high-tech post production. To grow the U.S. entertainment industry pie, we need to offer foreign producers more than just "discounts." We need to make them want to film here because we offer them a superior product or service. Incentives should be devised to encourage construction and enhancement of production infrastructure that we'd then market internationally. The U.S. entertainment industry must enhance its strength and build on its brand equity before local production-service providers around the world catch up.

In essence, entertainment industry leaders should set their sights on international opportunities. Use California's competitive advantage to add value. Grab a stake in production service development from abroad and compete for international projects. The federal government should encourage foreign producers to partner with U.S. service providers to help get our foot in the door. Not only would these moves protect U.S. entertainment jobs and investments, but they would help the industry grow. This strategy may take away from direct incentives and slow growth in the short term, but it will maintain the U.S. as a major player in the entertainment game for the long haul. We may lose a battle, but we can win the war.