Summary:
California has been the global center of motion picture entertainment since the first films were made, but increased competition has eroded the state's leadership. The Milken Institute convened a panel of industry veterans moderated by CNBC's Julia Boorstin to discuss the future of entertainment in California in the face of growing national and international competition.
Ten percent of Los Angeles County's labor force is involved in entertainment production and ancillary services, a far greater share than anywhere else in the nation. But, as Jay Samit of Long Beach Studios pointed out, California has lost 250,000 jobs to "runaway production" in the last decade, while California's share of films produced fell from 66 percent in 2003 to 31 percent thus far in 2008. He hopes to reverse that trend by building a major new studio complex with 1 million square feet of soundstage capacity — a project he launched by taking advantage of a tax enterprise zone that encourages new development in disadvantaged areas. (He also noted, much to the surprise of the audience, that he could not attract U.S. backing and turned to foreign investors to fund the project.)
The industry's exodus to cheaper locales was unanimously attributed to the lack of competitive tax incentives for production, and to other economic factors, including a strengthening dollar, which drives down the relative price of producing abroad.
Stanley Brooks of the California Film Commission and Once Upon A Time Films related that rising costs have driven his "movie of the week" productions completely out of state due to favorable tax subsidies found elsewhere. Brooks continued that California is one of only eight states without a tax incentive program for the entertainment industry. Tax rebates and labor savings in other states and nations can lower production costs by 10 to 20 percent below the cost of filming in California. States such as Michigan and Louisana have been even more aggressive in courting producers, though they may have to pull back in the current environment.
Locations such as Vancouver and Toronto have made great strides in developing a competent work force as well. When improved production quality is combined with the offer of a better bottom line, there is little to anchor the industry to California. As Jim Gianopulos of Fox Filmed Entertainment stated, "Movies are a moveable feast - or famine." The panelists also decried the ongoing shift toward reality television, which cuts out writers, actors and other members of the state's talented technical production labor force.
There was also near-universal agreement that the state needs to provide tax relief to the industry as soon as possible to maintain a competitive edge moving forward, but panelists noted that once you leave Los Angeles, there is a huge misperception that aiding the industry means supporting wealthy studio executives who don't need breaks. Sacramento doesn't seem to realize how much local spending and how many blue-collar jobs are supported by the industry, and because two of the major unions involved are international brotherhoods, they have not been aggressive in lobbying on a relatively local issue.
Jay Samit noted that a favorable tax code should appeal to legislators on both sides of the aisle: "Incentives are both pro-business and pro-labor." They would level the playing field, not only increasing job opportunities for local production staff, but also supporting the vast ancillary sectors throughout California — from San Diego to Silicon Valley — that have grown to support them.
"The entertainment business doesn't do a good job of helping itself," stated Jim Wiatt of the William Morris Agency. "If everybody could get together and lobby effectively, we could get a tax incentive in place to fix the problem." He noted that runaway production is now so widespread that a new series is being shot in South Africa — which will serve as a stand-in for San Francisco.
The risks of inaction were made clear by Kevin Klowden of the Milken Institute, who recently completed a study finding that the writers' strike caused losses of $2 billion in economic activity and nearly $2.5 billion in wages and salaries. The losses incurred during the three-month work stoppage foreshadow the possible damage to California's economy from continued runaway production. The panelists also noted another lingering side effect of the strike: lost viewer loyalty to network TV shows.
As a lively session drew to a close, Jim Wiatt stressed the opportunities at hand in the burgeoning digital marketplace. The panelists all agreed that the Los Angeles region has an incredible concentration of talent and infrastructure, and we need to fight to hold onto one of California's signature industries and keep it thriving. With a nod to his own ambitious studio development, Jay Samit noted, "Personally, I'm betting big."
