Canucks pluck biz bucks
Production exodus cost U.S. $10 bil in 1998, guild study sez
The figure -- reached in an exhaustive study commissioned by the Screen Actors Guild and the Directors Guild of America -- refers to direct production expenditures plus the "multiplied" effects of lost spending and tax revenues not recouped by the United States.
Of 1,075 such "runaway" productions last year, 285 -- 27% of the total -- were so-called economic runaways, a 185% increase from 100 in 1990. The remainder were creative runaways, in which the move is made because the story calls for a specific locale abroad.
Production flight's impact on labor is "profound," states the report, put together by the Monitor Co., a research and consultant firm.
In 1998, more than 20,000 "full-time equivalent" jobs were lost in the industry nationwide; 11,000 of those were positions usually filled by SAG members, such as supporting actors, stunt and background performers, and 600 by DGA members, such as directors, assistant directors, unit production managers, associate directors and stage managers.The balance were jobs in other production skills or trades, such as camera, sound, production design, wardrobe, makeup, set construction and drivers. The economic impact extends well beyond the entertainment industry, affecting merchants, hotels, vehicle and extraneous equipment suppliers, hardware stores and others.
'Tremendous impact'
"That's a tremendous impact on regular working people who depend on checks," DGA president Jack Shea said in a briefing Wednesday in Universal City. "It's not just focused on high-priced people; it's also caterers, cleaners -- people you don't normally think about."
In 1998, economic runaways represented almost 14% of the $74.3 billion generated by U.S. film and TV productions probed in the study. In 1990, 8% of the $25.6 billion spent on productions was lost to out-of-country shooting.
Among the highlights of the Monitor report:
- Direct production expenditures lost from the U.S. due to economic runaway production in film and TV amounted to $2.8 billion in 1998. The figure has increased almost sixfold from $500 million in 1990;
- In 1998, 45% of U.S.-developed movies for television were economic runaways -- 139 out of 308;
- In terms of the total impact of U.S. economic runaways, movies for television account for $2.7 billion, followed by feature films with budgets over $25 million, at $2.4 billion, and feature films with budgets under $25 million, representing a $2.3 billion impact;
- Canada has captured the vast majority of economic runaways, with 81% of the total, the result largely of an aggressively implemented system of tax incentives. Just last year, Canada secured more than 90% of economic runaway telepics;
- Although U.S. domestic feature film production grew 8.2% annually from 1990 to 1998, the number of U.S. features produced in Canada grew an average of 17.4% every year during the same time period. Similarly, U.S. domestic TV production grew 2.6% annually from 1990 to 1998, but U.S. television production in Canada grew 18.2% annually during that period. The growth in Canada is due largely to what the report calls "a comprehensive and aggressive, long-term strategic campaign to attract U.S. producers";
- By far the greatest impact in terms of lost employment opportunities has been felt by people who work in below-the-line positions. Total employment impact of runaway production on industry workers rose 241% from 1990 to 1998, with the number of full-time equivalent positions lost rising to 23,500 in 1998 from 6,900 in 1990 - a cumulative total of 125,100 positions. Over the past decade, these losses increased 200% for the DGA and 479% for SAG over the 1990 figures.
Jobs at stake
"There are people losing jobs all over the country because we're not competing on an even keel with these other countries," said SAG president Richard Masur. "We are looking at no less than the erosion of the economic foundation of our industry."
DGA and SAG officials retained the services of the Monitor Co.'s Santa Monica-based research staff in January after noting an acceleration in the runaway phenomenon. The study had two objectives -- to quantify the extent to which runaway production has been occurring since 1990, and to identify its major causes.
The researchers define runaway productions as those that are developed in the U.S. and are intended for initial release or broadcast in the U.S. but are filmed in another country. The study's focus was on economic runaways, and covered theatrical films, TV films, mini-series, and 30- and 60-minute TV series. Commercials and news and sports programming were not included.
Of 285 economic runaways in 1998, 100 were theatrical productions and 185 were for television. The most prevalent type of runaway productions were movies made for TV, the report says. In 1998, a total of 308 TV movies were produced; 139 (or 45%) of these went abroad for economic reasons in 1998, up from only 30 productions in 1990. Out of a total of 534 theatrical productions in 1998, 100 (19%) were economic runaways, up from 44 in 1990.
There have been regional impacts as well, the study notes. Expenditures in core production centers such as Los Angeles and New York have been growing, but at slower rates than those of Canadian production centers. Other U.S. production centers have experienced declines in expenditures since 1995 -- North Carolina (-36%), Illinois (-20%), Washington State (-37%) and Texas (-31%).
Under current conditions, economic runaway production could potentially increase in impact to between $13 billion and $15 billion annually by 2001, the Monitor report predicts.
Historical context
Historically, countries such as Canada and Australia had limited production capabilities. Recently, however, the quality of Canadian and Australian crews has improved to a point where most productions can be filmed in these countries without a major difference in quality or productivity, the report says.
Masur disagrees.
"We feel that the quality of MOWs and TV movies has suffered already," he said during Wednesday's briefing.
But as foreign crews and infrastructure improve with experience and training -- often provided by American crews and experts -- their ability to handle larger, more complex productions increases. On top of that, British Columbia and Ontario combined have well over 1 million square feet of soundstage space, as much as New York and North Carolina put together.
"They are building an infrastructure in Canada which is going to be a very significant problem for American employees," Shea said.
Another problem is that since 1990, the value of Canadian, Australian and U.K. currencies all have declined by 15% to 23% relative to the U.S. dollar, significantly reducing production costs there. Wage costs in those countries, generally lower than in the U.S. during the early 1990's, have increased at a slower pace than in the U.S., so that producers shooting in Canada, for instance, realize at least a 15% savings from lower labor costs and costs of goods and services.
Canada offers federal and provincial tax credits of between 22% and 46% for labor expenses, yielding up to a 10% reduction in overall production expense, while Australia offers more than a 10% labor tax credit in some cases. In Canada, the combined result of the exchange rates, lower costs and government incentives allows the American producer of a typical TV movie -- with a budget of, say, $3 million -- to reduce production costs by 25% or more. Similar percentage savings are available to the producer of a $20 million feature who chooses to film in Canada.
"There's nothing that Canada did that anyone else can't replicate," said Mark Lubkeman, one of the Monitor consultants.
The report notes, however, that the cost gap to be closed in order to retain production in the U.S. may not be the entire 25% disadvantage. Several producers interviewed for the study mentioned that if the budget for U.S. productions were brought to within 10% to 15% of costs in Canada, they would make the argument to keep that production in the U.S.
"Producers generally want to work where they live, and most live in the U.S. production clusters," the report says. "Furthermore, these clusters contain all the resources required, as well as access to financing, development, and distribution resources, which provide a distinct advantage to producers. Obviously, certain productions cannot afford even a 10% cost disadvantage; recapturing these productions will be the greatest challenge."
