Fading Tinsel: New Report Pictures Trouble in Hollywood

The trouble, as always, is money. Hollywood has created dreams and spectacle for screens big and small for a hundred years, but the payoff for the studios wasn't entertainment. It was always cash flow.

That's because Hollywood is the place where, as memoirist William Goldman famously said, "Not one person ... knows for a certainty what's going to work." Goldman didn't say that the suits in the suites in Burbank and Culver City are stupid. He meant that the suits in banks in New York and Tokyo can never know if or when an unreleased movie will ever recover its production costs.

Because of that uncertainty, Hollywood is always looking grab its next up-front dollar and Hollywood doesn't mind where it's found. These days, up-front dollars are found in Louisiana, Georgia, New York, London, and Vancouver in the form of tax credits and rebates that are helping to hollow out film and TV production in Los Angeles, San Francisco, and Silicon Valley.

According to a bleak report by the Miliken Institute released last week, "Between 2004 and 2012, the state lost more than 16,000 jobs in filmed production employment -- a more than 10 percent drop. Meanwhile, New York, California's main rival, added more than 10,000 such jobs. These jobs contribute to state revenues and provide sustainable incomes that result in significant local spending. In California, they are high-paying middle-class positions that pay more than $95,000 on average."

The Los Angeles Times found that the number of major films produced in California had dropped 60 percent since 2009.

Ken Ziffren, Mayor Garcetti's "film czar," echoed the report's analysis, telling Ted Johnson of Variety, "We are in a bad spiral, and what (the report) suggests is that we need to turn this around and start improving the number of jobs and the number of labor workers that are going to be employed by this industry."

Requirements in state incentive programs push production companies to hire local workers, making it hard for Hollywood crafts people to work in other states. Getting a movie job in London or Vancouver is even harder. California has a five-year-old tax credit program that narrowly defines eligible productions and is capped at $100 million annually. New York's incentive program is more than $420 million. California allocates its credits by a once-a-year lottery. Other states are more flexible, and their incentives are more predictable.

Assemblymen Raul Bocanegra (D-Pacoima) and Mike Gatto (D-Los Angeles) introduced legislation in February that would reform the state's incentive program by including network, cable, and Internet dramas and removing a $75 million cap on production budgets originally designed to keep major studios from crowding out independent filmmakers. Bocanegra and Gatto apparently have the support of Governor Brown. However, their bill doesn't include the one area where California is loosing film jobs fastest -- in post-production and special effects.

The Milken report suggests several fixes to Hollywood's fading attraction as a place for careers in the movie business, including:

• Raising the total amount of funds in the state's production credit program to a level that allows for the elimination of the annual lottery and for the awarding of credits on a rolling basis throughout the year.
• Eliminating the sunset date of incentives in favor of a periodic review to allow the state to make adjustments to the pool of money based on economic conditions and out-of-state competition. By establishing certainty in the incentives as well as a long-range review process, the state would encourage studios to make larger commitments to local production.
• Dedicating a portion of state credits to hour-long dramatic television, including miniseries. Series are where the jobs are.
• Giving productions in California, but outside the union-designated "30 Mile Zone" around Los Angeles, an additional 5 percent tax credit. Projects outside the zone face higher costs for on-location filming and travel reimbursement. Those projects should have a larger share of the available credits.
• Establishing a digital infrastructure credit in the state's research and development tax credit program. By financing innovation, California could reap additional benefits as a digital production incubator.

The authors of the report readily admit that competing for film jobs with credits and rebates isn't entirely a rational calculation. Even if the returns in jobs and tax revenue approach the costs of an incentive program, the report notes, it's unclear if the jobs and tax revenue can survive if incentives are reduced or eliminated. And all these incentives cost taxpayers.
Despite uncertainties, the Milken report concludes that the state's incentive program must be expanded and areas not covered -- big-budget movies, hour-long network dramas, and visual effects -- be included.

Unless they are, those jobs will continue to flee Hollywood and California.