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Losing Our Base: Why Film Flight is Important to All Californians

Kevin Klowden
Managing Economist at the Milken Institute and Director of its California Center

There are very few industries in California that not only drive the
state’s economy but make up a seminal part of its identity. The
entertainment business fits that bill-and from an economic standpoint,
the most significant part of the industry is production, whether the
medium is feature films, television or commercials.

But California’s employment base in film production has been eroding
for more than a decade. Between 1997 and 2008, the state lost more than
10,000 direct jobs in the industry and 25,000 more indirect jobs; all
told, that’s a loss of $2.4 billion in wages and $4.2 billion in real
output.

Although these losses pale in comparison to California’s overall
unemployment numbers, they’re still significant because they represent
an ongoing structural erosion, not just collateral damage from the
recession. And the losses haven’t been limited to Los Angeles.
California has also been bleeding post-production jobs in specialties
such as special effects and animation, trends that have had a big
impact in Silicon Valley and other parts of Northern California.

Once upon a time, California could rest on its laurels, safe in the
knowledge that it was the entertainment capital of the world. But
that’s no longer the case. Movies can move, and when they do, they take
millions of dollars in local spending with them.

In many ways, Canada has emerged as California’s chief competitor. When
Canada first made it a priority to attract production back in 1997, its
initial effort received a major boost through a combination of
organized incentives and a favorable exchange rate. Even when the
exchange rate equation began to shift in 2003, production didn’t
necessarily revert back to California. Canada upped its game by
layering provincial incentives on top of national programs, and both
Vancouver and Toronto can now boast impressive local studios and talent.

Even for productions that remain within the U.S., the competition has
become fierce. Forty-two states now provide incentives to attract
production. Among the more aggressive states are New York, Louisiana,
North Carolina, New Mexico, and Georgia-and in addition to providing
attractive tax credits, they’ve also built lasting local
infrastructure. This combination of tax breaks, facilities and talent
presents a long-term challenge that cannot be ignored by leaders in
California.

California finally responded by passing a set of film incentives last
year. It is more modest and restrictive than the tax credits available
in many other states, but still, it’s a positive sign that California
is back in the game. This past Friday, Gov. Schwarzenegger publicly
touted the success of the program-and recent production data from
FilmLA seems to bolster that case.

Incentives do work, but California needs to build on this early
momentum. First and foremost, the program needs to be made permanent in
order to allow for long-term planning by production companies. Second,
it needs to be expanded: The program is now limited to films with
budgets of less than $75 million, but it makes little sense to exclude
big-budget blockbusters with the potential to generate the greatest
number of jobs and the greatest local spending. Further, credits need
to be expanded to encompass higher-budget network and premium cable
shows and to cover investments in digital media that will protect jobs
in digital animation, visual effects, and video games.

Even if tradition keeps the headquarters of the main studios and
production houses in the state, it will mean very little if the actual
filming and post-production work is done elsewhere. Over the past few
decades, California has watched a number of its major
industries-including financial services, aerospace, and garment
manufacturing-pack up and move to greener pastures. Especially in the
current climate, the state can’t allow another key industry to slip
away.

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