Wednesday, November 16, 2011

Entertainment Tax Incentives

Artwork by Steven E Gordon.

Click the link for his site, or the above image for a larger view.

The latest news from the realm of entertainment tax breaks is that London and Michigan have reaffirmed their commitment to tax incentives designed to lure production to their corners of the world. Entertainment tax incentives are all the rage these days. People are convinced that without them, Hollywood will find more "lucrative" pastures to host production work.

What astounds me is how little tax payers understand where the incentive money is going and how much they believe those incentives are actually helping their cities.

The basic premise of the tax credits sounds logical: incentivize Hollywood conglomerates making the films to come to your locale, and seed an industry that wasn't previously there. Films are made all the time. Bringing the production work to your constituents means more employment, more local revenue, and happier voters.


But, once one region benefits from paying Hollywood to play inside its borders, other regions take notice. They initiate incentives that offer more than their neighbor to win the next contract. Then, the other state takes notice and does the same.

.. and so on, and so on.

Every state in our nation now has some kind of incentive. Each state is vying for the same piece of the hollywood pie and by working against each other. Who is really benefiting in the race to be the place with the biggest kick-back? More importantly, who is paying the studio to be there?

Another important factor? The labor force that is brought in to do the work. Production companies regularly bring workers from other states when they make their movie in IncentiveLand. This is prevalent in the visual effects industry. VFX shops have opened satellite locations in areas that offer tax incentives so they can be awarded jobs that pay the hollywood studio a tax credit for having the work done at that location. These satellite locations are staffed mostly by artists from elsewhere as the demand for work done exceeds the amount of local talent available.

Los Angeles born visual effects artist David Stripinis tweeted on the anniversary of his working in London:

Two years ago today I left Los Angeles for what I thought would be one year. Now I don't think I'll ever get back. #fuckYouSubsidies

Regional tax incentives, paid by the local population, don't kick-start a local entertainment industry. Instead, these incentives drain municipal coffers to lure Hollywood studios in to temporarily squat in their provinces and make with the Movie Magic. Artists and craftspeople are flown in by production companies eager to be paid by the local population to do their work.

Then, when the work is done, they fly back to their lives and families in lands across the globe.

I'm reminded of the movie line from a supercomputer who tried to figure out the best way to win a Global Thermonuclear War

[It's] a strange game. The only winning move is not to play ..


Dave Rand said...

Tomorrow Digital Domain goes public (DDMG) One of the finest collections of core talent with a solid brand name in the vfx business. The products they have made have created stunning profits yet they can't turn a decent dime as evident in the prospectus. Even more interesting is how the studios capitalism requires socialism for it's vendors to survive--

Anonymous said...

Digital Domain's FIRST attempted ipo, like this one, will be a disaster. "The product they've made"--ha ha!! good one. And they've never made money. They've never "created" content from scratch--which is why Hollywood or Wall Street isn't very interested in them. They're an fx house what has very transient talent--some of it good.

They'll have an extremely hard time holding up their part of the "tax incentive" deal to open in Florida. Bet on legislators keeping a tight eye on DD's part of that bargain.

And no one thinks 5th rate "talent" like brad lewis is any kind of calling card.

Anonymous said...

Wyndcrest tried to take DD public in late 2007. The IPO was withdrawn but the SEC filings revealed that DD had not made money in over a decade. This week's filing also concedes the company has a history of losses.

Steven Kaplan said...

Reference to Mr. Stripinis' origins corrected per our twitter conversation.

Anonymous said...

Wait a minute... you mean the studios are in the business to make MONEY?! That's just so... EVIL! I thought they were in it to help inspire and delight people! As for me, I refuse my paycheck each week and insist that it be divided among everyone else at work equally.

Dave Rand said...

I'm still hoping for the best with this IPO. They've actually tired more than once before, and yes they've lost money like most shops but continue to survive. Raising capital this way is in part to create their own content. Failure here again only hurts all of us as it will make this path more difficult for others to follow making this a negative on all our careers. As a former broker in the syndicate market I've seen better offerings fail and worse ones succeed. They certainly have an uphill battle but bad mouthing this is like pissing into the wind. I'd rather speak constructively of the parasitic countries that use socialism to steal our jobs without making any contribution to the industry by creating their own blockbuster vfx films and offering jobs to the world of talented artists.

Anonymous said...

It's not Socialism of other countries that steals our jobs. It's the Corporate Communism and greed of U.S. big business, and the gNOp--taking every penny they can from taxpayers while while sending most jobs overseas. Oh--and not paying taxes.

I agree, though--the dd ipo will fail.

Steven Kaplan said...

Wait a minute... you mean the studios are in the business to make MONEY?! That's just so... EVIL!

I never questioned the motives of the studios. I wanted to point out to those voting in favor of film tax incentives that they're not helping their cities/towns/neighborhoods. They're helping give more money to an industry that doesn't give a squirt about them.

Anonymous said...

"Wait a minute... you mean the studios are in the business to make MONEY?!"

Yeah, so why don't they make their money instead of stealing it from taxpayers?

I love how people who claim they are for capitalism can't see the difference between capitalism and corruption. Those two actions have become so synonymous that if you say you're against corruption, kleptocracy etc, they call you "anti-capitalist" "socialist" and worse names right down the list.

You know what's "socialism"? The billion-dollar companies squeezing money from cash-strapped states to fund Rupert Murdoch's billion-dollar paydays.

No Socialism for Billionaires!!!

Anonymous said...

Wow people are starting to get it and being honest with the system that we have instead of calling people names. Stop the welfare for corporations and let´s go back to the system that made america a great place for business

Anonymous said...

Im not sure why anti tax incentive people have such a lack of understanding on how wealth creation works. Sure the studios benefit, but guess what, they bring jobs and cash to the community, maybe not as much VFX work as would be expected since they bring a lot of their own people, but I've seen plenty of local support staff, and other extras in my time and I'm not even looking for those cases, they simply easily come to mind. There's even janitors cleaning what once was empty unused buildings, hotels with guests who stay for months, and in turn gain money to upgrade their own facilities, and I have seen that personally myself as well. Local restaurants, shops and movie theaters, etc, all benefit from work creators entering their state, why do you think states compete to bring them in the first place?

Dave Rand said...

In theory that works great for the host state or country but in practice the real numbers have had some states abandon the subsidies and some countries question the value or attempt to fight off studio pressure to raise the breaks. The other side of that coin is also not a love story. Say your in Marin county, just bought a house, kids in school, wife has a local career (The once hailed American Dream) and because Vancouver is offering substantial subsidies half the jobs that would have stayed in Marin are now headed across the border to a country that has no studios making their own blockbuster films. Their only survival is based upon taking your job and sending it North away from your family. A supposed infraction of the World Trade Agreement but not currently enforced. Sure you can sell the house, transplant kids, pay for your own health care at 5 times the group rate or and maybe even head north, work towards Canadian residency, just to find that it just happens again because the US dollar gets even weaker and the jobs head south or to India, China, Australia, New Zealand, or the UK, or even worse Michigan. Eventually your driving the fam past a field of migratory melon pickers and realizing how much you have in common with them, so your next purchase for a home should be a boat or a mobile home maybe? After a while the stress drains every drop of creativity from you and you sign up for truck driving school.

Steven Kaplan said...

You're mistaking my post Anon. I can see, in theory, how incentives are meant to work. I even get your point about the ancillary effects of seeding an industry.

What you're not reading is how its not working for the Entertainment industry. Since the work is migratory in nature, and we're now in a situation where everyone is trying to eat each other's lunch, the only one making out ahead are the studios. The best move is to act and vote to abolish these incentives.

Check out VFX Soldier's post on the subject for further reference: The Prisoner's Dilemma

Anonymous said...

Well, you bring up a lot of good points. However the reality of globalization has been just that, a reality, and if people haven't seen it coming for the last 50 years then they better open their eyes. The once hailed American dream should not simply be having a good job, instead strive to create your own business, otherwise you are at the mercy of those who did just that. There is no such thing as "YOUR job" unless you started your own business to create it, its someone else's job to have filled. I don't mean to sound harsh, but these are just the realities of our industry, if people grow to dislike it, they can leave or try to improve it however they can, but reality is reality. That case goes for myself as well, there are no guarantees in life so you have to do whatever it takes to keep moving forward even if it means doing something that isn't your number one preference.

Dave Rand said...

...and the studios lose access to yet another valuable and rare talented individual. We work in an industry where those in control have worked diligently for decades to have maximum leverage and hurray for them! It's my belief they've gotten so huge they can not even get out of their own way and crush the shops and the artists zapping the very life blood of their own bottom lines. It only makes good business sense that we work towards our own leverage and at least mobilize our benefits and health care and have some voice in our destiny and not be chased away by antique fears or sound bites like "if you organize we'll outsource you job" because, well, guess what? It's happening anyway.

Dave Rand said...

...We can't all have our own shops we can't all be employers. We can however adopt the same strong business sense highly organized employers's called leverage brought about by individuals working hard for themselves AND for the group,

Anonymous said...

By the way, I really don't mean to sound so pessimistic, but having come from very little I know things can always be worse, I know that nothing is really mine unless I create it, and that I should always plan for the worst. Its just a survival mode that has helped me so far. I'm all for finding ways to keep our industry sustainable but I just want to make sure we don't completely disregard the realities of life, you need to fully understand the situation, from all sides, to find the best solutions.

Dave Rand said...

...and I was just putting a lens on your thoughts and it looks like we are on the same page.

one thing.. I used to feel insignificant and a bit fearful until I went to AA (anonymous anonymous) :)

I've used my real named since Meteor Studios (owned by 8billion dollar Discovery) decided that my pay was now their buffer zone. I understand many would not speak up at all if it were required but I'd like to float the idea that if you can, using your real name dilutes the illusion of fear that holds us all back.

Anonymous said...

I never feel the need to comment online, this is probably my first post, I don't even participate in the whole social media phenomenon. I just keep my head down, work by day, develop my own work at night, and try to make the best of what life throws my way. For some reason I just felt compelled to provide some balance to this thread for a more introspective dialogue. If I make a habit of commenting then perhaps I'll share more details but until then I don't feel the need to do so, just stopping by for now. Thank you all for your perspectives, I will add them to the mix of those swimming around in my head and see what develops.

Steven Kaplan said...

Pay attention to the speakers point starting around 01:10

Anonymous said...

Speaking of FOX, Blue Sky Studios is in Connecticut SIMPLY because they get a huge tax break to be there.

Yet, salaries stay low. Bonuses are a teeny-tiny, eeensy-weensy percentage of the profit of the film (which is then divided amongst 300+ employees)

And who makes that happen? Taxpayers! Who gets rich off of it? Fox execs! Who doesnt? Animators!

Corporate capitalism at it's finest.

Dave Rand said...

I have no problem with people being anonymous and appreciate all honest contributions. I do occasionally mention use of real names just to get those who may be ready to realize if I'm still employed with my big mouth maybe it's safe. Maybe talent is hard to find and more important than opinions.

Anonymous said...

"Tomorrow Digital Domain goes public (DDMG) One of the finest collections of core talent with a solid brand name in the vfx business."

This is all and only about the upper execs making a bundle of fast money, pure and simple.

Believe what they tell you if you want to, DD minions, but those millionaires-in-the-making up there at the top won't be around any longer than they legally have to be before cashing it all in.

Anonymous said...

Why would ANYONE invest in a company that just does visual effects? They've not actually created much from scratch, and farm out most of their vfx work anyway! They have terrible "management," too! People might enjoy films with effects, but EFFECTS don't make a story or characters. Hollywood is sometimes weird, but they're NOT always stupid, and see through this ipo very clearly.

And the world doesn't need another Brother Bear with elephants.

Anonymous said...

" anti tax incentive people have such a lack of understanding on how wealth creation works."

Yes. The executives and lawyers make a bundle, and the taxpayers and dd minimum wage employees get screwed.

Especially with animated features, which is a complete crap shoot.

What happens when DD can't hire 500 people in the next year to work in Florida (as their tax incentives specify they must do)? THEY LOSE THE INCENTIVES. Anyone thinking of applying/moving there should specify they want all costs to move there and back included as part of their employment package. They won't be there long.

Dave Rand said...

Hey, no risk no reward. It all has to start somewhere. I was DDs fx lead in Vancouver for Transformers 3. I found them to be very organized and the core staff was extremely talented and they don't farm out most of their work, that was not at all my experience. They worked on 18 films that have gone on to make over 18 billion. If anyone can take it from there it's them. The bros that made Skyline started with less, I've heard people do think to highly of them but they made money by keeping their costs down. The movie got bad reviews but they did it, and it was profitable, and is still selling. This offering will most likely have some serious volatility in the days to come, but I don't think anyone is cashing out on the 60 mill from the offering, after the bankers cut they get even less. I was a broker with Oppenheimer for years and worked in the dept that did public offerings. I've seen lesser companies do great and better ones do worse. Now I'm i've been in this vfx business for 18 yrs, I have nothing to gain by touting the stock, I no longer work for DD but have high regard for my time there. I really believe that the success of this will help everyone, and that talking crap about it is like pissing in the wind.

Dave Rand said...

Sorry this part got left out ....I don't think anyone is cashing out on the 60 mill from the offering, they take that in every 6 months. It's my belief this small deal is to test the waters, and if it goes ok, there will be secondary and other offerings. If it collapses it helps no one.

Anonymous said...

Worst first day ipo in a very long time. Deservedly, from an investor pov. There's nothing there.

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