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June 11, 2017

Championing tax credits

There is so much data. The internet is awash with it. If only it weren't so confusing. Numbers can support any point of view. After all, data are just measurements; their meaning comes from context. I remember an aphorism an cynical ex-colleague frequently repeated:

"Politicians use statistics like drunkards use lampposts: not for illumination, but for support.*

The adage may be ill tempered, but in this era of spun and stilted claims, confidence in the numbers depends on knowing what underlying cause the authors are looking to support.

For example, take a look at three recently published research reports from FilmLA.
  • On January 17th, Filmla reported a "surge in Feature film production...making 2016 the strongest year for Feature production in L.A. since California introduced its film incentive program." According to FilmLA's president, Paul Audley, "the incentive is working as intended in bringing exciting new projects to the area.”
  • On April 12th, FilmLA reported there had been a 36% drop in feature film production from the same period last year. The headline was alarming, but Audley acknowledged the data might be an outlier. (In fact a simple trend analysis would substantiate his observation. See the charts at the bottom of this posting.)

    Despite Audley's caveat,the report caused a stir. The story recieved wide coverage in the papers and on radio. The County Supervisors took action — they passed a motion to "reverse the tide of runaway filming by... [taking] a proactive role in retaining and growing [the] industry..."

    However the news is not all grim. The report added that "incentivized projects" brought numerous shoot Days to LA in the several production categories.
  • On May 23, FilmLA reported that, in 2016, California had dropped to a lowly 4th place in the principal photography of feature films behind Georgia, the UK and Canada. Not co-incidentally, Georgia spent almost twice as much (+$300M) on its incentive program as California spent. The UK and Canada each outspent California by $100M.
FilmLA shouldn't be faulted for producing reports that substantiate the effectiveness of tax credits. They are acting in their self-interest. The County set up FilmLA as a 'no cost' service; it is almost entirely dependent on its revenues from the fees it collects from on-location filming permits. And since tax credits to film production companies have made California a more attractive location and boosted the number of filming permits issued, to report otherwise would mean doing themselves a disservice.

What on earth could be wrong with hyping the benefits tax credits? Aren't they bringing jobs? Maybe it is not so simple. Consider the following:
  • According to reports in the LATimes and the Daily News, there is a shortage of sound stages. There is no place to shoot. Existing stages are rented to capacity. Bringing in new productions exacerbates the problem. Building new sound-stages is challenging: construction is hampered by the cost of real estate and a "complex approval process."
  • In the May 23rd report, FilmLA identified 12 feature films that did principal photography in California for a total budget value of the $991M. 5 of those 12 features were animated. Those 5 animated accounted for 78% of the total budget. This lopsided distribution would suggest that incentives to animated films should get priority to live action films. However, the resulting increase would not show up in the on-location, shoot-day data. An alternative measure is needed.
  • According to the May 23rd report, California appears to be getting way more more bang for its incentive buck than Georgia, the UK or Canada. Total TV and film spending in California topped $30B while the combined totals for film spending in Georgia, the UK and Canada totaled just $7.5 billion. The data suggests that increasing California's tax incentives might not do much to increase film spending in the state. Nonetheless, there is market pressure to increase the tax credit allocation. According to Joseph Henchman, VP of the Legal and State Projects for the Tax Foundation, film companies are lobbying states for the best tax breaks. (He made the claim on KPCC's Air Talk (click here to listen to the radio interview [go to 10:00].) This competitive bidding in incentives has lead to an escalation in the film industry's demands for support. The tactic resembles the threats NFL owners have used to get local governments to fund new stadiums.
If the goal of tax credits is to bring productions to California, then there must be sufficient film production infrastructure. If the goal is to convince film companies to spend their production dollars in California, the incentives should fund those films that spend the most. If the goal is to obtain a high rate of return on California's tax-credit investment, the state should avoid the tax incentive bidding contest.

If those are the goals for the tax credit program, it doesn't make much sense to measure success in shoot days. On the other hand, if the goal is use tax credits to fund FilmLA, then measuring success in shoot days makes perfect sense. alternative analysis  
Seven year trend (2010-2017) for 1st Quarter shoot-day data
data accumulated from FilmLA  reports

The 7-year trend for Q1 on-location shoot days for features and TV is very positive. The projection for feature shoot days in Q1 2018 is just 10% off the 2016's record results. TV dramas, TV Comedies and Web TV all show strong upward trends. The TV pilots are flat. If anything we should be worried about about Reality TV.

During the 7-year survey period, the vast majority of on-location shoot days were TV and a category FilmLA calls "other."  (your guess is as good as ours.)  Within the TV category, Dramas and Reality TV were responsible for the most shoot days.

While the total number of on-location shoot days has increased in all categories, features are contributing much smaller percentage to the total suggesting a smaller rate of growth than other production categories.

* Wikipedia attributes the quote to Hans Kuhn. Kuhn once did a stint at Cal Tech.

May 26, 2017

LA County Supervisors seek a "film friendly environment"

A little over month ago, FilmLA reported a dip in feature-film production: there were 416 fewer on-location shoot days this year than for the same period last year. That's a drop of 36%. While the total drop for on-location shooting days was just 2.2% (9,496 this year compared to 9,703 last year), the decrease is noteworthy because features tend to have large crews.

It would appear that this FilmLA report caught the attention of our County Supervisors. Not long after the report appeared, our Supervisors passed a resolution for the County CEO to investigate ways to "enhance collaboration and support of the film industry." They want the County to take a "proactive role in retaining and growing [the] industry."

Here's a list of the actions the Supervisors put on the CEO's to-do list with a smattering of commentary:
  • "...Examine the CEO Film Liaison’s responsibilities and report back to the Board in 60 days with recommendations to strengthen its role in facilitating filming and relationships with film production entities;"
    AF commentary: Board members say have heard from film companies representatives that many County facilities (e.g. beaches) are great for filming, but working through the County bureaucracy is too complicated. The film companies need 1-stop shopping.

    There is a small mystery here. Who is the CEO's Film Liaison? They can't be googled and you won't find this person on the CEO's website. We've send out a query and will update this posting if we get a reply.
  • " film and license fees charged by the County and Non-Profit Foundations operating on County-owned property and report back to the Board in 60 days with recommended reductions, in order that Los Angeles County can be competitive with other local jurisdictions;
    AF commentary: FilmLA provides an outline of the cost for some LA County locations. To see the fees for locations like beaches click here.
  • "...coordinate with the Departments of Regional Planning, Parks, Public Works, Fire and the Sheriff’s Department, and any other appropriate County code enforcement department to review and, within 60 days, provide recommended amendments to the County Code, as necessary, to ensure that County departments have the necessary enforcement authority to address violations of the film permitting process by property owners and production companies.
    AF commentary: Is it the Supervisors intention to look at enforcement of filming permits in general? Possibly. Consider this from the preamble to the motion
    "...[Since] the County wants to encourage a film friendly environment, we must also be assured that private property owners and production companies adhere to the permitting and licensing processes established by the County; and that the County has the enforcement tools needed to ensure compliance and lessen potential filming related impacts on our local communities. To that end, the County Code sections related to film permitting and enforcement should be reviewed and, if necessary, amended to allow appropriate enforcement and compliance with the County Code."
    The current County code says little about the enforcement of filming permit conditions. There are methods of enforcement described in the FilmLA contract and the 'Terms and Conditions' associated with each permit; however, enforcement is very coarse grained. There is only one enforcement option: permit cancellation.

    For links to the relevant ordinances or the FilmLA contract and what they say about enforcement, check out our Legalities and Analysis tab.
If you happened to attended the Filming Town Hall or read the minutes, you will recall that permti enforcement was a main area of concern. Perhaps our Supervisor Barger got wind of the meeting. Perhaps there's this is an effort to address some of the those concerns. Or perhaps it's just coincidence.

What ever the case, something important may be about to happen.