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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.

AF 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.

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