Movie dependence on tax credits could take a Brexit hit
Sunday, September 03, 2017
Colorfully coiffed "Girls Trip" friends Jada Pinkett Smith, Tiffany Haddish, Regina Hall and Queen Latifah partying in New Orleans.
I've been a film fanatic from an early age. It started when I was a back-seat viewer on the family's regular summer night trips to the drive-in.
Movies were a much needed break from real life in terrible times, like when Mom took my little brother and me to see "20,000 Leagues Under the Sea" to get us away from the news of JFK's assassination. And the annual airing of "The Wizard of Oz" was must-see TV in our house, especially after we got a color television.
It continued into adulthood. In fact, part of what attracted me to the hubby was that he was a newspaper film critic when we met.
Money-making movies: Cinema is still a big part of my life. And as a financial journalist, I also pay attention to the money side of movie making.
With the Labor Day weekend's arrival, the end of summer attention primarily is on the season's blockbusters.
Although the North American box office had its lowest-grossing summer in 25 years, the millions the top 10 flicks raked is are nothing to sneeze at.
This year I was particularly thrilled to see so-called women's movies bookend the top 10 summer blockbuster list as far as domestic ticket sales. They are:
|Rank||Movie||Date Opened||Ticket take in $|
|1.||"Wonder Woman"||June 2||$406,838,875|
|2.||"Guardians of the Galaxy Vol. 2"||May 5||$389,418,709|
|3.||"Spider-Man: Homecoming"||July 7||$320,076,475|
|4.||"Despicable Me 3"||June 14||$255,340,195|
|6.||"Pirates of the Caribbean:
Dead Men Tell No Tales"
|7.||"Cars 3"||June 16||$149,120,569|
|8.||"War for the Planet of the Apes"||July 14||$143,147,351|
|9.||"Transformers: The Last Knight"||June 22||$130,168,683|
|10.||"Girls Trip"||July 21||$109,007,055|
Tax incentives help: One way producers maximize their movie making profit is to shoot in locations that offer tax breaks. Most states offer some financial incentives to attract film, TV and even video game crews. That means competition is fierce.
And that's just domestically.
Countries around the world provide financial and tax incentives to lure movie-makers. It works.
In 2014, fewer than half of all Hollywood films were shot exclusively the United States, with the United Kingdom surpassing Canada as most popular non-U.S. Hollywood movie location.
A big reason why? The U.K. has currently has a very generous tax system, which gives Hollywood studios close to a fifth of the money spent in Great Britain back in cash.
Brexit's final film credits? That could change, however, as the U.K. pulls out of the European Union.
As today's Shout Out Sunday (yes, it's moved to the other weekend day this week) article in The Guardian notes, Brexit could hurt the British film production boom, which has helped prop up Great Britain's economy thanks to filming in the country, ranging from blockbusters like the new "Star Wars" trilogy to smaller domestic flicks and European co-productions.
Mark Sweney has the details in his piece, which looks at how Brexit will impede the already complex process of funding, filming and releasing a multimillion-pound film projects.
Until that happens, though, enjoy your long end-of-summer holiday by taking in a movie or two!
You also might find these items of interest:
- Oscars, tax breaks and best tax-themed films
- Movie and TV production tax credits, trick or treat?
- Comic-Con favorite Marvel Studios gets California tax break
Despite your glowing endorsement of tax credits I don't think you're aware of how insidious and damaging these sort of things actually are. The VFX industry in America has been decimated due to tax credits in Canada, England and other US allies. It may seem like a small thing but look at the bigger picture. I'm going to start with the largest issue and work my way back to how tax credits are responsible for this bad end result.
During the tail end of the Obama administration Fmr. President Obama was trying to gain traction on a massive trade deal called the "Trans-Pacific Partnership" or TPP. At the time the TPP was being created Hilary Clinton was the Secretary of State for the Obama Administration and even as she was running for president herself she was quoted as saying that the TPP was the "gold standard of trade deals." Trade deals are certainly important. They help guide economic development and go a large way towards ensuring the spread of not only Democracy through the development of a middle class that craves western goods but it also has a way of spreading western ideals.
The problem with all trade deals is that that are almost never enforced and America, without exception, has taken it in the shorts for nearly every trade deal it has signed. Hillary Clinton's huband Fmr. President Bill Clinton signed one of the most disastrous (for America) trade bills "NAFTA" into law during his time in office and NAFTA greatly hastened the end of America's dominance in manufacturing. There's no question that manufacturing was going to leave the US (oddly with the increases in automation and machine learning a lot of manufacturing is not coming back to America... but the jobs in manufacturing are gone forever) anyway the only question is how much faster did we lose our manufacturing base because of NAFTA and the general consensus is... much faster.
But what's worse is that NAFTA, like all trade deals America makes, never lived up to it's promise. Industry got what it wanted, cheaper wages in foreign countries, lower trade tariffs and tax free importation. But the things industry didn't want in these trade deals, worker protections, environmental protections, minimum pay, the prohibition against slave, prisoner, and child labor... these things were routinely violated. And the truly sad part about this is that America never (with one, very recent exception) takes these countries to the world court to enforce these trade agreements.
Well for the most part these trade partners are also allies. Strategic and military concerns tend to come before economic ones. So in general, America makes these trade agreements with countries it has strategic or military relationships with and then when the foreign country violates the trade agreement America has to decide if risking the expensive military bases in said nation, it's allied relationship in sharing intelligence, or in some cases the alliance of the entire nations government (as said nation could theoretically, if America complained about the trade violation, end all alliances and begin working with America's competitors or even enemies) is worth forcing this foreign government to honor the promises they made in said trade agreement. So in nearly every instance America simply bites it's lip, and the State Department refuses to file a grievance with the world court.
So how does this get back to movies and tax credits and why is it so bad? Well for one, England, Canada, and several other countries are all American allies; they have all signed trade agreements, and without exception they are all violating said trade agreements by giving out these tax incentives to American movie studios. This creates a number of problems because these tax credits are not without strings nor are they without consequences.
The first problem this creates is it forces studios to create infrastructure in other countries to "chase the money." Because the goal of the government is not simply to get a movie made in their location. Locations are locations. Movies tend to be made where directors think they can get the best shot for the least money. It has less to do with tax credits than artistic choices. But processing the movie and making the VFX for the film (especially an effects heavy movie like "Wonder Woman.") is a long, expensive process that requires a lot of experienced and trained artists. So when a studio chases these tax credits outside of America they must then uproot people in America who are experienced to go to this other country to work there. But often the strings attached to this money are also about entry level positions. You see it's nearly impossible for someone with no experience in a field to get a visa to work in another country. So what ends up happening is the experienced people who come from America end up training the entry level persons in this other country. And this does two things. First it decimates entry level hiring in the VFX industry in America and second it leads to these workers in foreign countries, who are almost always paid substantially less, to, once they gain some experience, taking over the better paying, more experience requiring jobs that the Americans traveled to their country to do.
You see these tax incentives aren't about getting some movie made in your country. It's about stealing an industry. And VFX artists end up bouncing around the world. Living a vagabond life as studios chase these tax incentives. They can't settle down and raise a family. New artists that get into VFX have a much harder time getting into the industry in America. And wages become artificially depressed because the studios know they can always kick the VFX work out of the country and these countries will give them millions to do the work there. And American VFX houses, to compete, have to be willing to do the same work, yet their bids have to take into account the millions in tax credits that these foreign "Allies" would have given the movie studio to do the work in Canada or India instead of Hollywood. Because America will not offer the same tax incentives.
Because it would violate our trade agreements.
And there you see why these tax credits are so problematic. We've lost dozens of venerable VFX houses in America. Once proud and highly profitable jobs at firms like Digital Domain and Rhythm And Hues are just gone. These houses were split up and sold off to China. Rhythm and Hues literally went to the Oscars and was nominated for 2 different movies for best effects. They won for the movie "Life Of Pi" which also won Best Director, Best Cinematographer and Best Score, and they declared bankruptcy the next day.
You can learn more about this by watching the documentary "Life After Pi" which is free on YouTube:
In this documentary you can see the damage these tax credits do to people all over the world. And the part about it that most relates to the next issue I'll mention is that during the documentary they will mention a speech President Obama gave at Dreamworks VFX house where he talks about "keeping these good paying middle class jobs in America" right after Rhythm and Hues went into Bankruptcy and right after his (President Obama's) State Department refused the request of the largest VFX Union in America to file a trade agreement violation against the countries offering these tax incentives.
Now you could argue that up until now my complaints against these tax credits are mostly about American protectionism. But the problem has implications for all free nations. The point of the TPP was to lock up the Trans-Pacific nations into economic relationships with America and her allies before these nations got into similar relationships with China. Failure to pass the TPP allows China to become a much stronger and much more attractive (not to mention much closer) trading partner to these countries. Which means they will lean politically towards China. They will favor Chinese goals in the UN. They will take their lead from China on world political matters. And that's not good for any free democracy. China is still a very strict, communist nation. They have free economic zones but thus far all the Wests' efforts to create a middle class in China that breaks the back of the communist regime have failed. Most favored nation status with China got them KFC and McDonalds but it did not get the people to throw off the communist government. China uses prison and slave labor in it's manufacturing system. It routinely allows industry to use unsafe and highly caustic processes that have created the most polluted cities in human history. They are selling their environment off for short term gain and it will eventually effect all of us.
So why couldn't Obama get the TPP passed? Why when most of Congress... firmly in the pocket of big business wanted to pass the TPP did it not pass? Why in her presidential campaign did Hillary Clinton first distance herself then formerly come out against the TPP... a trade agreement she helped create and once called the "Gold Standard" of trade agreements? Because the American people won't accept another NAFTA. The American people won't accept another trade agreement where America follows the rules, pays all the costs, and the other parties to the agreement just ignore the parts of the agreement they don't like and America MAKES NO COMPLAINTS. No one believes America is going to enforce these trade agreements anymore. No one believes that they do anything good for America economically. And the past history backs that up. The political gains of trading traditionally American industry and jobs in exchange for alliances and intelligence and influence in nations that may, free of such trade agreements, may assist our competitors or enemies is too nuanced and ephemeral for most people in America to understand. What most of them really only know is trade agreements like NAFTA created a large sucking sound as jobs and industry flew out of America at record pace and despite numerous, gross violations of NAFTA's agreements by it's other signatories America never filed a single complaint (or actually they did somewhat recently file their first and only complaint).
I was really enjoying Wonder Woman until the end credits when I stayed to watch to see if there was an after credits scene (there is not) and was rather sickened to see all the different "Thanks" in the credits for various tax rebates... all from other nations than America.
Tax credits like this have also created something of a tax credit "arms race" where different countries offer more money to the studios than the other in the hopes of stealing the industry. This no only further displaces the VFX artists but it also decimates the new, burgeoning VFX industry in the country that was offering tax credits because now the studios will close their business down in the first country to chase the tax credits in the next country and the cycle repeats itself all over again.
And I think you can see now why trade agreements specifically outlaw these types of incentives. It's destructive to everyone involved. It's a shame our "Allies" won't live up to their agreements. Knowing that complaining formally puts America between a rock and a hard place our allies should understand that violating the agreements and then using our other relationships to ensure America won't complain erodes all faith in said agreements making them pointless and causing a public backlash against them. Which is bad business for everyone.
Posted by: Robert Tracy | Thursday, September 07, 2017 at 10:12 PM