If You Build It, Hollywood Will NOT Come

If You Build It, Hollywood Will NOT Come

from: Stop-Runaway-Production.com –

Sad news from Michigan.  But many, including myself, saw this one coming from the beginning.  Raleigh’s Pontiac Studios, the flagship state-of-the-art $80 million studio complex is reportedly going to default on a bond payment next month and, tragically, the state’s pension funds are on the hook for over $600,000.  From The Detroit News:

Michigan’s largest film production studio will likely default on a bond payment due in two weeks, sticking the state’s pension funds with the $630,000 obligation.

Sources close to Raleigh Studios in Pontiac told me Wednesday that the owners have not made their required monthly escrow set-aside payments since October, and won’t have the money to meet their biannual bond obligation when it comes due Feb. 1.

The only thing that could change that, the source said, is if the studio books a major production in the next few days.

“The bondholders will be paid,” the source said. “But unless we get a booking, the pension funds will have to make the payment.”

That’s because the deal quarterbacked by former Gov. Jennifer Granholm in 2009 made the state employee pension funds the guarantor of the $18 million in bonds sold to help build the $80 million studio, located inside the abandoned facilities of the old General Motors Centerpoint truck complex.

If the studio can’t pay, the pension funds have to.

And since Michigan subsidized “Oz” to the tune of $40 million, I doubt another major project will be booking Raleigh’s Pontiac Studios.  Raleigh is not the first movie studio to have financial issues that not only effect the studio, but also end up costing the Michigan taxpayers.  The people in Allen Park, Michigan, got burned when a planned studio project blew up in their face, leaving the city unable to pay for things like their fire department (which they had to close).  Then there was the Hanger42 case, which smelled like fraud, but prosecutors were unable to convince a judge to agree with them.  Don’t worry Michigan, you are not the first state to have trouble building movie studios and sound stages.

Louisiana got burned by Louisiana Film Studios llc and the LIFT Studios fiasco.  Massachusetts’ has watched the inept backers of the planned Plymouth Rock Studios project prove their incompetence time and time again.  And in New Mexico, Albuquerque Studios has spent almost all of its existence in debt and bankrupt (though they have emerged from that, for now).

What film backers in these incentive states (and many others) need to start realizing is that no matter how much film industry infrastructure these places build, the key to their ultimate survival is a steady flow of productions.  The infrastructure is not, and never will be, the key to drawing that steady stream.  The only draw that has ever mattered is the money they (the filmmakers) get from ridiculously massive film incentives.  No incentives means no Hollywood.  It is literally that simple.

Film backers who support film incentives as an economic development tool to foster a film industry make their pitch using, as Cornell’s Susan Christopherson calls it, “stage theory”:

The scenario laid out by proponents of this economic development strategy follows well-worn “stage theory.” First, industry projects will be lured to a region by significant direct financial subsidies, demonstrating its good business climate. Second, the region is charged with developing and maintaining an infrastructure, including capital facilities and a skilled labor force, to sustain industry presence. Third, with these investments, the regional industry eventually becomes self sustaining and globally competitive, no longer requiring subsidies. While the reports that evaluate the economic impact of the tax-based subsidies for the film and television production industry echo this theory, they offer little information regarding how such an industry infrastructure is constructed.

In short, film backers in the incentive states don’t know what the hell they are talking about (even if they sound like they do).  Film backers counter that it will “take time” to establish sufficient infrastructure.  Christopherson points out it will take lots of time–got 100 years anyone?:

In New York and Los Angeles, this infrastructure has taken over one hundred years to build, and requires considerable ongoing public investment to maintain. Without this infrastructure, a state that subsidizes footloose film or TV production projects has little chance of building a sustainable local industry. This is demonstrated by the continuing difficulty of even those states (other than New York and California) that
have been trying to establish a viable film and television production industry for the longest time—North Carolina, Texas, Florida—in maintaining the crew depth needed to support more than a few productions at a time.

I keep trying to tell people in these states that they are wasting their time and money, but they refuse to listen.  Maybe they should listen to the smart people in Canada who engineered the modern film tax credit/incentives now being copied in almost 40 states.

Film incentives, like any weapon of war, were designed to cause maximum damage to the intended target.  For example, Canadian-designed film incentives cause runaway production by attempting to erode the comparative advantages the U.S. has from its concentrated industry clusters in California and New York.  These clusters are the key to the U.S. film industry’s global dominance, and policymakers in the U.S. seem completely oblivious to this monumentally important fact. If the United States has a national interest in preventing runaway production to foreign nations, then having all fifty states competing with each other is not only counterproductive, but it is financially devastating to numerous state governments unable to sustain the huge amount of funds needed to pay for production incentives.  As the smart people in Canada said:

In business, as elsewhere in life, Darwin’s rules apply. The first group to establish itself in a market generally attains an insurmountable height from which to hold down competitors. The governments of Canada, Ontario and Toronto recognized many years ago that to build a Canadian screen-based industry, public funds had to flow. Only the public could afford the risks of entry into the well established screen business. Hollywood got into the screen business in the 1920s and established its hegemony with massive investments in infrastructure and talent in Los Angeles, at a time and in a place where more days per year of reliable sunshine was a business advantage for a technology that needed available light.

Recognizing that Hollywood’s established hegemony was  a result of its decades-long concentration in one place (Los Angeles), policymakers in Toronto understood the importance of creating their own concentrated industry cluster and warned that policies which encouraged production in other parts of the nation not only hurt Toronto, Canada’s leading
production center, but threatened the viability of the industry in the entire nation:

But some industries, particularly screen arts, don’t lend themselves to being spread thin. In fact, they grow best in big Creative Cities where talent is concentrated, and there is a sustaining supply of work.

Screen arts, like other art forms, are only mastered by doing. They require a sophisticated infrastructure, including state-of the-art studios, post production facilities, and schools that train sufficient newcomers to supply the business as it grows. But screen arts infrastructure is expensive, and can best be afforded
where capital costs can be amortized through constant use. . . .

Instead of supporting Toronto as a world-class centre of  excellence, policies have begun to tear it down. If Toronto fails, the viability of the industry across the country will suffer.

The same warning expressed above applies in this nation. The concentration of the film and television industries in Los Angeles is the main reason Hollywood enjoys unrivaled global dominance. No one anywhere else has been able to compete. The world-class concentration of talent and infrastructure in Los Angeles cannot sustain itself without a
constant level of movie and television production. Runaway production to other nations is a national concern because it weakens this concentration, which is the one thing that makes Hollywood such a global juggernaut.

As I say in my latest law review article (at the printers this moment), the foolishness of the film backers and the costly incentive war must end:

What should have been a national solution to runaway production, using a single film incentive to protect the potent concentration of the Hollywood industry cluster in Los Angeles (and, to a lesser extent, New York), was bastardized into a state level tool that serves self-interested short-term “benefits” to individual states.  In the short term, jobs remained in the U.S. as opposed to going to Canada, but this was achieved by selfish, outrageously expensive and unsustainable policies that served to hurt not only the cash-strapped states enacting them, but also the entire nation.  The race to the bottom of U.S. states enacting film incentives has been a costly distraction from the threat runaway production poses from other nations.  Film incentives are a weapon that the nation can use to defend itself.  But like any weapon, the nation needs to understand how to operate it.  With film incentives, the fundamentals are like that of a gun.  Instead of pointing the gun at the other nations causing runaway production, the U.S. has been shooting itself in the face.

The Canadians know the key to toppling the dominance of the US film industry is to hollow-out and weaken Los Angeles and their incentives were designed specifically to do that.  With the exception of New York, every state trying to build a sustainable film industry will fail.    In the meantime, it’s time to start pointing out that they are only helping Canada and film industries in other nations achieve their goal of ending US dominance at the global box office.

Policy makers in the incentive states thought they were being smart copying the Canadian film incentives.  But had these state lawmakers in the US taken the time to understand and study the overall goal of the Canadian plan and the intent of enacting film incentives, they might have realized they were not being clever at all.  The ignorance is breathtaking.  And now its costing us all.

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