How Movie Studios Exploit Politicians to Demand Subsidies

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Inside a Hollywood heist The MPAA and the dark world of Hollywood’s political privilege play (within U.S.) jurisdictions off each other to gain tax credits and direct subsidies, to very poor returns for state governments and residents. I’ve seen many such articles in the past, eg last year The Upside-Down Math of Film Subsidies. I’d appreciate pointers to a comprehensive study, for the U.S., any other jurisdiction, or worldwide.

Inter-jurisdiction subsidy competition is obviously bad, allowing corporations to shop around for the most gullible or corrupt jurisdiction. Film subsidy competition seems much like professional sports team arena subsidy competition, additionally because both seem shiny, have lots of cultural relevance, and have monopoly aspects. In the case of teams, the supply is restricted. In the case of movies, there are only so many hits. In both case, IP plays a strong role in creating and maintaining concentrated interests which are better able to extract rents from governments in addition to their property privileges, resulting in these industries further pushing us toward a future of gross inequality, control, and conflict.

Articles decrying subsidy competition rarely offer any solution other than hoping everyone realizes the arrangement is ridiculous and stopping, and the two linked articles are no different. But I’ll note three here, going from most similar to everyone stopping to most incremental and knowledge specific:

  1. Outlaw civic extortion, large businesses negotiating with several jurisdictions for ever larger public subsidy. This has nothing to do with knowledge directly, but somewhat disfavors IP/freedom infringing industries which are concentrated enough to successfully gain such subsidy, examples above. It is also pro-commons in a broader-than-knowledge sense, considering government as a commons, as a method of protecting government from private raiding.
  2. Mandate that any works created with public subsidy be not subject to freedom infringing regimes (copyright, patent, trademark, etc). This is a natural extension of the limited application of this principle so far (e.g., for some government and publicly funded works, especially educational and scientific) to entertainment and culture, but has also been independently invented by critics of sports team subsidy and behavior. In some cases the team/studio would reject the subsidy. In others, presumably in particular where subsidy is more a matter of very substantial cultural funding and less of inter-jurisdiction shopping (I imagine Europe) are provides a larger share of costs, the production would be added to the commons.
  3. Commons-based competition to the studios, first expanding policy imagination through existence proof, then slowly by creating a different path for creating culturally relevant productions which erodes their profitability and thus their constituency for protecting their subsidies and IP. As this competition increases, the demand for the second item (public funding=public domain) will increase, and vice versa.

Tile a play on How Movie Studios Exploit Video on Demand Services.

California reclaims lead in film production

California’s 22 feature film production last year were…mounted when California’s film and TV tax credit program was capped at $100 million and limited to films with budgets less than $75 million. This year, the program expands to $330 million and opens up to big-budget movies.

It will be a couple of years before films benefiting from the expanded incentives program show up in FilmL.A.’s annual survey. In the meantime, most features made in the state with budgets of $100 million or more are likely to be animated, the organization’s study predicted.

“As for California’s competition, the strongest players are well known,” the report said. “Canada, New York, Georgia, Louisiana and the U.K. are California’s primary competitors for the foreseeable future.”

Each of these locations offer film incentives of 20 percent or more.

That old zombie charm (emphasis added):

This contest began in earnest when “Ray”, a biopic of (Georgian) Ray Charles released in 2004, was lured to Louisiana by tax incentives.

In 2008 Georgia retaliated with a package that reimburses up to 30% of eligible expenses via tradable tax credits.

According to Joseph Henchman of the Tax Foundation, a think-tank, last year 36 states offered such incentives to film and television companies. Sceptics gripe that many of the jobs they create are temporary and low-paid, and that claims for the economic impact of productions tend to be flaky and inflated. Belatedly, perhaps, some legislatures have been swayed by these arguments. North Carolina has trimmed its programme—as has Louisiana, Georgia’s main competitor (excluding California and New York). A budget shortfall spurred Louisiana’s politicians to cap and rejig its incentives. They were always controversial: a scam involving the sale of fake credits ensnared the New Orleans Saints’ quarterback, among others. In the summer, when the reform was passed, Louisiana’s film lobby threatened to sue. More diplomatically, Robert Vosbein of the Louisiana Film and Entertainment Association now hopes the changes will be reversed after the imminent election for governor.

But while some states are withdrawing, others are doubling down. The total amount of taxpayers’ cash funnelled to filmmakers is rising, last year reaching $1.9 billion, according to the Tax Foundation.

[Movie Production Incentives] fail to live up to their promises to encourage economic growth overall and to raise tax revenue. States claim MPIs create jobs, but the jobs created are mostly temporary positions—often transplanted from other states—with limited options for upward mobility. Furthermore, the competition among states transfers a large portion of potential gains to the movie industry, not to local businesses or state coffers.

That’s a lot of money being funneled to movie production. Why not convert to grants to local filmmakers for freedom respecting products? Chasing mobile stars and studios and subsidizing freedom infringing products shows a profound lack of confidence in local talent and profound disregard for freedom, equality, and security.

A Reel Bad Deal on Tax Giveaways focuses on Massachusetts and transferable film production tax credits:

Filmmakers make out because they either sell credits in excess of their tax liability or monetize the credit more quickly than if they waited for a check from the state. Brokers make their share, corporations get tax credits, and taxpayers get stuck with the tab.

What to do:

Of course, the best way to end the madness would be to eliminate the film tax credit, as Gov. Charlie Baker proposed earlier this year. But a more immediate fix would be for Massachusetts lawmakers to pass legislation pushed by state Auditor Suzanne Bump and Inspector General Glenn Cunha that would give the auditor access to business tax returns for the sole purpose of auditing tax breaks.

The bill would allow the auditor’s office to make sure that businesses actually qualify for the breaks they receive, determine if commitments to job creation or other public benefits have been met, and track whether state agencies are pursuing “clawbacks” that require businesses to reimburse taxpayers if the recipient fails to meet the requirements of the tax-break agreement. Thirty-seven states provide their auditing office with access to this information.

If state and local governments are to successfully navigate what feels like an almost permanent era of scarcity, they will need to crack down on dubious or overused economic-development investments. One place to start is with tax credits that usually wind up in the hands of people or corporations that have nothing to do with the particular industry that state officials intend to boost.

All fine suggestions. But let’s grant for a moment that local film production ought be subsidized by local taxpayers. Repeating conclusion of previous comment, why not make grants to local filmmakers and let the public have unrestricted access to the product?

Mexico City estimates $24m loss due to filming of latest James Bond movie:

All this action has meant streets have had to be closed for a number of days. “The closure of streets and pedestrian malls (in the historic old town) is directly and indirectly affecting (for the worse) more than 6,627 businesses,” claims Canacope, the chamber of commerce for small businesses in the city.

There was also the suggestion that Mexico threatened to pull its incentives for filming unless certain script demands were met, but Wilson denied the country had a say in the creative direction of the film. The Spectre production was offered $20m in tax incentives to film in the country, and the film features a ‘Bond girl’ role for Mexican actor Stephanie Sigman.

Yet another example of profound lack of confidence in local talent and economy, selling out taxpayers and local businesses to chase mobile stars and studios. I skipped the paragraph on outrageous behavior by the imported talent.

Tangentially, a claim that this $400m Arirang Festivalaction flick is “entirely within HP Lovecraft’s Cthulhu mythos”; see Free Myths for the Next Generations.

Links found with Tyler Cowen’s mini-review (emphasis added):

I have to say the film stunk past the first thirty minutes. I find it more interesting that such a mediocre Bond film is today achieving such cultural resonance.

Massive marketing surely helps. Commons-based peer production of cultural relevance (or resonance) is urgently needed for premium libre video and other foundations for free myths.