2017 - FilmLA

[Pages:28]2017

FEATURE FILM STUDY

TABLE OF CONTENTS

ABOUT THIS REPORT

2

FILMING LOCATIONS

4

CANADA IN FOCUS

5

FILM TAX CREDITS OVERVIEW

6

CALIFORNIA IN FOCUS

7

THE THREAT TO ANIMATED FILMS IN CALIFORNIA

8

FILM PRODUCTION: BUDGETS AND SPENDING

10

FILM PRODUCTION: JOBS

12

FILM PRODUCTION: VISUAL EFFECTS

13

FILM PRODUCTION: MUSIC SCORING

16

FILM INCENTIVE PROGRAMS

16

CONCLUSION

18

STUDY OVERSIGHT

19

SOURCES

20

MOVIES OF 2017: APPENDIX A (TABLE)

21

MOVIES OF 2017: APPENDIX B (VISUAL MAP)

24

CREDITS:

Research Analyst: Adrian McDonald

Graphic Design: Shane Hirschman

Photography: Shutterstock 20th Century Fox?

QUESTIONS? CONTACT US!

Adrian McDonald Research Analyst (213) 977-8636 amcdonald@

6255 W. Sunset Blvd. 12th Floor Hollywood, CA 90028

@FilmLA FilmLA FilmLAinc

ABOUT THIS REPORT

For the last five years, FilmL.A. Research has tracked the feature films released theatrically in the U.S. to determine where they were filmed, why they filmed in the locations they did and how much was spent to produce them. We do this to help businesspeople and policymakers, particularly those with investments in California, better understand the state's place in the competitive business environment that is feature film production. And we also do it for the millions of movie lovers out there who want to know where their favorite films were made and what went into making them.

Our sample is based on the top 100 feature films at the domestic box office released theatrically within the U.S. during the 2017 calendar year. The 2018 Feature Film Study follows the same basic approach as prior reports and analyzes the following data for included films:

? Primary and secondary filming locations ? Primary and secondary locations for postproduction / visual effects (VFX) work ? The number of films that scored music within California ? Production spending and filming jobs created

In determining the primary production location of a given film, the overriding factor was where the production spent most of its reported budget. This is sometimes a more complex activity than it may seem.

Due to the heavy reliance on visual effects (VFX) common in most big-budget films, some projects may be primarily produced in a location where none of the live-action principal photography took place. For example, in last year's study, FilmL.A. credited the United Kingdom (U.K.) as the primary production location for Disney?'s Jungle Book, a liveaction remake of the animated film that did all of its principal photography in Los Angeles. Because the film spent more money (on VFX) in the U.K., however, it was given credit as the primary production center rather than California.

Similarly, in this year's report, FilmL.A. designated New Zealand as the primary production center for War for the Planet of the Apes rather than Vancouver, British Columbia. While the film did the vast majority of its principal photography in British Columbia (where it spent more than $81 million (CAD) while filming over 180 days),1 the production spent more money -- $131.5 million (NZD) -- on VFX in New Zealand.

The 100 films in this year's sample set included 14 animated and 86 live-action projects. More than half (52) of the films completed production in 2016, 21 in 2017, 18 in 2015 and two completed production in 2014. The reported budgets of the 100 films (see Appendix A for complete list) ranged from $4.5 million to $300 million. The average production budget in the sample was $74.3 million.

The films in this study also represent over $7.55 billion in direct production spending and tens of thousands of high-wage jobs in a wide array of professions. The $7.55 billion spent on the 2017 films is just over the $7.5 billion spent on the top 100 films of 2016.

1 MPA, Canada:

2

$800

$700

$2,000

$600

$500

$1,500

$400

$1,000

$300

$200 SHARE OF TOP 50 FILMS AT GLOBAL BO$5X00OFFICE

$100

$0

0

$50

BILLIONS ($)

$40.6

$40

$38.4 $38.6

$34.7 $35.9 $36.4

$32.6 $31.6

$30 $20

$23.1

$25.5

$26.3

$29.4 $27.7

$18.5

$17.8

$18.0

$21.0

$20.3

$20.3

$23.0

$22.1

$24.6

100% 80%

$16.7

$15.2 $15.4

60%

$10 $11.6 $12.6 $12.8

40%

$0

20%

2001 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

80

GLOBAL BOX OFFICE

TOP 50 FILMS

15

70

60

12

50

40

Total box-office revenues reached a record high9 in 2017, with global box

office ticket sales hitting $40.6 billion.2 Despite the release of hundreds of

30

movies every year, a relative handful account fo6r most of the global revenue.

The top 50 films of 2017 pulled in $24.6 billion worldwide; the top 25 films

20

raked in $18 billion and the top five films took in $5 billion.3

3

10

For more than a decade, the top 50 films released each year have slowly

0

been increasing their overall share of the world0wide box office. In 2006,

the $12.8 billion earned by the top 50 films represented 50 percent of

the worldwide box office total of $25.5 billion. By 2017, the share of the

worldwide box office total ($39.9 billion) held by the top 50 films ($24.6

billion) increased to 62 percent.

2 MPAA, 2017 Theme Report, pg. 7: 3 2017 Worldwide Grosses, Box Office Mojo:

3

FILMING LOCATIONS$40

While Southern California and Hollywood are widely regarded as the traditional home of moviemaking, today's film industry is a worldwide enterprise. Feature films produced by U.S. companies are filmed across the globe. For many films, principal photography occurs in more than one location. Accordingly, FilmL.A. works to identify both primary production locations and secondary production locations for films studied.

$30 In the end, our research determined that 14 different U.S. states and 11 foreign countries were

used as primary production locations among this study's 100 films.

Over the last five years, a handful of locations (California, Canada, Georgia, the U.K., New York and Louisiana) have traded spots for the top five filming locations each year. In 2017, Canada was the top location for 20 of the surveyed films, replacing Georgia, which ranked first in 2016. This marks Canada's first time in the top slot in FilmL.A.'s Feature Film Reports. Within Canada, the top provinces were British Columbia (11 films), Ontario (7), Quebec (1) and Manitoba (1).

TABLE 1:

$20

NUMBER OF TOP 100 DOMESTIC FILMS PRODUCED BY LOCATION

PRODUCTION CENTER

2017 2016 2015 2014 2013

Canada

20

13

11

7

16

Georgia U.K. California

15

17

13

8

9

15

$10 16

15

12

9

10

12

14

20

16

New York

6

6

7

12

4

Louisiana

5

6

9

6

15

Australia

5

4

1

2

2

France

3

2

1

3

2

$0

Falling from the top spot in 2016, Georgia tied with the U.K. in 2017 with 15 films.

The U.K., which tied with Georgia in terms of project count, hosted 15 movies in 2017, one short of their previous high of 16 films in 2016. More importantly, the U.K. ranked first in total budget value and budget spend within its borders for the third year in a row.

U.S. SHARE OF TOP MOVIES

80

70

65%

60

64%

65%

California finished 2017 in fourth place, with

ten films produced primarily in the state. As in

50

previous FilmL.A. reports, California's project

count and, more importantly, its total spend, was

bolstered by four major animated films.

40

While New York remains the second largest

production center in the U.S., it has not been able to capture a significant share of the top 100 films.

30

However, with six of the top 100 films produced

primarily within the state, New York edged out

Louisiana (with five films) to rank fifth.

20

57% 50%

From a national perspective, the U.S. served as the primary production location for 50 percent of the top 100 films at the domestic box office in 2017. This is the lowest share for the U.S. since FilmL.A. began tracking in 2013.

10

0

2013

2014

2015

2016

2017

4

2%

4% 4%

49%

1% VFX -THE-LINE

0 0

CANADA IN FOCUS

Over the last 20 years, film incentives offered by various state and national governments have become the predominant factor in determining where a given film or television project will be produced. The number one location in the world for the primary production of top 100 films released in 2017 is Canada, the nation that pioneered the creation of modern film tax credits in the late 1990s.

Historically, the draw for foreign producers and studios to film in Canada "was once the favourable currency exchange rate," which ranged from 60-70 cents against the U.S. dollar from the mid-1990s to the early 2000s.4 But the introduction of significant film tax credits, which began to have an effect in 1999/2000, is when foreign production spending crossed the $1 billion (CAD) mark in Canada for the first time. According to the Canadian Media Producers Association (CMPA), foreign producers now go to Canada "mainly for the competitive incentives, skilled crews, award-winning creative talent, state-of-the-art technical facilities, and exceptional locations." 5

Even as the value of the Canadian dollar reached parity with the U.S. dollar from 1998-2014, foreign production spending in Canada (which is dominated by U.S. production spending) climbed from under $900 million (CAD) to $2.6 billion in 2014.6 And then, beginning in 2015, the value of the Canadian dollar fell precipitously from over 90-cents on the U.S. dollar to 75-cents by 2016. At the time of this writing, the value of the Canadian dollar is 77-cents.

For specialty services like VFX, provincial incentives are even higher. In British Columbia, for example, the incentives for film production can be stacked with incentives for VFX and the Canadian federal film incentive to pay for 53 percent of qualified VFX labor costs. Put another way, if a U.S. based producer spends $10 million on qualified VFX labor in British Columbia, the various incentives will cover $5.3 million of their cost. Add in the low value of the Canadian dollar, and the producer could see potential savings of 70 percent.

For cost conscious filmmakers, the deals in Canada have been too good to ignore. As a result of the synergistic savings created by extremely competitive incentives and the beneficial exchange rate, foreign production spending in Canada has exploded to record highs, going from $2.64 billion (CAD) in 2016 to $3.75 billion in 2017.7

The favorable exchange rate came at an ideal time in Canada, specifically for the production hubs in British Columbia and Ontario. In recent years, both provinces trimmed their respective film incentive rates due to escalating cost concerns. The base labor production credit in British Columbia was reduced from 33 percent to 28 8 and the all-spend production incentive in Ontario was reduced from 25 percent to 21.5 percent.9 While there were concerns the reductions would result in less production activity, the favorable exchange rate more than offset the relatively minor reductions to the programs and Canada has never been busier.

For U.S. producers, the impact of this large drop in the Canadian dollar, combined with the extremely large national and provincial film incentives cannot be understated. The low exchange rate effectively creates an additional 25 percent savings, on top of existing incentives. With base provincial incentives in places like British Columbia and Ontario at 21-33 percent of qualified costs or more, filmmaking in some parts of Canada today is very economical.

4 Canadian Media Producers Association (CMPA), Profile 2017 Report, pg. 7:

5 Id. 6 CMPA, Profile 2017 Report, pg. 15. 7 Id. 8 CreativeBC, PSTC Overview:

(3).pdf 9 Etan Vlessing, The Hollywood Reporter, "Ontario Cuts Foreign Film Tax Credit, Hollywood to take

Hit," April 23, 2015:

Other Postproduction

Executive

Above the Line Below the Line VFX

$4,000

FOREIGN PRODUCTION SPENDING IN CANADA

$3,500

$1,895

$3,000

MILLIONS ($)

$2,500

$2,000

$1,500

$1,000

$500 0

$448 $320 1997

$946 $816 2001

$795 $667 2005

$833 $675 2010

$941 $933 2011

$846 $841 2012

$1,098

$969

$857 $642

2013 2014

$1,533 $1,520 $1,862

$1,067 $1,124

2015 2016 2017

Television Film

5

FILM TAX CREDITS OVERVIEW

If lower taxes were enough to lure Hollywood film and television productions outside of the state, then the U.S. film industry would have decamped California decades ago for other states with significantly lower tax burdens. Recognizing this fact, policymakers in Canada repurposed tax credits into an extremely effective business incentive.

The tax credits engineered in Canada and later copied and/or modified in many U.S. states and other nations do not function like a personal tax credit that most people are familiar with, in which a tax credit is used to offset any taxes owed. For individual income tax filers, when a taxpayer has more credits than they owe in taxes, the credits are generally forfeit or allowed to be carried forward for use in future years. But film tax credits work differently.

When a film is greenlit, it is common practice for a studio or the producers to form a temporary business entity like a limited liability company (LLC). These business entities are typically short-term operations that remain active only for the duration of the production. On paper, these production companies spend their relatively short operational period spending resources to complete the film. Profits, if any, will come much later when the project is finished and they will flow not to the temporary production entity, but to the parent studio or producers (who are often based in California).

Since the temporary production companies created to produce a film or television project rarely incur tax liabilities in states like Georgia or the Canadian provinces, standard tax credits that act only to reduce taxes owed would be worthless in jurisdictions outside of California. Tax credits for film and television productions are rarely used to reduce taxes for filmmakers. Instead, their main function is to finance a portion of the film.

The most common type of film incentives in the modern era come in the form of either transferable or fully refundable tax credits.10 Transferable tax credits allow the production to sell any credits it cannot utilize to a third-party business or individual(s) who do have tax liabilities in that jurisdiction. For example, a production with $20 million in transferable tax credits may sell them for $18 million (or 90-cents on the dollar), if a buyer can be found.

Refundable tax credits, on the other hand, allow the production to receive full cash value for the credits, even when the production company or studio has no local tax liability. In this case, the production with $20 million in refundable tax credits will receive a check from the issuing jurisdiction for the full $20 million value of the credits. This investment is usually justified with reference to jobs and economic output created during production.

A U.S. state or Canadian province offering a 25 percent tax credit does not mean the production's taxes will be reduced by 25 percent, which is a common misunderstanding. Instead, a 25 percent tax credit on qualified production spending in that location means 25 percent of the qualified cost incurred there will be covered by the tax credits when they are either sold to a third party (transferable tax credits) or fully refunded (refundable tax credits) by the issuing jurisdiction.

10 Thus far, only refundable tax credits have been implemented at the Federal and Provincial levels in Canada; in the U.S., nine states (including Louisiana, New Mexico and New York) use refundable tax credits, eight states (including Georgia, Illinois and Massachusetts) use transferable tax credits and 14 states (including Texas, North Carolina and South Carolina) use straight rebate/grants programs.

6

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