The Film Industry in the Empire State: Decades of Glory, Years of Struggle

By Zev Landau

The New York Connection

People all over the world are familiar with New York City and the splendor of Central Park or the awe-inspiring presence of the Statue of Liberty. For others, it’s the striking views from the Brooklyn Heights promenade or Times Square that they think of most, and, of course, the World Trade Center holds a special place in people’s hearts. While many have seen these sights in person, an even greater number have come to recognize the city through feature films, documentaries, TV movies, television programs and commercials. And so they should. The relationship between the Empire State and the film industry is part of the American celluloid tradition.

“For a quarter century the World Trade Center stood as the crown jewel of the Manhattan skyline. Through images engrained in film and television people in every corner of the world saw the Twin Towers as a symbol of the American way of life and the spirit of the city,” reads a letter that recently came from former Mayor Rudolph Giuliani’s office. Despite its rightful claim as one of the entertainment capitals of the world, there is no question that the Sept. 11th terrorist attacks had a significant impact on the entire industry in New York state. The success of the film industry, the continuity of theater performances on Broadway, the excitement of music concerts and the high ratings for New York radio and television stations have been compromised, but hardly defeated. Now, more than ever, there are myriad reasons to shoot and produce in New York, and CPAs who have clients in the film and entertainment business should be aware of what the state has to offer.

Shooting in New York: A Host of Advantages

“Welcome to New York—one of the largest movie studios anywhere” is the message that greets callers to the New York State Governor’s Office for Motion Picture and Television Development. The agency gives filmmakers plenty of reasons why they should bring their scripts to the Empire State. Given the 48,000 square miles of urban and rural sights, there is almost nothing a filmmaker cannot capture on film or video. The state is a center of attraction for film, television and commercial productions, where there is a huge pool of actors, directors and technicians. Sound stages of every size and description are available, and in the New York City metro area alone, there are more than 100 sound stages that combine to offer a total of 800,000 square feet of floor space. New York City also grants free parking to a number of vehicles needed to assist the production process, and the police support comes free of charge. New York also provides a wide range of services pertaining to stage production, mobile production, film and video editing (on and off line), editorial and animation.

The state’s motion picture and television development office, which has an extensive network of professional vendors and services, maintains a location library that provides free access to more than 30,000 images. The governor’s office offers location research across the state. And if one of your clients is a filmmaker, he or she can get advice on securing permission to shoot at public facilities such as armories, highways, parks, bridges and subways.

Filming in the state also can result in an array of business and tax incentives that help keep production affordable. By shooting a film or production in the state, producers and directors can enjoy sales tax exemptions on a wide variety of expenditures. These exemptions apply to services such as film editing, props, processing and set assembling.

The New York State Department of Taxation and Finance has published A Guide to Sales Tax for the Film Industry (Publication 28). The guide states that the production of a film is considered a manufacturing activity when there is an intent to sell the film. Only then are filmmakers classified as manufacturers, with exemptions from sales and use tax available to them. Payments made to vendors or lessors of machinery, equipment, parts, tools and supplies are exempt from all sales and use tax if the items are used or consumed directly and predominantly in the production of a film.

Tax professionals are encouraged to review detailed charts included in the guide prepared by the state tax department. The charts categorize all expenditures incurred through the various stages of production. The classification keys include the stage of the filmmaking (pre-production, production, post-production), followed by the responsible department (e.g., the talent department), the activity (e.g., writing) and the expenditure items (e.g., purchase of story rights). To illustrate: Purchases of story rights and storyboards are exempt from sales and use tax. However, commercial storyboards created by an advertising agency as part of a bid process to win a client do not qualify as production equipment, and are subject to tax. There are 326 items listed in these charts. The writers in the story department and the services provided by producers, directors and actors are just some of the items listed in the charts.

The New York City Mayor’s Office functions as an advocate for the industry in both public and private sector organizations and individuals, providing information on policy and regulatory issues affecting the industry and promoting the policy. There are certain procedures that filmmakers have to follow, but there are also services that can benefit the film community. New York City website www.nyc.gov/html/filmcom provides information about insurance, permits, technical lists, hotel discount programs, production guides, area studios and stages, guilds and unions, and tax forms.

The Struggles

Despite the reasons to shoot and produce in New York, the state, as well as the rest of the country, must fight tooth and nail to secure a film production. More movies are being made in foreign countries. Film migration is a major concern that threatens the livelihood of untold numbers of people. “As film production companies flee America they leave behind assistant directors, unit production managers, editors—people who have spent years mastering crafts that they depend on to support their families. But there are also other less obvious victims such as small businesses that supply services to the entertainment industry and their whole existence is therefore threatened,” said Jack Shea, president of the Directors Guild of America.

The film industry in the U.S. began to struggle during the past decade. A comprehensive report published last April by the United States Department of Commerce (see www.nyc.gov/html/filmcom) examines and analyzes the reasons for the exodus of film production to foreign countries.

According to the report, the early 1990s witnessed unhappy major studio production companies and independent film producers, anxious trade associations that represent production companies and service providers, and worried unions and guilds that represent directors, sound engineers, lighting managers, caterers, truck drivers and others. Film commissioners in different states and cities called for action. Illinois Congressman Jerry Weller pointed out that the migration of film production to foreign countries was more than a Hollywood concern. It also affected New York, Texas, Illinois and Florida.

The migration had a serious impact on the U.S. economy. In 1999, the Monitor Company published a report that concluded that between 1990 and 1998 the rate of productions produced abroad increased from 14 percent to 27 percent and the economic losses from the flight of productions to foreign shores increased from $2 billion to $10 billion.

So what made foreign countries so attractive to the film industry? To explain this question, issues like the globalization of the film industry, changes in film culture, new technology, better training, the development of infrastructures and the diminishing importance of the concentration of localities need to be examined.

Globalization

The film industry in the United States is still strong, diversified and vibrant, but the rate of growth in many foreign countries may well have outstripped the growth rate in the U.S. over the past decade. “If the most rapid growth is occurring outside the United States, then employment, infrastructure and technical skills will also grow more rapidly in foreign shores,” states the U.S. Department of Commerce’s report. Bear in mind that worldwide consumer demand for film entertainment is increasing and new state-of-the-art studios have been constructed around the globe. Business and tax incentives by foreign governments are significant factors to consider while film budgets in the United States are consumed by high production costs.

“American production is being challenged by emerging markets in a way we have never experienced before. While these markets do not have the infrastructure yet to go toe-to-toe with us, they are aggressively and successfully luring production away, based purely on cost effectives,” said Matt Miller, president of the Association of Independent Commercial Producers, on the issue of globalization. “We are entering a time in this industry’s evolution when the American production community needs to be an aggressive competitor.”

Foreign film industries are seeing new possibilities, and entrepreneurs want to have a piece of the action. According to Department of Commerce report, the foreign countries understood that it was important to create the right film culture. This environment needs to be friendly because the process of producing films is, by its nature, a creative endeavor that requires corroboration. Film, casting and photography directors, musicians and editors must work in a supportive environment. A friendly culture and supportive environment are conducive to situations where the production process is inherently labor intensive.

New Technologies

The technological developments achieved between 1970 and 1980 are responsible for lighting up the film, video and communication landscape of the 21st century. Insiders of the film industry say the technological revolution in the industry has changed the norms of film production and that physical proximity is no longer a major concern. Largely gone are the days when film editors had to splice and dice reels of film. Directors, actors and other participants no longer have to be in the same location as where the movie is being shot. Now, when a film is shot, it is transferred to videotape format, digitalized, transmitted over the Internet, and editors from any location can use computers and sophisticated software programs to perform the necessary tasks.

In the heydays of Hollywood, most films were produced in the major studios. It was there that words and phrases like “controlled environment,” “proximity of all facilities to the major studio,” and “elaborate production sets” could be heard. Ten years ago it would have been inefficient to produce a film in many foreign countries even if they offered lower labor costs. With new technology, the filmmakers have more mobility, hence the name “floating factory” for the production set.

The Competition

The United Kingdom, Australia, Ireland, the Netherlands and especially Canada are considered competitors of the U.S. in terms of film production. The Ernst & Young Guide to International Film Production suggests that the support of the film industry through Canadian federal, provincial and local incentive programs is a well-known national legacy. Studies conducted by the U.S. Bureau of Economic Analysis estimated that in 1999 total payments for motion pictures and non-news television production in Canada were approximately $630 million. “This trend may indicate that the larger budget films are increasingly being produced in Canada and that Canada developed the infrastructure necessary to support both feature films and television programs,” according to the U.S. Bureau of Economic Analysis.

The Canadian support package includes direct financial and tax incentives, labor credits and aggressive marketing campaigns promoting Canada as a destination for production. The Federal Production Service in Canada reimburses a percentage of labor costs. Filmmakers do not have to apply for refunds by filing tax returns; the reimbursement is independent of the ultimate tax liability and is awarded before the tax returns are filed.

In light of Canadian labor credits, it is easy to see why, to some New York officials, the competition appears to be unfair. In her testimony before the New York City Council, Patricia Reed Scott, commissioner of the New York City Mayor’s Office of Film, Theatre and Broadcasting, said the city offers some of the most extensive incentives in the country. Nevertheless, she said, “All of these Canadian cities (Toronto, Montreal and Vancouver) directly rebate 22 percent of the labor costs to each and every production they attract.” (Some articles on the film industry report that in some provinces the rebate can be as high as 50 percent.)

Canada helps the film industry in other ways, too. There are funds such as the Canadian Television Film Fund, Cultural Industries Development Fund, Feature Film Fund and Canadian Production Marketing Fund. The Department of Commerce lists approximately 30 funds, grants and incentives, which help to explain why Canada is such an attractive location for film production.

Possibilities for a Brighter Future

“The entertainment industry knows how to weather ups and downs and uses its experience to become even stronger. Our local production community has demonstrated its strength and commitment to New York City by making generous donations of supplies to the rescue and recovery effort, including hot catered meals, lighting equipment and lumber,” reads Giuliani’s letter. “Drivers, carpenters and electricians from local unions have also provided their services. There is no doubt that the entertainment industry, and the entire economy of the capital of the world, will rise to new heights in the future.”

There currently are plans to expand the film infrastructure in New York by constructing studios in the Brooklyn Navy Yard or building a Hollywood-style back lot on the Hudson River. The U.S. Small Business Administration has initiated loan programs to provide guarantees for commercial loans to small independent filmmakers, but more help is needed.

The near strikes by actors and writers last year and the studios’ boycott of New York in the 1990s put a squeeze on the film industry in the state. And, according to an article in Crain’s New York Business, “Film, TV Groups Join to Restore NY as Shooting Star,” the tragedy of Sept. 11 set back film production in New York, but the horrible event also rallied many to act. The World Trade Center disaster “has mobilized members of the industry to band together and finally make a serious effort to solve the problems that have been plaguing it,” the article reads. According to Crain’s, unions officials, producers, equipment providers, and city and state officials have been meeting almost daily to seek ways to lure production and make the city even more competitive. A new initiative known as “We Love New York” has been formed and is a joint effort of organizations, including the American Association of Advertising Agencies and the Association of Independent Commercial Producers, to help New York City reestablish its claim as the capital of film production.

Negotiations with associations and guilds may result in lowering labor costs and New York officials hope that collective efforts will lead to successful dealings with various unions. But New York will have to offer incentives that are more comparable to those offered by foreign governments. The federal government could be instrumental either through offering better incentives or through signing international trade agreements with foreign governments. New York could also benefit in the future if a U.S. film commission is formed or more government-sponsored programs to address the concerns of entertainment programs are created. Whatever the solutions, New York, despite huge obstacles, will continue with its quest to reemerge as the universal center for the film industry, and it will continue to inspire filmmakers who want to bring their scripts to the Empire State.