We have 1 to 2 years to take action before Los Angeles is “just another” place to make films in the US. That was the sentiment expressed by Paul Audley, the president of Film LA. The reason? Tax incentives offered by other states creating runaway production costing California millions in revenues and jobs.

This week I had the privilege to interview Paul as a part of the Hollywood Chamber of Commerce’s FORWARD speaking series. In full disclosure, I lived in Austin, Texas for about 20 years. Austin is its own hotbed of film making activity and the consensus there is incentives bringing production to Texas is a good thing. But while I was involved in the filmmaking community, and often invited to rallies on the Capital lawn to demanding incentives, that never quite set well with me. It wasn’t until business school though that I actually sat down and crunched the numbers and found that in the cases I reviewed (Texas, New Mexico and North Carolina) incentives aren’t all as they seem. More on that in a minute.

So if you’re a Californian not affiliated with the entertainment industry, why should you even care? Because, if you are a winemaker in Northern California, you are affected – our destinies are tied by a delicate, yet very real, link. For every entertainment job, 2.7 jobs are created outside of the entertainment industry. To put it in concrete terms, there is a mom and pop hardware store waaaaay up north in Humboldt County that is at risk of closing because production in that area has dropped off a cliff.

A Race to the Bottom?
Why shouldn’t other states create incentives? Are Californians being selfish clinging to a glorious but now faded past? After all, North Carolina created their incentives to boost create jobs in the wake of manufacturing jobs going off shore. Ain’t this America where we should compete? Ain’t this America where if we’re creating jobs in North Carolina, its good for the nation as a whole?

Nope. What this has done instead is create a race to the bottom. And the irony of it all is, the incentives that lure production to other states turn out to be a wash for production companies. Incentives sound like a good idea, but ultimately its MORE expensive once you’ve schlepped people and equipment outside California. In addition to the 3rd party studies done on this, Paul provided an example from television production: right now, North Carolina is 2 crews deep. If 2 shows are filming and a 3rd one comes to town, local crews are likely to ditch their original show 1/2 through production to take on the new (and therefore, longer term) gig. This means a new crew is flown in from LA and all those associated costs drive up the cost of production.

OK, its more expensive to shoot elsewhere, so why do they do it?
Crunching numbers is what they do, so why do studio execs green light shooting elsewhere? On the face of it, it seems the incentives are a good thing for producers but in practice they’re not. While other states have invested heavily in incentives and infrastructure, its not just the producers getting burned – its the states too. When the economy crashed incentives just weren’t enough to keep the studios afloat in Albuquerque and they’ve since been closed.

Any bright spots on the horizon?
Being in digital business development I had to ask Paul about the affect of technology on runaway production. With technology now cheaper and easier to use, of course the means of production are no longer solely in the hands of the limited few. That has further diminished the centralization of entertainment in Hollywood. And beyond production, Paul explained, all kinds of other services can be centered any where in the world – music scoring, animation, etc. But for all this dispersion due to technology, Los Angeles is pivoting and finding new success with new media content creators like Maker Studios and Machinima. In fact, Paul informed me, that its because of digital production that the numbers he sees are relatively flat. Without the digital, we’d be in even worse shape.

So why should I care – its not like Tom Cruise and Hollywood moguls need a tax break.
Nope, they don’t. But that’s not who is affected by this incentives race. Tom Cruise is gonna make is billion dollars a movie no matter where its filmed. Plus, he’s such a commodity that despite his lunacy, people keep lining up to see him. But incentives aren’t about the “above the line” people (the producers and A List talent). Runaway production affects the “below the line” talent: the grips, gaffers, electricians, etc. The working man. And woman.

That’s why you should care. Its your neighbor, your Uncle Bob and… well, your community.