Competition for good-paying jobs has cast film into a leading role in economic development and set off a race to the bottom, in which state and local governments are adopting increasingly favorable production incentives to gain an advantage over others.

Forty U.S. states and most Canadian provinces now offer some type of tax credit for in-state production. Tax credits have been a godsend for the industry, since other sources of funding, like hedge funds, dried up. Local governments are sweetening the pot with offers of free money, land, public financing, and other incentives to build facilities, as well as programs to train local talent.

Film production is attractive for a number of reasons. It pays high salaries, stimulates local retail sales with spending on crew services and materials, and is not affected much by ups and downs in the economy. It also has a positive impact on urban renewal goals by attracting educated professionals who prefer living in an urban environment.

KifkFilmPower_2_300
Pinewood Toronto Studios 

Architect Stephen Newbold, a senior associate in the Boston office of Gensler, notes that the film industry is an ideal economic driver because it is a clean industry, has a synergistic relationship with other art forms, ties to education, and, when done properly, serves the greater good.

A popular economic development strategy is to provide incentives to seed clusters of related businesses that fit a community’s strengths. Since Richard Florida’s book, Rise of the Creative Class, linked economic growth to a region’s ability to attract creative professionals, governments are adapting this strategy to jump-start creative hubs.

As a result, media arts clusters are emerging in major cities throughout the developed world. This model is attractive to “creatives” because it provides a synergistic atmosphere for artistic collaboration, efficiencies, and connectivity.

The underlying force behind this phenomenon is the linking of venture capital with producers of creative ideas, designs, and products, notes Randy Jackson, president of the Costa Mesa, California–based Planning Center and chairman of the Urban Land Institute Community Development Council (Blue), pointing out that an idea has no value unless paired with capital and business expertise to transform it into a product or service.

Toronto’s East Bayfront is a prime example. The Toronto Economic Development Corporation (TEDCO) has invested heavily in two projects to anchor redevelopment of the Port Lands industrial district into a “convergence community” for the entertainment arts.

Toronto has been a center of broadcast media and filmmaking since the 1950s and already has significant production infrastructure, including a large, highly skilled pool of line crew and abundance of industry suppliers. The city is well known in the industry as a bargain, with production costs half as much as in New York and California.

To protect industry jobs, TEDCO partnered with private investors to build a high-tech studio complex to accommodate new filmmaking technologies and attract high-dollar productions. The agency provided land and partial financing for the $62 million Pinewood Toronto Studios (formerly Filmport) complex, which boasts the largest purpose-built soundstage in North America and a fiber-optics network that transmits 10-gigabytes of data 1,000 times faster than service offered by any commercial provider.

TEDCO also recently completed construction of Corus Entertainment’s new corporate headquarters. Corus is leasing the $159.5 million, eight-story building from TEDCO to consolidate television, radio, animation, and book-publishing divisions in one location.

The overall Port Lands plan calls for 3 million square feet (279,000 sq m) of commercial development to support production and provide crew services. The new Pinewood studios owner, Toronto Waterfront Studios Development, Inc., recently unveiled a new proposal to create a living studio village resembling New York’s Soho to house industry professionals and use as a movie set.

KifkFilmPower_3_351
The city of Toronto built Corus
Entertainment’s new headquarters building.
Photo courtesy of Quadrangle Architects 

Toronto’s favorable production atmosphere and pixel-perfect facilities, along with Ontario’s 35 percent tax credit, recently won the city a $40 million investment by Hollywood heavyweights. Film director Robert Rodriguez, managing director for the American United Entertainment Fund LLC, says the investment will be used for infrastructure to produce three to four upcoming feature films, television, and/or digital media projects.

Over the last decade, film production has increasingly moved out of Hollywood to save money, which has spawned movie studios and visual effects production in places with generous financial incentives.

Digital Domain, an Academy Award–winning visual effects studio headquartered in Los Angeles, recently joined the California exodus. Besides Florida’s 30 percent tax incentive, the company received nearly $100 million from state and local governments to build two facilities: a 120,000-square-foot (11,160-sq-m), high-tech studio in Port St. Lucie and 150,000-square-foot (13,950-sq-m) film school and studio complex in West Palm Beach.

Officials are betting that Digital Domain’s presence, along with a growing pool of local talent, will attract other entertainment companies and eventually put Florida’s Treasure Coast on the map as a filmmaking center. Larry Pelton, president of the Economic Development Council of Port St. Lucie County, told TCPalm.com recently: “I would anticipate that we’ll start to see inquiries from more studios that may want to locate here once Digital Domain gets into that new building.”

Digital Domain, which was cofounded in 1993 by director James Cameron, recently acquired In-Three, a high-tech media company known for pioneering 3-D technology. The In-Three team will produce animation features at the Port Lucie studio to compete with Disney, DreamWorks, and Pixar products. The new studio, which was designed by Gensler, will open the end of 2011 with 500 jobs that pay on average $65,000.

A generous 25 percent tax rebate on production costs bought Albuquerque Studios (ABQ) investors to New Mexico, but it was the atmosphere of cooperation that sealed the deal, according to Wayne Rauschenberger, ABQ’s chief operating officer. The $96 million, 300,000-square-foot (27,900-sq-m) project broke ground in July 2006 and opened for business ten months later. Culver City, California–based Sony Pictures ImageWorks, Inc., opened a visual effects studio there a year later.

This high-tech studio complex located at Mesa del Sol, a new 9,000-acre (3,643-ha) master-planned community, has attracted a number of feature films since opening in 2007, including Fright Night with Colin Farrell, The Avengers starring Robert Downey, Jr., and Terminator Salvation with Christian Bale and Sam Worthington. According to Rauschenberger, ABQ’s rates are similar to those charged by Los Angeles studios, but the state’s tax rebate, combined with lower-priced products, services, and lodging, makes the savings significant for clients.

KifkFilmPower_4_300
Pictured is Corus Entertainment’s digital control center,
which serves the company’s TV, radio, animation
and publishing divisions.
Photo courtesy of Quadrangle Architects 

The state’s intention in establishing production incentives was to create jobs. And thanks to cooperative training efforts involving ABQ and state-sponsored vocational programs, the majority of line crew is now home-grown. Overall, the governor’s office estimates that since 2002, 141 major films and TV productions shot in New Mexico have added about $4 billion to the state’s economy and 10,000 industry- and film-related jobs.

ABQ developer Pacifica Ventures, a Santa Monica, California–based real estate investment firm, also broke ground last summer on Sun Center Studios in Chester County near Philadelphia. The company is also planning a $65 million, 475,000-square-foot (44,175-sq-m) studio complex near Hartford in South Windsor, Connecticut. Pennsylvania has a 25 percent tax credit for film production, and Connecticut offers 30 percent.

The $85 million, 33-acre (13.3-ha) Chester County studio replaced the Tri-State Sports Complex and received a major redevelopment grant from the state, as well as some public financing and county funding. The project generated 1,000 construction jobs and is expected to provide nearly 400 permanent jobs with an annual salary of more than $68,000.

Connecticut Studios LLC, a partnership of Pacifica and the Halden Acquisition Group of Rhode Island, received 20 acres (8 ha) of free land from state and local governments. This facility is expected to generate 500 construction jobs, 114 permanent jobs, as well as up to 1,500 temporary production jobs yearly.

A generous tax rebate of up to 42 percent and a $30 million investment by the Michigan State Employees’ Retirement System landed Pontiac, Michigan, an $80 million, high-tech studio complex. The new facility, Raleigh Michigan Studios, has injected new life into a community that has seen hard times, noted Christopher Baum, senior vice president for sales and marketing at Film Detroit, a division of the Detroit Metro Convention & Visitors Bureau.

The facility repositioned a dead General Motors office campus to creative space and added a new 175,000-square-foot (16,275-sq-m), high-tech studio complex. The new studio will make film production a year-round business and create 1,000 local jobs, Baum explained, noting that Disney will shoot Oz the Great here in February.

Detroit’s favorable production atmosphere also is helping to turn Motown into Movietown, with abandoned buildings from Detroit’s industrial collapse providing an authentic backdrop of urban decay for shows like Detroit 1-8-7, HBO’s Hung, Transformers 3, and Vamps.

Detroit leaders are pleased with the performance of Michigan’s film incentive program.  A recent analysis by Ernst & Young found that in 2010 alone the industry created 3,860 full-time jobs with an average salary of $53,700 a year and generated $503 million in sales statewide. Tax credits cost the state $84.7 million.

With budget shortfalls, a few cash-strapped states, including Iowa, New Mexico, and Michigan, have placed annual caps on payouts, but others—Ontario, Quebec, and North Carolina—have upped the ante.

Decentralization of the film industry has come at the expense of California jobs. A 2010 report from Santa Monica’s Milken Institute noted that “film flight” between 1997 and 2008 cost the southern California region 10,600 industry jobs and 25,500 additional jobs related to film’s economic impact.

To help protect jobs, the state adopted a 20 percent to 30 percent tax incentive with an annual cap of $100 million. According to the California Film Commission, the five-year tax credit program has already generated 41,000 jobs and $2.2 billion in economic impact since its inception in 2009. But obviously, it has not stemmed out-migration of film jobs.

Innovators like Digital Domain will continue to pair their creative talents with capital sources elsewhere and move production facilities to regions with cheaper costs, suggests Jackson. He contends, however, that the dynamism generated by the synergy of large populations of creatives and venture capitalists, who historically have called the state home, will continue to sustain innovation in and the resilience of southern California’s economy. “History teaches us that the next big idea that comes along fills the gap created by the exodus of the last big idea,” Jackson says.