20 FOR 2020: Let’s Use Louisiana’s Film Tax Credit To Compete With Hollywood

As we’ve mentioned to our readers before, this is the first installment in a series of 20 posts discussing reforms and policy changes Louisiana should consider as part of an agenda to lift the state off the bottom of national rankings in the various public-policy metrics it does so poorly in – offered with an eye toward a new governor and much-different (and probably considerably more conservative) state legislature in 2020. In this series will be lots of ideas on taxes, regulation, economic development, education, infrastructure and even culture. This initial offering fits in that last category, as we seek to present a strategy for finally connecting Louisiana’s film tax credit program to a definable and ambitious goal which could pay permanent and sustainable benefits to the taxpayers being asked to invest in it.

The Problem With Louisiana’s Film Tax Credit Was A Lack Of Strategy

Lots of people were happy to see cuts made to the state’s film tax credit program because there was and is a perception that it had served as a vehicle for corruption and abuse, that economic analysis of the program didn’t demonstrate tangible bottom-line results for the state and that all the credit really did was to pay off big movie and TV studios to bring their cameras to the state. Essentially, the line goes, we’re wasting hundreds of millions of dollars in corporate welfare so that all our friends and neighbors have stories about being extras and getting their pictures taken with Mark Wahlberg.

The truth is, that’s not a completely unfair perception. The bottom-line results of the state’s film tax credit program don’t show a net positive, and with the program set up as it was it probably didn’t have sufficient justification to survive the fiscal discipline budget problems imposed on the state in the past few years. As a result, Louisiana’s film tax credit has shrunk from what were unlimited credits all comers could take advantage of to a maximum of $180 million per year in available credits, only $150 million of which can be used annually since there are $280 million in unused credits which have to be paid off over the next decade before the program is set to expire in 2025.

Despite Its Flaws, What’s Been Done Has Created The Workforce Which Could Serve As A Foundation For A Real Film Industry

Talk to people who have been involved in those movies and TV shows being filmed in Louisiana, though, and what they’ll say while they bristle at the criticism of the film tax credit program is that when it was created there wasn’t much of a film community in Louisiana and now there is – the state has lots of people now who can do things like set design, sound engineering, gaffing and gripping (in case you’ve always wondered, a gaffer on a movie set handles things like the lighting and electrical design while a grip handles the positioning of cameras, particularly when they need to be mounted on ladders, cranes and dollies) and other applied skills particular to the film industry. We even have a burgeoning community of writers and directors such that there is a nascent creative nucleus to what could become an indigenous film business here.

That wouldn’t have happened if Louisiana hadn’t essentially bought movie and TV productions to site here. People who have no experience in film aren’t going to make film productions worth seeing, just like people with no military training aren’t going to successfully invade another country. But now there are such people here, and they could well become a standing army of sorts.

What’s Going On In Georgia Isn’t Sustainable, But It’s A Threat To Louisiana’s Film Industry Which Requires A Smart Response

You’ve probably heard that Georgia has taken a ton of the film production Louisiana used to do and created a monster with it. This year the Peach State will dole out as much as $600 million in credits to some $2 billion in film production being done there.

Nobody thinks Georgia will continue with that kind of runaway subsidy for the film business, because the economic impact of that level of production is unlikely to justify that much spending. It’s absurd.

But the numbers in Georgia are what they are because what’s being done there is what used to be done in Louisiana – large productions by Hollywood studios which are essentially mercenaries; they go where the tax treatment is best and cut costs wherever they can, and when the productions make money it doesn’t stay with the jurisdiction buying the production siting; it goes back to studio HQ in California and from there to the investors, whose money comes from all over the world.

The point being that Louisiana doesn’t have the resources to play in that sandbox; not when a big state like Georgia decides to play Uncle Sugar to the Disneys and Sony Pictures and Universal Pictures of the world. And if you’re looking for a long-range payoff to a film tax credit program that’s not all that good a sandbox to play in anyway – when LSU economist Loren Scott ran the numbers back in April he only found a 22 percent return on Louisiana’s tax credit program when it was aimed at getting productions like The Green Lantern, The Twilight Saga: Breaking Dawn, Oblivion and The Magnificent Seven. People in the industry disputed Scott’s findings and said he was missing a significant piece of the positive impact, but there is no way to say that importing movie and TV production which otherwise wouldn’t have a nexus to Louisiana purely by tax credits makes the state money. It doesn’t.

There Is A Way To Build Something Which Pays For Itself

With changes made to the state’s film tax credit program, Louisiana is beginning to figure out a niche that will work to create something sustainable and positive. Two very interesting earmarks were laid into the program this year…

  • Portions of the credits issued are earmarked for productions based on screenplays written by Louisiana natives and for independent films.
  • Payroll credits and other incentives, including grants and loans, are available to entertainment companies that locate in Louisiana and create at least five new jobs.

In other words, the legislature began to move away from doling out cash to Hollywood movie studios so that we can all get a selfie with Tom Cruise or Sandra Bullock, and instead started shifting the incentives to promote local creative people. What you want isn’t to get a whole bunch of KFC locations all over the state, with apologies to KFC; from an economic development perspective you’re really hoping to have Raising Canes turn into a home-grown national chicken franchise.

And that’s what film tax credit policy needs to be geared to.

People in the industry we’ve talked to have given us lots of ideas on how to make this happen. Most importantly, they say, the state’s program has to focus on smaller, lower-budget productions for two reasons: first, there is film investment money available from investors here in Louisiana to finance those smaller-budget movies and TV shows, which means if they make money it would stay here in the state and create a maximum economic impact. And second, what you want if you’re trying to build a full-blown industry is a large number of small productions as opposed to a small number of large productions; that’s how you keep more people working for longer.

Jason Hewitt, the owner of Films In Motion in Baton Rouge (a company which has its toes in the water in virtually every segment of the motion picture industry) since 2005, suggested something else as a change to the way Louisiana approaches its film tax credit program as a means of developing a hothouse for those small productions…

A program that will ultimately self sustain itself. The industry is already set up to pay residuals and profits, the state should receive a residual. A one to two percent first dollar residual placed in a non-sweepable account would be a very responsible way for the industry to self fund. Obviously it would take time to build this up, but successful films can make money for decades – Animal House still generates millions each year. This of course also phases out public dollars. And we all know that as a state we are broke.

What does this mean? Along with the film tax credit, though perhaps as something of an offset to it, create a quasi-private company which operates as a film investment fund to finance Louisiana productions – and that company takes a residual stake in the proceeds from those productions. Over the course of a few years, it is more than likely the fund will pay for itself.

Let’s remember that good movies – and even some not-so-good movies – make a profit. Louisiana hasn’t even bothered trying to capitalize on this fact so far, largely because the film tax credit program has focused on trying to generate activity in the hopes that it would spin out tax revenues to offset the credits and also to create jobs. But now that you have an industry full of people who live and work here (even with some of them having moved on to Georgia), you can take the next step.

Here’s an example: God’s Not Dead, shot in Baton Rouge and released in March of 2014, grossed over $62 million. Know what God’s Not Dead‘s production budget was? The official figure was $2 million. That’s $60 million in profit, and counting; every time God’s Not Dead is downloaded on Netflix or shows up on one of the movie channels on TV, it makes more money. And we love God’s Not Dead for the values it reflects, but let’s not kid ourselves; a cinematic triumph it isn’t. It’s a lovable little film, but it wasn’t the movie’s worldview which got it snubbed at the Oscars.

You finance a few hits like that through a film investment fund, and it will pay for itself very quickly through profits and residual dollars. And those little ugly duckling productions you’re cranking out will, as the people working on them get experience and learn their craft, begin to become larger, prettier and more competitive. We might even find that over time there’s a Cajun Martin Scorcese or Steven Spielberg.

The Time Is Right To Make A Move On Hollywood

Remember, what we’re talking about here is thinking about a film tax credit and incentive program which competes with Hollywood rather than tries to attract it. The latter is what we’ve been doing and, at least arguably, getting mugged for our trouble.

What we want to do is to build a parallel, competing institution – in a similar vein to what Fox News, talk radio and the conservative blogosphere have done in the face of the mainstream news media, or perhaps more to the point, to what the craft beer industry has done to Big Beer.

There is no reason why Hollywood should have a monopoly on movies and TV. Nothing is written in stone that has to be the case. Let’s remember that in the 19th century, Cleveland, Ohio was the center of the oil business in America.

And we now know, thanks to the Harvey Weinstein scandal and the related horrors which are percolating just behind it, that Hollywood is as rotten to its core as any industry the world has ever seen. It’s a business run by a small collection of abjectly terrible people who have abjectly terrible values, and their values are completely reflected in the content they produce.

Not to mention that Hollywood has wholly gone over to chasing the overseas dollar to the neglect of American audiences. That’s why it’s the Chinese who save the world by building arks in 2012, and it’s the Chinese who save Matt Damon from being marooned on Mars in The Martian. Hollywood increasingly makes movies for Chinese teenagers and can’t give a damn about American parents. If you used to go to the movies all the time and almost never do anymore because nothing looks worth going to see, that’s why.

If you doubt this, consider the Red Dawn remake, which was dumbed down so much out of fear of the Chinese reaction that in the movie the North Koreans are invading Spokane, Washington. North Korea doesn’t have planes which can even fly to Spokane, Washington, much less thousands of them which could carry paratroopers and war materiel; the stupidity of that premise chased audiences away in droves, and to this day the Chinese – who were going to be the bad guys as the Red Dawn remake was initially written – refuse to allow it to be distributed there.

And the decisions being made to ignore its core audience are being made by a small number of people at the top of that industry – who make those decisions based on corrupt values, even more corrupted politics and a culture so corrupt that it celebrates almost everything ordinary Americans reject. To say these people are out of touch with the rest of the country is a huge understatement.

Sean Malone, who worked in Hollywood for several years and currently serves as the Director of Media for the Foundation for Economic Education in Atlanta, outlined the fundamental problem of having this small group of people in such total control of our entertainment in a Facebook post Saturday everyone should read. Malone noted two major structural factors which allow for such a warped pop culture in which a Harvey Weinstein could get away with what he did for so long…

1. Power in the industry is highly concentrated.

For most of Hollywood’s history, all of the films in the United States were produced by 5 companies, “The Big Five”, all closely connected and mostly all located in one city. There’re six “Major Studios” now (Disney, Universal, Paramount, Sony, Warner Brothers, and Fox), but the general idea is basically the same.

Things have gotten a little better over the years insofar as the studios don’t no longer contract with all the actors, writers, directors, musicians, etc. and restrict them from working elsewhere, but it’s still all very similar to a cartel.

To succeed in the “real” film industry (as opposed to just maintaining a steady career as a “filmmaker” like me), you must be in Hollywood, and you must work for these studios.

That is.. You had to do this up until the last few years, where we’ve seen the rise of the “mini-majors” and now Amazon, Netflix, Hulu, and other streaming services — although even those are still largely tied to the existing studio system.

Point is, if you wanted a career in the film industry, you go to LA and try to get in with a studio executive.

2. Opportunities are artificially limited.

Unions and guilds tightly control who can and cannot work in that industry, so the labor pool on the back end is extremely limited and getting blackballed means never working again.

If something bad happens on set, or you experience/witness some inappropriate behavior, you could tell somebody, but at the risk of somebody powerful exerting their power over you through your guild, and if you get kicked out, you’ll be screwed… Because even if you’re great, you’d be ineligible to work on Studio projects.

That puts lots of pressure on people to keep quiet, particularly where it concerns misconduct by studio execs.

As you can see, there is a reason why what comes out of our entertainment is so hostile to our way of life; film and TV is a captive industry. It’s also an industry destined for major problems. Look at what has happened to the NFL as a result of fan outrage with the national anthem protests – and the NFL is still, on balance, a positive and patriotic cultural institution. Hollywood, on the other hand, has gotten progressively more obnoxious and depraved by the year – because of the factors Malone describes and the lousy people in charge. Is there any doubt the market will punish Hollywood in the wake of the Weinstein scandal?

And yet nobody really thinks the public will stop watching TV or going to the movies altogether – although the signals already being sent are unmistakable. This was the worst summer the film industry has ever had.

This is an industry which needs to be set free, the way the craft beer industry has blown open what was a tightly-controlled and not-all-that-fulfilling status quo.

With streaming services it’s easier than ever to distribute a movie or a TV series and with advances in digital technology it’s easier than ever for someone to create video content. There is no reason why the rest of America has to be force-fed Hollywood’s narratives and values.

And there is profit to be made in chasing those American audiences rather than the Chinese teenagers Hollywood loves so much. Consider the interesting story of Sherwood Baptist Church in Albany, Georgia, which almost bizarrely entered the movie business due to the ambition of Alex Kendrick, the church’s associate pastor of media, who scared up $20,000 in donations from the congregation to make a small movie called Flywheel in 2003. Flywheel proceeded to make double its budget in a tiny theatrical release and then blew up in the DVD market, selling over 300,000 copies – and then Sherwood Pictures turned into a little giant in the niche of values-based films. Its next release was Facing The Giants in 2006, which grossed over $10 million on a $100,000 budget. Then came Fireproof in 2008, which grossed over $33 million, some 67 times its budget. And in 2011, Courageous parlayed a $2 million production budget into $35 million in box office gross.

Kendrick has gone on to form his own production company, Kendrick Brothers Productions, and in 2015 released War Room. That film has grossed over $73 million on a $3.5 million budget.

The Alex Kendrick movies have gotten better and better in succession. They’re still a little wooden and the production values are still decidedly “indie.” But audiences are so starved for entertainment that doesn’t micturate on their values that they don’t care. Meanwhile, when Mel Gibson makes Passion Of The Christ and Clint Eastwood makes American Sniper, the box office proceeds prove that audiences will respond in tumultuous waves of approval to pro-American, pro-Western values reflected in truly outstanding films.

We don’t have to accept Harvey Weinstein, Matt Damon, Meryl Streep, Bryan Singer, Bob Iger and Oliver Stone as the arbiters of what we watch at the theater and on TV. We can opt for the craft beer instead of a boring, insipid Bud Light if we choose.

And Louisiana’s film tax credit can be capitalized on to turn the Sportsmen’s Paradise into the capital of the Rebel Alliance. All it takes is a few tweaks, a good idea or two brought to life and some patience. We might not even need to spend any more money than we’re spending right now, if we do it right and catch a break.

Now’s the time to plan a run at Hollywood. It’s a deeply broken system that technology and the market are in the process of blowing apart. There is a real opportunity to use the film tax credit as a base to make creative content for movies and TV which reflects Louisiana values rather than Los Angeles values, and to make a fortune doing it.

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