Hollywood accounting

We’re making major motion pictures, baby!
September 2, 2014

We’re making major motion pictures, baby!

And TV shows too! That’s right, my fellow California taxpayers. You and I are now major investors in film and television productions. Our agent—or I should say our 120 agents in the state legislature—cut a five-year deal last week putting more than 1.5 billion of our hard-earned dollars into the production of on-screen entertainment.

Before we celebrate the fact that we are now all Hollywood players, we must admit to ourselves that, financially, our new investment isn’t such a good deal. We California taxpayers have broken the cardinal rule of Hollywood: Never use your own money.

The state’s own studies show that the tax credits being offered the industry won’t pay for themselves. That’s in part because Hollywood isn’t a particularly good business anymore. Since the beginning of this century, movie ticket sales are down more than 15 percent, TV audiences have splintered, and motion picture production has been stagnant, lagging the sluggish American economy.  

California’s previous generosity to Hollywood hasn’t slowed the migration of production crews to other shooting locales. The existing tax incentive program, at $100 million a year, didn’t work—so now we’re betting, as Hollywood so often does, that a more expensive sequel will do better.

Hollywood already gets plenty of other breaks from us. California has long exempted motion pictures from some sales and personal property taxes, and local governments are very generous; narcissistic San Francisco, always desperate to see itself on screen, refunds all fees and payroll taxes paid to the city by a production crew, up to $600,000 per film or TV episode.

Yes, I know there are provisions in the new deal for audits and penalties to guarantee that our investment in tax credits will produce more and better in-state entertainment jobs. But let’s not kid ourselves and forget whom we’re dealing with here. Hollywood executives are the Rembrandts of creative accounting, setting up each movie as a shell company guaranteed to lose money, so they can keep revenues for themselves. Most infamously, Return of the Jedi has never booked a profit by Hollywood’s accounting. But, please, lower your voices when you repeat this, so that folks in poorer places like Imperial and Kings counties don’t hear that their taxes are going to subsidize rich people in Los Angeles, where more than 90 percent of Hollywood jobs are located.

Still, it’s hard to be too outraged about this rotten deal. Other countries and states offer similar incentives to lure film production, often with the encouragement of the same Hollywood executives who have been saying how much they prefer to keep production in California. The fact that Hollywood incentives are a stupid game doesn’t reduce the incentive to play it.

Let’s remember, too, that investing in the movie business has never been primarily about making money. It’s about buying into glamour, coolness, and cache, about laundering money made in less noble or less sexy enterprises, and about giving older and richer people the chance to interact with the beautiful people who make movies.

That’s why our legislators were never going to turn down Hollywood’s insistent entreaties for this new public investment; it’s also why this new program is all but certain to get much bigger, as requests for these tax incentives are expected to far outstrip the $330 million a year in the new legislation. Hollywood is too cool, and makes too many political contributions, for flesh-and-blood politicians to resist.

All that said, there is one obvious flaw to the terms of our new Hollywood investment: You and I have been cut out of the Hollywood fun.

There is no reason for millions of Californians to blow our tax money on Hollywood if we’re not going to be treated like the major Hollywood investors we now are.

In Hollywood, providing 20 to 25 percent of the budget of a movie typically buys you certain considerations, the most important of which are financial. As investors, we should be getting paid back out of the grosses before the filmmakers themselves get their cut—particularly when you consider we’re talking about taxpayer money that would be better spent on schools or increasing physician reimbursement rates so that people on Medi-Cal could find doctors.

Our movie investments should be properly credited; an individual who covers a quarter of a film’s cost could expect to be listed as an executive producer. Given our level of investment, we deserve similar perks: We should get to meet the stars, visit the set, and get two tickets to the premiere of the movies we invest in. I’d also like to take this opportunity to request for myself another common perk for the Hollywood investor: my own director’s chair, with my name on the back.

It’s not feasible for a single movie to accommodate the millions of us taxpayer-investors, but a lottery could dole out some of these perks to the public. Hollywood, with this new level of public funding, is also going to have to be more public-minded. I’m not asking to see scripts, but would it hurt you to diversify casting to reflect the population of the state that funds you? And why not engage us directly by letting Californians vote online on which films should receive incentives? You also need to step up your philanthropy, especially here at home.

Hollywood needs Californians to be happy investors, because there is the real possibility of a public backlash against this new deal. Other industries are likely to press us taxpayers for their own incentive packages. In a few years, we’ll read stories about how the state lacks reliable economic data on revenues and jobs produced by our Hollywood investment. And there’s the possibility of controversy around how the state chooses to fund films; the governor’s office will be involved, making the process political.

The good news is that, even if our big investment goes terribly wrong, Californians will have Hollywood stories to tell—and will have learned some useful things, including the priceless lesson that it’s best to keep your distance from rich, cunning, and pretty people. I, for one, have always found it personally instructive that the quintessential film about Hollywood, Sunset Boulevard, begins and ends with a newspaperman named Joe (who takes a tragic turn into Hollywood screenwriting) face down in a swimming pool, shot dead by a movie star.

Yes, we Californians are ready for our close-up. But let’s fasten our seatbelts—it’s going to be a bumpy ride.

Joe Mathews writes the Connecting California column for Zocalo Public Square where this article was originally published.

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