“Netflix rhymes with Wet Chicks” for Sandler, means an opportunity for all

Any game changes and evolves, so players’ attitude, and laws and regulations need to evolve accordingly.

The primary game changer Netflix has just announced, right after declaring that the first day-and-date worldwide release of a blockbuster will happen soon, that they are going to produce and distribute as soon as 2015 four feature films starring Adam Sandler, therefore coining the term web film, which is a film meant specifically for online distribution.

Said Sandler: “When these fine people came to me with an offer to make four movies for them, I immediately said yes for one reason and one reason only: Netflix rhymes with ‘wet chicks.’ Let the streaming begin!”

adam-sandler

We’ve seen Netflix give TV a run for its money with a number of well-worth-watching original series, including House of Cards, starring Kevin Spacey, and prison-set dramedy Orange is the New Black. Now it seems the streaming video service has set its sights on the big screen… ish. And this means, for some, that they are continuing to thumb nose at theaters.

Well, probably. But first of all it means adding opportunities for talents. Ok, not everyone is Adam Sandler: the actor’s films, most of them comedies, have grossed more than $3 billion globally, and he is going to keep his agreement with Sony, while his films consistently rank among the most viewed by Netflix members, both in the U.S. and overseas. Therefore Netflix is prepared to pony up as much as the majors studios do for a Sandler film, which, on average, costs in the $80 million range. But this latest Netflix’s move is designing a new path, where theatrical release is not the only synonymous of artistic dignity anymore, where online distribution is not some kind of underground and neither alternative, but a perfectly viable and smart option.

Because, hey folks, not everyone can make it to the theater… right? Well, now not everyone wants to make it to the theater. Which will mean, in my opinion, that quality of theatrical releases is going to rise as there will be movies meant for the theater and others which will be better off with other types of distribution strategies. As a result, theater programmers will not be pushed by distributions to get packages of content, whereas will be able to select according to their specific audience. And audiences will be willing to pay a premium price for premium content and premium experiences. This is a win-win-win paradigm, just like it happens any time market opens up with new opportunities.

Furthermore, as said in the first paragraph, I believe also that laws and regulations related to funding production and distribution need an update. For instance, in Italy at the moment productions are eligible for tax benefits and public funding only if the film is meant priory for theatrical release and such benefits are assigned proportionally to previous year theatrical box office. Such provisions create a non-sense overcrowded line for accessing theaters even when strategic thinking would not suggest it, even for one week only or less, therefore saturating the market and lowering the quality.

Business models are changing, but theaters will be alive in 100 years for now because people need that kind of social gathering and they enjoy the magic, no doubts about it. They will increasingly be the destination for a premium or very customized experience, whereas new business models will get into the game because probably “being able to compete for consumers’ attention and dollars over the preciousness of access is a thing of the past” and so “people should have the opportunity to see it on a big screen if they want to, but if they want to watch it at home, they can stream it” as Netflix’s Ted Sarandos says, adding up to his concerns that “as theater owners try to strangle innovation and distribution, not only are they going to kill theaters, they might kill movies.” (video: Keynote Address | 2013 Film Independent Forum).

All in all, a more open discussion between the parts of the value chain is desirable in order to stay closer to customers needs and flourish in a fast changing market.

California wants Hollywood back

California is in collective imagination the unchallenged home of modern film production, because of the studio system, the creative talent pool, the great natural settings. Nevertheless, today’s feature films produced by U.S. companies are filmed throughout the globe: according to many, the golden state needs to step up and refine its tax incentives for getting back and retaining television and film production.

An independent research has been recently conducted by FilmL.A., Inc. – the film office for the greater Los Angeles region – on 108 live‐action and animated movies released in 2013 by the six majors and five mini-majors. It provides evidence to demonstrate that the availability of film incentives heavily influences feature producers’ choice of filming location.  It further argues that the proliferation of out‐of‐state film incentive programs has eroded California’s one‐time dominance of the feature film production industry.

From a national perspective, out of reported production budgets ranged from $1.25 million to $225 million and average production budget of $71 million, the United States hosted principal production for 70 of the films in the study, which represents a share of 65 percent.  Canada was a very distant second with 15 movies, which represents a 15 percent share. Ranking locations in terms of the most number of films that were primarily produced in each, Louisiana ranked first with 18 movies.  Canada and California tied with 15 movies apiece, followed closely by the United Kingdom, which hosted 12.  Rounding out the top five locations was the State of Georgia, which hosted 9 films.

the-producers-1968

The Producers (1967)

There are many benefits from hosting film productions, first of all employment: more than 14 thousand credited jobs in Canada, almost 14 thousand in Louisiana, more than 13 thousand in UK, just 8 thousand in California. In addition to film crew wages, expenditures offer insight into how local production vendors and suppliers benefit from a production’s presence: for instance, the total budget value of 15 films produced in Lousiana was approximately $764 million and the reported share of that spending totaled $587 million, or 77 percent of total budget value.

The runaway production impact on California has been significant:

  • Fifteen years ago, California’s share of the top 25 movies (including both animated & live‐action) at the worldwide box office was a commanding 68 percent.  After 15 years of unabated runaway production, California’s market share of the top 25 animated and live‐action films dropped to just 24 percent in 2013.
  • Excluding animated features, California’s market share for top 25 live‐action films suffered even sharper declines.  In 1997, 64 percent of the top 25 live‐action movies at the worldwide box‐office were wholly or primarily produced in California.   By 2013, California’s share of the top 25 live‐action movies had fallen to just 8 percent.
  • Of the 26 live‐action movies in this study with budgets over $100 million, just two (The Hangover Part III & Star Trek: Into Darkness) were made primarily in California.
  • Over 15 years ago, a majority of the top visual effects (VFX) companies were based mainly or entirely within California.  Because of international competition and the lure of film incentives tailored specifically for animation and visual effects, California’s VFX industry has collapsed.
  • The only major VFX house left in California capable of employing 1,000 effects artists is Industrial Light & Magic in the San Francisco Bay Area.  In early 2014, ILM announced it was doubling the size of its workforce in Vancouver, British Columbia to 200 people.  In addition, ILM announced the opening of a new facility in London that will employ 200 artists for work on the forthcoming Star Wars films.

Industry experts widely agree that film tax incentives are the primary cause of runaway production. Without exception, the top filming locations are recognized production centers with modest to robust film industry infrastructure and talent.  However, with the exception of California, all of the top five locations also offer substantial uncapped film incentive programs. The most common form of film incentive is refundable or transferable tax credits that can offset a large portion of total project spend.

California has its own Film & Television Tax Credit Program, enacted in 2009.  In comparison to the programs offered by other states, the California Film & Television Tax Credit Program is subject to two substantial limitations:

  1. California’s program has an annual cap of $100 million in available tax credits;
  2. feature film projects with budgets in excess of $75 million are completely ineligible for the program.

In 1997, Canadian Provinces were the first locations to offer significant film tax credit incentives. The Canadian model was quickly copied around the world.  By 2013, more than 40 US states and a dozen foreign countries offered film incentive programs.

California needs to step up and refine its tax incentives for keeping television and film production in the state. For starters, its current lottery system for distributing $100 million in tax credits is an inefficient use of state resources. Requests for state support should be evaluated on the merits and potential for return on investment. Assembly Bill 1839, now awaiting passage in the Senate, would expand and improve the program: about $400 million in tax credits would be allocated on their economic impact – including how many jobs they would bring, and it would allow films with budgets of more than $75 million to receive tax credits of 20 percent.

This is clearly not the Hollywood ending that California film pioneers had in mind, but there is no established competitive advantage as economy is evolving fast and globally and film industry has to pick up the pace and adapt quickly everywhere, even in Hollywood.

AP Film Review Iron Man 3

Iron Man 3 (2013)

Case study: Iron Man 3

Perhaps the most perfect example of the new global film production model is Iron Man 3, the highest grossing movie worldwide in 2013.  Although the vast majority of the film’s principal photography occurred in North Carolina, less than half ($81 million) of its estimated $200 million budget was spent there.  Secondary filming locations included Miami, Los Angeles and China.
While shooting in Miami, Florida for a total of 20 production days, Iron Man 3 spent over $6 million, including $1.2 million on lodging for a total of 7,500 room nights.  According to the Florida Office of Film & Entertainment, the production supported a total of 4,966 positions, with most of them going to 4,505 background players. The majority of the film’s extensive VFX work took place in New Zealand, British Columbia and Los Angeles.  Secondary VFX work also occurred with vendors in Sydney, Australia; Munich, Germany; London, England and Los Angeles.  The music for Iron Man 3 was written by a composer in Los Angeles and then scored by musicians in London, England.  The dismantling of production on this movie to domestic and international locations is particularly disconcerting considering that both Iron Man and Iron Man 2 were filmed almost wholly within California. For a movie like Iron Man 3, the vast majority of the money spent on the budget can happen in far flung locations where the production’s cameras won’t capture a single frame.  For an effects‐laden big‐budget movie like Iron Man 3, roughly 30‐40 percent of the budget and jobs commonly go toward computer‐generated VFX.  In extreme cases, for a movie like Avatar, VFX can consume up to 50 percent of the budget. Of the roughly 1,019 VFX jobs credited on Iron Man 3, just 21 percent (231 jobs) were California‐based.  Most of those jobs, roughly 148 positions, were filled by Digital Domain’s Venice, California facility.  As of December 2013, Digital Domain closed its film division in California.  Those 148 jobs enjoyed by Californians would belong to someone in some other state or country if Iron Man 3 were to film now.