Michael H. Teig, August 25, 2009

Money. That's why. That's what it boils down to. MONEY. Of course, you're thinking...what about LOCATION, CAST and CREW, not to mention DISTRIBUTION? What about a killer SCRIPT?

It is true that Utah has a stunning array of mind-blowing locations suitable for most any blockbuster, a gold mine of crew talent with some of the best Directors, DP's, grips, gaffers and sound engineers in the business, not to mention exceptional post-production talent including award winning sound designers, composers and special effects artists.

Now, you're thinking, "but what about my killer script? If I could just get the right people to read it, they will give me millions to turn it into a blockbuster!" Well, there are thousands of great scripts that aren't worth the paper they are written on without MONEY.

You've probably heard how Paramount made the $94 million Lara Croft: Tomb Raider for under $7 million out-of-pocket due to some creative financing, capitalizing on German tax credits through a sale-lease back arrangement that netted the studio $10.2 million before filming started. That was enough to pay for the star and all the cast, according to Edward J. Epstein in his article How To Finance A Hollywood Blockbuster (E.J. Epstein, 2005).

After that they netted another $12 million up front through another complex sale-leaseback transaction with a British financial institution allowing them to qualify for Britain's Section 48 tax relief. This gave them enough to pay for the Director and the script. Paramount then brought in another $65 million in pre-sale revenue in six countries where the Tomb Raider video games were popular (E.J. Epstein, 2005). It didn't stop there and Paramount certainly isn't the only studio utilizing such tactics.

"Great!" you say. "I'll just go do that!" Well, you aren't Paramount and you probably aren't making a $94 million film. If the movie had a $20 million or $2 million budget, the investors and the attorney's probably would not have been interested. Also, Paramount's marketing and distribution strategy was very well thought out and meticulously executed by people who knew what they were doing on the legal side. Any mistake would have had serious legal and tax repercussions. Also, it just might not make sense to make your movie over seas.

What about a film with a $20 million budget? You have a phenomenal script. You have great actors committed to the film. Next you have to find a great supporting cast, first-class crew, killer locations and last, but not least, you need to raise $20 million to make the film.

Let's look at how Utah might help. We have some very smart, forward thinking people in Utah, not the least of who is Governor Jon Huntsman, who has done many things to help bring Utah business to the forefront and Senator Lyle Hillyard and House Majority Leader Kevin Garn who sponsored Senate Bill 14 - Financial Incentives for Motion Pictures. The bill provides a 20% tax credit or cash rebate, for qualified productions. Many others including MPAU President, Don Shain, Utah Film Commission Director, Marshall Moore, Jason Perry, Executive Director of the Governor's Office of Economic Development (GOED), Derek Miller, Director of the State Incentives Office and many others worked tirelessly to promote and pass this bill.

So why did Disney recently pick Utah to film John Carter of Mars and High School Musical 4? On June 12, 2009 Salt Lake Tribune writer, Vince Horiuchi reported that "According to a GOED executive summary, the filmmakers (for John Carter of Mars) are committed to spend $27.7 million in the state and employ 398 Utahns during the seven months of pre-production and shooting. In turn, the production would receive a $5.5 million tax credit under the state's incentive program."

Now, there are other states that do have higher tax credits, namely Georgia, up to 30% and Michigan, up to 42%. However, North Carolina is battling over whether to increase their tax incentive from the current 15% to 25%.

In an Associated Press online article on the journalnow.com web site (June 18, 2009) it raises some question as to how high a state should go:

"The film tax credit that North Carolina adopted in 2006 has been a moneymaker, returning $1.30 in additional tax revenue to state and local governments for every $1 credit, according to a new study by Ernst & Young commissioned by the state film office and film-related companies, unions and commissions. But raising the tax credit to 25 percent of spending, up to a maximum of $7.5 million, would return 92 cents for each $1 invested, the report said."

It's a fact that tax incentives are a big factor. Another big production, Footloose, at one time slated for Utah, may move to Georgia because of the higher tax incentive. There are several things to consider and it's more than just tax incentives, as important as they are, and this is where Utah moves ahead of the competition. This is where a 20% tax incentive can, in fact, be better than a 30%, 40% or even 50% tax incentive.

As mentioned, the biggest challenge is the money needed to make the film. Without that, there is no film. However, once the money is secured, the next challenge is to make a great film that will bring people to the theaters, the rental stores, iTunes, Netflix, cable and all the other channels of distribution, foreign and domestic, generating huge return on investment for all concerned.

Now is where that great script, great director, great cast and crew, and great locations come into play. It's the combination of strong financial incentives and great moviemaking talent, marketing and distribution that will determine the films ultimate success and the filmmaker's opportunity to continue making movies.

A studio or independent filmmaker make look at a state with a higher film tax incentive, but that tax incentive requires that the filmmaker utilize local talent that may not have the experience equal to that in other states and the higher incentives may even may require that production take place in areas that might not be ideal for the script. So you save a buck and the film fails. This is why Disney picks Utah. They know they can come to Utah, utilize exceptional local talent in every position, find exceptional locations and a welcoming, helpful people. Another major consideration is the fact that many of the actors and production crews as well as post production personnel in Utah work in Los Angeles and New York on major productions on a regular basis, some having won academy and other awards and bring that experience back to Utah.

"OK," you might say, but what about Germany, Britain and Tomb Raider? Are there other ways we can make a movie in Utah and get bigger tax breaks. Apparently, there are additional ways. One of those ways is Section 181 of the IRS code that allows active investors to deduct 100% of their investment in the film, if certain conditions are met. Combine that with the Utah state incentives and you could have over half your investment back before the film hits the market!

But why not go to a state that has an even higher tax incentive? There are a few that do, however, they do not match Utah for unique locations, exceptionally talented cast and crew at all levels of the production, lower production costs, lower travel and hotel costs, etc. When all these factors are put into the spreadsheet, especially with a great production as top the priority, Utah is extremely hard to beat.

Take a look at California. It has good locations and great talent and a 20% tax incentive for film productions in the $1 million to $10 million range, however, there are several things to consider. The credit does not apply to above the line costs and all production and crew costs will likely be quite a bit higher due to union rates in California. Those of us who have produced films in both states are familiar with the higher costs of production in California.

There are states like New Mexico that are close by and also offer very aggressive tax incentives. In fact, according to Marshall Moore, Director of the Utah Film Commission, Disney was originally looking at New Mexico, but a combination of locations and talent, including local Producer, Don Shane, Production Designer, Mark Hoffman and Casting Director, Jeff Johnson drew him to Utah, even though New Mexico offered a slightly higher tax incentive.

Simply put, Utah is, for many productions, the best place on the planet to make a movie.

For more info on tax incentives effective July 1, 2009 in the state of Utah visit: http://film.utah.gov/incentives.html

Michael H. Teig

www.tigerlight.net

Associated Press (July 18, 2009). Officials consider increasing state's film tax credit. Retrieved July 28, 2009 from: http://www2.journalnow.com/content/2009/jun/18/officials-consider-increasing-states-film-tax-cred/news-ncpolitics-state-government/

Horiuchi, V. (2009, June 12). Utah will be stage For Mars in new Disney Pixar film. The Salt Lake Tribune. Retrieved July 6, 2009, from http://www.sltrib.com/news/ci_12571320

Epstein, E.J. (April 2005). How To Finance A Hollywood Blockbuster. Retrieved July 28, 2009 from http://www.slate.com/id/2117309/

Pierce, S. (2007, August 17). Singing Utah's praises - Locals important to success of 'High School Musical 2'. Retrieved August 19, 2009 from: http://www.deseretnews.com/article/695201442/Singing-Utahs-praises-Locals-important-to-success-of-High-School-Musical-2.html