Hollywood’s jurisdictional advantage – and “sticky jobs”

According to the Los Angeles Times, “Movies, Shmovies — TV’s Taking Over L.A.”, Hollywood is experiencing the

biggest boom ever in Los Angeles television production, one that is rapidly turning Tinseltown into a TV town. While Hollywood’s nomadic film business has gravitated toward cheaper U.S. and foreign locales, television production has become the bedrock of the Los Angeles entertainment economy.

The reason why?

With its production infrastructure and proximity to talent, Los Angeles is the location of choice. Stars working on a regular series prefer to stay close to home, and producers want to be near writers who may be needed for quick rewrites.

In other words, the TV production process is just enough different from the movie production process to create a continued jurisdictional advantage for Hollywood. It is that one difference – the on-going production process – that makes L.A. a more desirable location.
This is a perfect example of where a geographically-connected network is required in the production process – as opposed to a geographically-indifferent process.
Likewise, this slight difference in the production process creates a set of geographically “sticky” jobs: actors want to work close to where they live, production personnel need to be near where the actors are living, writers need to be nearby, etc.
We need to understand more about how these small differences in the prodcution process create “sticky” jobs.
– – –
Interestingly, California state political leaders seem to be responding to the decline in movie production rather than the rise in TV production. According to the New York Times:
California Considers Tax Breaks for Filming – New York Times

For the first time since a handful of immigrant New Yorkers moved west to Hollywood seeking cheap land for their movie studios, so many motion pictures are being made outside California that state leaders are poised to enact subsidies to keep productions from leaving.
The state’s dominance in entertainment production has been eroding for years, as filmmakers and television producers gobbled up generous tax incentives in Louisiana, New Mexico, Illinois and other states, and pursued tax breaks, cheaper labor and favorable exchange rates as far away as Canada, Eastern Europe and Asia.

Of course, the movie studios are all in favor of subsidies. And they are used to getting them from other states. As the NY Times story goes on to relate:

Canada provides a 16 percent refundable tax credit on labor costs, with no cap; the provinces of Ontario and British Columbia add 18 percent more, while Manitoba offers a whopping 45 percent credit for labor costs, according to the California Film Commission.
In the United States, 14 states have passed or expanded incentives for production this year alone.
But Louisiana remains the leader in enticements to the film and television industry. The state offers a tax credit of 15 percent of a production’s total costs, even it is only partly shot in Louisiana, and an additional 20 percent of a film’s in-state payroll. A revised credit, which takes effect in January, will apply only to spending in Louisiana but will rise to 25 percent of spending, plus 10 percent of payroll.

Why does this all sound familiar? States try to lure production to their locality with tax breaks. As jurisdictional advantage shifts (in part due to the actions of others to build up their own jurisdictional advantage and localized assets; in part due to the changing nature of the production process), localities try to retain the industry through direct subsidies — rather than either shift to the new area of advantage or re-build the local assets that gave them the advantage in the first place.
Smokestack chasing comes to the creative industries!
As Maryann Feldman pointed out in her paper and presentation to Athena Alliance’s policy forum, Constructing Jurisdictional Advantage, the use of local tax incentives to smokestack chase is ultimately a losing game. It becomes a race to the bottom, since everyone can give a tax break. No lasting jurisdictional advantage is created.
There are other, more productive ways to follow a low-cost strategy, Feldman has argued. These would include actions that permanently lower the cost of going business in a location – rather than temporary subsidies to a particular business.
Better yet is what she calls a strategy of “deliberately constructing jurisdictional advantage by building on existing, not easily replicated resources and complementing private sector activities.”
I have long maintained that since the resources needed for success in the I-Cubed Economy include a talented workforce and a knowledge-sharing, innovation infrastructure, localities would do much better to invest in these activities. Subsidies (tax breaks or direct subsidies) may under limited circumstances (and I stress, “limited”) be beneficial in helping foster an agglomeration of localized knowledge assets (often mistakenly referred to as a “cluster”). Those circumstance are when a particular asset is missing or underdeveloped. But these types of subsidies are best seen as strategic investments – and must be undertaken with forethought and planning.
Otherwise, subsidies simply contribute to a footloose environment. AS Feldman remarks, “these types of operations are frequently the first to be closed when the cost structure changes.”
Given the boom in TV production in LA, maybe the politicians can resist the temptation to take the easy step of providing tax breaks. I wholehearted understand their concern and support their goals of preserving middle-class jobs. I simply think the means they are using to reach that goal will ultimately be unproductive.

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