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Some of these centers also perform indigenous film and television production activities and so may be considered hybrids or secondary centers Coe International production outsourcing in manufacturing, and more recently in software and services, has helped latecomer industrializing countries, particularly in Asia, to catch up to international practices, enter export markets and eventually establish themselves as leaders in selected industries, segments of the value chain or product groups Ernst and Kim ; Mathews Offshoring in the motion picture and television industry provides analogous opportunities to a host jurisdiction to improve capabilities and learn to produce according to prevailing industry standards and aesthetic conventions.

Hollywood production outsourcing was greatly accelerated by disruptions in the film industry in the years fol- lowing the Second World War. In the United States, the Paramount antitrust ruling required the studios to di- vest themselves of their exhibition business. The advent of television in the s undercut demand for theatrical entertainment, leading to the closure of thousands of theaters in the US; at the same time, European countries im- posed screen quotas and constraints on the repatriation of profits from film exhibition, inducing US studios to shoot in Europe.


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The Hollywood studios responded to these disruptions by structuring themselves as system houses, con- tracting out many of their production activities to independent producers. It was in this period that the term runaway production first appeared Dawson Project-based practices remain a key feature of the film and television industry in the United States and many other countries, and have been adopted in many creative and professional service industries fulfilling idiosyncratic customer needs, as well as in industries producing complex product systems Ferriani, Corrado and Boschetti ; Manning and Sydow ; Mossig ; Sydow, Lindkvist and DeFillippi ; Sydow and Staber In the s and s, as antitrust legislation was relaxed or ignored in the United States, the Hollywood-based filmed entertainment industry underwent reintegration, and studios regained control over exhibition.

Acquisition of the Hol- lywood studios by transnational media conglomerates increased the significance of a business model relying on the- atrical blockbusters supported by important ancillary revenue streams from non-theatrical media channels and mer- chandizing Schatz Outsourcing, which has become an important structural feature of the Hollywood-based transnational media in- dustry, is driven by a relentless search for lower production costs.

The introduction of labor tax incentives in Canada in led to rapid growth in service production there, especially in Vancouver. The growing trend of production offshoring in Canada has triggered a bitter debate between representatives of Hollywood labor and Southern Cali- fornia economic development interests on one hand and Canadian interests on the other. The former argue that pro- duction outsourcing undermines the competitiveness of a supposedly quintessential American industry and that tax incentives violate international trade agreements Monitor ; Wright The Canadian position notes the bil- lions of dollars in Canadian box-office receipts repatriated to the United States Neil Craig Associates and frames foreign location production as a form of globalization that can have beneficial as well as detrimental effects on everyone Johnson-Yale Often citing the Canadian example, many national and subnational jurisdictions are aggressively pursuing outsourcing opportunities with subsidies, tax incentives, contributions to the production infrastructure es- pecially soundstages and provision of various services Christopherson and Rightor ; Wright The im- mediate objective is to attract film and television production activities in order to capture economic multiplier effects believed to exceed the cost of foregone tax income by a factor of two or three.

The Hollywood media conglomerates appreciate and profit from fierce competition for their produc- tion business. Hollywood-based firms, or more accurately their parent corporations, function as flagships in global media production networks Coe and Johns ; Ernst and Kim To Hollywood incumbents, outsourcing provides ways to reduce costs, increase flexibility, enter new markets, and shift risks onto less powerful players without loss of control over the key creative, financial, distribution and marketing decisions, which remain in Hol- lywood Aksoy and Robins ; Schatz The answer depends entirely on the nature of the produc- tion and higher-order business capabilities that can be developed locally.

Harnessing technology for business success

As we show below, outsourcing may be expected to induce the development of local production capabilities and raise them to prevailing craft standards, but it is unlikely, by itself, to induce the development of the full range of business, management, creative and organiza- tional capabilities necessary to create, produce and distribute film and television products competitively and profita- bly. Engagement in industry leading production requires that services meet pre- vailing international quality standards at a competitive cost.

The competitive advantage of an entry-level, satellite production center lies in its supply of low-cost, sufficiently skilled audiovisual labor, supplemented by tax credits and publicly subsidized infrastructure. As experience accumulates in the local supplier industry, service providers can take on increasingly complex and sophisticated tasks. This pattern of development is evident in the industry, where the mix of outsourced activi- ties from Hollywood currently spans lower-budget films, cable productions, television movies, some blockbusters, and high value-added services such as postproduction services, business processes such as payroll administration and country-specific business services concerning taxes, contracts, insurance and project financing.

The stu- dios locate an increasingly wide range of production away from Hollywood, not just the simplest or lowest cost ac- tivities Christopherson , , This is evidence of the diffusion and deepening of production capabili- ties outside Hollywood in some satellite or secondary production centers. Canadian movies occupy anywhere from 1 percent to 4. Figure 4. Foreign location production in Canada compared to total volume of film and television production in Canada, — 92 to —07, in millions of Canadian dollars.

Service production is highly concentrated in Vancouver, Toronto and Montreal. Vancouver continues to attract the largest share—nearly half of foreign location production spending in the — period, much of it for television series.


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Vancouver is much more dependent on foreign location production spending than its rivals in central Canada. From to , foreign location production accounted for about two-thirds of film and television production spending in British Columbia, and 24 percent and 18 percent in respectively Ontario and Que- bec.

In , 80 percent of the production spending in Vancouver was generated through service production. The equivalent figures for Toronto and Montreal were 19 percent and 16 percent, respectively InterVistas Pro- duction volumes in the fourth-, fifth- and sixth-largest production provinces Alberta, Nova Scotia and Manitoba are much smaller than in the three largest British Columbia, Ontario and Quebec.

Together they account for less than 10 percent of the production volume of Ontario alone and depend on foreign location production for between 29 percent and 41 percent of their volume. The story of how Vancouver emerged as the third-largest film and second-largest television production center in North America has been told by Coe , a, b , Gasher , , Spaner and Tinic , Vancouver began to attract American film production in the s as Hollywood studios engaged in increas- ing foreign location shooting in order to lower costs and because audiences came to expect realistic depictions of locales.

The city possesses numerous qualities that enhance its value as a foreign location production site: it is a short flight from Hollywood; it is in the same time zone; its mild climate allows year-round filming; and it offers a wide variety of location types, from mountains to deserts, within a short distance of the city. The BC provincial government and its agencies provided tax credits, a government-owned studio and tight control over labor conflicts.

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As production volume grew throughout the s, a community of specialized service providers and in- digenous production firms developed there. Service production is said to risk inhibiting development by deflecting or eclipsing indigenous production or by absorbing resources that might otherwise have been devoted to it. In this section we examine possible trade-offs between indigenous capability and foreign location production development at two levels—at the firm and policy levels.

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To understand possible opportunity costs at either level, it is necessary to distinguish clearly between the indigenous independent production industry and the production ser- vices industry, both represented by one trade association—the Canadian Film and Television Production Association CFTPA. The development of the in- dependent production sector has been encouraged as a matter of Canadian public policy since the early s. An independent domestic audiovisual production industry is considered necessary to ensure quality, creativity, flexibility, efficiency, and regional and cultural diversity in Canadian film and television content, thereby contributing to the goals of cultural sovereignty, a sense of citizenship and national identity Can- ada, House of Commons An underlying policy assumption of promoting an independent production sector is that an increasingly capable indigenous production industry would attain a significant degree of economic viability through the conquest of domestic and international markets.

They supply key service inputs to indigenous as well as foreign firms. Foreign location production primarily involves the production services industry, notably below-the-line labor. In- digenous independent producers are involved as for-fee contractors, with no claims to intellectual property rights. The loca- tion production industry has encouraged the development of film industry services and personnel, and pro- vides the kind of steady training, employment, and income that a small, indigenous cinema could not pro- vide, but nonetheless benefits from.

Rather than moving to Toronto or Los Angeles like many of their predecessors, BC filmmakers today can remain at home, assured that they can find steady work. While Hollywood provides most of the employment, indigenous filmmakers have a pool of skilled labour from which to draw. Gasher , Service production helps local crews learn to produce according to industry-leading craft standards.

People with these film and television production skills are now readily available in Canada and producers can contract them on an as-needed, project-by-project basis. Although service production engages many independent producers as well as crews, post-production houses, soundstages, etc. Further- more, these service revenues are highly concentrated among a handful of independent firms.

The top six Canadian independent production firms in terms of service revenues—Brightlight Pictures in Vancouver, Muse Enter- tainment in Montreal, and Don Carmody Productions, Cuppa Coffee Studios, Barna-Alper Productions and Shaftes- bury Entertainment, all in Toronto—accounted for more than 80 percent of service production revenues in the inde- pendent industry that year.

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Each of these firms has a service as well as a proprietary production line of business. Barna-Alper was recently acquired by a new Canadian production and distribution firm, E1 Entertainment. In other words, a half-dozen major Canadian production houses have developed business models providing good revenues from service production while also engaging in proprietary production. Service production, however, does not pro- vide a key source of revenue to the majority of independent production firms in Canada.

Entrepreneurial indigenous film and television firms regard production capability as a necessary but not suffi- cient enabler of business viability Davis, Vladica and Berkowitz To be successful at higher levels of value production in the international division of cultural labor, indigenous firms must own and exploit intellectual property rights.

To do so, they must possess key business and creative capabilities ibid.


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  5. While service production can pro- vide welcome income and learning opportunities to crews, no intellectual property rights accrue to indigenous pro- ducers. Engagement in service work does not result in the development of firm-level competitive advantage as a creator and exploiter of intellectual property rights. Examples of those who have successfully built corporations based upon retention of these rights are almost non-existent. Over time, BC companies will build a library of IP rights that can create a revenue stream to self-finance future production and distribution.

    This is the only long-term sustainable model that does not depend pri- marily on government support IAC et al. Numerous accounts exist of Canadian producers who have engaged in service production in order to earn income and capitalize their firms while developing their own intellectual property Coe ; Gasher and We all did some of it over the past twenty-five years in order to pay rent. It was hard to move from service production to our own production because it is hard to say no to the good money that service work pays. You work for hire, and you sometimes get higher margins in your service work.

    Independent production is risky from a cash-flow perspective. Our library is not huge but we can sell it around the world…. We now turn to an assessment of opportunity costs of foreign location production at the policy level. Canada has two principal federal tax-incentive programs for film and television production. One is for service production, and the other for indigenous production. Most provinces offer a counterpart to each program. The PSTC attracts for- eign productions to Canada, generating revenues for services provided by Canadians from the end-of- script stage through postproduction, especially below-the-line crew costs.

    The PSTC is a tax credit equal to 16 percent of salary and wages paid to Canadian residents, taxable Canadian corporations or foreign- owned corporations with permanent establishments in Canada for services provided to productions in Canada. The PSTC has been widely emulated by national and subnational jurisdictions around the world. This tax credit encourages the development of indigenous programming by providing content production inducements.

    Offshoring IT - The Good, the Bad, and the Ugly | Bill Blunden | Apress

    There are no requirements that content be distinctively Canadian this increases the potential exportability of programs but intellectual property rights must reside with the Canadian firm. The CPTC accommodates international coproduction partnering with 53 countries. At the time of its implementation, the PSTC represented about 20 percent of federal film and television tax expenditures.

    It has since grown to about 40 percent of federal film and television tax expenditures for , as projected in Davis and Kaye See Figure 4. It was anticipated that support for service production would increase in proportion to support for indigenous production. In recent years, however, the volume of service production in Canada did not increase according to projections.

    Offshoring IT: The Good, the Bad, and the Ugly

    Why subsidize foreign entertainment conglomerates to produce Hollywood film and television products in Canada when the same resources could be spent to subsidize proprietary content by indigenous independent produc- tion firms? No public debate has taken place in these terms in Canada. We know of only one attempt to quantify the economic benefits of film and television production tax incen- tives in Canada. Recall that about 80 percent of film and television production in British Columbia is service production.

    This estimate, however, does not take into account federal tax incentives or other subsidies. Source: Department of Finance, tax expenditures and evaluations , and It appears that indigenous creative producers i. We have already mentioned three benefits: service production provides an alternative source of income that can come in handy, it induces investment in production infrastructure, and it provides experience to production crews.

    A fourth benefit is not as obvious. By wrapping service production and indigenous creative production together in the same industry, the latter benefits from the halos of the former. At the same time, the commercial orientation of service production provides some legitimacy to the growing indigenous production community more interested in commercially successful in- digenous media products than those deemed culturally relevant or appropriate by Canadian funding agencies or regulators.

    Indigenous producers also benefit indirectly when service production allows them to suggest that they should receive more generous tax incentives in order to keep Canadian creative producers from switching to lower- value-added service roles, or even from migrating to more opportune domestic or international production locations CFTPA Integration with Hollywood To what extent does integration of Canadian production into the Hollywood filmed entertainment circuit create op- portunities, or does it instead paint Canadian film and television production into a corner?

    Writers on service pro- duction in Canada have variously suggested that it induces integration with Hollywood that is too strong, too weak or of the wrong kind. Canadian scholars who have carefully studied the Vancouver film and television industry disagree about the ex- tent to which foreign location production displaces or marginalizes indigenous production Gasher ; Tinic Foreign location production practically guarantees locational anonymity, thereby pre- venting the production location from communicating a place-specific look and feel, considered to be a hallmark of preeminent cultural cities such as Los Angeles, Paris or New York Scott In the more than foreign film and television movie productions that took place in the Toronto region between and , Toronto played itself in only about 5 percent of them.

    They suggest that the solution is to develop strategic differentiation in film production and postproduction. This prescription is problematic because as we saw previously, indigenous television production, not service production, is the primary target of Canadian audiovisual support measures. Toronto can claim to be a genuine creative agglomeration, rather than a satellite production complex that relies primarily on outsourcing. The general unavailability of indige- nous English-language feature films in Canadian theatres is a result of inability or unwillingness to impose national origin quotas on theatrical exhibitors and failure to use the broadcast system as an alternative distribution channel for indigenous feature films.

    Scott and Pope also address the question of how Canadian film can become competitive.