Location Shot

Is film outsourcing "runaway production" or just good business?

At first glance, Raleigh Enterprises would seem an unlikely player in the raging controversy over job outsourcing. As the owner of two studio lots, including the former home of what became Paramount Pictures, it is as much a powerhouse in Tinseltown as celebrated Ally McBeal producer David E. Kelley, whose legal drama The Practice is shot at one of Raleigh's sound stages.

Yet in a way Raleigh has joined Indian information technology outfits such as Wipro on the frontlines of the job-export battle, and the company's recent change in strategy is a significant reversal for Hollywood protectionists. While tech off-shoring and its impact on the American economy has become the headline-grabber in this year's presidential elections, the movie industry is having its own outsourcing debate, this over so-called "runaway" production or the shifting of film and television projects from Hollywood to Canada and other foreign locales.

Like tech outsourcing, this is as much about jobs as it is about cost-cutting. But in the case of the entertainment industry, it's less about free markets and more about corporate welfare and attempts to fight so-called American cultural imperialism. Canadian and European governments have used subsidies and tax breaks to lure projects such as the Civil War drama Cold Mountain as part of their own efforts to boost native film industries. That hasn't exactly sat well with independent studio operators and vendors or with big Hollywood labor unions such as the International Alliance of Theatrical Stage Employees. While the unions maintain a stranglehold over the hiring of gaffers and grips on local sets, they have little influence outside of America.

The unions have already given the major film studios the business. Recently they enlisted the help of California Congresswoman Diane Watson and 27 of her colleagues to berate director Ron Howard for shooting his latest film, Cinderella Man, in Toronto. They have also been able to co-op Congressional plans to restrict overall outsourcing. Senators Charles Grassley (R-IA) and Max Baucus (D-MT) have added a section to their "Jumpstart Our Business Strength Act" granting producers an "accelerated write-off" of film costs just for keeping projects in America.

As the nation's largest independent studio operator, Raleigh had been one of the most vocal of the opponents. It hosts the Web site of the Center for Entertainment Industry Data and Research, which puts out reports warning of the supposed consequences of film outsourcing. Raleigh Chief Executive Michael Rosenthal, who co-founded CEIDR, has even gone to Canada to criticize the country's efforts to attract film production. He has also been active on the political front: Four years ago, he successfully lobbied then-California governor Gray Davis to support a package of tax breaks and other deals that would have handed over $650 million a year to producers who kept production in-state.

But economic realities—and the possible loss of one of its studios—has forced Raleigh to adapt. In January, the company and its Canadian partner, Ingenium Group, were selected by an economic development agency, in Toronto of all places, as one of four finalists to transform a 30-acre industrial site along the city's waterfront into a studio complex. If Raleigh and its partner are designated the developers in May, it will aid the city's—and Canada's—efforts to lure big-budget American films from across the border.

Rosenthal admitted in an interview that the company finds itself in a rather tough spot being both an opponent of film outsourcing and an abettor of it. But he said that he has to grow the business. Besides having a tough time luring new film projects, it faces the possibility of losing the master lease on its 14-stage Manhattan Beach studio this summer. While Raleigh is in the middle of renegotiations, a new deal isn't a given: In March, Walt Disney Co. heir Roy Disney and his partners, who brought Raleigh on to run the studio six years ago, sold it for a reported $120 million.

"I don't want to assist in the exodus, but we have to go where our customers are going," said Rosenthal.

While tax deals have helped convince the American entertainment industry to think about foreign locales beyond the role of simple location shots, no one is sure whether there is much of an exodus in the first place. Given the entertainment industry's free-form nature and penchant for keeping secret even small line items on budgets, business metrics are difficult to come by. The Los Angeles Entertainment Industry Development Corp. for example, says that film shooting days for the first two months of this year declined 6.01 percent from the same period in 2003. But it admitted to Michael Hiltzik of the Los Angeles Times that the numbers represent merely a fraction of all film production in the city.

In truth, film outsourcing is not "runaway production," but merely part of the American entertainment industry's growth from a mere recycler of foreign cultural staples—think Lord of the Rings or Winnie the Pooh—to a truly global entity. In such a situation, issues such as foreign exchange come into play. Cheaper currency—and therefore less expensive local talent than American counterparts—helped transform Canada into Hollywood's foreign locale of choice. One factor contributing to the currency arbitrage: Hollywood unions, which have helped make filmmaking a more expensive venture thanks to onerous work rules, salary demands and unwillingness to allow producers to hire nonunion talent or let members work on projects it doesn't certify.

In any case, the United States remains the home base of the entertainment industry and the center of the talent base. Hollywood professionals have actually adapted to the changes by becoming gypsies of sorts. The seven major American studios still command 90 percent of the world's box office while foreign-born stars and moguls such as Pierce Brosnan and Rupert Murdoch maintain their homes and operations here. Murdoch's News Corp., which distributes The Practice, announced this month that it would move its headquarters to New York from the Australian backwater of Adelaide.

Tax credits will likely give Hollywood more dollars from heaven. European governments surely have learned that the hard way. Three decades of tax deals and subsidy arrangements have done little to foster local filmmaking and made them saps for Hollywood instead. That factored into the British government's decision last month to ban a form of tax shelter used to defray marketing costs. The biggest potential beneficiaries of this tax break: not British companies, but American media giants such as the Walt Disney Co., which raised over $200 million through one such arrangement before the ban was handed down.

[Correction: In the original version of this article, the name of L.A. Times reporter Michael Hiltzik was misspelled.]