Indie Producers Say They’re Getting Shortchanged By California’s Tax Incentives Program

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California’s expanded film incentives program has been great at helping to stem the flow of runaway production but not so great for independent film and TV producers. Indeed, many indie producers are not happy with the new program at all.

“Indie producers are frustrated,” said Dama Claire, an incentives specialist at EP Financial Solutions. “While the state has a very good program, the bulk of the money is allocated to the major studios and to television shows returning from out of state, which is not the indie market.”

Up until a year ago, when the state still was holding a lottery to determine who would get the subsidies, indie producers were guaranteed at least 10% of the $100 million in tax incentives. As it turned out, through the luck of the draw, they got more than that. In fiscal 2013, they were allocated $17.5 million; they received $13.7 million in fiscal 2014; and last year they got $11.2 million.

hollywood-tax-credits-1In the final three years of the lottery system, 60% of the randomly selected projects were indie productions (57 of 95). Since the lottery was abandoned a year ago, only five of the 55 projects selected were indie productions (9%).

“We all think it’s gone awry,” said an indie producer who asked not to be identified. “It’s become increasingly difficult for independent producers to receive the tax credits, which are so vital to the independents. I wish they could allocate more funds to us. There are several movies I would not have made without them.”

Three of her projects were made with the assistance of tax credits – two under the old lottery system and one since it was abandoned. “The independents don’t have the resources to lobby Sacramento the way the studios do, so of course the tax credits favor the studios,” she said. “The studios are my brethren. I would rather see them make movies here than no movies at all. But the new rules really hurt the independents.”

The new system of allocating the funds, which is weighted toward projects that create the most jobs, has been a windfall for the major studios and networks. It requires that indie film producers receive 5% of the state subsidies, and that was what they got in the first year since the demise of the lottery, according to the California Film Commission’s latest list of approved projects. Since the lottery was discontinued in April 2015, $223 million has been awarded to non-indie film and TV producers, but $11.5 million has gone to indie producers.

Fiscal Year Dedicated FundingThe 5% of the subsidies now set aside for indie film producers is half the 10% set aside for them during the days of the lottery, but it’s 5% of a greatly expanded program – $330 million a year compared with $100 million under the old lottery system. Theoretically, that means that indie producers will receive more subsidies than they did under the old lottery system. But because the incentives pie is now more than three times larger than before, indie producers will be receiving a much smaller share relative to their non-indie counterparts.

When the state first starting granting tax incentives in 2009, a drawing was held on the first Monday of each June. Applicants received a lottery ticket for each project submitted, with half the ticket affixed to the application and the other half dropped into a jar. A uniformed law enforcement officer, on hand to provide an additional layer of third-party oversight, then would reach in and select the winning tickets.

During the lottery days, the vast majority of the indie projects that received state tax credits were ultralow-budget films and movies of the week. Most of them received less than $500,000 in credits to offset their state tax liabilities. But since the lottery ended, those kinds of indie projects have yet to make the cut, replaced instead by medium-budget feature films that employ more people. Of the five post-lottery indie films selected, four had qualified expenditures exceeding $24 million, with each receiving $2.5 million in subsidies, which is more than any indie project received during the days of the lottery.

And that’s the way the system was designed to operate – for the incentives to go to a smaller number of bigger-budget indie films instead of to a much larger number of low-budget fare. The concept was that this would create more jobs, but it also means that a lot fewer indie projects are receiving assistance from the state.

The major studios and the broadcast networks have been the major beneficiaries of the lottery’s demise. During the last three years of the program, they received $114.5 million in state subsidies, but in the year since it was abandoned, they’ve have collected $164 million in tax credits. All non-indies combined — which includes the major studios, the broadcast networks and cable networks and mini-majors — hauled in $218 million during the last three years of the lottery.

Many of the major studios and broadcast networks received no state subsidies during the last three years of the lottery, but in the year since the lottery’s demise, Fox and Fox Searchlight have been allocated more than $53.5 million in subsidies; ABC has received more than $17.5 million; Disney has received more than $16.5 million; and CBS has gotten more than $8 million.

During the last three years of the lottery, Paramount Pictures only held two winning tickets, receiving $6.9 million in subsidies. Since it was abandoned, however, four of the studio’s TV shows and two of its films have received a total of $25.3 million in tax credits.

Universal Pictures only had one winning ticket in the last three years of the lottery, receiving $4.9 million in subsidies for Straight Outta Compton. Since the demise of the lottery, however, three of the studio’s TV shows have picked up another $6.3 million in tax rebates. Of that, NBC/Universal has received less than $1 million.

Warner Bros and its subsidiaries were far and away the biggest beneficiary of the lottery, collecting more than $88 million in state subsidies. In the last three years of the lottery, Warner Bros. Pictures received $35.4 million in subsidies through the luck of the draw, and Warner Bros. Television received another $7.9 million. And Warner’s Horizon Scripted was allocated $21.5 million for Pretty Little Liars and $22 million for Rizolli & Isles. And in the year since the lottery was abandoned, WB and its subsidiaries New Line Cinema and Horizon Scripted have been allocated another $37 million.

Of all the major studios, Sony Pictures Entertainment has benefited the least from the tax incentives during the past four years. Sony Pictures Television had two winning ticket in the last three years of the lottery, receiving $12.4 million for its TV series Justified. Screen Gems, a Sony Pictures Entertainment subsidiary, received another $2.3 million. Neither company has received any state subsidies since the lottery was abandoned – nor have SPE subsidiaries Columbia Pictures and TriStar Pictures.

MOW producer Larry Levinson has been the biggest loser since the lottery was scrapped. Levinson, Hollywood’s most prolific producer, has churned out low-budget TV movies at the breakneck pace of more than one per month during the past 15 years. And of his last 70 projects he shot in the U.S., only six didn’t receive California tax credits.

Film Commission records show that Levinson virtually cornered the market on California incentives for movies of the week. Of the 25 MOWs that received taxpayer subsidies since 2013, all but one — the upcoming fourth installment of the Sharknado franchise — were his.

Altogether, he received more than $25 million in taxpayer subsidies for his 64 projects, all but two of which were low-budget MOWs that he produced for the Hallmark Channel and for PixL, the subscription TV movie channel he owns.

Levinson did not return calls for comment, but indie producing sources believe his movies no longer qualify for incentives because their budgets are considered too small under the new system.

California Film Commission records show that the single project that received the most tax incentives during the last three years of the lottery was Teen Wolf, the non-indie MTV/Viacom TV series, which was allocated more than $26 million from three different drawings. 

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