Production runs away from Canada and toward the U.S.

The weak American dollar, increased international competition and a concerted effort by California and other U.S. states to lure television and film locations back to the States have had a significant impact on Canadian-based film and TV productions.

Yet the most immediate problem facing by Canada is the unexpected strength of the Canadian dollar, which has ballooned to its highest value in over a decade. The original incentive for U.S. producers to trek north to Canada was the highly favorable exchange rate. But over the last two years, the Canadian dollar has seen a 30 percent increase against the U.S. dollar. This unexpected economic muscle-flexing came on the heels of the disastrous SARS (respiratory infectious disease) scare in Canada, which caused a 25 percent drop in production during 2003.

Paul Bronfman, chairman and CEO of the Toronto-based Comweb Group, was quoted, "People know that the industry is in free-fall now, if something isn't done, we're heading for disaster."

But the Canadian currency may prove to be the least of the Canuck film production industry's troubles. Several other issues factor into the downturn of productions in the country, such as the U.S. Screen Actors Guild's directive, which bars its members from working for nonsignatory producers (creating a problem, since many Canadian producers are nonsignatory). Known as Sag Rule One, it can result in Guild members being fined, or even expelled from the union, if they are caught acting in an unauthorized production.

Canada may also be a victim of its own success. Other countries took note of the infusion of production dollars enjoyed by America's northern neighbor and instituted their own tax breaks and financial incentives, in an effort to lure U.S. productions to their shores. Perhaps Canada's biggest competition is from individual U.S. states as well as the U.S. federal government; realizing the importance of keeping film and television productions on domestic soil, U.S. president George W. Bush championed a bill that gave tax breaks to small-budget films.

Moreover, individual U.S. states such as Louisiana, Illinois, New York and New Mexico have become bullish in their efforts to attract Hollywood producers. Taylor Hackford shot Ray in New Orleans after the city offered free hotel rooms for his crew, among other incentives. "Very soon, there isn't going to be any reason to take a film to Canada," the director noted.

Hollywood execs receive frequent visits from representatives of various U.S. state film commissions, who offer a myriad of tax breaks and service guarantees. "This just illustrates how these other states see the value of this business; everybody wants a piece of it," said Amy Lemisch, director of the California Film Commission. "[These are] very good, high-quality, well-paying jobs and [this is] a clean, non-polluting industry. A production will come in and pour lots of money into the local economy. And when [the crew members] leave [a place], they pretty much leave it the way they found it."

Despite the new competition, California remains the nation's leader in productions, because as Lemisch reported, "I hear almost across the board, from low-budget or studio or TV movie producers, [that] they would rather be in Southern California if they have a choice."

Nonetheless, California has taken steps to ensure it will remain the undisputed international home of the film and television industry. It is a topic on which California Governor Arnold Schwarze-negger focused during his victorious campaign. Lawmakers across California are currently pushing for increased tax incentives because the economic plusses of production go far beyond the actual film, with a wide range of employment opportunities available for auxiliary industries.

Lemisch pointed out that those who seek to benefit most from keeping runaway production in check aren't the producers or eight-figure salaried actors. "It's far more important to the below-the-line workers and local businesses than it is to studios. We have the best talent pool, [both] in front [of] and behind the camera."

TV and film productions seem to hold the same importance for Canadian workers, and the unions there have been lobbying their federal government to increase the tax credits for both TV and film productions, from the 11 percent currently being offered to 16 percent. In addition, many executives in the Canadian entertainment industry are suggesting a credit based on overall production expenses, rather than just labor costs.

Producer Sue Murdoch, who is also a board member of the industry lobby group FilmOntario, said that time is of the essence. "We all look to the government to solve [our] problems. There comes a time when we have to look to ourselves."

The increased urgency to move toward self-sufficiency is a result of Canada suffering its first drop in domestic production in more than a decade. As a result, provinces have begun to offer their own incentives on top of federal subsidies. In December 2004, Ontario boosted its tax credit for foreign productions from 11 percent to 18 percent of on-site production costs. A week later, Quebec announced its own tax credit increase from 11 percent to 20 percent.

Up until recently, Canada's woes had been Hollywood's boon. The L.A.-based Entertainment Industry Development Corporation (EIDC) reported that film and television production spiked 19.2 percent in Los Angeles County, from 2003 to 2005. But even so, EIDC president Steve McDonald warns that Hollywood and California should never rely on the U.S. dollar to stay weak, and that permanent solutions must be found to prevent productions from migrating to Canada once again.

"The most dramatic development has been the change in the value of the U.S. dollar versus the Canadian dollar. But you can't rest an economic development program on the exchange rate. Canada has increased its incentives to deal with their decline in production. When the dollar goes back up, you'll see a natural migration of production back to Canada." He urged: "We need to come up with a strategy that will work when the U.S. dollar strengthens. Runaway production will remain a real problem until it's dealt with in concrete terms."

One of the measures California has already enacted is an online film permitting system, run by the California Film Commission (CFC); it is intended to streamline the frustrating red-tape producers often face. The system is available 24/7 and cuts the time needed to obtain a permit in half.

"We receive upward of 40,000 requests for information each year--sometimes as many as 150 calls per day," CFC's Lemisch said.