Northern Exposure

Why America Looks Like Canada

February 13, 2006

by Edward Jay Epstein

The Hollywood Economist

The numbers behind the industry.

Northern Exposure


Heeding the siren call of the wild in the form of a plummeting Canadian loony, Hollywood moved North over the last decade, outsourcing to Canada no fewer than 1,500 movies and television productions. Producers found Vancouver could double for middle America, Toronto could stand in for New York City (especially if the director avoids wide shots), and Calgary makes for a great American West. At times, some script adjustments were required to accommodate the cold reality of the North. For example, in Final Destination 3 , which was filmed in British Columbia, the climactic attack was supposed to occur during an outdoor party on the Fourth of July but since it was not feasible to have actors wear summery clothes during Vancouver's chilly Spring, the holiday was changed to the town's “tricentennial celebration.” But for Hollywood's illusion-makers, who have much experience in geographically deluding audiences, the northern exposure presents few problems that can't be overcome.


Even though Canada has spectacular settings, it was not its production values that film producers go there to find. The lure, in a single word, is money. While the studios have highly-efficient sound stages and an abundance of skilled technicians in southern California, the unions' work rules make it extremely expensive to shoot exteriors. For example, a production can only shoot for 14 hours with normal overtime and then must pay double time. It also must employ redundant Teamster drivers to chauffeur actors to and from locations (even if they have their own drivers). These costs run even higher for independent producers—about 9 percent—who are not part of National Term Agreement which the studios have with the unions. As a result, Indies need Canada—or another deep-discounted country.


In Canada, producers still have unionized labor to contend with, but they get a huge discount—in the late 1990s, it was as high as 35 percent—by paying labor in Canadian dollars. On top of that, the Canadian Federal Government provides foreign producers with a subsidy, called the Film Production Services Tax Credit, which now equals 16 percent of Canadian labor costs. (It was recently raised from 11 percent to offset a rise in the Canadian loony against the American greenback). In addition, British Columbia offers an additional 18% rebate on labor from that province. Finally, there is a 20 percent break on digital effects, if they are done in Canada. In order to qualify for this tax credit—which the producer sells through a Canadian partner—either the director or the screenwriter and one of the two highest paid actors must be Canadian, which might partly explain the demand for Canadian actresses, such as Alison Lohman. Rachel McAdams, and Alexz Johnson, the star of Final Destination 3 .


Hollywood studios are limited in their ability to take advantage of the Canadian El Dorado by the wishes of attached $20 million-plus stars and rigidly fixed release dates for productions. Terminator 3: The Rise of the Machines , for example, had been initially budgeted to be shot in Vancouver, where the producers could score a multimillion dollar (salable) tax credit, but after Arnold Schwarzenegger expressed a preference for staying closer to home and Warner Bros. locked in a July 4th release date, the production was moved to Los Angeles. (The change turned out fortuitous for Schwarzenegger, who as Governor is now taking a principled stand against runaway movie production.) Indie producers, on the other hand, are less constrained in this regard, and free to run away to Canada—or wherever the subsidy is greener.


Canada's allure is of course relative. The loony has been increasing in value against the dollar during the Bush years, which in turn reduces the discount for shooting American film productions in Canada. In addition, other locales, including New York City, Louisiana, New Mexico, and Georgia, are now offering “incentives” to productions in the form of subsidies and tax rebates that compete directly with the Canadian ones. And as one Indie producer put it “movies, like ladies of the night, go where the money is.” Not to be outdone in the escalating incentive war, Canada jacked up its salable tax credits another notch this year. All this, of course, is good news for the survival of the hard-pressed movie producer.


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