Hollywood Feels Chill From Low-Cost Canada

The slowing this year of what had been torrid growth for Southern California’s entertainment industry is causing labor unions, film industry suppliers and state officials to again point the finger north in an effort to fix blame.

Since the early 1980s, Canada has lured Hollywood television and movie productions to Vancouver and Toronto with the incentives of lower costs, tax breaks and a growing pool of skilled crews.

This year, an exceptionally weak Canadian dollar, combined with new labor tax credits, has made Canada so economical that productions can cost as little as 65 cents on the dollar.

Although Canada has proved successful at luring lower-profit productions such as television movies and cable programs, Hollywood unions and state officials worry that the economics of doing business there will be increasingly seductive, since most studios and producers are under intense pressure to control soaring costs.

“It’s going to encourage producers to look longer and harder at taking their productions to Canada,” said Bryan Unger, assistant executive director of the Directors Guild of America, one of the most vocal groups on the issue.

The new chorus against Canadian competition comes amid the leveling-off of Hollywood’s production boom. The surge started in the early 1990s, fueled by exploding foreign markets for U.S. entertainment and a proliferation of cable channels. That growth has helped make entertainment one of the engines of Southern California’s economy.

Economists and film executives so far consider Canada a minor factor in this year’s slowdown.

The larger reasons are studios trimming their bloated film slates, the higher costs and increasingly fragmented audience bedeviling the television business, cutbacks in commercial production due to uncertainty in the economy as a whole, and the threat of an actors strike earlier this year that disrupted production schedules.

Southern California film officials add that although the steep growth rates of the past have flattened, activity remains strong by historical measures.

“I think there’s some finger pointing going on. This was an industry that was growing rapidly, and there was a built-in assumption that it would keep on growing rapidly,” said economist Jack Kyser of the Los Angeles Economic Development Corp.

Still, complaints about competition from Canada have been growing louder. California Assembly Speaker Pro Tem Sheila Kuehl (D-Santa Monica) has organized a hearing in Hollywood today to find out how deep the problem is and if the state can offer tax credits or regulatory relief to counter competition from Canada and other countries such as Australia.

Officials in the past have frequently issued warnings of “runaway” production--critics say sometimes to the point of hyperbole--to lobby for legislation and regulatory reform. Indeed, some officials believe the Canadian issue is being seized upon to garner tax breaks.

Canadian officials deny that productions are migrating to their country in high volume, arguing that Canada’s film industry is still tiny compared with California’s. They add that the productions in question are usually ones with very thin profit margins that are shot in Canada or not at all.

Pete Mitchell, director of British Columbia’s film commission, says the province’s movie business amounts to 1.8% of California’s and that much of its growth involves Canadian shows.

“People overstate the amount of production we do here. We’ve grown quickly and we’ve grown a lot, but compared to California we’re not even on the radar,” he said.

Canadian officials also say it’s unreasonable for Southern California to expect that all production should take place here.

“We are huge consumers of American cultural products, so a lot of the profit and revenue comes from the Canadian market. I don’t think it’s unreasonable for some of that economic activity to take place in Canada,” said Kim Campbell, Canadian consul general in Los Angeles and a former prime minister.

TV shows made in Canada, which usually enjoy generous government incentives, include Warner Bros.’ “La Femme Nikita,” which runs on cable network USA; Metro-Goldwyn-Mayer’s “The Outer Limits” on Showtime; and the Fox network series “Millennium.” The best-known series shot in Canada, Fox’s “The X-Files,” moved from Vancouver to Los Angeles this year because star David Duchovny wanted to be closer to his wife, actress Tea Leoni.

Canada has long been the home of TV movies, a business that generally operates on tighter budgets. A 1996 TV remake of Truman Capote’s “In Cold Blood” was shot on the Canadian plains rather than in Kansas, where the murders took place.

One difficulty in determining how many productions are going to Canada is the lack of hard statistics. Most of the supporting evidence is anecdotal, third-hand or fragmentary.

For example, one assertion spreading among groups protesting Canadian competition is that Walt Disney Co. produces all of its TV movies there. A Disney spokeswoman, however, noted that of seven movies Walt Disney Television made this season for its ABC subsidiary’s “The Wonderful World of Disney,” three were produced in Canada, one in Los Angeles, one in Atlanta and two in Europe.

Still, Canadian production is soaring. According to figures just published in Screen International, film starts in Canada are running at nearly double their 1997 pace. Although production is largely centered in Vancouver, Toronto and Montreal, each of the nation’s provinces is aggressively courting film business. Canadian animation also is growing, with CBS turning over its Saturday-morning schedule to Canadian animator Nelvana Ltd.

Officials with the Directors Guild’s Canadian branch recently published statistics showing that nearly 60% of the production in Ontario is American, with joint U.S.-Canadian productions making up 23%. Canadian productions account for only 15%, guild statistics show.

Hollywood union officials add that another problem they face is restrictive work-permit rules that make it difficult for many Southern California-based workers to be employed on location in Canada. That, combined with tax incentives designed to encourage the hiring of Canadians, makes it hard for assistant directors and others down the line to get hired on shows shot in Canada, said Unger of the Directors Guild.

The Screen Actors Guild estimates that 11,251 U.S. jobs will be lost during the 1998-99 TV season due to foreign production of TV movies, mostly in Canada, compared with 2,673 jobs three years earlier. Many of those jobs aren’t in California, however, but North Carolina, Florida, Georgia and Utah, where TV movie producers also find lower costs.

SAG also complains that union contracts in Canada allow producers to pay a fee to buy out the residuals that actors count on to pay them in the future for their work.

Assemblywoman Kuehl, who worked as an actress in Hollywood in the late 1950s and early 1960s playing Zelda in “The Many Loves of Dobie Gillis,” said she has asked representatives of unions, independent producers and post-production houses to provide hard data so the state can gauge the competition Hollywood is facing.

“We’re not blaming Canada,” she said. “They’re doing what they can to draw business there. But the tax incentives by their federal government, in addition to incentives by province, add up to be pretty big.”