Effects of Foreign Location Shooting on the Canadian Film and Television Industry

Prepared by E&B DATA for the Department of Canadian Heritage
March 2010
ISBN : 978-1-100-96116-3
Catalogue no. : CH44-140/2010E-PDF

Executive Summary

The goal of this study is to present and quantify the effects of foreign location shooting in Canada on the Canadian film and television industry. The study looks at both the economic impacts of spending on foreign location shooting as well as the externalities that are generated. Following in-depth interviews with industry representatives, a series of complementary research and analysis methods were used to quantify the impacts, from constructing an interindustrial model to fact-finding by means of surveys.

Context of Foreign Location Shooting

The volume of foreign location production in Canada exceeds $1 billion a year. Because of their direct impact on employment and industry suppliers in Canada, FLS activities are deemed desirable by federal and provincial governments, which treat these activities beneficially by offering tax credits to production companies (“service companies”) and, in the case of a number of provinces, to certain activities relating to technical services (e.g., animation and visual effects). The amounts awarded are substantial, so determination of the net impacts must be considered when designing public policy in the area of foreign location shooting, just as both positive and negative effects on the domestic production industry must be considered as well. The latter element, i.e., externalities, is at the heart of this study, as it has never been covered systematically in Canada until now.

Impact on the Economy

Using an intersectoral analysis drawn from the Statistics CanadaInterprovincial Open Input-Output Model, estimation can be made of the impact of foreign location shooting on employment, labour expenditures and GDP. With annual spending totalling $1.6 billion (average for the last three years, from 2005-2006 to 2007-2008) in Canada, foreign location shooting generates added value totalling $1.3 billion and 31,650 jobs (direct and indirect) on a full-time equivalent basis. The number of induced jobs has not been calculated. Employment income for all of these jobs totals $1.15 billion, or an average employment income of $36,000 a year. It is important to note that this average includes the earnings of both leading actors and extras.

Impacts on Federal Government Finances

Each year (based on estimates for the last three years), foreign location production activities contribute a total of $227 million to federal government revenue, which, after the payment of tax credits, results in a net revenue of $137 million. These estimates are conservative, as they do not take corporate tax revenue into account. They are also conservative because the effects on the Canadian economy of consumer spending by workers out of their employment income are not reflected either (induced effects). For each dollar granted by the federal government, in combination with credits granted by the provinces, $14.50 finds its way into the Canadian economy (added value). Although the tax credit scheme (combined with that of the provinces) is not the sole decision-making factor in the case of foreign location shooting, the international experience of industrialized nations shows that it is one of the determining incentives for choosing shoot locations, all things otherwise being equal.

Externalities

A sample survey was conducted among employers and contract workers (also called freelancers or self-employed workers in this paper) to estimate the impact of foreign location shooting on the basis of their own personal experience in the area. Information was collected, for the most part, between November and December 2009. In all, 467 respondents took part in the survey, including 204 companies and 263 senior workers. To maximize participation by the key provinces in terms of foreign location shooting, the collaboration of several provincial agencies and union organizations was obtained.

Acquisition of expertise. A strong majority (77% or more) of both employers and workers stated that they had acquired experience since 2005 from working on foreign location productions. This expertise was in a variety of areas, including technologies, management methods and even exposure and networking abroad.
Transfer of expertise. A majority (80% or more) of both employers and contract workers stated they had been able to transfer the expertise they had acquired to Canadian productions. A majority also stated that transfers of this nature were applied frequently.
Transfer of revenues. Frequent mention was made of cases where revenues were transferred. These transfers take various forms, ranging from a mere contribution to working capital (thereby ensuring the company's financial continuity until payment of tax credits) to contributions to the funding of Canadian productions. All in all, 68% or more of all employers stated that they had applied transfers of revenues.
Impact on work force/labour market. Broadly criticized when foreign location shooting was at its peak in 2002-2003, the negative impact on the availability and cost of labour has diminished substantially. A majority (71%) of the employers surveyed stated that, since 2006, production has had no impact on labour costs.
Impact on infrastructure (e.g., studios). The industry generally recognizes the positive impact that foreign location shooting has had on the quality of infrastructure. In this regard, 80% of technical services companies stated that foreign location shooting had enabled them to improve the quality of their infrastructure and services. In the view of some respondents, access may pose a problem, however, since Canadian productions—decidedly smaller on average than foreign productions—must relinquish priority to foreign productions with heftier budgets. Some infrastructure is priced beyond the reach of local producers.

Conclusion

The economic contribution of foreign location shooting is positive from the perspectives that were analyzed, that is, the impact that spending has on the economy and federal government finances and the externalities that are generated on the Canadian film and television industry. This analysis reflects both the results of an interindustrial modelling and contact with a cross-section of organizations and workers across Canada. Regardless of the region and the type of activity, a positive contribution is recognized by the majority of stakeholders, and the results that were collected are robust and consistent. That said, the respondents were not unanimous, and it is conceivable that special situations may exist where foreign location shooting may adversely affect local productions. The present study therefore confirms the presence of these externalities, generally positive, and clarifies their scope. In addition, the economic impacts of foreign location shooting extend beyond the aspects measured in this study. In this regard, it is conceivable that foreign location shooting may have played a role in the development of other sectors, spurred by digital convergence (e.g., between animation and video games). This new reality, which will shape the Canadian audiovisual industry of tomorrow, has not been examined in this study.

Note:
It should be noted that certain characteristics of the industry, as presented in this study, might have changed between the time of completion and publication of this document.