The How’s and Whys of Runaway Production

Frank DeMartini

I am sitting in my hotel room in Bangkok on a Sunday afternoon; taking a break from prepping a film that will star Djimon Hounsou and be directed by the Steven Spielberg of Thailand, Prachya Pinkaew. Prachya is famous for Om Bak, Chocolat and Tom Yung Goon, three of the highest grossing films in the history of the country. You may be wondering why I am in Thailand and not somewhere in the United States. Why am I in a country 9,000 miles away from home when I could be shooting this movie anywhere in America including Los Angeles.
In the case of this film, the answer is more complicated than in others. The location of this film is South East Asia and, it is directed by a Thai national. That is not always the case. And, more often than not, the location of the film and its director is not even an issue. Many films that could be shot in America are not. In fact, many films with American locations are shot outside of America.
Why? The answer is simple: cost. Because of the ridiculously high labor costs and other production costs in America, it is just simply not feasible to make a movie in America anymore; especially a lower budget independent film. And, unfortunately, this is a symptom of the entire economic problems facing America today. I would love to work in the United States and be home with my family, friends and my little kitty Sidney. I cannot.
The clothing industry does not manufacture in America. The steel industry is all but gone. The automobile industry is all but gone. There are countless others. It is just too expensive to create almost any type of product in America. Unfortunately, this is leading to the elimination of our middle class. The working man can no longer work in America. If my father were still alive, I do not know how he would make a living.
The remainder of this article will be about the film industry as that is my area of expertise. But, keep in mind while you are reading that these problems are prevalent in all of the industries mentioned above, as well as others, not just the film industry.
Independent films and many studio films are now shot mostly in Eastern Europe, Canada, South East Asia and/or South Africa. The only real production in America these days is in heavy tax incentive states such as Louisiana, Michigan and the Carolinas. New York and Los Angeles, the homes of film production and the industry since its inception, only have production that either involves a star with the leverage to force production in those cities or if they are location specific to either state (and not always in that case either). In fact, we have shot films that take place in New York in Bulgaria on occasion.
The major culprit in the destruction of this industry and in most others is, as always, the unions. The unions refuse to work with the producer to make shooting in America cost effective. The average independent producer has a fixed amount of money to make his movie. The pocket is not deep. Even studio films are looking for ways to save money now. When you are a producer with fixed funds, you shoot the movie where your available money will bring the most bang for the buck and insure the existence of your ever decreasing profit margins.
For example, you could make a low budget action movie in 1995 for about 2.5 million dollars and be pretty sure you would get 3.5 million dollars back within 18 months. Now, that same movie can only be made for about 1.5 million dollars and the producer is struggling to get 2.0 million dollars back. Keep in mind that the same movie you made in 1995 for 2.5 million dollars would now cost 3.7 million dollars. (Calculated using an average of economic indicators, not just CPI) So, by making that movie for 1.5 million dollars you are making a far lower quality product.
If you tried to make that film for 3.7 million dollars, you would make the equivalent of the same film but you would almost guarantee the producer a loss as the sales on such films have gone way down in the past 15 years. You would probably only get the same 2.0 million in sales that you would have gotten if you made the film for 1.5 million dollars.
The average cost of shooting outside of the United States is often about 30-40% of the cost in the United States. For example, you can shoot an action film in Eastern Europe for about $700,000 per week. That is about one-third of the cost in Los Angeles and about 70% of the cost of shooting in a major tax incentive state.
I am shooting this movie in Thailand for even less. In fact; substantially less. We are shooting this film for 48 days of principal photography and our overall production cost is about ½ of the cost of Eastern Europe. No wonder I am forced to spend four months in a hotel room in Thailand. Do you blame the investors?
If I were to go to the unions in Los Angeles and say, “I want to make this movie in Los Angeles.” They look at you and say to pay the union rates, the standard pension, health and welfare and residuals. You are told if you do not have the money to pay them, then do not make the movie. You are never given the opportunity to negotiate a deal that works for the particular film in question. You are given a mandate and told to live by it. And if you do not like it, then tough.
Further, when you do shoot a film in the States, you are forced to obligate yourself to the payment of residuals forever. I ask you, in what other business is the investor/owner forced to pay the employee for work done years ago, every time he makes a dime?
The union people are now going to say that I am typical management and do not care about the working man. They will say that residuals are cheap. If the movie is made with all entertainment unions, the total cost of residuals is less than 10% of the total income. But, if you are only making a 25% return on your money, the residuals eat up approximately 10% of that return, leaving you with only a 15% profit. A motion picture production company cannot survive on that.
I would think that the working man in the United States of which I am one would rather work at a lesser rate inclusive of the medical protection than have the work go overseas. But, the general consensus is not.
Of course, if you shoot outside of the United States, you do not pay residuals at all except for some money to the Screen Actors Guild* who must be used no matter where you shoot. You get to keep your measly profit and hopefully put it another movie that will keep residents outside of the United States employed.
I can go on with this column for another 10 pages or more and never repeat myself and maybe I will in the future, but for now, I am going to spend the
rest of my afternoon relaxing. I have a big week coming up.
* See my prior article on the Screen Actor’s Guild and Global Rule One printed earlier in this column.
© 2010 by Frank T. DeMartini. Permission to be copied will be freely granted.

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6 Responses to The How’s and Whys of Runaway Production

  1. bruce nahin on January 24, 2010 at 6:19 pm

    Great article- as an out of work production executive and of late site manger at a large movie location ranch in Acton( which hasnt been used for over two months), I can attest to the problems with runaway production and unions- thanks for speaking up

  2. Bill Minot on January 25, 2010 at 9:13 am

    Thanks Frank,
    The union situation is critical. But Hell, the film unions don't yet have a controlling intrest in the industry as in the autos, but of coarse their healthcare has to be "special". More reason to pray for the 2010 elections.
    Safe Travels

  3. Patrick on January 25, 2010 at 11:31 am

    I'm a 33 year member of the IATSE – The Union you are blaming for the high costs of filming in the USA. And I'm offended!

    First off I’d like to know what the Star budget of your Thailand movie is and what the above the line costs vs. the below the line is. How does that factor in to the standard of living for Thailand?

    Smart Producers make IA films because they recognize that trained filmmakers are craftsmen and artists. They know that filmmaking is a collaborating effort with each crew member applying his or her brushstroke to the overall painting the Director creates. Producers with that kind of cognizance recognize that the relationships in our industry are based on the ability to produce a product and loyalty.

    Sure we could do away with Unions and Guilds in Hollywood and make movies. (Let’s start with the DGA) But, filmmakers and crews would end up slaves! We’d return to 18 hour shoot days without meal breaks. Wages would be less than required to counter the cost of living! Most of the skilled craftsmen who spent years learning their trades would leave for higher paying jobs at MacDonald’s. And you as a Producer, would find the level of professionalism had declined to a point that your final product could no longer be called art!

    Of course movies could be pumped out like mad. Only, no one would go to see them!

    The audience recognizes an attention to detail and the nuances it takes to make a good movie. They do so even if they can’t quite put their finger on what it is they really like about the film.

    I’m a Republican and I think your idea of Republicanism is nonsense! What’s really at the root here is an age old problem – greed!

    I recognize that Producers are the CEOs of the film industry and that without them no movies would be made. I recognize that corporations and indivual business owners create jobs. But, I recognize there is a responsibility inherent in the game. It’s one of loyalty and concern for the creative people on who’s back, your success depends.

    And what’s this about residuals. Firstly, you know as well as I that residuals only applies to the West Coast contract and not the East. Do we begrudge you, your residuals?

    So feel free to make your movies in Thailand and EU. I hope you can make your “third of the cost” movies gross $500 million or even a billion worldwide.

    But I’ll bet though, that when you are done with one of your out of America film projects, you return to your beautiful home in Hollywood!

    I also bet that one day when you when can put together the financing to make a 30 or 40 million dollar movie here in Hollywood, you’ll wonder why there’s no one left to play!

    I’ll bet that you then ask yourself what happened to the Hollywood film industry infrastructure.

    And I’m sure that you’ll wonder why it takes you 18 hours to shoot what it use to take 12! And I know you’ll probably never know why…

    Patrick Murray

  4. Frank T. DeMartini on January 25, 2010 at 7:06 pm

    Patrick: I understand all of the issues raised in your comment. The goal of my piece is not to come down on IATSE. The point is to explain why the situation is happening.

    IATSE residuals are not the problem. The problem is residuals from all the guilds which tear into the increasingly lower profit margins. We are struggling to survive and that is why we shoot out of the country.

    As for my Thai movie, the Above the Line is not even one half of the film. Most of the money on this film is going into production cost and foreign spend. I would love to be spending this money in Los Angeles but the increase in cost would cause my investors to go away.

    Again, my goal is not to offend but to explain the problem. It is also to open debate so that hopefully, someone will listen and come up with a solution.

  5. Patrick on January 25, 2010 at 8:47 pm

    Frank: Firstly, I apologize for my long winded comment to your Blog. I think it must have struck a nerve of long unvoiced opinion.

    I applaud you for having the courage to post your ideas and commend you for sharing your viewpoints with us.

    I appreciate and agree with you that through debate a solution may be found for a problem that is both close to home in our industry and yet also pervades our country as a whole.

    Patrick Murray

  6. Anonymous on January 26, 2010 at 7:51 am

    The above two comments by Frank and Patrick along with the blog itself is one of a few interchanges that lift the blog into an engaged dialogue.

    This is the intellectually challenged atmosphere that suggests an “A” student must share their grade with an “F” student so they both get “C”. Pardon the simplicity, but I adopted the liberal “KISS” (keep it simple stupid) principle.

    What is missed here, if anything is the assumption that wealth earned by the producers must be shared with the employees who risk nothing? If one buys a car and uses it to earn 100K a year, why is the automobile dealership not owed a percentage of that reward? If you believe this then there can be no discussion. However, if you are open to an alternative, let the unions provide the financial backing for movie production, share the risk, enjoy success and take a loss when appropriate. And of course the work goes to the lowest bidder. Then the arguments are vacuous. Beware however; when poor performance does not carry a penalty, when reward for excellence is removed, then we risk socialism.

    Analyze the downfall of Bethlehem Steel, GM, and the roll of the public sector unions in the difficulties of California. It is reported that there is 10.4% unemployment in CA, more like 17% if one counts those who have stopped looking for work. It is reported also that only 3% of the public sector union employees have been laid off. This whiles their wages and legacy costs have pretty much destroyed the financial structure of the CA budget. And of course, the unions blame capitalism. Bring back parity between public and private perks and benefits and most of the budget crisis is solved.

    A “C” student is likely to survive. An “A” student is likely to create wealth and jobs. Research it, don’t argue about it.

    Again, kudos to Frank and Patrick.

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