I have written many articles about Runaway Production which is a term of art used in the Entertainment Industry to mean production of feature films or TV shows outside of Los Angeles or the United States strictly for financial reasons. Runaway Production takes many forms. In fact, Louisiana and Georgia were quickly becoming the homes of Runaway Production in that those two states provide lucrative tax incentives to help defray the cost of making a movie. California has a similar tax incentive at this point, but, it is just not enough to make up for the excessive costs and regulations of shooting in the Golden State.
But, now, there is a new culprit and of course, it deals with unions again.
The major union for non-creative personnel is the IATSE which stands for the International Association of Theatrical Stage Employees. This union represents all of the laborers on a set. Most of them are non-creative. Although, they do represent a number of creative crafts such as cameramen, art designers, editors and costume designers. However, for purposes of this article, will not lump them together with creative unions such as the Screen Actors Guild (SAG), the Writer’s Guild of America (WGA) or the Director’s Guild (DGA).
The company I am most closely associated with has been making movies steadily with the IATSE since 2005. Prior to that, we made mostly low budget movies, but we occasionally worked with IATSE dating back to the late nineties. During that whole time, IATSE had an un-written policy to not charge residuals of independents. And, to be honest, they never did. We made movies, paid their members and were never questioned about the payment of residuals even though technically that was required under our agreement with them. Well, as of a few years ago that has changed.
For those who are not familiar with a residual, it is a payment to an artist for work performed today forever into the future. It is a curious institution that is pretty much relegated entirely to the entertainment industry. There is no other business I can think of where someone will work today and continue making money for that work for as long as the owner of the work makes money. Composers get residuals. Actors get residuals. Writers get residuals. Directors get residuals. And, also laborers get residuals.
However, IATSE residuals do not go to the employees directly. This is completely different than the residuals to the Creative Unions. IATSE residuals go to the IATSE pension and health care fund. And, what, makes matters worse is that they are the most expensive of all residuals. The amount of residuals paid to IATSE on a theatrical motion picture is 4.5% of gross revenues from all markets except theatrical exhibition. What this means to a producer is you must pay 4.5% of everything you make from TV, Cable and Video, as well as Streaming, etc., forever to this union. Every dollar you make after the theatrical exhibition costs you 4.5% whether the movie is profitable or not. (Please see, Troy Gould Residuals Chart for an explanation and diagram of residuals throughout the entertainment industry).
We are talking millions and millions of dollars here. To a studio, this is not a lot of money. However, to an independent, this can be the entire profit margin on a film, especially when you factor, DGA, SAG and WGA residuals into the equation. So, IATSE never collected this fee from Independents because they knew the amount was prohibitive. That is until the Great Recession of 2008. Now, IATSE needs more money to fill their pension and health care coffers. And, where do they choose to go and get it? From the people that can least afford it. The independents!
By now, you are probably wondering what any of this has to do with Runaway Production? Well, it’s very simple. Runaway Production occurs when it gets too expensive to shoot in Los Angeles or elsewhere in the United States.
It started about 20 years ago when Canada was giving great tax incentives and the Canadian Dollar was relatively weak against the US Dollar. It continued when Eastern Europe opened up because the cheap labor costs there for outweighed the costs of shipping actors and creative personal there. It continued into SE Asia and India for the same reasons until approximately 2006 when states started giving tax incentives in America. The tax incentives offset the high labor cost here and it became cheaper to shoot in certain states in America, albeit not California.
However, now, even with the tax incentives in Louisiana, Georgia, New York and even California, it doesn’t matter. If you are forced to shoot in the United States under an IATSE contract, you will have to pay 4.5% of your gross income to them forever. And, if this is your entire profit margin, what are you going to? That’s really simple. You are going to leave the United States again and make your movies without an IATSE contract or crew. So, we are now going back to the days of Runaway Production. Less Americans will be employed and more foreigners will be. More manufacturing jobs will be lost to Third World Countries. And, I’m sure Louisiana and Georgia will be feeling it soon.