Randall Heer’s Post

And then there was one. The Teamsters are the last collective bargaining group seeking a deal with the AMPTP. Although no announcement has been made, there are reasons to believe a positive outcome is possible. -Contracts already negotiated have produced a template for securing a deal. -The Teamster contract isn’t focused on AI. Autonomous vehicles may be a concern for the union in the future, but the current liabilities of using them outweigh the cost-benefit. -The contract doesn’t focus on ratings or residual calculations, and a formula for calculating benefits/retirement plan contributions has just been worked out by IATSE. -The negotiating committee hasn’t requested a strike authorization vote. -The tone of the negotiations hasn’t escalated, making it unnecessary for the negotiating committee to have the authorization in hand. -A month remains on the existing contract. If you find this post informative, please comment, react, and repost it. Thank you.

IATSE has a tentative agreement with AMPTP. After months of extremely low-key negotiating, the IATSE negotiating team appears to have achieved their goal of having a tentative agreement to put before their membership for a vote well before the current contract ends in late July. The deal includes scale rate increases of 7%, 4%, and 3.5% for the next three years. It also stipulates that hourly workers are entitled to triple-time pay whenever the workday exceeds 15 hours. This clause is intended to prevent employers from scheduling marathon shoot days. A 7th day of work will be paid at double time. The tentative deal includes Artificial Intelligence protections, including language that ensures no employee is required to provide AI prompts that would result in the displacement of any covered employee. The Motion Picture Industry Pension and Health Plans (MPIPHP) will receive additional payments from employers that would address the $670M funding gap, including new streaming residuals. The deal also states that no participant shall incur a break in service for plan year 2023. Friends, we may’ve just reached the light at the end of the labor negotiations tunnel. Please react, comment, and repost this article. Thank you.

An update to the graphic in the previous post. This should accurately reflect Texas' position. Have a great weekend friends.

How do the top eight states in the U.S. offering production tax credits compare? The graphic shows the relative scale of the tax credit offerings among the leading eight states in the U.S. Georgia is highlighted for being the leader in total tax credits awarded annually. Existing stage infrastructure is the entry point for production in a region. The tax credits per square foot of studio space, shown in the graphic, represent the final payout of credits. There’s a lot between those beginning and ending points. Tax credits derive from square footage studio use and spending on a variety of production line items: ATL (Above The Line) production members, BTL (Below The Line) production members, the total amount of payroll spent on workers within the state, goods and services purchased within the state, location shoots, post-production, visual effects production, and long-term real estate commitments, etc. Some states focus on scripted features, pilots, and series production. Others allow commercials, animation, documentaries, game shows, reality production, industrials, sitcoms, and other types of production to qualify. The tax credit programs are detailed and vary from state to state. Some states offer tax credits that are “transferable" while others offer "non-transferable" credits. California offers a “relocation” tax credit bonus for bringing a project in from another state. The states are throwing elbows in the paint in the tax credit wars. The chart is intended to show the comparative scale between the leading eight states and hopefully to spur the conversation about the production tax credit situation. I’ll start working on an international version of this chart, then one that compares the top 10 regions for production, both in the U.S. and internationally. If you find this information interesting and useful, please react, comment, and repost this article. Thank you. p.s. The amount shown for Texas is for two years of production incentives. It may all be allocated in one year, but it would average $100M per year. Thanks to Craig Chartier for checking the details and sharing this information.

I'm from New Orleans and attended the New Orleans Jazz Festival for the first time, quite a long time ago. It’s a long story, but I was a kid who didn’t have money to pay to get in, so I hopped the fence on Fortin St., skirted security, and headed to the infield of the Fairgrounds. The festival was a small local event in those days but was abuzz with music, food, and a great crowd. This clip from Etta James will give you a sense of what that day was like. I thought we could all use a boost on a Friday. Happy weekend my friends.

The tax credit arms race is happening in the U.S. and internationally. Regional Incentive battles are occurring, just as we’ve seen here in the U.S. Japan recently announced a new 50% tax credit program, restarting an incentive program that lapsed in 2022. The program is limited to 6.66 million dollars per production. Japan’s move counters the aggressive incentive programs of Singapore, Thailand, and South Korea in the region. In March this year, the European Union increased its production tax credit program from 70 million to 125 million Euros. Many European countries have production tax incentive plans. Ireland, Belgium, Estonia, Hungary, and France have some of the most generous. Percentages of tax credit for budget spent and total credit per project are higher in these countries. Some programs provide bonuses for promoting the host country within the production. Ireland is a perfect example of tax incentives driving the growth of an industry. Ireland was an economic wasteland in the 1970s and 80s. To generate jobs and goodwill with the Irish, the English government invested over 120 million dollars in the DeLorean Motorcar Company, yes, the Back to The Future car, stipulating its assembly plant be in Northern Ireland. On February 19, 1982, less than four years after investing, DMC was deemed insolvent by the English government. By 1986, Unemployment had increased to 17% in Ireland. The U.S. IRS designated Ireland a “tax haven” in 1981. Another term used for Ireland is OFC (Offshore Financial Center), though no other country in the EU confirms that assessment. In the 1990s, Ireland used its BEPS (Base Erosion and Profit Shifting) tax tools to attract multinational companies seeking a friendlier tax environment. The tools allowed multinational companies to virtually shift profits from jurisdictions of higher taxes to those with lower tax levels. It lowered corporate tax rates to between 0%-4.5%. Becoming a “Tax Haven” and an “OFC” made Ireland one of the wealthiest countries in Europe. The Irish film production incentive program, “Section 481 Tax Credit”, was just increased from 75 million dollars to 134 million annually in hopes of luring larger-scale films. 32% of all money spent on goods and services in Ireland qualify for credit, and 90% of the tax credit amount is available quickly. For Ireland, an economic mess in the 1980s, lacking heavy industry and natural resources, tax breaks and incentives were a godsend.   There are production tax incentive programs in Australia, New Zealand, Iceland, Finland, Sweden, Malta, Greece, Jordan, UAE (Abu Dhabi), and Saudi Arabia. It might be easier to list countries that DON’T have incentive programs. Tax incentives are here to stay. The film and television industry will have to deal with this known devil. If a worldwide economic slowdown occurs, these programs could quickly change. If you liked this article, please comment, react, and repost it. Thank you.

The arms race for production tax credits is escalating and crippling production in California. Georgia’s uncapped tax credit program totaled $1.3B in 2023. New York just increased its credit program to $700M. The top 5 states competing with California for production offer $2.85 Billion in yearly tax credits. California offers $330M in annual credits. For eight consecutive quarters, beginning in January of 2022, production levels fell in Los Angeles. The desperately anticipated restart of production in California hasn’t materialized and it appears that the film and television industry has picked up and moved from its historical epicenter. FilmLA reported January on-location shoot days were 26% below January 2023, and crew utilization levels were 30% lower. The productions shooting in L.A. have been smaller, independent productions, utilizing fewer crew. The big media companies are shooting elsewhere. Universal has 11 films that have started production since the strikes ended. None are shooting in California. Warner Discovery has seven films in production and only one shooting in L.A., and Disney has 21 films in production, with only three shooting in California. Thirty-nine films are in production by these companies, and only four are shooting in California. Securing only 10% of the total constitutes a decimation of the California film industry. The state has 46% of the studio space available in the U.S. In 2022, the Motion Picture Association, a lobbying group representing six media companies, estimated the media industry in California was responsible for 186,720 jobs and $30 billion in annual economic activity. Those numbers don’t contemplate California’s film tourism trade. The state has a budgetary shortfall of ($27 - $45) Billion dollars, and depending on whose spreadsheet sleight-of-hand you believe, the deficit could be as high as $75 billion. An under performing media industry is a significant contributor to the shortfall. Never believe the moaning politicians do over tax credits. Georgia didn’t have a film industry in 2000. The state now has 2.8 million square feet of studio infrastructure. For $1.3 Billion in credits to be awarded by Georgia, media companies had to spend between $6 and $8 Billion in the state. Georgia’s population has increased by 10% since 2000 and has grown every year between 2010 and 2022. High-tech jobs available in the state drive population growth and the tax base. The front lines in the battle for the bottom line of the media companies are now in Georgia, New York, and New Jersey. California lacks the financial firepower to launch a new front in the tax credit arms race, although it needs to. The state’s tax credit cap is limiting its stage usage. Will California bounce back? Will an economic slowdown level the playing field and reset tax credits nationwide? I’ll track the tax credit war and post updates as warranted. If you liked this article, please comment, react, and repost it. Thank you.

The game is afoot as Comcast is bidding on the “TNT” NBA rights package. TNT, the Warner-owned cable network, is in a bidding war for NBA media rights they’ve held since 1988. Brian Roberts’ company has a stronger balance sheet and is about to receive billions from Disney for the sale of Comcast’s share of Hulu to the House of Mouse. Though Comcast has deeper pockets, Warner Discovery has the right to “match” any offer.   Sports rights are vital to the survival of linear television networks. Without the NBA, Warner Discovery is in trouble. Retaining the NBA and paying billions annually may also mean trouble. WD may be facing a Pyrrhic victory. Nothing has gone well for Warner Discovery. There have been leadership issues at CNN, friction around dismantling TCM, completed movies shelved, series removed from streaming platforms, series renewal orders rescinded, it’s an extensive list. Those are just the internal issues. The external forces have included a pandemic, increased competition, rising interest rates, lower profit margins, and two strikes. It’s a biblical tide of misfortunes. Cicadas are on the way, and they’ll be playing the part of the locusts. I’ve followed the Warner Discovery merger closely because it felt like the last of the old media company mergers that will ever happen. The merged company is headed by an executive, David Zaslav, who’d run a successful, tight ship at Discovery Networks. I’ve come to believe that the forces at play in media today require a different approach. Bob Iger is as polished, and connected a Hollywood media executive as anyone could ever be, and he’s had to deal with a recent investor revolt.    The game has changed. An executive can’t “deal” their way out of an under-performing business. The big tech companies, with unlimited wealth, aren’t throwing money at the old media companies. Big tech is sitting on the sidelines, minding their stores, waiting for the old media companies to collapse, and then they’ll pick up the assets for a song.   Media is big tech’s carnival barker.   Media is a means to entice the consumer to enter the big top of the tech circus. I’ve focused on alternate data streams in media and “point and click” purchasing while viewing content because this is what’s coming. It's the next iteration of advertising. Technology, utility, and a better user experience will be the difference makers in streaming. Traditional media companies will funnel content into the big tech purchasing engine, the giant streaming platforms, but lacking the technology, utility, and financial resources, they will be, in the words of Barry Diller, “serfs on the lands of the tech giants.” The Comcast/Warner Discovery NBA rights battle will have long-term implications. In the days ahead, we’ll have a clearer view of the future of Warner Discovery. If you like this post, please react, comment, and repost. Thank you.

“Some say the world will end in fire, some say in ice… From what I’ve tasted of desire I hold with those who favor fire…” -Fire and Ice, Robert Frost -The bidding war is heating up for Paramount. David Ellison and Skydance had an exclusive negotiating window, but it expired on Friday, May 3rd. Sony and Apollo Capital have made a $26 Billion, all-cash offer for Paramount. On paper, the Sony/Apollo offer is a better deal. Internal friction between Bob Bakish and Shari Redstone over the Skydance deal was cited as the reason for Bakish’s sudden departure from Paramount. I’m keeping a close eye on how this plays out. -Hudson Pacific’s earnings were light. The studio sector showed a 16% year-over-year decline in quarterly revenues. The percentage drop is worse than it would initially seem. The first quarter of 2023 was a soft revenue quarter as producers delayed production due to the imminent threat of the WGA/SAG-AFTRA strikes. Q1 of 2024 was 16% below the pre-strikes slowdown of last year! The weakness in studio revenues comes just as a new Hudson Pacific studio, Sunset Glenoaks, is set to open on May 14th. HP referenced the lingering labor negotiations and the potential of a Teamster/IATSE strike in offering weak guidance for their studio business. -Warner Discovery is battling to retain rights to the NBA, but it may be too little too late. In 2022, just after the merger, David Zaslav famously said, “We don’t have to have the NBA.” Sports are the only thing keeping linear television afloat these days, WD does have to have the NBA. It's rumored that Amazon and ESPN already have actionable deals and that Warner Discovery will be fighting an uphill battle to secure a portion of the NBA package. -The FCC is seeking feedback as it considers a ban on MFN, (Most Favored Nation) and unreasonable ADM (Alternate Distribution Method) clauses in deals between programmers and MVPDs. Several independent programmers, including AMC Networks, have complained to the FCC about restrictive contract terms demanded by pay-TV providers. This is another step in the unbundling of the old cable bundle, and it quickly follows the Charter/Disney-ESPN deal that has served as a reset for the old model. -General contract negotiations between IATSE and AMPTP, which began on April 29 will continue this week. The central issue is the $670 million dollar shortfall in the IATSE benefits plan over the next three years. The benefit plan shortfall was initially calculated at $1 billion, so the revision to $670M is a positive. Interruptions caused by the pandemic and the strikes were the cause of the shortfall. IATSE negotiators are addressing the shortfall and securing protections against future work interruptions and shortfalls. If you’ve found this information useful, please comment, react and repost this article. Thank you.