Film Commission Economics
When film commissions first came into being, the main occupation of a film commissioner was to find film locations and assist in the filming process. While this is still a key component of the job, today’s film commission staff members are increasingly involved with financial issues and find themselves called upon to act as accountants, economists and financial experts. The proliferation of various incentive plans has also made it necessary to maintain accurate economic data for reporting purposes.
Because the collection and management of economic data has become so important, this section will be an introduction (or in some cases, a re-introduction of concepts described in Film Commission Fundamentals) to the process of economic impact reporting. Some of the concepts presented here are fairly simple, while others can be a little complicated. The intention of this section is to give you an overview and basic understanding of the process.
There are three basic components to the economic impact process. These are:
1. Collecting information
2. Managing information
3. Reporting information
Economic impact reporting involves trying to determine how much money was spent in your jurisdiction as a result of film, video, television, commercial and new media production. After you have collected all the information you can, you will need to put it into a format that is useful to you and then create a report that will paint an accurate picture of the industry in your jurisdiction.
One of the more recent trends in film commission management is the realization of how greatly film production can influence tourist visitation. Nearly every film commissioner has examples of films that have brought tourists. Sometimes they come because they want to see actual film locations. At other times, they want to see the place where the original events depicted in the film took place. In either case, films will bring additional economic benefits to your jurisdiction.
Economic Impact Reporting
The following section was written by Robert Fine, Executive Director for the Economic Development Commission for the Central Okanagan Regional District located in Kelowna, British Columbia.
One primary goal of film commissions is to bring employment and economic benefits through the production of film, video, television and other media projects. However, one of the challenges faced by commissions is demonstrating the economic impact of the industry. In other words, how are you able to assess the value filming has on your community? This is a complicated job for everyone. The major difficulty is the transitory nature of the business. Production comes and goes from a community in a short period of time, so it’s often impossible to capture the information needed for an economic impact report. However, there are ways of making a reasonably accurate assessment of the impact of the industry in your area.
Collecting Data
The first thing you will need to do is to develop a system of keeping track of all the production activity that occurs in your area. If you require permits or have an active incentive program, you will be able to track production more easily. If not, you will need to keep a record of everyone who contacts your office for information in order to talk with them later to determine whether they filmed and how much they spent. You can use client tracking software, create a computer tracking system for yourself, or devise any other organizational method that works for you. The AFCI has developed an economic impact tracking initiative that assists member commissions in collecting the necessary data for economic impact reports.
The information needed to create an economic impact report includes the type of production, production days and amount of money that was spent in your area. The first two are relatively simple to find. The amount of money spent is often difficult to determine because many companies will not want to release what they consider to be confidential information. However, you should always ask for financial information and in some cases they will provide it, particularly if they are certain that you will keep it confidential.
The starting point for any assessment should be the production company themselves. They may be willing to share the total expenditure left behind in your community. If this is not the case, there are a number of ways to proceed. You’ll need to identify the key expenditure areas, and how you might try to calculate the costs.
Historically, AFCI member film commissions have created their own production expenditure forms to obtain production spending information. These forms have varied tremendously regarding format and the information requested. Likewise, the success in collecting that information has had mixed results.
Those jurisdictions having incentives are quite fortunate. They are able to require accurate and extensive reporting from productions that take advantage of their incentive programs. If you are in one of these jurisdictions, be sure that you are getting the kind of information from visiting companies that you need to create the kind of report needed to support your work.
The following is information you may need to collect. Ideally the production company will provide you with this information.
Crews – The number of crew members is easily determined and will almost always be provided. Hopefully, the production company will also provide a total salary figure for crew members living in your jurisdiction. If not, you can estimate this amount by using some simple calculations. If it is a union shoot, rates of pay are readily published or available from the union office in your jurisdiction. The extras casting office can probably assist you in determining the total number of extras and the number of days they worked.
Actors – It is important in your assessment to focus on the local component of the acting core. Dollars paid to name film stars will not likely re-circulate in your community, unless goods and services are purchased. Check with your local union to see how many local actors were involved and what pay scales were involved.
Accommodations – Determine where the cast and crew stayed and how many room nights they used. Call your local hotel management for room cost per night. If it is not provided, most jurisdictions provide access to average room rates per night and occupancy levels. You can calculate the number of nights the production was in the community.
Vehicle Rental – The transportation department can assist you in determining how many vehicles were rented. Again, speak with the owners or source of the vehicles. Calculate an average daily expenditure.
Location and Permit Fees – Some jurisdictions require filming permits and these are a good source of production details.
Food and Catering – If food providers are not willing to share data, find out what your local catering firms charge to provide meals to a large number of people, and determine an average cost per meal. Take your number of crew members, number of meals to be provided and calculate the impact.
Building Rentals – Check with the real estate community on what is typically garnered in commercial and industrial locations. If your Commission has an inventory of sites, or if there is a studio in the community some rates should be readily available.
Utilities – Sometimes this will be included in leasing fees that also include taxes, utilities and maintenance.
Lumber/Hardware – If a large amount of lumber has been used, you may want to check with local suppliers if sets are being built to see what has been provided.
Other Purchases – Trying to assess external purchases can be difficult. One economic method is to ask your tourism representative what the average expenditure by a tourist in your jurisdiction. You can then apply that figure or a percentage of it to the number of people who are working on the film.
The Domestic/Indigenous Industry – One aspect of determining economic impact is to survey outside production. The other is to survey the resident industry. This is an area that is often neglected by film commissioners in determining the impact of the industry in their areas. The money that local production brings to your jurisdiction is equally as important as the money brought in by outside groups. To get an accurate picture of the total impact of your industry, you should also survey your area’s production and post-production companies. Although they may be reluctant to release their economic information, if you assure them that their reports are entirely confidential and will only be released as part of a total figure, you will probably be successful.
The important thing about coming up with reasonable and defensible economic impact numbers is maintaining consistency. In the absence of actual information, you will need to make an educated guess about how much was spent. Having your own standardized formula will remove some of the guesswork and allow you make informed estimates. In addition, if asked about how you arrived at your totals, you will have an established credible document to support your work. Finally, by applying the same formula each year, you will have a more accurate picture of whether or not your industry is growing and at what rate.
The Economic Multiplier
Many film commissions use an economic multiplier when determining economic impact. A multiplier helps to present a more accurate picture of the actual amount of financial impact that an industry has on a locality.
All industries spend money in the course of doing business. This is considered the direct impact, or the monetary figure that represents what was actually spent. However, there are also indirect ways in which an industry financially affects an area. For example, caterers will get paid for their services. This money is included in the economic impact figures and is considered direct spending. When the caterers purchase food and supplies from a store to make the meals, and the store in turn, pays others to provide the needed supplies, this is considered “indirect spending” or “indirect impact.” A third kind of impact is called “induced impact,” and results in the fact that everyone employed by the film will be making purchases in your community. They will be eating in restaurants, going to movies, and purchasing food and personal items, resulting in induced impact. These indirect and induced impacts have what is sometimes considered the “ripple effect” because they show the total effect that the money spent by the industry has on a community.
The total effect of the direct, indirect and induced impact is reflected in a figure called the “economic multiplier.” The multiplier represents an estimate of the TOTAL amount of financial impact of any industry – in this case, the on-location film industry. Unfortunately, there is not one standard economic multiplier that can be used by each jurisdiction, because this number is based on the cost-of-living in your area. You may be able to find your economic multiplier by contacting someone in your local government, economic development office or ministry of finance.
To use the economic multiplier, you simply multiply the revenue number by the multiplier to get the total economic impact for your region. For example, if your revenue is $1,000,000 and the multiplier is 2.5, the total economic impact would be $2,500,000. This means that for every $1 spent by production, a total of $2.50 is spent in the community. In other words, the original $1 leaves an impact of $2.50. This is an example of indirect and induced spending as discussed previously. If you do report your revenue using a multiplier, you must be sure to note this somewhere in the report.
The diagram below represents how $1 might flow through a community when spent by a production. “Turnover” refers to the time when a $1 is spent…in every case it will be again and again. “Leakage” describes money that disappears from the community (i.e. products have been created and purchased in another community).
Income Multiplier in the Dynamic Model
To give you a graphic representation of how a multiplier works, look at this example:
The dynamic multiplier is a stage by stage computation of the change in income resulting from the change in an investment. This continues until the ultimate outcome of the multiplier is realized. Note the table below:
Assuming MPC=0.5 and K=2
TIME CHANGE IN CHANGE IN CHANGE IN SAVINGS
INVESTMENT INCOME CONSUMPTION
0 100 100 50 50
1 50 25 25
2 25 12.5 12.5
3 12.5 6.25 6.25
. . . .
. . . .
. . . .
TOTAL 100 200 100 100
Note the initial rise in investment of 100 income also increases by 100. This income is spent on savings and consumption (MPC=0.5). Money spent on consumption becomes income for other individuals and in time (TIME=1), income continues to rise. This rise in income is also spent on consumption and savings. This process continues until the total income rises to 200 due to the value of multiplier K=2.