PENNSYLVANIA’S FILM TAX CREDIT CAPPED: Bad News for Pittsburgh’s Film Industry
Pennsylvania Governor Tom Corbett recently signed into law the new state budget. In a tough budget year, that budget left Pennsylvania’s film tax credit capped at a total of $60 million per year. The impact of this cap is likely to be felt keenly throughout the Commonwealth, and will directly impact the state of the film industry in Pittsburgh and Western Pennsylvania.
Increasingly, motions pictures (and television productions) are no longer the exclusive domain of Southern California and New York City. Starting in the late 1970s, a large number of these projects have been filmed in Canada, lured by cheaper production costs and incentives. Vancouver, Montreal and Toronto became major centers of film production.
In an effort to get those projects to film in the US, starting in the 1990s many states began to offer various forms of incentives to encourage in-state film production. Since then, a sort of “state film production incentives arms race” has developed as states have offered increasingly competitive incentive packages to lure productions away from other states. The structure, type, and size of the incentives vary from state to state, including tax credits and exemptions, cash grants, location use rights and other benefits.
The most common incentive offered is the state tax credit. Currently twenty-eight states offer film tax credits of varying amounts. Of the twenty-eight states that currently offer tax credits, twenty-six of them make them either transferable or refundable. Transferable credits allow film production companies that generate tax credits greater than their state tax liability to sell those credits to other taxpayers, who then use them to reduce or eliminate their own tax liability.
How does the tax credit transfer work?
Pennsylvania’s film tax credit program, first enacted in 2004, offers a transferable tax credit equal to 25 percent of the qualified production expenses of a film production that shoots within the state, with movie shoots required to incur at least 60 percent of its budget within Pennsylvania to qualify. For example, a California film company that films in Pennsylvania (and meets the other eligibility requirements for the credit) may not be able to fully utilize a Pennsylvania state tax credit because it does not have sufficient Pennsylvania taxable income. However, that production company can sell the unused credit to another Pennsylvania company, for example, a manufacturer with sizeable Pennsylvania income, who can then use the credit on its own tax returns. Normally, the purchaser will pay some percentage on the dollar, say 75-90% of the credit, as the purchase price. So, the film producer pockets that money and the local company gets a break on its taxes.
Some of the major films shot in Western Pennsylvania that have taken advantage of the tax credit include: Zack and Miri Make a Porno (2008); Adventureland (2009); Unstoppable (2010); Abduction (2011); Out of the Furnace (2012); and American Pastoral (2013). The result of these projects, and many others, has been to spawn an expanded and permanent film crew presence in Pittsburgh. These projects also have generated millions of local revenues to restaurants, hotels, etc.
Because these film tax credit incentives have become so widespread, states are competing against each other for film projects. Twelve states currently have no caps on their annual film tax credits. Under the new budget, Pennsylvania will remain capped at $60 million per year. Once that annual limit has been reached, no more tax credits may be issued for the fiscal year. If tax credits are promised for the next year, that amount will then be unavailable for that year (for example, before fiscal year 2012 even started, only about $45 million in credits were still available). Whether you believe that such credits merely subsidize already wealthy out of state production companies or are a vital piece of Pennsylvania’s burgeoning film industry, this cap is likely to have a huge impact on the film industry here.
A study and accompanying report prepared by Pennsylvania’s Independent Fiscal Office stated that Pennsylvania’s film industry totaled $248 million in wages within the state in 2011, ranking it sixth in the country. Many of these jobs (approximately 18,000) are in Western Pennsylvania.
The Pittsburgh Film Office, which works to bring film production to Western Pennsylvania, has stated that the film credit has helped to lure over than $100 million in economic activity to the region for the past several years. They estimate that the lack of film tax credits, which also previously were capped at $60 million per year, has cost Pennsylvania twenty-five different film and TV productions, including eleven in the Pittsburgh area. How long film crews will be able to remain based in Western Pennsylvania without the promise of film productions beyond the first few months of every year remains to be seen. One thing is for certain: the level of film production in the Commonwealth will continue to be negatively impacted by Pennsylvania’s restricted tax credit program.
HOW ABOUT A LITTLE MUSIC?
For those of you who have visited Gurwin’s Keyboard to read my posts regarding developments and trends at the intersection of technology, entertainment and media, and the law but have not had a chance to check out my music, I wanted to post a link to my jazz album, …From the Fourth Room.
Click this link to listen and download:
HAPPY BIRTHDAY TO YOU: Feel Free to Sing Along?
Have you ever celebrated a birthday at one of those chain restaurants where the overly enthusiastic wait staff serenades you with something other than the traditional “Happy Birthday to You?” If so, you are not alone. Many of the large chains, not wanting to pay copyright public performance royalties, have told their employees to sing some other song to birthday celebrants. If a recently filed lawsuit in Federal court in New York is decided in favor of the plaintiff in that case, the traditional song may replace all of those other “substitutes.”
The issue in the case of Good Morning To You Productions Corp. v. Warner/Chappell Music, Inc., is quite simple: Is “Happy Birthday To You” still protected by copyright?
According to the lawsuit, there is evidence dating back to 1893 that demonstrates that the song’s copyright expired around 1921. Apparently four previous copyrights to a similar-sounding song “Good Morning to All,” filed in 1893, 1896, 1899 and 1907, have expired or been forfeited. The lawsuit further alleges that the copyright that Warner/Chappell has been relying on protects only a particular piano arrangement of the song that was first published in 1935. Under the copyright law, if something is in the public domain but a new copyrightable version of it is created, only the elements added to the original public domain version are then protected by the new copyright. For example, the iconic Whitney Houston version of the Star Spangled Banner that was performed at the Super Bowl is protected by copyright, but only the orchestration and arrangement—not the underlying song which is in the public domain.
The plaintiff in the case is a filmmaker who is doing a film about the song. It claims that Warner/Chappell (who purchased the copyrights around 1985) has been illegally charging people for the right to publicly perform the song, as well as the right to include the song in films, etc. In the lawsuit, the filmmakers argue that the song should be “dedicated to public use and in the public domain.” The company will seek monetary damages and restitution of more than $5 million in licensing fees collected by Warner/Chappell Music Inc. from everyone who has paid the company’s licensing fees. Should the court rule that the song is now in the public domain, anyone could use it royalty free.
This will be a very interesting case to monitor. Don’t be surprised in a year or so if your birthday celebration at Applebee’s includes a spirited version of Happy Birthday to You.
The Console Wars
From time to time, Gurwin’s Keyboard will feature guest bloggers. Today’s post is by Gabe Gurwin.
“Console Wars” is usually a term I consider to be slightly exaggerated. Over the last twenty years, we’ve routinely seen two or three companies produce video game systems to compete against one another, but not only has advertising remained relatively civil (“Sega does what Ninten-don’t” is about as vicious as it got), the phrase seems to always rear its ugly head at the beginning of a new generation. For once, however, it’s safe to say that we are indeed in a “console war.”
This current generation has been somewhat of an anomaly for video game systems. Not only did it go on twice as long as the generation prior, but the top-selling system, the Nintendo Wii, fell into obscurity after only a few years. This left Microsoft’s Xbox 360 and Sony’s PlayStation 3 to duke it out, and although the systems emphasized different features—such as Sony’s support for independent developers—the choice in console for consumers largely came down to game preference. Xbox owners were largely attracted to exclusives like Halo and Forza, as well as the vastly superior Xbox Live service, while PlayStation owners had a much larger selection of exclusive games to choose from. However, this generation seems to be taking a much different turn. While there are some big exclusives—such as Sony’s Killzone and Microsoft’s Dead Rising 3—the games themselves are largely irrelevant to the consumers’ choice in console.
Instead, focus has largely been put on the business practices of said consoles’ manufacturers. Rumors began swirling months ago that Microsoft would be implement consumer-unfriendly practices such as the requirement of an internet connection to play games and the implementation of used games restrictions with its Xbox One console. Although Microsoft did clarify that these policies are not quite as strict as some had predicted, Sony’s confirmation that the PlayStation 4 would not feature any DRM (digital rights management) or internet requirements resulted in an explosion of support for the company. (DRM is a technology that allows a software/game vendor to prevent copying or sharing of games and US Copyright law prevents such technology from being subverted.) Amazon has already stopped taking pre-orders for the system’s “launch day” version, while Microsoft’s Xbox One is still available to purchase online. In addition, while Microsoft’s console is priced at $500—due in no small part to the inclusion of a Kinect sensor in every box—the PlayStation is a full $100 cheaper.
Of course, there’s also Nintendo, whose Wii U console has been selling so poorly CEO Satoru Iwata has once again apologized for its poor performance. After a lackluster showing at E3 (the annual Electronic Entertainment Expo) that revealed most of its announced games would be released in 2014, the system will be largely leaning on the success of Super Mario 3D World to boost sales this holiday season.
All three consoles have their perks, but if this E3 is anything to go by, consoles will no longer succeed entirely because of games and exclusive content. Instead, they will rely on a positive relationship with the consumer. So far, Sony is the only company that has done enough to achieve this.
Gabe Gurwin is a video game industry journalist and blogger. He is an Editor of Invisible Gamer (www.invisiblegamer.net) and Video Game Editor of Ohio University’s Tech Heads Blog (techheads.me). You can follow him on Twitter @GamingAngelGabe.
FAN FICTION: For Love or Money?
Recently, Amazon announced the creation of “Kindle Worlds,” which it describes as “a place for you to publish fan fiction inspired by popular books, shows, movies, comics, music, and games.” Fan fiction (also known as “FanFic”) are works such as books, videos and the like created by fans of an original work that adapt the characters and stories of the original work without the permission of the owner of the copyrights to the original work. Amazon’s new publishing venture will allow writers of fan fiction to do so legally and to earn royalties.
Under copyright law, one of the exclusive rights owned by the copyright holder is the exclusive right to control the creation of works based upon or incorporating the underlying copyrighted work. This “derivative work” right means that currently fan fiction constitutes copyright infringement. While some copyright holders (such as Anne Rice) have consistently objected to all such fan fiction, many other copyright holders see such works as a way to broaden and deepen the audience for their own works. As a result, even though technically an infringement, copyright holders often have allowed it to take place if the fan fiction has been distributed for free. To date, fan fiction largely has been a non-commercial affair.
Thus far, Amazon Publishing has secured licenses from Warner Bros. Television Group’s Alloy Entertainment for Gossip Girl, Pretty Little Liars, and The Vampire Diaries. Those licenses allow for adaptations and other “extensions” of the underlying works without fear of a copyright infringement lawsuit. In return, Amazon, the fan fiction writer and the licensor (in this case, Warner Bros.) will share in proceeds from the sale of the fan fiction on Amazon. While Amazon has arranged for licenses only for these three works initially, they plan to negotiate other deals with rights holders to broaden the scope of potential fan fiction works.
Amazon has announced that fan fiction authors will receive 35% of the net revenue from the book if the work is longer than 10,000 words. For short stories, that amount is 20%. While this is much lower than Kindle’s normal ‘self-published” royalty rate of 70%, it is important to remember that: 1) without the license, these works technically are illegal; and 2) current practice is to give away, not sell, these types of works.
For the original copyright holders, this Kindle Worlds deal means that they will earn additional revenues from their works that they currently do not earn. In return, Amazon takes its “house cut.” Amazon essentially serves as the intermediary to bring fan fiction writers and rights holders together. This intermediary role is essential, as very few fan fiction writers would have the resources to negotiate a deal with a major rights holder. And, of course, the fan fiction writer gets a piece. So, all three parties get something out of this new relationship.
The creation of “Kindle Worlds” represents a sea change for fan fiction. Until now, fan fiction has been produced for the pleasure of its writers or as an “homage” to the original work and distributed for free over the internet. Currently, many, if not most, fan fiction writers are not professional, published authors. The commercialization of fan fiction by Amazon might change this. Now that writing fan fiction can produce real money, professional writers might choose to do so. While this could result in better quality writing and more polished fan fiction, it might discourage the fan fiction hobbyist. Particularly if Amazon is able to negotiate a large number of additional “Kindle Worlds” licenses, the entire concept of fan fiction, at least literary fan fiction, may be transformed. Once written purely for the love of it, fan fiction may soon be written purely for the money.
