Movie Industry : Relocating American movies elsewhere

The advent of globalization opens the door for Hollywood major studios to relocate film production overseas, and the trend is accelerating exponentially. This suggests that in terms of production cost, the competitive advantage of American film industry is waning. According to the Directors Guild of America and Screen Actors Guild, a U.S runaway production which is filmed in another country is to achieve lower production costs. The average American film production cost ranges from $90 to $100 million. As cost reduction becomes imperative, major producers choose to shoot their films in a country that offers lower production cost. Based on report by Center for Entertainment Industry Data and Research in 2006, the number of theatrical releases filmed in the U.S dropped from 127 in 1998 to 99 in 2005. From these statistical figures, it is suggestible that for many reasons, the domestic film industry has lost its competitive advantage to other countries.

It is proven that shooting overseas significantly reduces production costs. The Canadian government's program of tax rebates and incentives, combined with lower production costs and a favorable exchange rate, can reduce a film's budget by about 25%. China is another emerging site for U.S Runaway production. Quentin Tarantino's Kill Bill was shot in China, while Miramax filmed one of its World War II picture on the Shanghai Film Studios. The production cost in China was one-eight of the estimated U.S production cost. Therefore, from the amount of production cost saving, foreign film industry has the better competitive advantage. Subsequently, it is necessary to examine the negative impact of a U.S runaway production in terms of financial and job losses. In 2005, the U.S market share of production dollars on theatrical releases "plummeted" from 71% in 1998 to 47% and the decrease in U.S production of theatrical releases represents a cumulative loss to the U.S economy of $23 billion. In terms of job losses, according to Monitor Report, in 1998 more than 20000 full time jobs in film industry were lost. These figures indicate that due to the decline on f its competitive advantage, a significant segment of American film industry suffers. The economic causes behind a runaway production range from lower wage rate, lower rental rates for sound stages and equipment, advantageous foreign exchange rates, governmental tax incentive and subsidies. The most obvious competitive advantage of the foreign film industry is the cheap labor cost. For example, the minimum weekly salary of an assistant director in Canada is $2,927, while in the U.S it is $3,285. In Romania, labor cost can be 80% cheaper than American labor. According to one film executive, a driver working on a movie in LA can earn as much as $470 a day, while in Bucharest the daily rate for the same job may be as low as as $9.52. Moreover, the competitive advantage of foreign countries is beyond just providing the daily crews of the film production. For example, a number of Indian companies were hired to work on the visual effects and animation shots for major Hollywood productions like Spiderman 3, Cars, and Lord of the Rings. The total cost in the U.S is estimated to be $100 million to $175 million, while in India it ranges from $15 million to $25 million.

It is undeniable that the mass exodus of Hollywood production in a foreign land suggests that the American film industry cannot manufacture goods and services that can compete with the global standard. Whether it is the cheap labor, or the fiscal policy, it is only logical that major studios would resort to another country when it comes to production cost. However, it is important to note that the complexity of a film industry goes beyond mere production cost. The creative force behind the film, the state of the art technology needed to produce a movie that would mesmerize the audiences, the capital availability to spend $200 million on a single film, and its global distribution network and publicity machinery that can get its movies into theaters worldwide, all suggests that the competitive advantage of American film industry as whole remains unchallenged. In fact, shooting overseas for the sake of cost reduction only proves that the people of the highest rank in the industry know how to capitalize the opportunity offered by globalization. Runaway production is just one example of how Hollywood capitalizes global force at the expense of its domestic industry. The incorporation of global cinematic style through the use of international directors, choreographers, and actors, and the remake of best-selling foreign movies, also saliently exemplifies Hollywood's competitive advantage as a giant industry that has the capability to capitalize globalization. As the advent of runaway production suggests that one element of American film industry is waning, it is ultimately done for the sake of expanding its global hegemony.