Michigan Film Coalition Commercial Production and the Tax Credit

Michigan Movie Magazine recently had the opportunity to speak with Richard Gagnon, John Hammond and Bill Ludwig of the Michigan Film Coalition. Richard represents the production side of the commercial business for the coalition while John and Bill are from the advertising agency side, representing their clients. The goal of the Michigan Film Coalition is to “represent its members as a force for the understanding, implementation, supervision, and on-going improvement of the Michigan Film Legislation. John Hammond pointed out that "there seems to be a lot of publicity on the movie side of the business. We want people to understand the benefits of including commercials in the legislation because I don’t think a lot of people really understand the facts and figures, and ultimately the jobs that can be created."

While the film credit legislation mentions commercials, the state treasury has interpreted this as pertaining only to commercials for feature films. The history of film production in Michigan is actually predominantly commercials. Many of us recall the host of brilliant commercials produced for the Big 3 automakers. Even fewer of us have forgotten Saturday morning Kellogg’s cereal commercials. Bill Ludwig stated “in 2008 the film production community in the state of Michigan declined by 22%, which is far higher - almost double the rate of decline of almost any other industry in Michigan."

"There are 43 states with film tax credits and only three have included commercials. Recently Illinois included commercials and increased their tax credit to 30%" said Gagnon. The case for commercial production centers on a higher portion of the rebate money remaining in the state. Ludwig said “it’s odd to us that Revolution Studios and Dreamworks (of California) get a 42 percent credit, but we are not going to give it to GM, Kellogg’s, Dow, Ford, Chrysler or any other business that is located here in Michigan and paying Michigan taxes." Odd indeed, moreover, with the commercial incentive in Illinois, the already declining Michigan commercial film industry is at risk of further runaway production.

The coalition also questions the studies done within Michigan that suggest investment in film production is not paying back. Ludwig stated that “qualified independent companies (Arthur Anderson, Ernst and Young) have studied this on behalf of Louisiana, New York, Illinois, and New Mexico and all of them come out with return on investment (ROI), and the least amount of jobs created in one year was 3600." The coalition reinforced that regardless of how you calculate the ROI number, it will be higher for in state than for out of state businesses doing work here temporarily. "You can’t measure the success of this until we are out 5 years and you will see that we have built the industry, and built the studios and now we have a thriving industry" stated Gagnon.

“There is a lot of publicity going on with the studios, but they are still basically unfunded. Equity funding is not there yet, and these are smart business men. They are not going to fund those studios until they know there is a good reason that this business in Michigan is going to be successful and that requires the incentive” said Hammond. “And that requires commercial production because the studios cannot sustain their business model with just feature films, they need commercial production in there too,” added Ludwig. Clearly the debate in Lansing must end before any of the studios really break ground.

The coalition has been working hard behind the scenes to inform the legislative body. "The interesting part of the coalition, that the legislatures are surprised at, is you have the production community, still a cottage industry, and you also have the big advertising agencies, and on top of that the big clients, and that’s mixed in with the carpenters union, the teamsters union and of course the film IA so you now have a hybrid on both sides of the aisle. That’s very powerful if you just look at the strength of those components" stated Gagnon. "You have labor and management linking arms in solidarity" added Ludwig.

Bill Ludwig referred to Richard Florida's book The Rise of the Creative Class saying "if you want to resurrect a city you build a creative class and then other thriving creative businesses follow like night clubs, restaurants, fashion or design. That’s how you resurrect an urban area around a creative class and we have an opportunity to create a creative class here.” Gagnon added “the creative class culture is an opportunity in a state that historically is part of the great industrial revolution of this country. I think it’s been a problem to get the mindsets of brick and mortar and making fenders in to the creative culture and I think we are on our way to doing that. I think the expansion of the big advertising agencies here is a reflection of that, and I think that with the movies and the commercials we have an opportunity to grow an industry."

As the dust settles in Lansing over the 2010 budget, don’t be surprised if you see commercial production along with feature films eligible to receive the film tax credit. The coalition is unified, and as strong as the business case.

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