You, me and Subsidies

One of the highlights of my SIGGRAPH trip was being able to listen to VFX Soldier’s talk about subsidies. There’s been some developments in the subsidy issue that VFX artists in Toronto and all of Canada should pay attention to. Before I get into the latest news, I’ll give a bit of history.

The UK, Australia and Canada have been aggressively targeting the US entertainment industry for years, attempting to lure work to their countries with large subsidies.

From Wikipedia:

Subsidy

A subsidy is support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy. Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebates).

This is not limited to other countries, several states in the US like Louisiana, New York and Georgia (among others) have their own subsidy programs as well. All of these programs have largely succeeded in shifting production and post-production away from California.

As this was happening, Daniel Lay, a Digital Domain FX artist started blogging about worker issues in the visual effects industry under the name VFX Soldier. The blog quickly spread, bringing discussion that previously would only be grumbled about with co-workers into the light. Industry notables like Scott Ross (former part owner of Digital Domain and head of production of ILM) and Scott Squires (long time VFX Supervisor) frequently commented on the blog, bringing different points of view to the blog.

Over the months, VFX Soldier would write several pro-union articles. Ross would counter that a union would only make things worse. He maintained that the main problem was between the FX studios and the movie studios. Ross advocated that the FX studios should form a trade organization to change the business model. Both efforts went nowhere. Soldier could never convince artists that a union would be in their best interests. Despite his best efforts, Ross could never get the studio heads to form his trade organization.

What Ross didn’t know at the time that he was lobbying the studio execs to work together, the federal government was investigating Lucasfilm and Pixar executives for conspiring to keep their worker’s wages artificially low. ILM execs already under scrutiny wouldn’t want accusations that they were price fixing with other studios, and now that ILM is owned by a movie studio it’s highly unlikely that they would never agree to be a part of a trade organization.

In the meantime, Rhythm and Hues and Digital Domain went bankrupt and California studios continued to shift work to subsidy heavy locations. ILM, Digital Domain, MPC, Sony Imageworks and Double Negative are some of the studios that opened (or are in the process of opening) offices in Vancouver. MPC, Cinesite, BUF and Framestore opened studios in Montreal. Pixomondo and Stereo-D opened studios in Toronto. It’s notable that the London studios which already get subsidy money from the UK decided to expand to Canada instead of further expansion at home.

VFX Soldier eventually went on Indie GoGo to raise money to pay a law firm that specialized in trade law to investigate the situation. The law firm realized that the solution to the subsidy issue couldn’t go through politicians which could be swayed by lobbying efforts by big corporations. The firm decided that the best way to move forward was to try to argue for CVDs, Countervailing Duties.

CVDs are laws that every country that’s part of the world trade organization have. If another country is using subsidies that harm your country’s industry, you can petition a court to place a duty (like a tax) on the incoming product. This has been used on the lumber industry in Canada. If you have time, you should listen to an interview done with the law firm VFX Soldier hired. You can read the study for yourself. Scott Squires has an article about subsidies as well.

Soldier and the law firm was concerned that the MPAA would try to classify VFX work as a service and not a good, so it would be exempt from the duty. However, fate stepped in with a court case involving dental appliances. A company was importing dental designs from a foreign country and was trying to avoid a tax. The company was trying to say that the digital file was not a good, not a product. Of all people, the MPAA testified in court that the digital file was a good. They did this to protect their anti-piracy laws.

This is a major point in favour for VFX Soldier and Scott Ross (who have joined forces in talking with the law firm). The MPAA have helped Soldier and Ross make their case for them. There are two remaining hurtles. The first is that it has to be proven that their domestic industry has been hurt. Soldier said that their law firm thinks this can be proven pretty easily. The next hurtle is more difficult, 25% of their workers need to petition that this duty needs to be placed on the imported good. This is the harder argument, how do you define the 25%, and how do you coordinate this effort?

Ross and Soldier have formed a non-profit called ADAPT (the Association of Digital Artists, Professionals & Technicians) which aims to raise money in order to do just that. That’s where they currently are in their efforts. Their law firm feels like this will be a landmark case. The MPAA have responded by hiring lawyers in order to prepare and fight this legal challenge. Ross and Soldier thought this was a positive sign, since their previous union and trade association efforts never got any serious response by the MPAA.

Their goal is for subsidies to become irrelevant when it comes to where companies are located. Soldier said that studios should be run where the studio owners want them to be, for whatever reason they want. Not to be controlled by governments.

There are several ways you can win a fight. The US won the Cold War by spending so much money that the USSR went bankrupt trying to keep up. California’s appropriation committee has passed a bill to increase their subsidies to $400 million which puts them on par with New York and the Canadian provinces. The law still has to be signed by their Governor, and no one is sure which way he’s going to go. There has been debate online as to how much this will impact visual effects and how much will go to production. The general feeling is that it will help California, but it won’t put Vancouver out of that much business.

There’s a few things that I’ve realized. The first is that the movie studios are not loyal. If they’ll pull work from California, they’ll pull work from anywhere. When New Mexico pulled their subsidies, Sony pulled out immediately. Prime Focus set up a studio in Hollywood but was told: “What we heard from our clients was we only do business if you want to get us the rebate in Canada and the rebate in London,” The studios will chase the money and there’s concern that these subsidies may be revenue negative for governments.

I wish I had some answers to share. It could be that everything will stay the same for a long time. The Liberals have promised to sustain the subsidies. The legal challenges by ADAPT will likely be held up and delayed in courts for as long as the MPAA can, and they have far deeper pockets than ADAPT does. The main reason why I wrote this is because I’m always surprised that so many artists aren’t aware of what’s going on in the industry. Keeping informed is always a good thing so that we’ll know if there’s a light at the end of the tunnel, or if it’s a train coming down to run us over. As always, put your comments or questions in the box below.