In assessing the state of the union for the production services industry for 2007, some numbers help tell the tale. With its fourth annual survey of the commercial production industry, the Association of Independent Commercial Producers (AICP) found that for the year 2005, overseas shoots accounted for 23% of reported shoot days. While that meant a healthy 77% of shoots stayed domestic in the US, the overseas numbers increased from the 18% reported for 2004. And, as any EP who's just priced shoots in assorted South American and Eastern European locales would tell you, it wouldn't surprise anyone if those numbers are up again in next year's survey.

Unsurprisingly, the usual culprit - the cost of talent - is still the main motivator behind moving productions overseas. And with the American dollar not performing well in some overseas production centers - among them, Brazil, Canada, Australia, New Zealand and South Africa - production companies are constantly scouting emerging locations in order to track down the best value. Production service companies, in the meantime, have to ramp up their offerings for their international clients while keeping costs manageable as more competitors emerge.

But with more brands opting for global campaigns, international locations and talent are becoming important considerations creatively as well as fiscally, and the increasing calls from clients to move to a far-flung locale aren't just cost-driven anymore. So where are the flights headed, and why? And when does it make sense to stay home?

BOTTOM LINE BLUES
"As long as it's cheaper to shoot abroad, it's not up to us to decide," says Believe Media EP Gerard Cantor, citing talent costs as the main concern. After the Screen Actors Guild's commercials strike in 2000 kick-started the global production service phenomenon, talent buyouts offered abroad provided relief from pesky residuals. With budgets continuing to shrink and more jobs emerging through viral and non-traditional production, those savings are even more important. And just for fun, throw into the mix the uncertainty over the current SAG/American Federation of Television and Radio Artists (AFTRA) commercials contract, which expires in October, 2008. The two unions and the ad world's Joint Policy Committee are, as part of last October's contract extension, launching a study into new payment structures for actors in the light of emerging media. Word broke in late May that the study should be completed in five months' time, meaning talent costs are still a huge variable.

But there are other factors that impact the bottom line, namely, the decision of where to shoot. Paradoxically, the better a production service center is at facilitating shoots the "American way" (usually meaning more labor-intensive and therefore more expensive), the higher the chances of it potentially losing some of the more low-budget shoots.

"People can say that doing things the 'American way' is too expensive, but there's a flipside to that - you don't have to haggle over everything and you can count on a certain standard," says Cantor. "So I don't mind paying a premium if, in the long run, it saves me blood, sweat and tears." Still, sometimes not everyone is willing to pay that premium and the business has to go to a less-developed, or C-tier, location. Cantor cites South Africa, Australia and New Zealand as three hotspots that have cooled considerably from a foreign perspective due to ramped-up infrastructures.

"What you'll find in any country is when the business becomes an industry, then people start to ask for bigger fees [and] the currency gets stronger," he says. "Of course, when you work hard, you're hoping to be able to put some money away and reinvest."

SIZING UP THE SOUTH AMERICAN SOLUTION

That's what's happened with current production service hotbed South America. Initially buoyed by exchange rates that offered three Brazilian reais and four Argentine pesos to the American dollar, as well as versatile locations, incredibly flexible terms for talent buyouts and crew fees, South America benefited greatly from the new post-SAG strike paradigm. And with the AICP survey showing South America more than doubling its percentage of foreign shoot days - from 12% in 2004 to 28% in 2005 - it's a trend that's strengthening, moving cities such as Buenos Aires and São Paulo to solid B-tier status, just behind firmly established centers like London, LA and New York.

"It's kind of eye-popping," says AICP president/CEO Matt Miller about the South American survey findings. "If you dissect all the elements, it's not in any way a surprise, as that's the place where the US dollar is strongest now." Indeed, with the US dollar struggling against the Euro over the last couple of years, foreign shoot days in Europe measured by the AICP survey fell from 24% to 12% in 2005, a fall that mirrors South America's rise.

But while Argentina, with a solid infrastructure adept at American-style production, still enjoys an exchange rate of 3:1 with the US, another established production service player, Brazil, has been stung by the weaker American dollar.

"We're very concerned about the development of the exchange rate, and how we should react as entrepreneurs," says Hank Levine, EP at Brazil's o2 Filmes. While o2 Filmes is the largest production facility in Brazil, with offices in São Paulo and Rio de Janeiro, Levine admits the strengthening performance of the Brazilian real against the American dollar - currently at just less than 2:1 - is cause for concern. While Argentina has long been a formidable competitor for the American or European production dollar, Uruguay and in particular its capital Montevideo, is accelerating its move from C-tier to B-tier status.

Montevideo has emerged as the Latin American hotspot du jour, with its incredibly attractive talent buyout rates, and access to equipment and crews from nearby Buenos Aires. Most recently, Montevideo production service company El Camino Films facilitated an MJZ shoot for Absolut ("Protest", through TBWA\Chiat\Day) that required thousands of extras and is said to be the largest production ever shot in the Uruguayan capital.

"In Brazil we have a huge infrastructure, but still we have been losing a lot of business particularly to Argentina, and now to Uruguay," admits Levine, saying that the strong euro has also impacted foreign jobs, with about half coming from the US and Canada and the other half from Europe and Asia.

Levine says the news reports out of Brazil during last May's prison riots didn't do wonders for its production profile either, but stresses that, "nothing has ever happened to any of our clients."

But o2 is fighting back. "Due to the volume of business we have, we've made arrangements with our suppliers where everybody has agreed to reduce prices and costs. We actually have the means to compensate and it can actually be equal to or cheaper than Argentina or Uruguay." And São Paolo still stands as one of the most versatile locations available internationally, able to stand in for any number of cities for international campaigns. Take, for example, a recent Ricoh shoot helmed by Believe Media's Albert Kodagolian, in which the Brazilian city doubled for locations in India, the US and Europe.

EUROPE'S RISING 'C'S
Increasingly, Eastern and Central European cities are arising as C-tier, or emerging, locations offering cheaper talent and crews. With the exchange rate still providing reasonable returns in the Czech Republic and Romania, international productions are ramping up, and other locations such as Warsaw, Latvia and Bulgaria are making inroads. Unlike South America, however, the locations aren't as reliable in terms of weather and equipment availability can become an issue. "With Bulgaria, you're bringing in a lot of stuff from Germany," says Cantor.

Still, for the most cost-conscious of clients, the C-tier is often too good to resist. "You'll always have the extreme scenario where you'll have someone say, 'We only have $150,000 and then someone will say, 'Let's go to Chechnya'," says Geoff Cornish, executive producer at Toronto-based production company Suneeva. "And that town will have never done it before and they'll give it away."

Budapest has been aggressively courting foreign film production, with tax incentives as high as 20% offered by the Hungarian government. While those incentives don't yet apply to commercial production, international spot work has been gravitating increasingly to the Hungarian capital, due in part to a skilled workforce.

Commercial production veteran Jonathan Miller intends to drive more service work to Budapest. Having overseen shoots from the agency side (as an agency producer at Leo Burnett and FCB, Chicago and at TBWA's in-house company Mutiny Productions) and the production company vantage point (most recently he was an EP with Two Trick Pony), he's now the American face of the newly-opened Budapest office of US studio chain Raleigh Studios. Miller cites the city's unique locations, its longstanding filmmaking tradition and its cost-effective labor force as important calling cards.

"The tipping point comes when you ask yourself how much professional production you need for a job," he says. "For a complex job, you need to go to a place where there is an infrastructure and the materials you need. There's always the balance between how much money you're going to save and the quality of the job."

STAYING HOME & LOOKING AHEAD
Indeed, given all that can go askew in a commercial production under the best of circumstances, it's not surprising that most production companies prefer to stay close to home. For one- or two-day shoots, costs and travel fatigue incurred can sometimes outweigh any potential savings, and Cantor speculates that from an agency perspective, considerable time away can be detrimental to creativity.

"When we do a production, it's an intense one or two weeks where the producer, director and key crew are working," he says. "But for an agency it's different - if they're having to go abroad for two weeks to deal with a production, how much does that affect their productivity at home?"

The AICP's Miller says tax incentives offered by various states, particularly new legislation enacted by Illinois last year and New York this year, might make staying home an attractive option.

With most incentives falling on the side of either credits or rebates, Illinois' new credit plan includes a 20% credit on in-state production spending for the taxable year, and a 20% credit on Illinois salaries, up to $100,000 per worker. Commercial productions in Illinois must spend a minimum of $50,000 to qualify. And New York's comprehensive new plan, authored with consultation from the AICP, is a commercials-specific, fully-refundable tax credit broken into "upstate" and "downstate" programs, where companies can earn 5% on certain expenditures, and a "growth" program where companies can earn 20% on incremental increases spent from one year to the next. As for the main production hotspot in the US, Southern California, the City of Los Angeles is presently drawing up a draft proposal for an incentive program that would see the City waive fees from various departments for qualifying productions.

With or without incentives, production companies and service providers continue to evolve as do the needs of their clients.

o2 Filmes, for example, will be branching out from Brazil, to service cities throughout South America. "It's a very organic industry, changing constantly," says Levine. "Now we realize we have to reach out, specifically in production services, to other countries because our clients ask for it, and also we're interested in working in other places - it helps us to grow our international business." And if the jobs warrant it, they'll look at establishing new offices in other Latin American countries.

While, from the North American perspective, Cornish and Cantor don't expect to see a rush of US production companies setting up shops overseas anytime soon, there's always room for experimentation.

"We're in the business of problem solving," sums up Cornish. "And if the markers move, we just move with them."

AICP http://www.aicp.com
Believe Media http://www.believemedia.com
o2 Filmes http://www.o2filmes.com
Raleigh Studios http://www.raleighstudios.com
Suneeva Films http://www.suneeva.com