Terminator fails to stop exodus from Hollywood

The number of studio films shot in Tinseltown has halved since 2003

There is a disaster developing in California, and Arnold Schwarzenegger is doing his best to stop it. But this one may well be beyond even the powers of the old superhero for, unless something changes very soon, we are heading for the end of Hollywood as we know it.

For a decade, film production has slowly been abandoning Hollywood, lured away by financial incentives offered by Canada and other US states. The result is that the number of studio feature films shot in California has more than halved since 2003. And broadcast and cable television shows, and commercial shoots, are also down significantly, with 44 of 103 pilot episodes shot outside southern California this year.

"In 2008 the worst numbers ever were recorded, and the first six months of 2009 show a 50 per cent drop from that. That can only be described as a disaster," said Paul Audley, president of FilmLA, the non-profit organisation which coordinates film, TV and commercial production in and around Los Angeles.

Film production and its attendant industries generate $38bn (£23bn) for California's economy and employ nearly 250,000 people. Governor Schwarzenegger (right), who has championed the fight to keep film production in the state, in February approved California's first incentives. The package is targeted at movies most likely to go elsewhere, and includes a 20 to 25 per cent tax credit.

But some say this may not be enough to compete with the 40 or so other US states offering up to twice the tax credits, often with less red tape. For example, this year's Terminator Salvation, the latest instalment in the franchise that once featured Mr Schwarzenegger in his signature role, was shot in New Mexico to take advantage of a 25 per cent tax rebate. Last year's blockbuster Twilight was shot primarily in Oregon. Its sequel, New Moon, was mostly filmed in Vancouver.

As film production has begun to desert California, the economic ripples reach across the state to countless businesses directly or indirectly related to the industry, which are already struggling in the recession.

In July, Hollywood's second-largest prop house, 20th Century Props, closed its doors after 40 years, its owner saying it had fallen victim to the production exodus and a 14-week strike by film and television writers. "There are so many shows that have already left," said Harvey Schwartz. "Ugly Betty was the first big one to just shut down in California, lay everybody off and move to New York for that 30 per cent rebate."

The Culver Studios, where Gone With the Wind and Citizen Kane were filmed, has also been hit. Jamie Cella has run the studios since 2006 and has watched film production plummet in Hollywood, where just a few years ago 70 per cent of all feature films were made. "So many feature films now that are green lit don't even look at California because of the rebates in other states," Mr Cella said. "So hopefully with this [new initiative] we can get some of those features to stay home."

Runaway production dates back at least a decade to the late 1990s, when Canada began offering incentives. These, combined with the weaker Canadian dollar, made shooting there relatively cheap for filmmakers. Five years ago, US states, including Louisiana, began getting in on the act. Now more than 40 states offer some form of incentive, mostly greater than those just rolled out in California.

While California's legislators were reluctant to give tax breaks to major film studios while other businesses were suffering, rival states haven't been shy about going after film dollars. In July, for example, the New Mexico governor Bill Richardson was in Los Angeles, hawking a 25 per cent rebate, loan programme and 3,000-worker base to around 30 TV executives. New Mexico, with its friendly business climate, eager-to-please officials and reliable weather, has proved particularly tempting to the film industry.

In July, Mr Schwarzenegger approved the first 25 film and TV productions to qualify for incentives, including Beverly Hills Chihuahua 2 and Naked Gun 4. "This is about the make-up artists, the caterers and the countless other small businesses that rely on film and television production to succeed and create jobs for Californians," said the former Terminator.