Analysis of Filming Data Reads More Like Fiction

Considering that the California Business Roundtable is one of our most respected business groups and that Bain & Co. is one of the nation’s most august business-consulting firms, it would be presumptuous for me to suggest that their recent report about California’s declining economic competitiveness was based on bogus facts and figures.

There must be some other explanation, then, for why I

haven’t been able to substantiate one of the key statistics in the survey they grandly labeled the “California Competitiveness Project.”

The statistic in question is the number of motion picture production days in California. According to the publicly released executive summary of the report, its authors claim this figure “plunged” by more than 60% from 1997 through 2003. Meanwhile, they say, production days “skyrocketed” in Texas by “close to 300%” and rose sharply overseas. The report presents this comparison as another sorry indication of how California’s hostile business environment is driving industry out of the state.

To cite an old newspaper saying: “Interesting, if true.”

In this case, that’s a big “if.” At the Entertainment Industry Development Corp., which tracks film production activity in the Los Angeles area, they’re figuratively scratching their heads over the Bain numbers. They say no one has ever collected statewide statistics on production days. In fact, they recently received a $750,000 government grant to try to compile precisely such a database for the very first time.

The EIDC does collect production figures for certain parts of Los Angeles. The group’s figures show a decline in L.A. production days for feature films since 1997 -- but only by 44%. And the drop was partially compensated for by a 23% rise in television production days.

Bain says it reached its conclusion by extrapolating the EIDC data, based on “a series of conversations with staffers at several film offices” and interviews with major studio executives. The firm says this is reasonable because the L.A. figures account for about 90% of the statewide total anyway.

But that’s wrong. The EIDC says its figures cover only a fraction of all L.A. production, and it’s not even sure what that fraction is. The agency collects statistics only for location shoots in public places in the city of L.A. and unincorporated parts of the county. It doesn’t have access to figures for such popular shooting locations as Burbank and Malibu, or for production on studio lots and sound stages, another big chunk of the total.

Further undermining Bain’s conclusion, the firm used only the EIDC’s figures for feature films, conveniently ignoring the explosion in local TV production. Then there’s this wrinkle: Since 1999, overall production has actually increased.

Now, everyone knows that business consulting, which Bain & Co. does for a living, is something of a black art. But this is a little too black.

Does this sort of extrapolation really qualify as “rigorous” or as “in-depth economic analysis,” which is how Bain describes its study? The firm’s explanation certainly doesn’t clarify how you can take a hugely incomplete production statistic and blow it up into a statewide “plunge.”

Jeff Melton, the Bain partner who led the study, told me it would be “missing the big picture” to consider his figures more than “rough estimates,” and that the point is that “California has clearly lost share in that industry.” But he’s the one who dressed up the numbers with a veneer of precision down to the last percentage point, including a fancy two-color bar chart, as though his team went out and counted actual production days rather than chatted up film-office functionaries and studio execs.

Then there’s that “skyrocketing” Hollywood of the Pecos, the state of Texas. When I asked the Texas Film Commission for its statistics on motion-picture production days, an official there told me, “We don’t track those.” The commission does record the number of actual productions filming in the state, which fell to 43 last year from 56 in 1997. Meanwhile, the overall budgets of location shoots in Texas rose by about 32% to $229 million. But the commission says that only about half that money was spent inside Texas. Film industry spending in California, by comparison, has been estimated in the tens of billions of dollars.

As for Bain’s claim to have unearthed a fourfold increase in Texas production days since 1997, Carol Pirie, the commission’s assistant director, said, “That baffles me, and I’ve been here 17 years.” Bain says they got their information from someone else at the commission and from studio executives, but their numbers still don’t substantiate a 300% increase.

In response to my questions about this study, the Business Roundtable, which is made up of the chief executives of major California companies and chaired by Richard Kovacevich, the chairman and CEO of Wells Fargo & Co., tried to pass the buck.

“Those figures are Bain’s,” a spokesman said, though he later assured me that the Business Roundtable had “the utmost confidence in the research they did.” He added that Bain provided the group with the competitiveness survey pro bono. (Readers are invited to insert their own jokes here about “getting what you pay for.” )

It’s important to note that Bain and the Business Roundtable didn’t merely lay out these findings without comment. They used them to assert that California businesses are over-regulated and overtaxed, and that the state government should back off. The flight of film production from Hollywood, the report states, “should be viewed as a leading indicator of what is likely to happen over time” to other industries if California’s business climate doesn’t improve.

But that’s a huge stretch. “Runaway production,” as the phenomenon is known, is indeed a major problem that the film industry has been chewing over for the better part of a decade. But the issue isn’t production moving from California to other states to escape local regulations and taxes; it’s production moving to places such as Canada, Australia and Eastern Europe to take advantage of favorable exchange rates and overseas incentive programs.

A big reason that Canada became the foreign location of choice in the 1990s, for example, was that its dollar had collapsed against the greenback. Significantly, after the Canadian currency surged by 20% against the U.S. dollar last year, the inflow of American production dried up.

Bain & Co. may well be “the elite of the already elite field of management consultants,” according to a judgment by CNN that the firm features prominently on its website. But the squishiness of the film production numbers, which are among the few in the report that can be checked against the public record, makes me a tad uneasy about the rest of the document.

When the report claims, for instance, that California regulations are so onerous that a company with a $200,000 operating profit in this state would earn nearly $2 million if it were in Alabama, I’m inclined to ask to see Bain’s math worksheets and to bring my own calculator.

When it says that 100% of the “senior executives interviewed” view California’s business climate less favorably than other states, I’m inclined to withhold judgment until I see their names and numbers.

And when the California Business Roundtable gins up a legislative wish list based on this kind of spadework -- one that includes proposals to eliminate overtime pay for some workers, reduce employer healthcare mandates, “reform” environmental laws and cut business taxes -- I feel like telling it to come back for another try when it has recovered its credibility.

Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at [email protected] and read his previous columns at latimes.com/hiltzik.