How did the Jews invent Hollywood, but fail to reinvent it in their homeland despite Israel’s historical ability to create narratives of meaning throughout history

To date, Israel has missed out on business and job creation stemming from the expansion of its tremendously talented film and television industry around the globe. Stories about Israel have been produced in Malta, Tunisia, Morocco and Jordan rather than Israel. Something’s very wrong: how did the Jews invent Hollywood, but fail to reinvent it in their homeland despite Israel’s historical ability to create narratives of meaning throughout history?

John Heyman, who provided over $4 billion dollars for hundreds of film productions, died last month. He was a film and finance innovator who transformed Hollywood. He and his parents were German Jews who escaped to London from the Nazis in the ‘30s. (His son also produced the Harry Potter series).

Heyman moved on to Hollywood to pioneer the structured finance of films in the world by financing slates (portfolios) of films based upon talent pools and stories, rather than single films based on production capacity and technology alone. His financing built upon and expanded project-based organizations (studios) rather than more conventional industrial organization of entertainment firms (as Thomas Edison had originally conceived when he invented the Kinetograph and film-making). We could take a page from Mr. Heyman’s (rather than Mr. Edison’s) playbook to build a global film and media production industry in Israel.

Despite Israel’s vibrant emerging film and television industry and tremendous creative talent that will be displayed at the upcoming Jerusalem Film Festival, its existing incentives, based on the country’s 2008 Law for the Encouragement of the Production of Films, are a demonstrated failure in attracting new projects and seriously out of date.

Incentives alone won’t work – they must be joined by infrastructure and talent to establish full-fledged film, TV and Internet media clusters – not to mention their applications in augmented and virtual reality linked to cloud computing in story telling and digital film making. Other countries have succeeded by providing lower costs, through tax benefits and production infrastructure along with operational support, while also marketing their landscape, utilities, tourism facilities and local film production services more effectively than Israel – where so many stories began and new beginnings in art and technology are now unfolding.

Incentives are not all the story, but they are part of it. Not every place should join the incentive game to vie for movie and TV productions, but if any place has the brand for story telling – it is Jerusalem and Israel.

There is no one-size-fits-all strategy for designing and implementing an incentive program, and it is just one piece that can help create success. Developing a media and technology cluster requires a locale to simultaneously develop infrastructure, build and retain a workforce and offer producers appealing, reliable incentives.

Atlanta, Toronto, Wellington, New Zealand and even Pittsburgh exemplify the importance of long-term planning that builds on incentives and includes investment in infrastructure and training. So why not Jerusalem? Why not Israel? These cities and countries provide generous, sustained incentives to attract movie and TV productions. Their policies reduce uncertainty for production companies, while our policies have managed to increase them.

In addition, these cities have established up-to-date infrastructure, such as multiple sound stages, production and post-production services. Their capacity to house and support projects of varying sizes year-round not only brings stable production activity, it also retains and attracts skilled movie and TV workers and providers of auxiliary services, such as catering and transportation. Once a strong film cluster emerges, it can create permanent jobs and generate positive ripple effects on a local economy. In Israel, this can be done in many languages with diverse traditions and audiences.

Otherwise, we are left with exporting Israeli intellectual property in film and television elsewhere – in the form of program format, which has been far more successful than efforts at attracting film production. While format exports are a valuable part of the entertainment business, Israeli talent, skills and stories will simply follow other brain drains in biotechnology, physics, economics and chemistry in creating more value abroad than at home. Format exports and local production are not mutually exclusive, but can reinforce each other in creating a global industry cluster – exactly as they originally did from Hollywood to Bollywood.

The still outdated 2008 law has failed for several reasons:

• The financial incentives were insufficient compared to those of other countries and were structurally complex and difficult to obtain.

• Labor costs were prohibitive on a relative basis. However, better talent and higher-productivity production teams and supplemental services could help Israel counterbalance direct labor costs disadvantages.

• There is no single point of government contact (a Film Commission), further confusing those attempting to use the incentives.

• Film producers have found doing business in other countries easier because these nations demonstrated strong political and institutional support, useful in overcoming any bureaucratic barriers.

• Israel lacks production infrastructure and long-term policies or programs to support film production.

Economic (tax and financial) incentives have traditionally been a primary driver of production location choices in film and television and now digital media. The Israeli government faces the challenge of developing a competitive financial offering that ensures continuity of the film industry’s production cost environment over time. Countries like Ireland and the Czech Republic have lost global production share as incentives expired. Moreover, the lack of stable production incentive tax regimes in some US states and other foreign countries creates an opportunity for Israel to compete and provide a stable, predictable, secure film/television production environment.

Israel has been enormously effective in recent years in crafting excellent platforms with the government as an active investor and mitigating risk in starting up and now scaling up firms – in ICT, fintech, fuel substitutes for oil and smart mobility, life sciences, biomedical devices and pharma, water and agtech. But not in narratives and storytelling and imagination, which was the country’s original competitive advantage?

Simple measures could correct this, to create a new economics of the hopes and dreams that come from films:

• Design and balance a tiered film incentive program to maintain and increase competitiveness (making sure to avoiding a “race to the bottom” effect) and rewarding repeat business.

• Implement a new digital media tax credit for digital animation and visual effects, which would help Israel leverage its comparative advantages and build an industry on its unique strengths.

• Encourage long-term investments in infrastructure for building or upgrading studio and post-production space (e.g. a film industry promotion program similar to the Finance Ministry’s successful program to attract financial R&D, announced in September 2011).

• Expedite film production and related permitting processes.

• Structure a long-term public- private partnership to attract foreign production.

• Create an incentive package of a minimum 30% tax rebate (this would not necessarily cost the Finance Ministry the entire 30%, based on aggregating foreign credits and advantages of co-production agreements available under existing tax treaties and co-production agreements).

While we ease comfortably into our chairs at a terrific Jerusalem Film Festival, we might reflect on what we can learn from our past to build film creation and production partnerships globally through Israel as we have in other technology based industries. Spinning tales that make sense of our troubled and hopeful world are an essential part of our story too, and why we are here.

The author is Senior Director of the Jerusalem Institute’s Milken Innovation Center and founder of the Milken Institute’s Financial Innovation Lab.

Glenn Yago
Glenn Yago
Glenn Yago is the Senior Director of the Milken Innovation Center at the Jerusalem Institute for Policy Research and a Senior Fellow / Founder,Financial Innovations Labs® (Milken Institute-U.S). He is a leading authority on financial innovations, capital markets, emerging markets...
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