Economic Realities Make Raleigh Studios Look to Canada

By RiSHAWN BIDDLE

Staff Reporter

As the nation’s largest private studio operator, Raleigh Enterprises has been one of the most vocal advocates for keeping film and television production in Hollywood.

But economic reality and the possible loss of its Manhattan Beach studio is forcing it to become an abettor in runaway production to Canada and other locales.

Last month, the Santa Monica-based firm and its Canadian partner, Ingenium Group, were selected by Toronto’s redevelopment arm as one of four finalists to transform a 30-acre industrial site along the city’s waterfront into a studio complex.

The project is a lynchpin in Toronto’s efforts to lure big-budget film shoots from across the border. But it may also become grist for opponents of runaway production, an issue that was brought up by Gov. Arnold Schwarzenegger during last year’s recall campaign.

Raleigh Chief Executive Mark Rosenthal admits it’s a bit of a tangle being both an opponent of runaway production and an accomplice to it. But he says he has to grow the business.

“I don’t want to assist in the exodus, but we have to go where our customers are going,” Rosenthal said in an interview last week. “We’re in the film studio business and we have to expand our base of operations.”

Raleigh is renegotiating its master lease for its 14-stage Manhattan Beach studios, where the legal drama “The Practice” and other shows are filmed. The lease expires this summer, just as the building’s owner, Roy Disney’s Shamrock Holdings, has struck a deal to sell it to an as-yet undisclosed buyer.

The sale will close in March, according to George Buchler, president of Shamrock’s real estate division. If the lease isn’t renewed, Raleigh may lose the studio, which generates half of its studio division’s revenues.

For Raleigh, building a new studio would be a challenge because lenders are generally hesitant to underwrite such properties, which like hotels rely on temporary sources of revenue. When Raleigh got Manufacturers Bank to lend money for the renovation of its Hollywood facility, it had to offer the site for a second use, in this case, a file-storage complex.

Toronto Economic Development Corp. Chief Executive Jeff Steiner, whose agency is overseeing the selection process, expects a “preferred” developer to be picked by April at the earliest. Besides Raleigh-Ingenium, other consortiums include one led by Pinewood Shepperton, the studio outfit controlled by “Alien” director Ridley Scott and his brother Tony, as well as a partnership between Canadian developer O & Y; Property Corp. and L.A. Center Studios operator Comweb Group.

Hometown booster

In the past, Rosenthal has warned about the possible consequences of overseas film production on local businesses. He co-founded the Center for Entertainment Industry Data and Research, whose Web site is hosted by Raleigh, and spent time lobbying for the creation of the now-moribund Film California First initiative, which was formed to reimburse producers for costs related to filming on public lands.

“The talent base in L.A. remains unsurpassed,” Rosenthal told the Business Journal three years ago. “You can go to Vancouver and you can go to Toronto but you may get huge delays associated with the production.”

Founded in 1955 by Rosenthal’s father George as a tract homebuilder, Raleigh now operates a file-storage company, a vineyard and a film equipment rental firm as well as West Hollywood’s Sunset Marquis and Avalon hotels.

The firm got into the studio business in 1979 when it acquired the then down-on-the-heels Famous Players lot in Hollywood, which it originally intended to tear down and replace with a K-Mart. Instead, it renovated the site and added three sound stages and production offices. It expanded nearly two decades later when it teamed with Shamrock to open the Manhattan Beach complex.

By 2000, Rosenthal had become concerned with the effects of runaway production on his efforts to lure projects. Through a rabbi at Temple Shalom for the Arts, he met Stephen Katz, a former equipment rental executive who had been gathering data on foreign film production. Together they formed the Center for Entertainment Industry Data, which Katz runs from his Encino home, and began issuing reports citing the consequences of foreign film production.

Rosenthal also stepped up on the lobbying front, working to turn Film California First into a reality. To convince then-Gov. Gray Davis to endorse the plan, he and Katz flew up to Sacramento and presented Davis and his staff with their statistics.

“In my book, Mark’s a righteous dude. He’s hosting the Web site and he’s there when I needed him,” said Katz.

But the reality of film finance and rich foreign incentives has made such efforts a bit quixotic, as Rosenthal has found.

Even for a low-budget feature, producers depend on foreign tax credits and other production schemes to attract funding. Credits such as Canada’s refunding formula, which reimburses 48 percent of payroll and other labor costs, can contribute as much as 14 percent of a film budget.

With so much saving on the line, producers are willing to forgo the convenience of filming in L.A. Another factor: Studio space itself only accounts for 5 percent of a film’s budget and is often dependent on the dictates of the script. While some films originally slated for production in Canada have been pulled back “Terminator 3” was brought to California at Schwarzenegger’s insistence, for example other producers have to bow to reality.

“I’ve talked to everyone in the industry about it and they would like to stay here, but it’s tough to say no to a government that’s offering money to bring production to their country,” said Rosenthal.

New directions

Through November, local film shooting days for 2003 fell 11 percent from the year-ago period, according to the Los Angeles Entertainment Industry Development Corp. While television production has continued to rise thanks to a proliferation of new shows, that business can end abruptly with a cancellation. Raleigh itself experienced this when two dramas shot at their Manhattan Beach studios, including “Boston Public,” were axed.

Faced with falling local film production, Raleigh had to make a move, Rosenthal said.

While lobbying Davis and others for tax credits, Raleigh was also looking at studio projects in Prague, Czech Republic, and Lisbon, Portugal.

In August, Raleigh hooked up with Ingenium to bid on the Toronto project. In addition to a 44,000-square-foot sound stage, the Raleigh-Ingenium proposal would include 12 additional sound stages and 400,000 square feet of office space.

(Canada itself is fighting a version of runaway production as the indie flicks that were staples of its film industry are being made in low-cost Eastern European states.)

Meantime, at least one of Raleigh’s rivals is reveling in the circumstances.

“It’s humorous that they were on Canadian television two years ago complaining about runaway production and now they’re joining us up here,” said Paul Bronfman, an heir to the Canadian Seagram’s liquor fortune and chief executive of Comweb, a Toronto-based film studio and equipment firm.