Tax credits can stimulate domestic movie production much more effectively than tariffs: Tom Rogers

Key Concepts

• Disney earnings and future guidance
• Impact of potential recession on Disney's parks and advertising revenue
• Potential tariffs on foreign films and their implications for Hollywood
• Incentivizing movie production in the United States
• Federal vs. state tax credits for film production
• Hollywood as a production center
• US film industry's trade balance
• China's role in the global film market

Disney Earnings and Recessionary Concerns

The primary focus regarding Disney is its future guidance, particularly concerning the potential impact of a recession. Investors are keen to understand how a recession might affect Disney's parks, a significant revenue driver. The discussion highlights the vulnerability of Disney's advertising revenue during economic downturns, referencing the 20% decline in TV advertising during the financial crisis. The key questions revolve around advanced bookings at Disney parks and whether they indicate a softening of consumer spending.

Potential Tariffs on Foreign Films

The conversation addresses the possibility of tariffs on foreign films or films made abroad by American companies. This prospect has caused concern in Hollywood. The central question is whether such tariffs are intended to help or hurt the industry. While the President believes Hollywood is increasingly becoming a production center overseas, Hollywood argues that tariffs are not the solution. The US has a significant positive trade balance in movies, exporting far more than it imports. No foreign film is in the top 50 US films, and all top ten grossing films globally come from US studios. Tariffs could trigger reciprocal measures or increase the cost of movie production, potentially reducing overall US production.

Incentivizing Domestic Movie Production

The discussion explores ways to incentivize movie studios to produce more films in the United States. Many US studios are making films in locations like Toronto to reduce costs. The perspective of Hollywood workers (beyond just actors) is considered, who would likely favor measures to increase domestic production. The question is whether tariffs are the right approach to stimulate Hollywood as a production center.

Federal vs. State Tax Credits

A consensus might develop around a federal approach to tax credits for film production, as opposed to states competing with each other. The question is raised why federal tax dollars should offset state tax credits offered by jurisdictions like New Jersey and Georgia. A legitimate position is presented that federal taxpayers shouldn't pay for film production in Hollywood, suggesting California should fund it themselves. However, tax credits, whether state or federal, are considered a more direct and effective way of stimulating domestic production than tariffs.

California's Role

The discussion points to California potentially taking more action, possibly through tax credit incentives, to retain film production. This could be influenced by the President highlighting California's perceived lack of support for a key industry.

Global Film Market and China

The conversation touches on the global film market, mentioning "Crouching Tiger, Hidden Dragon" as a notable foreign film from 25 years ago. The success of the Marvel film "Thunderbolt" in China is noted, suggesting potential inroads in the Chinese market despite broader tensions. The movie industry would not want to jeopardize access to the Chinese market.

Synthesis/Conclusion

The discussion revolves around Disney's financial outlook amidst potential economic headwinds, the implications of potential tariffs on foreign films, and strategies to incentivize domestic movie production. The debate centers on the effectiveness of tariffs versus tax credits, and whether these incentives should be implemented at the state or federal level. The global film market, particularly China's role, is also a relevant factor. The main takeaways are the uncertainty surrounding Disney's future performance, the potential negative consequences of tariffs, and the need for effective strategies to support the US film industry.