Why Hollywood’s Biggest Films Are Leaving L.A. for London

From "Guardians of the Galaxy" to the next "Star Wars" film, the hottest blockbusters are being lured abroad by London's lucrative tax credit

Brad Pitt, Robert Downey Jr., Vin Diesel and J.J. Abrams call Los Angeles home, but for the world premieres of their latest films like "Iron Man 3" and "World War Z," they all decamped for the new hub of Hollywood’s biggest productions — London.

It is a testament to how the U.K. city is attracting filmmakers in droves because of lucrative tax incentives that make one of the most expensive cities in the world cheaper to shoot films in than Los Angeles.

More than 1,000 films have used the country's film tax credit in the five years since they were established, with the U.K. doling out an estimated £800 million (about $1.2 billion) in rebates. 

See photos: 12 of the Biggest Movies Shot in the U.K.

And the rise of London as a major destination for filmmakers has been unavoidable this summer.

Getty Images

Nearly every studio has embraced the U.K., with Disney readying movies like the next "Star Wars" film and "Guardians of the Galaxy" for production there and Paramount premiering movies like "Star Trek Into Darkness" in Leicester Square.

Also read: 'Star Wars' Production Set for U.K.

Universal, whose successful "Fast and Furious" franchise had filmed in Los Angeles, Japan and across South America, moved the newly released sixth installment to London.

Also read: California Tax Credits: 'Purge 2,' 'Entourage' Movie Among Projects OK'd

What's more, while states like New Mexico and North Carolina have seen their incentive programs challenged by lawmakers this year, the U.K. has actually expanded its offerings to include television programs. That has attracted interest from HBO and other players.

"In the U.S. producers always worry that the laws for credits will change or that there won't be any money left," Joseph Chianese, a senior vice president at the production services company Entertainment Partners, told TheWrap. "But the U.K. has been consistent, and when and if the rules do change, they only change to improve and expand the incentives."

Los Angeles has tried to keep pace, beginning its own incentive program four years ago. The program hands out $100 million annually, but demand far exceeds supply. Moreover, it's hard to justify shooting in a city that can't match the perks and rebates offered by other major urban areas.

So while California snoozes, London eagerly offers a helping hand because the added production aids its own economy, providing more business for restaurants, travel companies and numerous local businesses.

"The lesson here is four words — California legislature is stupid," Matt Galsor, a partner at Greenberg, Glusker, Fields, Claman & Machtinger, which represents the likes of Tom Cruise and James Cameron, told TheWrap. "Every dollar that they incentivize to bring into the U.K. generates incredible revenue. They are printing money by this scheme. We in California are too inept to get it through because it may look like you are giving incentives to people who are not poor."

It shows. While the number of permitted production days in Los Angeles jumped 3.7 percent last year to 5,892 days, that's still significantly down from a high of 13,980 days in 1996, according to FilmL.A., a non-profit group that monitors permitting in the city.

And while it's true that the California Film Commission lottery held earlier this week to determine who will receive the credits saw an 18 percent jump in the number applications for tax credits, producers and analysts say that California's program comes with too many caveats and questions. Films with budgets north of $75 million, for instance, do not qualify, nor do new broadcast or premium cable programs.

Also read: California Tax Credits: 'Purge 2,' 'Entourage' Movie Among Projects OK'd

"The [California] lottery is a challenge," Celine Rattray, a producer and co-president of Maven Films, said. "You often don't know until early prep whether or not you're going to qualify, so it's really down to the last minute."

In contrast, when producers venture across the pond, they can be certain that the refunds will be there to greet them.

London rewards productions by refunding between 20 percent to 25 percent of the money spent in the U.K., depending on the size of a production's budget. The definition of what qualifies as a U.K. expense is also flexible — if costumes or props are produced in Los Angeles but used for filming in London, for example, they are eligible for the refund, Chianese said.

The U.K. also reimburses studios a percentage of what they pay talent from a film’s financial performance. So if an actor’s deal awards him a certain percentage of box-office grosses — millions on a big studio movie — the U.K. reimburses a percentage of that money to the studio.

Lest the actor think he or she is getting ripped off, they still get to keep their money.

This is one reason many productions that are likely to be hits, like the last "Pirates of the Caribbean" film, shoot in the U.K. Johnny Depp earned tens of millions in salary and back-end compensation playing Capt. Jack Sparrow, but filming in the U.K. ensured the studio will be reimbursed as long as he continues to be paid his chunk of the profits.

That program is unique to the U.K., experts say, and it's giving the country a leg up over other countries like Canada and Germany that offer lucrative incentives.

"It's completely stacked the business in favor of London, even if I say I can do a movie for cheaper and do the work in Canada," one visual-effects executive, who declined to be identified because it could jeopardize relationships with studios, told TheWrap.

In addition, while Los Angeles previously maintained its hold on productions because of its base of actors and post-production facilities, all that is changing.

Though London is more expensive to live in and also charges a higher income tax, most actors are willing to take a small hit to work on these productions.

More important, though, is that many special effects houses and post-production facilities have moved to London as part of a mass migration outside of California in pursuit of post-production incentives. 

Some of those who have remained behind, like the Oscar-winning Rhythm & Hues Studios, have been forced into bankruptcy.

Also read: After Rhythm & Hues, Visual-Effects Community Asks: What Now?

"Over the last decade, London has emerged as a center of excellence," said Will Cohen, the CEO of Milk, a new 100-person visual-effects studio that launched in London this week. "We have experienced crews, great facilities, and because of our history of stage work, there's a wealth of acting talent. That means studios don't have to transport and house talent."

For generations, Los Angeles and moviemaking have been deeply entwined, but as the business becomes more globalized and as tax incentives grow more generous, Hollywood's position as the center of the industry has been threatened. Decisions on what movies get produced and what stars get cast may still be made in the board rooms that overlook the studio lots, but more often than not, shooting will take place an ocean and several time zones away.

"You don’t make movies in L.A.," Marty Bowen, producer of "Dear John," said. "No one is shooting movies there unless they're micro-budget things."