This year the Academy Award stage was swamped by award recipients thanking their mothers and peers with non-American accents. Of the five films nominated for best picture, three were made outside of the U.S. For the past few years, American filmmakers have been bad-mouthing Canada for what they see as taking the bread out of crews’ and casts’ mouths as the U.S. film industry finds it cheaper and financially beneficial to shoot in Canada. Now the Hollywood studios are finding new incentives to shoot off the North American continent all together. Many countries offer excellent financial benefits and European governments have cultural departments that offer generous tax breaks. This, combined with digital technology, means a film can be shot and post-produced almost anywhere in the world.

A look at the statistics will show that Hollywood is becoming a place where projects are designed rather than created. In 2001, more than 17,000 jobs were lost, most of which were in the core production sector. Although these statistics are bad news for grips, gaffers and cinematographers, if Hollywood does evolve into a creation centre, it will be good news for the writers, agents, executives and actors – in fact, all the film personnel that inhabit the high end of the industry’s salary scale. And since the average annual return rate on a studio’s slate is only 1% or 2%, the studios want to be in distribution rather than production.

Proposals for tax relief and other measures to help attract movie production back to the U.S. are being processed in Congress and the California state legislature, but when they are passed it will only provide a stop-gap in the increasingly difficult area of financing.

There is also evidence that industry leaders are feeling overwhelmed by the complexity of problems facing them. In an industry that has historically done nothing but grow, digital filmmaking is threatening the post-production sector and laboratories. In fact, commercial, television and music video productions are using the studios’ backlots and soundstages, provoking the question: ‘Will the studios get rid of their properties?’ After all, TV production does not require huge spaces to shoot and many of the spaces are lying empty while their productions shoot elsewhere on the planet.

Hollywood has ruled so long as the unchallenged world centre of filmmaking that there is no clear consensus on how to respond to the challenging conditions. Insiders do know, however, that it will be hard to weather the digital and globalization storm while the transition is in effect. Insiders also compare what is happening in the film industry to what happened in the L.A. garment industry 20 years ago. Manufacturers went abroad to seek low-cost centres, only to return to make L.A. a leader in textile manufacturing. The optimistic players in the movie industry are looking forward to a rebranded future where Hollywood is viewed as a leader in film creativity. They just have to batten down the hatches.

Malcolm Silver is a film & television financier at Malcolm Silver & Co.