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Off The Record

Music & Recording Industry News By Dan Daley
Published April 2015

Plenty of industries use tax incentives to lure customers, but will it work for music production?

What happens when the markets are not robust enough to support an industry? Well, you can always ask the government to help. That’s what may be taking place in New York in the near future. For the last several months, a collection of 75 music–industry stakeholders (including a few major studios such as Avatar and Mission Sound, as well as entities like BMI and The Recording Academy) have coalesced around ‘New York Is Music,’ an advocacy group that’s attempting to get the state to approve up to $60 million in tax breaks each year to studios, record companies and others involved in music.

A state assemblyman from Brooklyn drafted the Empire State Music Production Tax Credit, a piece of legislation which, if adopted, will provide a tax credit to companies and individuals who produce and record music in the state of New York. The bill would give New York businesses a 20–percent credit on expenses related to music production. Money spent in recording studios and on costs such as engineering would be eligible for these rebates.

The idea is hardly new. States and cities, including New York, Atlanta, Georgia, North Carolina and Louisiana, have been offering tax credits aimed at fostering film and television work for some time. And the $60 million the music business is seeking in New York is peanuts compared to the $420 million in rebates and subsidies that the state already offers the film and video business, which generated a reported $1.5 billion in in–state production spending in 2011, according to a 2012 study commissioned by the MPAA.

But some destinations have already begun subsidising music production: Tennessee, whose capital city of Nashville is already an international mecca for music production, offers a 25–percent cash rebate for all qualified labour and vendor costs related to music production. That’s on top of the state’s already substantially lower costs of doing business — a back–of–the–envelope analysis that one Brooklyn studio owner gave the New York Times suggests that an album that might cost $10,000 to make in New York would cost about $7,500 in Nashville, and less than half that elsewhere. In another example, Georgia offers tax credits of up to 30 percent of costs incurred for music production in the state.

The Small Print

One of the problems with this approach would be validating who would qualify for tax rebates. Established studios that work on a purchase–order basis could certainly benefit; their revenues are readily documentable. But as music production moves further from the model of large multi–room studio facilities and into small mom–and–pop shoppes and spare bedrooms, how can production costs be authenticated in such a diffuse environment? It would be more like subsidising an arts & crafts community than an industry. Tino Passante, vice president of Avatar Studios, which has taken an active role in supporting the legislation, acknowledges that this can be a sticky point: “That’s where it gets dicey. The idea would be that the production needs to take place in a ‘qualified’ music production facility. So mixing a record on a laptop with headphones on during your bus ride home would not qualify. Also, a certain dollar amount would need to be met before a production can qualify for a tax credit, in my personal opinion.” But thresholds for things like that will need to be worked out, underscoring how the devil is in details.

And the whole notion of industry–specific tax–based subsidies has come under more intense scrutiny lately as cities and states scramble to boost tax revenues. Opponents of tax subsidies argue that the cost of the incentives outweighs their benefits, and that much of a production’s budget is spent on talent and labour from outside the area. If an artist brings along a producer, engineer and group of musicians that he or she needs to work with, how does subsidising their use of a local New York City studio help engineers and musicians there?

The risk of doing nothing, though, is considerable. New York has already lost a sizable number of major facilities. And Taylor Swift’s recent move to a Manhattan SoHo condo (complete with a modest recording setup) bucks the trend of successful recording artists who build their own palaces of sound on residential properties well away from the big cities.

But are tax abatements enough? A 2010 Center for Budget & Policy Priorities report, ominously entitled ‘State Film Subsidies: Not Much Bang For Too Many Bucks,’ concluded that “claims that tax subsidies for film and TV productions... are cost–effective tools of job and income creation are more fiction than fact.” Despite substantial inducements, Hollywood’s post–production infrastructure has been losing ground not only to other states but also to places like China. According to a 2011 report by IBISWorld, revenue for the US post–production industry decreased by 25 percent between 2000 and 2010, and projections suggest that it will have declined another 11 percent between 2010 and 2016. It also shows that the number of facilities declined by 43 percent between 2000 and 2010 and is forecast to decrease by 38 percent between now and 2016. And tax abatements didn’t prevent the recent loss of some iconic Hollywood audio post facilities, including Todd–AO, Soundelux, Sound One and POP Sound, as well as Sound One in New York City. Music and film production are both facing challenges in the form of dwindling revenues and piracy. Would tax incentives for music fare any better than for film and video?

One could argue that New York City is an attractive enough lure for music already. But if enough of a case can be made for the money that music contributes to New York’s bottom line, and if sufficient safeguards can be developed that keep a tax–abatement scheme reasonably scrupulous, then it’s probably worth a try. So in the future, we may see New York’s music–production community benefit from some of the same government policy moves that recently helped General Motors and Bank of America. Just don’t tell Ted Nugent.