Michigan Bets The State Pension Fund On Hollywood Success, Ends Up Stuck With The Tab

from the you-can-only-take-my-money-for-so-long,-before-you-take-it-all! dept

Mon, Mar 11th 2013 10:03am — Tim Cushing

We've written before about cities and states luring Hollywood studios with multimillion dollar subsidies in the hopes of giving their local economies a bit of a bump. In nearly every case, this has been a money loser for the locale involved. A 2010 Tax Foundation study found that most states were lucky to see $0.20 in revenue from every dollar handed out. And yet, this surefire money loser remains incredibly popular.

The latest case of self-victimization belongs to the state of Michigan, which lured the production of "Oz The Great and Powerful" to the state with a $40 million subsidy.

Michigan has 4.5 million individual taxpayers, and the state gave the film studio $39.7 million to shoot the movie in Pontiac. That works out to a subsidy of $8.82 per taxpayer while average ticket prices nationwide are $7.96.

The subsidy was granted in 2010 when the program refunded up to 42 percent of Michigan expenses to film makers — essentially a check from the treasury to Hollywood studios. The program expired, but the Legislature, dominated by Republicans, overwhelmingly decided to keep it around.

As the article points out, the studio basically received paid admission from every taxpayer in the state. But that $40 million was apparently just a "good start," because the state soon found the studio knocking at its door again, cap in hand.

As part of the financing process, the filmmakers wanted to borrow about about $18 million in municipal bonds. In order order to do that, they needed a backer. So the state stepped in, and agreed to use its state worker pension funds as a guarantee. "If the investors failed to pay," the New York Times reported in a piece on the deal last December, "the retirees would be on the hook."

One would expect a Disney-backed venture to be able to scrounge up payments on an $18 million loan simply by digging around in the couch cushions. But one would be mistaken.

Michigan Motion Pictures Studios, which is being celebrated in the local media for having made the movie, "Oz The Great and Powerful," in Pontiac, has missed its last three payments on $18 million in bond obligations...

According to state officials, the state retirement system has made three payments since February of last year totaling $1.68 million.

This isn't good news for the state's pension fund, which is already underfunded by several billion dollars. It's pretty much guaranteed that the state will never recover the entire $58 million given to Michigan Motion Pictures Studio, either in the form of added revenue or even loan payments, for that matter. And Michigan should know better. According to the study mentioned in the first paragraph, Michigan's return-on-investment sits at $0.11 per subsidy dollar.

But Michigan Motion Picture Studios (formerly Raleigh Studios) can explain. You see, it was doing just fine... until the state decided to cut its allowance.

In March 2012, Raleigh Studio's then-chief financial officer Steve Lemberg blamed the studio’s financial struggles on the film tax credit being reduced.

The state reduced the tax credit from $100 million when the studio was being built in 2011 to $50 million last year. Gov. Rick Snyder has $25 million budgeted for tax credits this year.

There's something inherently flawed with a business model that relies heavily on being handed free money in exchange for the vague promise that a small percentage of it will be pumped back into the local economy. But I suppose it could be worse. Much, much worse.

The city of Allen Park recently requested an emergency manager after losing what will turn out to be tens of millions of dollars on a failed movie studio project that promised to create 3,000 jobs. It created none and left the town nearly bankrupt.

That's the sort of thing that happens when politicians get stars in their eyes and roll out a red carpet made of constituents' money. The best case scenario is still a money loser, as any economic effects are brief and underwhelming. The worst case scenario is taxpayers are on the hook to bail out their own pension funds or, in the case of Allen Park, their hometown.

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Filed Under: failures, great and powerful oz, michigan, movie industry, subsidies

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silverscarcat (profile), 11 Mar 2013 @ 8:23am

Hmm...
I wonder how the MPAA shills will spin this one.

Still not giving Hollywood any of my money. They took enough already with their tax break.
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Ninja (profile), 11 Mar 2013 @ 9:42am

Re: Hmm...
We all know that the movie will get pretty good revenue and despite all that it'll probably not break even. Hollywood accounting.

These people are so despicable that they'll do whatever needed not to spend their own money or pay taxes and earn a lot in return. An entire town is just collateral damage.
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Atkray (profile), 11 Mar 2013 @ 10:05am

Why isn't Michael Moore on this?

Why?
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silverscarcat (profile), 11 Mar 2013 @ 10:05am

Re: Re: Hmm...
What's one town between friends?
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Anonymous Coward, 11 Mar 2013 @ 10:27am

The blame game
Hollywood Accounting, no doubt. I'm surprised they didn't blame it on piracy.
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Anonymous Coward, 11 Mar 2013 @ 10:33am

Was the politicians pension fund involved, or did they only risk the workers money?
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Lowestofthekeys (profile), 11 Mar 2013 @ 10:33am

I wonder how much more dignity the federal and state governments are willing to lose to Hollywood through the prospect of "easy" money.
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Trails (profile), 11 Mar 2013 @ 10:35am

Re: The blame game
Hollywood Accounting, no doubt. I'm surprised they haven't blamed it on piracy yet...

FTFY
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Violated (profile), 11 Mar 2013 @ 10:36am

Clear as day
You would think any Government official who backed up that $18 million loan on the state pension fund should be sitting in prison right now.

1. It is not their money.
2. It is to be invested in sound profit making ventures.
3. There is simply no profit to be made in backing up someone else's loan. Therefore gross mismanagement and fraud.

Disney is not some cute fluffy company. History has well demonstrated they prefer to resolve their disputes through litigation. Screw over a bunch of pensioners? Sure they would... and have.

Jail the government bastard who agreed that one. You know I am right,
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Anonymous Coward, 11 Mar 2013 @ 10:36am

Techdirt is constantly scrounging around for stories that could somehow justify piracy. It's so funny.
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anonymouse, 11 Mar 2013 @ 10:37am

Seriously
Surely some heads need to roll because of this, people should be in jail for mismanagement of the pension fund and the movie execs should be in jail for fraudulently requesting funds they had no intention of ever paying back. Maybe this will be one of the ways Hollywood accounting will be opened for the IRS to investigate more and maybe the IRS can recoup some of the trillions invested and trillions in profits that Hollywood movies have hidden from them over the past few years.
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That Anonymous Coward (profile), 11 Mar 2013 @ 10:38am

Re: Re: Hmm...
But we create so many jobs and contribute billions because we have IP and IP magically creates money.
Unless your backing it, and then there is no money.
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out_of_the_blue, 11 Mar 2013 @ 10:40am

Great! Focus on the THIEVES! -- But that DOES include pirates...
Yes, there are thieves large and small; the latter don't oppose or even hinder the former, just extend lawlessness and actually help.

My wish is to target the gov't at obvious thieves who are wearing expensive suits and flying on corporate jets: they're stealing the excess value that labor creates. That's Populism.

Civilization depends crucially on everyone recognizing clear rules -- following those rules will always be lacking, yet the principles must be kept clear -- so even stealing from thieves makes matters worse.
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Chosen Reject (profile), 11 Mar 2013 @ 10:40am

Re:
Also, pay no attention to the man behind the curtain.

How appropriate.
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cosmicrat (profile), 11 Mar 2013 @ 10:42am

Your mileage may vary...
I've long had a somewhat jaundiced view of film incentive programs -ever since Canada introduced them in a big way in the 90's and all the production left the good ole U.S. chasing the free money.

That said, there are ways to do it right and ways to make a complete debacle of it. Michigan would be an example of the latter. My own state kicks back a few million, and as a result has attracted more than 50 million in local spending (yes, that's only the local portion of the budgets, another big chunk is spent out of state. And before you self proclaimed experts who have never been on a movie set start offering your expert testimony, let me assure you the wages are not all paid to flown-in "Hollywood" technicians, 70-80% of our crew is local).

I know you hate everything related to "Hollywood" because you connect it to shite like SOPA and those asshats in the MPAA, but let's have some perspective here; lot's of corporate interests run the same kind of scams. It's the way big-business is done now. "Hollywood accounting" is no different from "Wall Street accounting" or "Multi-national Corporation accounting"

Now I've got to get back to my job working hard to entertain you.
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Anonymous Coward, 11 Mar 2013 @ 10:43am

Beg steal or borrow.

Hollywood-style cronyism is exactly why we have "no personal gifts" policies for pretty much every public company and accountable local government. I think some states need to crawl up their representatives' practices a little closer.

If I were in Michigan I'd want a deep core tax audit on every official near the "bamboozled" cities and the state reps.
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ShellMG, 11 Mar 2013 @ 10:46am

Re: Clear as day
The government official is now teaching at Berkeley in California and had a stint as a cable talk show hostess. That would be former Governor Jennifer Granholm.
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Anonymous Coward, 11 Mar 2013 @ 10:47am

Republicans
I know it was a quote, but it should be noted that every Democrat in both the house and senate voted to extend the credit.
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ShellMG, 11 Mar 2013 @ 10:49am

Re:
He already got his fists of cash, over $840,000 worth.

http://washingtonexaminer.com/michael-moore-received-841145-in-incentives-to-film-anti-cor porate-welfare-documentary-in-michigan/article/2515027
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Colin, 11 Mar 2013 @ 10:50am

Re:
Show me on this doll where mean Tim hurt you...I mean mentioned piracy.
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Anonymous Coward, 11 Mar 2013 @ 10:56am

1. Steal money from states.
2. Complain about people stealing movies made with stolen money.
3. ????

4. PROFIT!
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Anonymous Coward, 11 Mar 2013 @ 10:59am

Re:
Trolls are constantly scrounding around for ways to link every story on Techdirt to piracy, even when the article clearly has nothing to do with piracy.

Oh, the irony!

Its still not lost on us, dude.
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Anonymous Coward, 11 Mar 2013 @ 11:00am

Re: Re:
scrounging, even
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Jeffrey Nonken (profile), 11 Mar 2013 @ 11:02am

Monorail!

(clicky)
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Chris Rhodes (profile), 11 Mar 2013 @ 11:07am

Working As Intended
The goal and aim of government at every level is to entrench established business and funnel money from the populace to corporate fat cats.

This is not a bug, this is a feature, and as long as you think you can vote your way out of it, they win.
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Anonymous Coward, 11 Mar 2013 @ 11:07am

Re: Republicans
Good point. I wonder why reputable political journos even bother citing "left/right" any more. We run on an inside/outside paradigm in DC, and now even the states.
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John Doe, 11 Mar 2013 @ 11:09am

I am sure the jobs are there somewhere
Did you check the grocery stores?
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Chosen Reject (profile), 11 Mar 2013 @ 11:18am

Re:
There was no mention of piracy, much less justification of it. But since techdirt won't justify it, I'll show you how it is done:

Dear Citizens of Pontiac, MI,

Disney has stolen millions of dollars from you. Like with many other loans, they still have collateral. You are now the proud owners of millions of dollars worth of Disney revenue. Take it how you see fit. That doesn't mean download. No, it means download and sell. It means feel free to stream their movies with ads surrounding it. Take ABC, ESPN and the Disney Channel off the air and then stream them from your own websites. According to the maximalists, it won't take long to recover your stolen money. You've been literally stolen from. Theft is theft. Law is the law.

See, that's how you justify piracy. You are welcome.
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sehlat (profile), 11 Mar 2013 @ 11:25am

At Least We Know Why Hollywood Calls the World Thieves.
It takes one to know one.
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Anonymous Coward, 11 Mar 2013 @ 11:26am

Re: Your mileage may vary...
can you share some of your examples? you seem to know a lot of it off the top of your head, so it shouldn't be too difficult.
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Anonymous Coward, 11 Mar 2013 @ 11:27am

Re: Re:
The movie just came out a couple days ago.

WHO CARES PAY US NOW DAMMIT
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MD, 11 Mar 2013 @ 11:29am

Seth Said...
When Hollywood Accounting is such a joke that even the Oscars host cracks jokes about blockbuster hits not showing a profit, maybe everyone should take the issue seriously. Really, they signed on for a deal that gave them empty buildings and no gurantee that any profits would come their way? Sad.
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Anonymous Coward, 11 Mar 2013 @ 11:31am

Re: Re:
What does a Hollywood bond deal with the state of Michigan have to do with "tech"? hmmm?

Nice try, but people figured out long ago that Techdirt is a pro-piracy blog and is constantly trying to rail on Hollywood for daring to protect their IP.

Nice try, tho!
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Anonymous Coward, 11 Mar 2013 @ 11:36am

Re: Re: Re:
You do know what payment deadlines are, don't you?
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Anonymous Coward, 11 Mar 2013 @ 11:38am

Re: Re: Re:
/facepalm
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silverscarcat (profile), 11 Mar 2013 @ 11:41am

Re: Re: Re:
The arrogance that you're spewing is disgusting.

And, if Techdirt is pro-piracy, then Jon Stewart is a conservative neo-nazi.
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silverscarcat (profile), 11 Mar 2013 @ 11:43am

Re: Re: Re: Re:
His arrogance is blinding him to reality.
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cosmicrat (profile), 11 Mar 2013 @ 11:43am

Re: Re: Your mileage may vary...
By share examples I assume you mean states that have done film incentives "the right way"(?)

I don't really have detailed figures, just rough information for my own state. I also know (as everyone in the industry does) that production is booming in New Mexico, Louisiana and the Carolinas (South in particular). And obviously the whole incentive/kickback/corporate welfare program was popularized in the first place by British Columbia and Ontario back in the 90's. I am not an accountant, and I realize there is debate about it, but most people seem to feel those areas have had a worthwhile payoff from their incentive programs.

We all expected the Michigan incentive program was going to be a debacle from the get go. Too much money was promised, there was no way that was going to be worth it. They also didn't have an overabundance of experienced crew -it was never a particularly big production zone before the incentives, therefore a large proportion of the crew flew in from around the country (contrary to popular belief we don't all live in L.A.). Few were surprised at the amount of corruption either, I don't mean to cast aspersions, but the big cities in this area were always known for cronyism and political corruption.
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Ed C., 11 Mar 2013 @ 11:50am

Re: Hmm...
They roam the country, raping and pillaging entire towns, and have the nerve to call infringers "pirates"?

The easy way to fix this is either force the studios to pay back their debts out of their gross revenues, or forfeiture of the IP itself to the public domain for non-payment. Of course, with all of the lobbying, campaign "donations", and other kickbacks, good luck finding a single politician with the chutzpa to stand up to them.
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Ed C., 11 Mar 2013 @ 12:02pm

Re: Seth Said...
No, I'm sure the politicians who signed the deal profited quite well.
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Anonymous Coward, 11 Mar 2013 @ 12:12pm

Re: Re: Re: Re:
Have some more Kool-Aid; it's always free here at TD!
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Anonymous Coward, 11 Mar 2013 @ 12:13pm

So, according to the republicans who dominated the legislature, subsidizes are just fine if it's a business like Hollywood, but ordinary citizens? Heck no, they're lazy bums! Hollywood on the other hand? Totally NOT lazy bums!

It would be nice if republicans could actually be consistent on this, instead of having one standard on subsidizes for people and another for subsidizes for businesses. Then I might actually be able to respect them when I disagree with them, instead of seeing it as giveaways to their biggest financial backers and middle fingers to people who didn't vote for them.
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Anonymous Coward, 11 Mar 2013 @ 12:17pm

Re: Hmm...
"free markets" are great when illegally stealing music and films, "free markets" not so great when people make bad investments.

interesting.
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Anonymous Coward, 11 Mar 2013 @ 12:22pm

comment 1

and who are the 'despicable, thieving pirates?'

comment 2

and stupid politicians continue to do whatever the entertainment industries want them to do. surely the time has come for even these to see that they are having the piss took out of them?

comment 3

how do those same stupid politicians feel now about their 'friends in the entertainment industries', having stolen, yes. stolen, a town's money under false pretenses, with no intention of giving it back, having had no intention of employing anyone (let alone 3000 locals!), in the first place!
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DannyB (profile), 11 Mar 2013 @ 12:38pm

Re: Hmm...
> I wonder how the MPAA shills will spin this one.

The movies are not profitable. And never will be. So subsidies from tax payers are needed. :-) That way the "fees" paid to keep the movies unprofitable can increase as the taxpayer coughs up more dough.
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techflaws (profile), 11 Mar 2013 @ 12:43pm

Re: Re: Re:
people figured out long ago that Techdirt is a pro-piracy blog
Bullshit. They figured out long ago that all the reports on Techdirt are making them look even more bad so they've sent clueless shills like you on a quixotic quest to stem the tides, of course to no avail.

Nice try, tho!
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Anonymous Coward, 11 Mar 2013 @ 12:51pm

Re: Re: Re:
LOL!

Nice try!

Irony, again, not lost.
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Anonymous Coward, 11 Mar 2013 @ 12:55pm

Re: Re: Re: Re: Re:
That kool-aid youve been saying is free?

It has DRM in it somewhere doesnt it?

I mean, the only kool-aid being offered here is by you.

So one has to assume its DRM-laden and anti-consumer as the rest of your.. "products"
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DCX2, 11 Mar 2013 @ 1:38pm

Re: Re: Hmm...
I fail to see what is free market about taxpayer subsidies.
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silverscarcat (profile), 11 Mar 2013 @ 1:39pm

Re: Re: Re: Re: Re:
What Kool-Aid?

I don't drink it unless I make it.

Besides, you probably poisoned it.
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silverscarcat (profile), 11 Mar 2013 @ 1:40pm

Re: I am sure the jobs are there somewhere
I think all the food was eaten.
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DCX2, 11 Mar 2013 @ 1:41pm

Re: Re: Re:
In three weeks, I will owe a mortgage payment to my lender.

Bbbbbut I just bought my house last week!
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Anonymous Coward, 11 Mar 2013 @ 3:28pm

I hear Robocop is upset because he didn't get the role of the Tin Woodman.
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nasch (profile), 11 Mar 2013 @ 4:25pm

Re: Re: Hmm...
"free markets" are great when illegally stealing music and films, "free markets" not so great when people make bad investments.

interesting.

You wanted to know how they would spin it? There you go - this one is spinning it as Mike being opposed to free markets allowing governments to choose investments. Kind of makes your head hurt, doesn't it?
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nasch (profile), 11 Mar 2013 @ 4:30pm

Re: Great! Focus on the THIEVES! -- But that DOES include pirates...
My wish is to target the gov't at obvious thieves who are wearing expensive suits and flying on corporate jets: they're stealing the excess value that labor creates. That's Populism.

o_O

That's pretty much the exact opposite of populism.

"Populism has been viewed as a political ideology, political philosophy, or as a type of discourse. Generally, populists tend to claim that they side with "the people" against "the elites"."
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zomg, 11 Mar 2013 @ 9:24pm

Right to work for less
This doesn't surprise me coming from a "right to work" for less state. If you know what I mean. Not to mention "no-fault' auto insurance rape-age rates! This state is run by morons.
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MrWilson, 11 Mar 2013 @ 9:25pm

Re: I am sure the jobs are there somewhere
I'm sure all the grocery store clerks would proudly stand beside the Hollywood elites in protesting this article's offensive accusations. After all, they both rely on copyright to make their living...
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Mike Masnick (profile), 12 Mar 2013 @ 2:36am

Re: Re: Hmm...
"free markets" are great when illegally stealing music and films, "free markets" not so great when people make bad investments.

Gov'ts handing out taxpayer money is the opposite of a free market.

You're really stretching now...
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Anonymous Coward, 12 Mar 2013 @ 4:08am

Re: Great! Focus on the THIEVES! -- But that DOES include pirates...
No, you don't. Because the thieves who wear expensive suits and fly on corporate jets are the same thieves populating the RIAA. Otherwise known as your jizz supplier, to which you have a crippling addiction.
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trish, 12 Mar 2013 @ 8:50am

so pathetic
not even funny
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Anonymous Coward, 12 Mar 2013 @ 9:58am

Re: Re: Re:
When did you ever get relief from a loan payment?

Now why would some studio get relief just because the movie hasn't come out?

They did set themselves up financially to be able to pay for the movie they made, didn't they?

Oh, wait, you mean they didn't?

Risk meet reward. Now, Risk, I've got to warn you, reward isn't just going to throw himself at you. You've actually got to work for it. You might take a fall. But you still have to meet your obligations regardless of how much reward you manage to get. Or don't get.

Damn that common sense for being sensical.
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Anonymous, 12 Mar 2013 @ 3:18pm

Re: Right to work for less
Yeah, let's force people to join a union as a condition of employment. Let's add "union dues" to the list of things that are already being taken out of a worker's paycheck. Talk about working for less. And you call other people morons?!
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cosmicrat (profile), 13 Mar 2013 @ 3:19pm

Re: Re: Right to work for less
Well, I'm with you in not being very happy about the rate of union dues. But let's compare what I've made on some shows I've worked on: non-union: made anywhere from sub minimum wage to about 15.00/hour, no medical plan and the working conditions are usually harder. Union: 17.00 to 24.00/hour with excellent medical coverage for me and my fam, and the working conditions are always better. But I pay 3% of my wages in dues. Sounds like union is the way to go -if your serious about making a career in this business.
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Anonymous Coward, 20 Nov 2013 @ 2:15pm

michigan-bets-state-pension-fund-hollywood-success-ends-up-stuck-with-tab
The politicians behind these ridiculous deals should be on the hook for the full amount of money they so generously offered up from our retirement pension funds, not the tax payers, state workers or the teachers. When the private studio can't pay it's bills then Granholm and the like should have to pool their own finacial resources and they can't pay the bills they have so generously backed with our pension funds then they should be sent to prison for grand theft.
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