Hollywood on the Plains: No. 21, Iowa City
Intellectual sizzle. Tax incentives. (But few direct flights.)
By Mark Svenvold of Fortune Magazine

IOWA CITY (FORTUNE Small Business) -- When Stephen Jennings landed in California, he quickly shed his Iowan roots. His first job carried the only-in-L.A. title of "assistant flame artist."

At Digital Domain and Sony Pictures Imageworks, his animation and special-effects projects included Spider-Man and The Fight Club. He wore bowling shirts, hobnobbed with big-name producers at Oscar parties, and founded Grasshorse Technologies, an animation and special-effects film production company whose clients include the Cartoon Network and Warner Brothers Studios.

But when Jennings returned to his parents' Iowa farm last summer, he realized that the 80-hour workweeks in Los Angeles were growing tiresome. During his visit he heard about a new program called the Iowa Film, Television, and Video Project Promotion Program, which offers tax incentives to production companies that film in the state. Benefits include a 25% tax credit on all production expenses incurred in Iowa and a tax abatement for all film, video, or movie vendors working in Iowa.

"These incentives really sealed the deal," says Jennings, 35. He moved to Iowa City last September, working out of a transitional space just outside town; Grasshorse's new offices will open in June.

In recent years the economic corridor that stretches from Iowa City to Cedar Rapids has emerged as a powerful locus of economic growth, not only in film but also in computer simulation, bioengineering, and renewable energy. The University of Iowa, a major research institution, and Kirkwood Community College (with 15,000 students across seven counties and programs supporting emerging high-tech industries in the area) supply one of the best-trained work forces in the country. The falling dollar helps Iowa companies compete globally, as do generous local incentives such as a state tax exemption on profits from overseas sales.

"A key factor," says Jennings, "was being able to compete with animation studios in Korea and India."

You might be forgiven for thinking that a chunk of West L.A. had somehow shifted to east-central Iowa as you drive past Iowa City's cosmopolitan offerings: foodie shops, the Englert Theater (where Noam Chomsky recently gave a talk), and the gleaming new Hotel Vetro.

Downsides include few direct flights from major hubs and a lingering global snobbery toward middle American states that begin with the letter "I." Recently IDT Technologies, a local genetics-research firm with overseas ambitions, set out to hire a senior executive. Several international candidates withdrew applications when they found out that "IA" meant Iowa.

Still, Jennings is at home in a town with tailgate parties and affordable real estate on tree-lined streets. "It's out of Huckleberry Finn," says Jennings, who enjoys canoeing on the Iowa River during off hours. Then there's what might be called the "big fish/small pond" incentive.

"People are impressed," Jennings says, "and they go out of their way to try to help."

A big draw for Iowa
Siblings hope to bring studio, nearly 50 jobs
By David Dewitte of the Cedar Rapids Gazette

WINFIELD (March 24, 2008) — Stephen Jennings and Kathy Buxton have a big transplant job in mind, one that might even change the way some Iowans think about their state.

Think cartoons instead of corn; sci-fi instead of soybeans.

The Iowa-born brother and sister plan to transplant Grasshorse Technologies, the animation business Jennings started in California, to Eastern Iowa, which Buxton calls home. In doing so, they hope to begin a reverse migration of Midwesterners who headed for the coast to work in the entertainment industry.

The audacity of the plan doesn't seem to bother the brother-sister team. Jennings, now 35, was barely 30 years old when he founded his film animation company in Southern California in 2002.

Jennings was a star pupil at the California Institute of the Arts, winning a grant from the Royal Family of Monaco's Foundation for Undergraduate Film, and serving as the school's graduating film representative of the year.

The honors gave Jennings a chance to meet film industry luminaries and helped him land jobs in the visual effects industry. He worked on titles such as "O Brother, Where Art Thou?" and "Fight Club" for studios including Digital Domain and Sony Pictures Image Works. After working on special effects for "Spider-Man," Jennings decided to open a "boutique shop" catering to television animation.

Grasshorse found its niche in "cleaning up" animation work outsourced by major studios to companies in places like South Korea, Jennings said. America's entertainment industry relies heavily on Asian animation firms because they can turn out animation quickly and inexpensively.

Outsourcing animation overseas can have certain drawbacks, Jennings found. Because of intercultural communication difficulties, nuances of the scripts were sometimes missing in the animation the foreign artists submitted, requiring revision in the United States. Other times, the work just needed polishing to make it more visually stunning, he said.

Grasshorse also became known for animation that incorporates a three-dimensional look into two-dimensional animation works, such as a sequence in the 2003 release "Star Wars: Clone Wars" in which a cave drawing seems to come to life.

Jennings and Buxton, 46, got serious about moving the business to Iowa when Gov. Chet Culver signed the Iowa Film Promotion Act last year. The bill was Iowa's attempt to get serious in the competition for moviemaking dollars, and it applies to the kind of animation work done at Grasshorse.

The incentives include transferable state tax credits equal to 25 percent of the filmmaking expenditures for the producer and investor, and 100 percent income exclusion to Iowa-based companies or state residents for money earned from certified film projects.

"It makes us competitive on a worldwide basis," said Buxton, who has worked as a computer consultant for MCA Universal, Warner Bros. and Disney Consumer Products and in software development for Entertainment Software Solutions.

Grasshorse's plans call for opening a state-of-the-art animation studio that would employ 49 people full time and some freelancers. It would include about 70 computer workstations and an industry-standard screening room.

The company is seeking a good location in a place like Iowa City or Fairfield with a vibrant atmosphere. An attractive location will be key to getting animators to move away from the coast and making a good impression on visiting entertainment executives.

The cost of the studio is expected to be about $3 million, and it's not sitting in a bank.

Raising the funds poses a challenge, Buxton said. The company has found lenders here to be unfamiliar with how to value intellectual property assets that Grasshorse wants to use as collateral for financing.

Grasshorse has developed software that speeds the development of young artists into skilled animators and improves overall efficiency on animation projects, Jennings said. He estimates the software makes the company 20 percent to 27 percent more efficient than the industry norm.

Grasshorse resides in a tiny Winfield office within 7 miles of the family's five-generation farm. It is the same office where the siblings' father, Vivan Jennings, helped launch Asoyia, a pioneering company in the use of low-linolenic soybeans to produce zero trans-fat soybean oil. He works with Grasshorse as executive vice president.

Grasshorse isn't accepting new work now but has held discussions with two show creators who want to work with it in developing properties that could become TV programs, Stephen said.

A film industry veteran advising Grasshorse, Vaughn Halyard, thinks the company has a chance to make a go of it in Iowa.

"It's got a book of business," said Halyard, who advises Grasshorse through the Entrepreneurial Development Center of Iowa. "It's not going to relocate an entire industry, but there's enough work that it can support a business," and it can grow, he said.

Animation accounts for about $60 billion in entertainment spending per year, according to a report from PricewaterhouseCoopers.

Halyard said Grasshorse stands a chance of winning some animation now going overseas because the weak dollar makes U.S.-made products and services less expensive. He said Iowa's film tax credits and the absence of huge time zone differences also are competitive pluses for Grasshorse.

Jennings and Buxton admit the project could bypass Iowa if they can't find a financial backer or lender who would let them locate it here. But for now, they say, Iowa's their choice.

LA-based film and animation company opens office in Iowa
By Connie Street of the Muscatine Journal

WINFIELD, Iowa (March 21 2008) — A family-owned animation company servicing the entertainment industry has moved to Winfield from Los Angeles after Iowa legislators created new tax incentives for film companies locating in the state.

The Iowa Film, Television and Video Project Promotion Program was passed in 2007 to provide tax incentives to attract the film industry, job diversity, and talent to the state. The Iowa Film Office of the Iowa Department of Economic Development operates the program.

“It created fertile ground for companies to relocate to Iowa,” said Stephen M. Jennings, founder and co-president of Grasshorse Technologies Inc. “It was the deciding factor in our transition to Iowa.”

Kathy Jennings-Buxton, Stephen’s sister and the company’s co-president said another factor that guided the decision include Iowa’s education system.

She said the business and cost of living environment in Iowa is favorable and will work in support of Grasshorse’ s objective to grow into a company worth $30 million with net revenues of $5 million by 2011.

“We believe Iowa is the place to be,” she said. “We hope to draw former Iowans back to the state.”

The co-presidents of the company are Iowa natives who grew up in the Winfield-Columbus Junction area.

“Many of the services Grasshorse plans to provide have not been available in Iowa and are needed for the production of films, videos and commercials,” said Tom Wheeler, the state’s film office manager.

Rep. Mark Davitt, D-Indianola, the Iowa legislator who spearheaded the state program, said Grasshorse will bring highly skilled jobs to Iowa and leading-edge technology.

Grasshorse is at of 102 S. Locust St. in Winfield while company officials search for a location that will best meet their needs. The company expects to establish a substantial business that will require a highly trained workforce, large facility and infrastructure to execute and deliver products to an expanding industry.

Vivan Jennings is working with the Iowa Department of Economic Development to find a community with the components needed for the company’s permanent location. It must not only meet the company’s needs, but would have the amenities to draw employees to the area.

The transition to Iowa will include the expansion of Grasshorse’s animation production studios to full-scale film production capabilities for 2-D and 3-D animation products. Grasshorse Animation, a division of Grasshorse Technologies, will continue to

grow and service the company’s animation production and visual effects clients such as Disney, Warner Bros., Cartoon Network and Nickelodeon.

Grasshorse Technologies sees a market opportunity to provide the Hollywood film industry a viable and affordable American alternative to production services that are increasingly being fulfilled overseas due to economic and budgetary concerns.

“Iowa’s film incentive program significantly changes the playing field,” Jennings-Buxton said. “These essential overseas jobs are highly sought-after positions that Iowans want. Now we can compete with the world market and provide a better quality of life with a sustainable job environment at the same time.”

Grasshorse’s veteran talent has contributed animation, visual effects, production and editing services to 15 commercials and music videos, 16 motion pictures and eight television series.

The name

Returning to the United States after shooting a film in Poland, Stephen Jennings met his future wife, Marta, on the plane. She was on her first visit to America to visit relatives in Chicago.

Later, when they were a couple and were traveling by car, Marta saw a grasshopper and in her excitement she couldn’t come up with the correct English word. She told Stephen she had seen a grasshorse. The word stuck as part of their vocabulary.

Grasshorse Technologies produces high-end animation for film studios, television networks, advertising agencies and production companies. Stephen Jennings said it is devoted to developing and producing state-of-the-art films, television programs and commercials, and is dedicated to doing it without causing damage to the earth.

“We support sustainability and green values with our planet-friendly and society-supportive commitment,” he said. “The quality of our work is a reflection of the quality of our lives.“

According to Vivan Jennings, father of Stephen and Kathy, Grasshorse is the only animation company in Iowa. He said new technology makes the company competitive in the Midwest.

Stephen said securing the needed talent is challenging.

“We want former Iowans to relocate and we want to foster local talent,” Stephen said. “We need to make sure they’ve had the curriculum, the skills and the ambition and desire.

Vivan Jennings said Grasshorse plans to collaborate with colleges to improve skill levels.

Grasshorse also plans to develop software to teach the aspect of animations.