Scouting for a location to film a lavish new “Star Wars” live-action television series, filmmaker George Lucas says the Czech Republic probably won’t get his business.

A few years ago, it might have, thanks to a well-established reputation as a low-cost, high-quality Central European film production haven. But now neighboring countries, particularly Hungary, are offering superior tax incentives along with workers of comparable quality.

[George Lucas]George Lucas

“As a producer, I will always go to the country that has the best crew coupled with the most tax incentives,” Mr. Lucas said in an interview conducted via email.

It’s a blow to the Czech Republic, as it scrambles to climb out of an economic downturn, that a domestic film industry that gave birth to “Amadeus” and “A Knight’s Tale” among other movies is being sidelined as Mr. Lucas and other film industry moguls who had worked there in the past opt for locations in other European countries.

The Czech Republic began losing film-industry business in 2004, when scrappy Hungary seized the moment to jump-start a film industry virtually from scratch by creating tax breaks to attract moviemakers; some other European countries, including France, which had previously focused on domestic movie-making, followed suit.

Czechs have been known for movie-making since film’s early days, and the country’s film schools have churned out a steady stream of highly skilled professionals, including Milos Forman, who won Academy Awards for best director of “One Flew Over the Cuckoo’s Nest” and “Amadeus.”

By 2008, money spent by foreign film producers in the Czech Republic had fallen a stunning 85% to $40 million from $270 million in the peak year of 2003, according to financial consultancy EEIP. Back then, U.S. and U.K. producers channeled about 5% of their annual spending on English-language films and TV shows to the Czech film industry; this fell to barely 1% last year, according to the Czech Audiovisual Producer’s Association.

If 2008 was bad, this year looks dire.

“No major Hollywood or any other big international production has come here yet this year,” said Jasmina Torbati, a producer at Centralscope, a film company, based at the well-known Prague Barrandov film studios.

The rapid evolution of Hungary’s film industry is a lesson in shrewd tax and industrial planning: In 2004, when the local incentive plan was launched, foreign filmmakers spent $21 million in Hungary, compared with nothing a year earlier. By 2005, Hungary had caught up with the Czech Republic: Foreign producers spent $85 million in each country, according to an EEIP study commissioned by the Czech Ministry of Culture. It was in 2007 that Home Box Office Inc., a unit of Time Warner Inc., chose to film the Tom Hanks-produced TV miniseries, “John Adams” in Hungary.

Last year, filmmakers spent about $250 million in Hungary, including about $150 million by foreign companies, according to the country’s Motion Picture Public Foundation. The government returned about $20 million in the form of rebates to foreign and domestic filmmakers alike.

Hungary recently upped the ante: Under new rules, the government now reimburses filmmakers for 25% of spending outside the country on a given movie. For example, spending on postproduction work carried out in London or Los Angeles on a film originally shot in Hungary can be offset. Hungary’s local incentive program originally centered only on cash rebates of 20% of all local expenditure by filmmakers.

“The legislation aims to enable the Hungarian film industry to succeed amid the rise in economic and cultural competition,” said Judit Bor Varadi, an official at Hungary’s Ministry of Culture and Education. “It’s an appropriate answer to the challenges Hungary faces because of its geography and language constraints, and small audiovisual market.”

The incentive program has helped to lure such productions to the country as Miramax’s “The Debt,” with Helen Mirren, Universal’s “Hellboy II: The Golden Army” and Atlas Entertainment’s “Season of the Witch,” with Nicolas Cage.

“The dynamics have changed: productions used to look at Prague first and then at Hungary; now they look at Hungary first and then at Prague,” said Howard Ellis, owner and managing director of Budapest-based Mid Atlantic Films, which served as a local production partner for HBO on “John Adams.”

Over the years, spending by foreign filmmakers — measured on a per-production basis — at Mid Atlantic “ranged between as little as $8 million and as high as $30 million,” Mr. Ellis said. “And I can say that all our clients, ever since 2005, have received the full 20% of the value spent.”

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