It looks like the iron fist of history is finally striking down on Tinseltown.
In addition to the economic fallout from the pandemic and the actors’ and writers’ strike, Hollywood, the Los Angeles-based entertainment giant, is facing a much larger impact from the economic turmoil already hitting other parts of the United States.
As with manufacturing, agriculture and other major sectors of the U.S. economy, the outcome for Hollywood appears to be mixed: prosperity and good times may return for some, but tougher times for others.
“So much of the traditional Hollywood economy has its existence in question,” said Stuart Ford, chairman and CEO of AGC Studios in Los Angeles, which develops, produces, finances and licenses film and TV shows.
New technology, changing public tastes, and a globalized workforce have transformed the way the film and television industries make money for decades.
“The key thing here is there’s so much going on at once that it’s really hard for anyone to be confident,” said Kevin Crowden, an economic expert at the Milken Institute who has done extensive research on California’s entertainment industry.
“There are very real questions on the business side right now because nobody is sure about the economic situation.”
What is clear is that the numbers are bleak when it comes to box office receipts, filming activity and especially employment.
After the fall strike ended, many expected local film and television employment to bounce back. But Los Angeles County’s film and sound industry employment, a key sector for film and television production, remained little changed at about 100,000 through April, about 20% below pre-pandemic levels. Apart from the early COVID-19 months of 2020 and last summer’s strike, this is the first time employment in the sector has been this low in more than 30 years, according to the U.S. Bureau of Labor Statistics.
The impact on wages and lost purchasing power has been significant for the local economy: Employees in the motion picture and recording industry earned an average weekly wage of $2,600 last year, making up less than 3% of total employment but about 5% of private sector wages in Los Angeles County.
Southern California also has tens of thousands of people working as freelancers and contractors in Hollywood who aren’t counted in government payroll data. Together, they make up the largest concentration of entertainment industry workers in the world and help explain why California’s overall labor market lags behind the nation’s.
What’s upsetting the future of entertainment workers is similar to what began shaking up American manufacturing decades ago: new technologies that transformed businesses and reduced the need for workers, and the rise of cheaper manufacturing bases in the U.S. and abroad.
Even before the strike, movie studios had been sharply cutting back on spending on new programming after the so-called streaming wars, in which companies spent billions on digital content to compete with Netflix.
Globally, film and TV production slowed by about 7% in the first quarter of 2024 compared to the same period in 2023, according to research firm ProdPro.
Los Angeles will likely remain a vibrant hub for top film and TV workers, but many of the production and distribution jobs may continue to move elsewhere.
For example, Toronto has long been an attractive alternative location for filming movies, while New York City is widely used for television shoots. In recent years, a number of other filming locations, including Atlanta, have begun to take some of Los Angeles’ business share.
In fact, outside of Los Angeles, the national film and TV payroll has mostly recovered, reflecting high costs in California and a long-term exodus of production to other areas such as Atlanta, Vancouver and London.
California’s share of U.S. employment in the motion picture and sound recording industries has fallen from nearly 40 percent just a decade ago to less than 30 percent today.
The economic ripple effects are felt throughout the region, including prop manufacturers, design studios, talent agencies, and the numerous catering companies and related businesses that service Hollywood.
“It feels like we’re starting the business all over again,” said Rian Johnson, president of New Rule FX, a Van Nuys special-effects prop manufacturer that has been in the business since the early 1990s. With demand for fake blood, rubber glass and fragile furniture dwindling, Johnson said he has had to repeatedly tap all of his loans and lines of credit just to pay his seven employees.
Some of the so-called “underline crew” – boom operators, costume designers, camera operators – are going back to school to rewrite their resumes and try their luck in other fields such as manufacturing, engineering or business services.
The world also seems to be in turmoil in the offices of movie studio executives and the so-called showrunners who sit at the helm of TV series. Amid a wave of consolidation and restructuring, in part in response to the rise of internet video platforms like Netflix, YouTube and TikTok, the old studios are all asking the same questions: How do they recapture today’s audiences, and how do they make money when their old business models are in decline?
In addition to budgets being squeezed by dramatically higher borrowing costs, the long-standing model for the independent film and TV business – “gap” financing, whereby future revenues from unsold distribution rights are used as collateral for borrowing – is now prohibitively expensive, AGC Studios’ Ford said.
Private equity partners once attracted by the entertainment industry spotlight and even Chinese investors once enthusiastic about the venture are now few and far between.
And no one seems sure about the long-term viability of big-screen feature films, Hollywood’s mainstay product.
Is this time really different?
The breadth and depth of today’s financial crisis in the film industry can hardly be compared to what happened in the early 1950s, another period of technological upheaval, when television entered American homes and took a hit when federal antitrust lawsuits destroyed the studios’ control over theaters.
As author Edward Jay Epstein notes in his book “The Hollywood Economist,” by the late 1940s movie attendance had fallen to less than half of its peak in 1948, when some 90 million Americans, roughly two-thirds of the population, went to the movies every week.
In the midst of that crisis, Hollywood reinvented its business model and began producing television shows, then developed entirely new ways to make money by making made-for-TV movies and selling reruns, merchandise, and of course feature film rights to networks for distribution in international markets.
In later years, sales of videotapes and DVDs and licensing agreements with cable television provided steady incomes for studios, key creators, and actors.
But what’s different this time is that the threat comes from multiple directions.
A series of unprecedented strikes last summer brought production to a virtual halt and caused long-term disruption to filming schedules for this year and next.
At the same time, the popularity of streaming, led by Netflix, is reducing cinema attendance, DVD sales, and the licensing and resale revenues that studios have long enjoyed. Disney, Paramount and others are also jumping on the streaming bandwagon, but to be successful they need enough long-term subscribers — no easy feat when many people are likely to cancel after watching a particular show that piques their interest.
Analysts have no doubt that traditional movie studios are still capable of producing great movies — the question is whether audiences are still interested in watching two-and-a-half-hour feature films in theaters.
For the past 15 years, Hollywood has enjoyed success with superhero movies like “Spiderman” and “The Avengers,” but that trend appears to be winding down, with nothing emerging to replace it, said Jonathan Kunz, a film historian at the University of California, Los Angeles. The reaction to last year’s two big hits, “Barbie” and “Oppenheimer,” obscured the industry’s core challenge: exciting audiences at the box office.
“The theatrical feature film was the foundation of Hollywood’s global popularity in the 20th century, and that seems to be coming to an end,” Kunz says. “Audiences seem to have moved on to other things.”
Charlie Fink, a former Disney executive who now teaches at Chapman University, puts the slump down to the fact that “people have other things to do with their screens, they prefer to spend their time on YouTube or play video games on their phones.” This is Hollywood’s problem.
International markets are becoming more important as U.S. movie attendance declines, but U.S. studios face growing competition from South Korea, India and other countries that produce films that are popular with both domestic and international audiences.
Big U.S. studios also can no longer count on China’s huge market as they once hoped. Beijing still tightly restricts the screening of foreign films, and many Chinese even download pirated copies of movies that are premiering in the U.S. Stanley Rosen, a researcher in Chinese film and politics at the University of Southern California, says the dream of U.S.-China coproductions was effectively wiped out by the failure of “The Great Wall” in 2016.
“It would be great if China was on board,” he said, “but we can’t really rely on China.”
Cost Factors
Shrinking production costs and budgets have led film and television producers to opt for cheaper filming locations.
Of course, wages matter, but while producers and directors in Los Angeles, for example, earn 40% more on average than their counterparts in Atlanta, when it comes to crew, the difference is only around 10% for sound technicians, camera operators and lighting technicians, according to May 2023 figures from the U.S. Bureau of Labor Statistics.
Where the bigger gaps lie is in government support for film production: Georgia has no cap on its tax credits that cover actors’ salaries, as does the UK, and the New York state legislature last year dramatically increased its annual film production tax credit allocation to $700 million, double California’s current amount.
The entertainment industry employment base remains a limiting factor for production in many filming locations outside Los Angeles, so Southern Californians are often brought in to assist and lead local projects, said Crowden of the Milken Institute.
But that’s not the case these days, he says: “When productions are cut and budgets are cut, the main focus of those cuts is to not hire workers from out of state who have to cover the travel costs.”
Experts worry that as local film workers continue to struggle, many will leave the region or quit the industry altogether because it’s too expensive to build a career and make a living in Los Angeles.
Employers like Johnson of Valley prop manufacturing company New Rule FX said many of their employees left the Los Angeles area after the pandemic subsided and business recovered, citing the high cost of living.
There are many challenges today, but the enormous creative and technological capacity and infrastructure that has been built up in this region over more than a century is a great advantage that can’t be replicated anywhere else.
“Maybe it’s because there’s a culture in Los Angeles where people don’t just live, they come here to make their dreams come true,” said Rick Carter, art director and production designer known for his work on “Jurassic Park” and “Avatar.”
Carter, 74, grew up in the film industry (his father was Jack Lemmon’s publicist) and has seen it adapt to similar pressures from new technology and changing audience tastes.
“If you take all these combustible factors, each one is going to be very tough in itself,” he said of the current situation. “I’m not sure we’re resilient enough to find a way forward.”
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Times reporter Thomas Sue Roeder contributed to this report.