THE BUSINESS OF ENTERTAINMENT : DreamWorks’ Rich Promise Accents Hollywood’s Fall

With the City Council’s approval, in concept, of the new DreamWorks SKG studio complex at Playa Vista, Los Angeles has scored a badly needed business victory. For the first time since the late 1980s, the city is the site for a major new private economic development, one that could secure the region’s role as the primary host of the emerging marriage of technology and entertainment.

Yet, while DreamWorks represents a big boost to the already improving economic fortunes of the city’s Westside, it could accelerate the decline of Hollywood’s historic core. Once the center of the entertainment world, Hollywood is increasingly a shadow of its historic self, known more for its runaways, prostitutes and high crime rate than as a show- business hub.

In many ways, the decision of DreamWorks’ founders--Steven Spielberg, Jeffrey Katzenberg and David Geffen--to locate their new studio on the marshland north of Los Angeles International Airport perpetuates the longstanding shift of entertainment resources away from Hollywood and Vine. “Hollywood is in bad shape,” says Dennis Macheski, a real estate consultant. “A lot of the new firms don’t want to be there and have flocked to Burbank or the Westside.”

The movement east has been accelerating since the early ‘90s, in part because of more business-friendly administrations in cities like Burbank and Glendale. Many of the newest sound stages and animation studios--including one at Disney and one recently announced by DreamWorks--are located in the Eastern San Fernando Valley, which is an increasingly attractive environment for smaller, entertainment service companies.

The entertainment industry’s move to the Westside, although decades in the making, picked up momentum after the real estate crash in the early ‘90s. Once far too pricey for fledgling entertainment-related firms, the recent drop in rents there has allowed many of them to set up shop in Santa Monica, the Marina and Venice. Significantly, this migration involves companies in the digital-imaging business. Last year alone, Metrolight and Rhythm & Hues, two big players in the industry, moved their operations from Hollywood to the Westside. Other firms, such as website maker Digital Planet, have clustered in Culver City.

The emphasis on technology and digital effects that DreamWorks will bring to movie-making will probably spark even more clustering of techno-entertainment in the vicinity of Playa Vista. Some, like Digital Domain, have announced their intention of moving into the DreamWorks complex itself; others may relocate to the relatively inexpensive real estate near the airport.

Surprisingly, many of the firms have discovered that moving west has saved them money. When Rhythm & Hues ditched its Hollywood facilities earlier this year, the company moved to a Westside complex five times larger for roughly the same rent.

Equally important, these firms have found already existing warehouse, industrial and other space with ample parking, a critical consideration for these highly people-intensive businesses. “If you look in Hollywood, you find buildings for 100 people with seven to 10 parking spaces,” says Al DiNoble, vice president for marketing at Metrolight Studios. “You move to get more space, more parking--and for roughly the same amount of money.”

The DreamWorks move to Playa Vista is certain to help Southern California lure more investment from existing and prospective players in the growing techno-entertainment field. Due largely to the promise of new infrastructure, as well as the star quality of DreamWorks, Playa Vista developer Maguire Thomas has signed up many major new tenants from outside the region, including IBM, Silicon Graphics, Microsoft and GTE Corp. As a result of these moves, according to one source, at least several hundred high-paying jobs that might have been located in Seattle or the Bay Area now will come to Los Angeles.

At the same time, the DreamWorks studio reconfirms L.A.’s continuing preeminence in the more traditional filmed-entertainment field, a leadership position that has sustained a well-coordinated assault from New York real estate promoters seeking to fill their vacant office towers. With the construction of at least 15 state-of-the-art sound stages at Playa Vista, DreamWorks should also help blunt potentially more serious competition from lower-cost states like Florida, North Carolina and Texas, which are eager to snag a share of film production.

But the growing bifurcation of the industry, with two nodes at different ends of town about 45 minutes apart, could threaten the historic synergies that have made Southern California second to none in the entertainment business. Roughly equidistant from the burgeoning entertainment hubs of Burbank and the Westside, Hollywood is a tolerable 20-to-25 minutes from each. This represents a critical advantage, particularly for the hundreds of supplier firms that service both Westside and Valley-based studios.

Indeed, many recently departed companies, including Metrolight, claim they would have preferred to stay in Hollywood precisely for such logistical reasons. At the same time, says Metrolight’s DiNoble, the old entertainment hub still possesses a special, if somewhat tarnished, magic.

Of course, reviving Hollywood will be no mean feat for the Riordan administration. Yet, Hollywood is worth saving as a beacon for both tourists and entertainment wannabes. It is still home to an impressive collection of specialty firms, particularly post-production houses, as well as Capitol Records, Paramount Studios and the American Film Institute.

Its star personalities aside, DreamWorks had the advantage of being a single, large project backed by a politically connected developer. What opposition there is--mostly environmental--is poorly organized.

Hollywood, by contrast, is an odd community made up largely of small property owners and independent specialized firms. They are less able to challenge anti-growth elements among homeless activists, environmentalists and others. “The big problem in Hollywood,” says Jonathan Katz, founder of Hollywood-based prop-maker Cinnabar, “is you can’t do business with the city of L.A. as a bunch of little guys. Right now, all they offer you is vaporware.”

For a growing company like Cinnabar, Katz says, it is now far easier to cut deals with cities like Culver City, Burbank or Glendale, which are accustomed to accommodating smaller firms, than wading through the morass of City Hall politics. Yet, if the departure of such small firms from Hollywood is not soon halted, the level of deterioration there could become virtually irreversible.

What Hollywood needs, suggests Katz, is a kind of “economic czar” who is capable of bringing together both major tenants (like Paramount), various property owners and the myriad of small specialty firms. Although this assembly would lack the star quality of DreamWorks, it would represent an equally critical component of the region’s entertainment resources.

For Mayor Richard Riordan and the City Council, a determined plan to restore old Hollywood would also mean a further commitment, already demonstrated by the DreamWorks deal, to a strategy of giving priority to wealth-creating industries capable of producing high-wage jobs. A new Hollywood initiative should concentrate on restoring sound stages, improving local telecommunications systems and creating skill centers critical to the needs of the entertainment industry.

To be sure, opposition would arise. But the rewards of turning around Hollywood would not only benefit entertainment-related companies, it would also ensure that Southern California would remain the center of the industrialization of fantasy.*