Hollywood’s Starring Role

Hollywood played a critical role in helping to lead California out of its recent recession, generating some of the fastest job growth numbers among the state’s industries and producing wages 70% higher than average.

So concludes the first major economic impact study in four years by the film and television industry, which confirms the widely held view among economists that the entertainment industry has vaulted to the forefront of the Southern California economy and has emerged as one of the key economic engines in the area and state. It also clearly shows that despite widespread concern in the early 1990s, the state has largely fought off competition from other areas seeking to lure production away.

The report released Thursday says Hollywood’s direct economic impact--defined as payroll combined with money paid to vendors for supplies, services and other products used--soared 69% in four years to $27.5 billion in 1996, more than 90% of that taking place in Los Angeles County. The number of people directly employed in entertainment statewide rose 38% to 226,000, the report says, while 479,100 more workers had jobs stemming indirectly from entertainment such as workers in support industries ranging from catering to accounting.

“We are riding on an ascending curve of economic activity,” said Jack Valenti, president of the Motion Picture Assn. of America. Valenti spoke at a news conference amid the tourists at Universal Studios, within a few feet of a replica of the shark from “Jaws.”

Commissioned by the Motion Picture Assn. of America, the trade group representing the major studios, the study was designed to draw attention to Hollywood’s economic impact. The industry’s leaders have felt that as an economic force, the entertainment business hasn’t been adequately appreciated. If it is a significant force, they reason, local governments and residents might be more tolerant of disruptions caused by filming.

The study’s tone is in marked contrast to the tone surrounding the release of a similar one by the industry in 1994. At that time, industry officials used the report to suggest that government was doing too little to help the industry and predicted dire consequences if California didn’t fend off other states seeking to steal away production.

Thursday’s report acknowledges that the worst of those fears didn’t materialize--in part because state and local governments are working to make filming easier--and paints a picture of a state with a solid entertainment infrastructure that continues to dominate the world’s film and TV business. Indeed, while California’s movie production rose 79% to 572 in 1996, film starts outside of California were falling by more than 16%.

In contrast to the statements made in 1994, the industry now is increasingly urging government to take a hands-off approach, going so far as to suggest that the best thing government can do for Hollywood is to stay out of the way. The report notes that much of the growth in the 1990s was achieved with little or no assistance from government, adding that government should continue to make sure permits are issued speedily and to resist enacting regulatory and tax burdens that could inhibit growth.

“Let our creative juices flow with as few barriers as possible,” Valenti said.

With chapters named after recent films, such as “As Good as it Gets” and “L.A. Confidential,” the report, using industry-supplied payroll and expense numbers, documents the soaring growth Hollywood has experienced in the 1990s, triggered by growth in international television, the foreign film market, domestic television, commercial production and such fledging areas as interactive entertainment.

As for the future, the report says most forecasts indicate demand for movies, TV and commercials will continue to grow, but it does raise the concern of whether that growth will continue to be largely in California. The state still faces aggressive competition from Canada for productions, especially for TV.

In recent months, some economists and state officials have been predicting that the state’s entertainment industry is cooling off, although not all agree on that or to what degree it is happening. Although most economists believe that the industry is not running at the torrid pace it was two years ago, most believe it remains healthy and continues to grow.

In late 1997 and early this year, production slowed some in Los Angeles. Executives have been at a loss to come up with a consensus to explain it. But theories include bad weather, the potential actors strike that has been tentatively settled, a cyclical downturn in the project development and a cutback in the number of films being made by studios concerned that the movie market is overcrowded.

Recently, however, signs indicate activity is again picking up. The UCLA Anderson Forecast predicts that motion picture and TV employment will grow 5.7% statewide this year, according to Rajeev Dhawan, director of econometric forecasting.

Defining Hollywood’s economic impact has always been difficult, in part because defining what should be considered entertainment is subjective and because much of the industry is made up of small, independent contractors who are difficult to track.

Even the $27.5-billion figure highlighted in the industry study as a measure of statewide economic impact is probably too low, according to many economists. Depending on how broadly one defines entertainment--which can include such areas as music, theme parks, video and new media--some peg the economic impact at $35 billion to $40 billion.

Recent employment figures from economists also suggest that the number of workers is higher than in the report, about 262,000 in Los Angeles County alone. That doesn’t include 50,000 or so other workers in related fields.

Comparing wages, the report says the average annual income in entertainment was $53,000 in 1996, compared with $31,700 in California and $28,900 nationwide. Dhawan, however, said those numbers can be distorted by the huge amounts of money some executives, actors and directors make and don’t mean that most entertainment workers make that amount.

According to the study, Los Angeles reaped far more entertainment production than other cities. Of the $25.5 billion spent in Los Angeles County in 1996 on payroll and money spent on vendors, $14.2 billion was in Los Angeles, followed by $3.2 billion in Beverly Hills and $1.7 billion in Burbank.

Also, entertainment’s economic impact was higher in Pasadena, Culver City, Santa Clarita and Glendale than it was in San Francisco, the city with the most entertainment activity in the state outside of Southern California.

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The Not-So-Big Picture

Of the more than 7,000 motion picture and video production companies in California, 91% had 10 or fewer employees in 1996. A breakdown of the companies based on work force size:

Companies: 4,468

Employees: 0-4

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Companies: 325

Employees: 5-9

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Companies: 183

Employees: 10-19

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Companies: 122

Employees: 20-49

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Companies: 33

Employees: 50-99

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Companies: 28

Employees: 100-249

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Companies: 7

Employees: 500-999

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Companies: 8

Employees: 500-999

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Companies: 16

Employees: 1,000+

Sources: Employment Development Department