Hollywood’s Economic Engine Loses Some Steam

After five years in high gear, Hollywood is starting to downshift.

Indicators through the first half of the year show that Southern California’s entertainment industry is still growing in production activity and jobs, although not at the speedy pace that it has in years past.

Both statistical and anecdotal evidence suggest that jobs in entertainment are growing at a more modest clip of about 3%, compared to past years that often exceeded 5% and, in some cases, soared into double digits.

The change isn’t a surprise to economists and industry executives, who have maintained that the exceptional growth rates of the past five years would be difficult to maintain. Also, eye-popping employment increases are more difficult to achieve because the base number of jobs used in calculating growth has gotten so much bigger.

Still, the slower growth may mean that entertainment is unlikely to provide the same kind of kick to the Southern California economy for the next few years that it did through most of this decade.

Fueled by such factors as soaring demand in other countries and from cable channels for television shows and films, Hollywood had been on an exceptionally steep growth curve since 1992, when jobs last declined.

During the earlier part of the decade, Hollywood emerged as one of the most important driving forces of the Southern California economy, playing a critical role in helping the region emerge from recession by expanding rapidly when some long-established industries such as aerospace were shrinking.

As a result, even the smallest blips in entertainment activity have become important and closely watched, potentially affecting such sectors of the economy as commercial real estate and the scores of suppliers to Hollywood companies. If there should be a slowdown, it would send more ripples through the region’s economy than in the past.

Among the restraints on Hollywood’s growth in Southern California are a chronic shortage of sound stages, Asia’s latest economic troubles that have hurt Hollywood’s biggest growth market, and intense cost pressures on studios and TV networks.

Rising production and marketing costs are causing companies to rethink whether they should release as many films as they do now. In television, networks that are skittish about soaring costs have been reassessing the number of pilots commissioned in developing fall TV schedules.

Lower Growth Rate Forecast

Recently, the UCLA Anderson Forecasting group revised its growth rate estimate for the area’s entertainment industry to about 3%, down from 5.2%.

“My best guess is that it’s not growing as fast,” said Rajeev Dahwan, director of econometric forecasting. “It’s maturing, and digesting its past growth.”

Los Angeles economist Jack Kyser is predicting that entertainment employment will grow by 3.6%. Last year, he said, the growth rate was 5.8%.

“That still is a decent growth rate. It’s just not superheated,” he said.

Some factors retarding business in Hollywood are temporary and have already eased. Part of the slowdown can be traced to fears earlier in the year of a potential Screen Actors Guild strike, a cloud that lifted when the union reached agreement with producers in early April.

Economists and others believe that more evidence of the end of the SAG threat will start showing up soon. That’s because some producers and financiers delayed projects out of fear that they would have to pull the plug if actors went on strike.

“We had a lot of projects that were held up because of that,” said Cody Cluff, president of the Entertainment Industry Development Corp., which oversees the granting of film permits in the area.

Through June, the number of days production companies have shot in areas of Los Angeles where permits are required is up just a shade, with film, TV and commercial shooting flat or slightly down.

But television production took a big jump in June from a year ago in the wake of the SAG settlement. Cluff is predicting that with the SAG cloud lifted, overall production activity will rise from 5% to 8% this year, a decent growth rate, although less than the double-digit rates the area saw in 1995 and 1996.

Also aiding the industry’s growth will be construction projects coming online, such as the Raleigh Manhattan Beach Studios project in Manhattan Beach, scheduled for a formal opening celebration this week.

Fox’s television operations will anchor the sound stage complex, which will be home to such shows as “Ally McBeal.”

Elsewhere, developers are working on plans to build sound stages in downtown Los Angeles and in some areas of Hollywood. Numerous corporate construction projects also are in the works that could add jobs, such as a major expansion continuing on the 20th Century Fox near Century City.

Tough to Track Related Jobs

One thing that makes entertainment economic trends hard to track is the difficulty economists have in coming up with numbers that satisfy them. Defining exactly what should be considered an entertainment job is not easy because some professions, such as multimedia, straddle different industries. Also, state-collected data doesn’t do a good job of capturing the mobile, project-by-project nature of Hollywood’s work force.

Economists estimate the number of people in Southern California’s core entertainment business at 250,000, with 50,000 others in related fields such as multimedia, music, theme parks and other areas. An additional 250,000 jobs are probably indirectly related to entertainment, such as suppliers, lawyers, accountants and others whose revenue comes largely from entertainment clients and customers.

J. Nicholas Counter, president of the Alliance of Motion Picture and Television Producers, said that the producers group, which represents major studios and networks, has noticed a flattening of growth rates using some of its internal barometers.

The contributions that producers make to health plans of so-called “below-the-line workers”--electricians, camera operators, editors and others who work on the nuts and bolts of making films and TV shows--has remained virtually flat at about $45 million.

“We maxed out on sound stages, and there are fewer big-budget films,” Counter said.

The prospect of studios cutting back on films has Hollywood concerned, although some believe that studios talk a good game about cutting back but don’t really bite the bullet.

And some executives argue that even if studios cut back on movie releases, companies such as DreamWorks SKG, Metro-Goldwyn-Mayer or Artisan Entertainment will take up much of that slack.

Indeed, there are mixed signals on whether studios are really cutting back. Figures from the Motion Picture Assn. of America show that the overall number of films released by its members--dominated by the major studios--dropped last year for the first time since 1992, falling 8% to 197. But films released by all companies, including smaller independents, climbed by 9% to 458.

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(Southland Edition, A1) Camera Action

The number of off-lot shooting days by companies making movies, TV shows and other video productions in Southern California has leveled off.

In thousands

‘98: 22,456

Note: Figures are for first six months of each year.

Source: Entertainment Industry Development Corp.