Runaway Productions Poses Challenge for Hollywood

After a decade of rapid expansion, the Southland’s globally dominant cultural-industrial complex appears to be retrenching. Propelled in part by a glut in feature films and a decline in network ratings, film and television production, up nearly 80% since 1993, appears to have reached a plateau. Job growth, which had been averaging more than 10,000 annually, has stopped and even begun to contract.

Although Los Angeles’ economy is far more diversified than many believe, its cultural industries, particularly after the decline of its aerospace industry, have become ever more critical to the region’s long-term health. Even assuming that future entertainment-industry growth will be limited, maintaining L.A.’s dominance should be a central goal of local political and business leaders.

In the 1990s, L.A.’s cultural-industrial complex--movies, television, music, commercials and theme-park development--created as many as 100,000 jobs, most of them high wage. This growth spawned newer industries like multimedia and Internet commerce by bestowing a certain cache on, as well as attracting talent and capital to, the emerging Tech Coast complex. The industry’s expansion also helped resuscitate the region’s real estate market, most dramatically on the Westside and in the Burbank-Glendale corridor. More recently, tepid housing markets stretching from the South Bay to North Hollywood have begun to heat up. A downturn in the entertainment business threatens to reverse this progress.

Viewed broadly, the situation in today’s entertainment industry echoes a previous Hollywood crisis. In the 1950s, the arrival of television both challenged Hollywood’s entertainment hegemony and forced filmmakers to lower their costs. Television’s rapid arrival--the number of TV sets grew from 160,000 in 1947 to 7 million three years later--cut employment in the Hollywood trades nearly in half. By 1956, weekly attendance at movie theaters fell 50% from its 1946 peak. New York, the center of the new TV business, reasserted its claim to being the nation’s entertainment capital.

The emergence of digital technologies present a similar challenge today. The Internet has stolen audience, particularly among the young, from the L.A.-centered television industry, depressing demand for new product. Meanwhile, new media--computer-generated imaging, computer games, broadband transmission of entertainment programming--have opened up opportunities for potential rivals to L.A.’s cultural dominance. These include Seattle, Dallas, New York and the San Francisco area, where new technology has spawned such firms as George Lucas’ Industrial Light and Magic, Pixar and Pacific Data Images.

These competitive pressures, along with escalating production costs in the ‘90s, have spurred a shift of TV- and movie-making to lower-cost areas. In the 1950s and 1960s, this move helped create a whole industry of low-budget films, epitomized by spaghetti Westerns and classically themed movies, most of them shot in Italy, Spain and other southern European countries. Today, the search for lower costs is pushing both TV and movie production to Canada, Australia, New Zealand and even to Eastern Europe.

The migration of production to Canada has attracted most of the attention, particularly from the industry’s powerful craft unions. The British Columbia Film Commission estimates that U.S.-based companies spent about $500 million in the province last year, an increase of some 30% over previous years. Estimates of the resulting job losses by the Screen Actors Guild reach 11,000. Most affected are thousands of blue-collar film workers: boom operators, gaffers, drivers and grips who make Los Angeles their home. Many of these workers used to spend much of their time on locations in other states. But when production moves to Canada, work goes to local crews, hired under that country’s highly protective labor laws.

The move to Canada stems in large part from the decline of the Canadian dollar, the “loonie.” Now pegged at 65 cents, the loonie is widely referred to as the Canadian peso. At the same time, both the Canadian federal government and several provinces have instituted financial incentives to lure production there.

Even if California and City Hall countered with incentive packages of their own, the long-term ability of L.A.’s film industry to compete for lower-end production work may be limited. The inexorable search for cheap locations, sound-stage space and even technicians could extend beyond Canada and Australia to countries like Mexico. In any case, incentives, tax breaks and other lures can only be temporary solutions to runaway production. A better response lies in a concerted and coordinated regional effort to maintain superior levels of craftsmanship, improve cooperation between suppliers and producers and keep an eye on regulatory costs. This approach would require cooperation among government, labor and the studios.

Unfortunately, corporate Hollywood lacks a sense of loyalty to the craft, place and work force that is crucial to such a strategy. The domination of Wall Street and out-of-town owners has exacerbated the studios’ natural aversion to risk. Rather than investing long term in their business, most studios seem content to be little more than passive distributors and financial partners. Others, including Warner Brothers, are eager to unload studio facilities to independents.

Another impediment to cooperation is the anti-L.A. feelings of many prominent industry figures. Many New York-based executives, and too many in Los Angeles, are openly contemptuous of Tinseltown. Others, like USA Networks Chairman Barry Diller and film producer Lucas, disdain what Diller calls the way L.A. is organized. Although himself a product of Hollywood, Diller aims to supplant Hollywood production with dozens of smaller, locally based studios scattered around the country. Lucas routinely leaves L.A. out of most of his productions, preferring to work from his Marin County base or overseas.

Few L.A.-based studio executives, moreover, express a strong commitment to maintaining the region’s entertainment complex. Nowhere is this clearer than at Disney, probably the dominant company within the L.A. cultural-industrial complex. As a global company, Disney must invest in other regions and countries. Yet, as the company has dramatically cut both its own film budgets and development staff, it also has surrendered much of its core creative franchise to people outside Disney and the region.

This is evident in two areas. On the theatrical side, Disney has financed the growth of New York-based Miramax into one of the most prestigious movie companies in the business. Although Disney maintains nominal ownership of Miramax, which dominated this year’s Academy Awards, the company’s founders have signaled their desire to set up their own independently run production company.

Then there is Disney’s partnership with Pixar, the computer-animation company that produced “Toy Story” and “A Bug’s Life.” Although this alliance has produced a nice profit stream, it reflects Disney’s willingness to allow outsiders to invade its traditional territory of developing key technologies and characters.

Similar scenarios are being played out across Hollywood, including at Fox and Universal, where outsiders increasingly control creativity and whose production steadily shifts overseas. If not restrained or slowed, these moves could lead to the kind of hollowing out of Hollywood that characterized the local aerospace industry earlier this decade.

Yet, for all these problems, the prognosis is not entirely dreary. The current enthusiasm for cutting production costs indicates that even studio executives sometimes follow good business practices. But perhaps the greater hope is a resurgence of entrepreneurialism inside Hollywood itself. Santa Monica Studios and Rugrats creator Klasky Csupo are examples. Most important, it appears that DreamWorks is ready to make its long-awaited move to Playa Vista, possibly signaling a new creative, risk-taking spirit in Hollywood.*