Runaway Productions, Slow DVD Sales Imperil Studio Jobs

California’s film and television economy faces a potential Hollywood-style cliffhanger from such myriad problems as runaway production, slackening growth in DVD sales and union restlessness, according to an industry report to be released today.

The survey by the Los Angeles County Economic Development Corp. depicts an industry under siege and whose outlook is murky. The entertainment industry employs nearly 250,000 people in the county, according to the report.

But studios are beginning to cut jobs in anticipation of a slowdown in DVD revenues that have been so lucrative in recent years, according to the report. Studios also are grappling with softer box-office receipts, movie piracy and uncertainty over which new technology will best deliver entertainment to consumers.

“People see this as an industry that’s very glamorous and exciting, but it’s an industry that’s going through some major inflections,” said the report’s coauthor, Jack Kyser, chief economist with the business support and research organization.

Further clouding the outlook is runaway production. Film shoots are increasingly fleeing not only to Canada and other countries, but also to states offering lucrative tax incentives and high-tech facilities. In New Mexico, for example, a $60-million film, TV and digital media production center is being planned.

“Most people think of production running away to Canada, but runaway production to other states has become a very significant challenge to our film industry,” the report states.

In October, for example, 40 of 81 feature films were shot in other states, 26 in Canada and other countries and just 15 were based in California.

To stem the outflow, industry backers pushed for a state bill that would offer as much as $100 million in annual tax breaks to keep film productions in California. But the legislation faced heavy opposition in September when critics labeled it a giveaway to Hollywood. The bill is likely to be reintroduced in 2006.

The Los Angeles County Economic Development Corp. report also highlights the rise of “union militancy” at the Screen Actors Guild and Writers Guild of America, West. The unions have elected new leaders who have vowed to take a tougher line in negotiations with studios.

Bracing for the worst, studios have begun to develop contingency plans for possible strikes two years before the first contract expires, raising fears of a “de facto strike” similar to the one in 2001. That’s when studios stockpiled movies, then severely cut back on production after settlements were reached because so many projects had been completed. This cut production jobs, causing an estimated $526-million income loss to the Los Angeles area, the report says.

Patric Verrone, president of the WGA, West, said writers would fight for fair wages and benefits but were not bent on striking.

The film and television industry is a major plank in Los Angeles’ economy, generating more than $28 billion in revenue while also feeding such key sectors as tourism and clothing design.

Statewide, industry employment, mostly in Los Angeles, climbed 7% in 2004. It is projected to grow an additional 4% this year, slowing to 3% in 2006.

Los Angeles area film production activity through October was up about 8% over last year, the report says. Much of the increase, however, is because of a surge in TV production, which typically pays less than feature film work. Overall job levels remain below the peak in 2000.

Underscoring the shift, average annual wages for those working in motion picture and video production dropped from $89,640 in 2001 to $80,402 in 2004.

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Job engine

The entertainment industry is the third-largest employer in Los Angeles County.

Average number of jobs in 2004 in selected industries (In thousands)

International trade: 261

Tourism: 260

Motion picture/TV production: 249

Technology: 202.7

Business, professional services: 177.6

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Source: L.A. County Economic Development Corp.