Writer: Teddy Kuser | Editor: Yubeen Hyun
Hollywood: the bedrock of Los Angeles’ economy, the source of limitless imagination, and the theme for countless high school proms year after year, is suddenly a fragile institution. The long-held belief that Hollywood’s mystical allure acted as an impervious moat, preventing highly competitive and far more attractive foreign incentives from sweeping production abroad, has not held. COVID-19 struck “The Town” hard, leaving it shaken and struggling to recover. The industry is currently and continuously facing a mass exodus of talent from studios of all shapes and sizes. England, Ireland, and several U.S. states, notably Georgia, hold a clear competitive advantage over SoCal. Some would say, it is not a question of “if”, but rather “when” Hollywood will relinquish its position as the entertainment capital of the world.
For over a century, the movie industry has called Los Angeles home. Understandably, one of the driving forces of Westward production migration from New York City, the nation’s first entertainment capital, was the promise of perpetual sunshine. Then, of course, there was the diverse scenery of the greater Los Angeles area — rolling hills, sprawling urban skylines, and miles of sun-drenched coastline. But, perhaps most ironically, the move was in large part a financial decision. Land and wages were remarkably affordable in 1912, a far cry from the city’s current reputation. Today, affording rent in LA is no small feat, with its median rent 70% above the national average. Weather is no longer the draw it once was either, with modern climate-controlled soundscapes. And frankly, nobody wants to live in a city that spends half of the year looking like Hades’ front lawn.
Still, the driving force behind the recent exodus lies not in what Los Angeles has become, or the relative unimportance of the initial incentives for production settlement — it is in what the city has not done. Suffice it to say, “The Town” got comfortable. Legislators and executives alike could not possibly fathom a world in which LA was not the beating heart of film and television production; consequently, that world has become our reality. California currently allocates $330 million in annual film credits with an individual project cap of $25 million. Though these figures may seem astronomical at first glance, considering how easily many modern blockbuster budgets exceed $100 or even $200 million, it simply does not suffice. Additionally, the Golden State has set a hard minimum spending limit of $1 million for tax credit eligibility. This policy essentially eliminates small-market indie (independent) film production, projects that foster the next generation of talented filmmakers, actors, and composers. Current tax policies are entirely unsustainable and have driven a spear through Hollywood’s innovative heart.
In Atlanta, Georgia — the “Hollywood of the South” — the minimum spend is $500,000, with no credit cap and a baseline 20% transferable tax credit. And as if these measures were not attractive enough, the state offers a 10% bonus to any production company willing to slap a Georgia logo on the credits of their film. One of the most appealing attributes of these policies is the “transferable” nature of the credit. If a company spends a flat million in qualified expenses (hiring local crew, renting studios, etc.), Georgia’s baseline credit offers them $200,000 to lower Georgia State tax dues. It is often the case, however, that companies owe far less than the credit offered. In such circumstances, it can then be “transferred” or sold to someone else at a discount, say 90 cents on the dollar, resulting in a mutually beneficial transaction. This, in Econ 101 terms, results in considerable surplus value for both parties. The production company gets cold hard cash, and the buyer saves 10% on owed taxes. In contrast, California offers a meager 20% non-transferable credit that has very little appeal in the current landscape.
Many would argue that international competitors cast an even more formidable shadow on Hollywood. Recent blockbuster success stories, Wicked and Gladiator II, were both filmed and produced in the United Kingdom. American companies Universal and Paramount, the respective producers of the two films, cannot be blamed for this logical decision. The UK offers a “kingdom-wide” 25.5% minimum tax credit with no caps. Ireland offers the most enticing incentives in the island nation with a 32% base tax credit and an additional 8% for indie films (which also benefit from a “no minimum” tax policy.) These tax structures far outweigh any potential inconvenience of producing films across the Atlantic. Furthermore, they encourage the next generation of independent filmmakers to take a leap of faith with lower financial risk. London, like Atlanta, appears well-equipped to accommodate Hollywood’s highest-budget productions. It may not be long before the English city dethrones Los Angeles as the movie industry’s new home.
Naturally, the unfortunate consequence of a production flight from Los Angeles is the fallout of an industry that supports some 681,000 jobs annually. Contrary to popular belief, this impacts more than just the fabulously wealthy A-listers seen walking the red carpet at the Globes. Economic ruin disproportionately hurts the common folk — the technicians, the animators, the boom operators, the set dressers, the script coordinators — the unseen hands that grease the engine driving the creative process in Hollywood.
In 2022, Los Angeles accounted for 35% of film and television production in the United States. Last year, it fell to 27%. Hollywood is in a recession, one which jeopardizes an industry that contributes more than $115 billion to the local economy. Recent contractions in revenue have forced layoffs and salary cuts, provoking industry-wide strikes. The 2023 Writers Guild of America strike resulted in $3 billion in lost revenue.
Governor Newsom proposed a measure aimed at reinvigorating film production in Hollywood by nearly doubling California’s current production incentives from $330 million to $750 million, making it the highest in the nation. However, this alone is unlikely to reverse the industry’s migration. Many foreign governments impose no cap or minimum eligibility requirements for production incentives. To remain a global leader in entertainment, the state should consider adopting an upfront payment system similar to Ireland’s, which provides production companies with up to 75% of their anticipated tax break as an interest-free loan. That being said, balance is key. California still holds distinct advantages in infrastructure and geography that other states and countries cannot easily replicate. The state does not need to outright outbid competitors, but its current incentive structure — especially compared to Georgia and the UK — remains inadequate.
Ultimately, the dispersion of film production is inevitable, and while it will certainly change the atmosphere and culture of our “City of Stars,” not all change should be seen in a negative light. Film will begin to reflect a more diverse array of cultural perspectives, enthusiasm for film will manifest in new places, and the industry will almost certainly continue to flourish, although perhaps not in the way some of us would prefer. Still, there is more at stake than just Hollywood. Partly as a result of the “exodus,” streaming culture has rapidly drawn audiences away from the theater. On a more personal level, it’s the smell of fresh buttery popcorn, the velvet carpet floors, and the ridiculously comfortable reclining chairs that have regretfully accommodated a few of my most expensive naps. That is what is at stake.
Featured Image by Paramount Pictures
