As most industries brace for an economic slowdown in the face of higher interest rates, Hollywood is experiencing an ongoing boom that is overflowing its Los Angeles manufacturing hub.
The video streaming revolution has unleashed a wave of big-budget television programs and film productions, largely stacked on top of existing Hollywood productions, and a catalyst for the expansion of local soundstage infrastructure.
The Los Angeles area leads the world in stage capacity with 5.4 million square feet of stage space, outperforming competing production centers: 4.7 million square feet across the UK, 3.3 million in Toronto/Ontario, Canada and 2.4 million square feet in New York. In Los Angeles, that’s 398 sound stages in 57 facilities, according to FilmLA, the nonprofit production approval agency.
The focus is on “certified” sound stages, which are permanent Hollywood facilities with fire department permits in place, as opposed to multi-purpose camps that require security permits
for any use by movies and TV shows. A slew of construction work underway or on the drawing board will increase the number of certified soundstages by 27% a few years from now, FilmLA estimated earlier this year in what the industry believes is a long-overdue expansion.
In Hollywood, “sound stages have been built over the years,” said Adam J. Fowler, founding partner of CVL Economics, a West Hollywood-based entertainment consulting firm.
But now “we have a lot of industrial space that’s being repurposed,” he added. By most estimates, the percentage of sound stages throughout the region is in the low to mid 90s, which is essentially full capacity.
lack of land
The construction boom in the Hollywood historic labor region is targeting backfill sites within urban areas as vacant land is scarce.
One such project, designed to capitalize on increased demand, is a plan for sound stages at a Los Angeles Times printing facility at 8th Street and Alameda Street. Atlas Capital Group plans to start with six soundstages and eventually expand to 17 at the site
A massive modernization of existing stage facilities is also underway within the traditional work zone.
“The biggest action continues to be urban infill campuses” in Hollywood’s traditional production zone, according to Carl Muhlstein, International Director at Brokerage Jones Lang LaSalle Inc.
“Those are the ones at the heart of the ecosystem that talent can most easily interact with.”
However, due to high demand and lack of space, companies are expanding outside of the traditional zone into areas such as the Santa Clarita Valley, Pacoima and even the Inland Empire. New ventures continue to seep away; In early October, a multi-soundstage facility called Super Studios was proposed for Banning.
Experts agree there is little concern about overbuilding as manufacturing demand continues. TV series that have become an integral part of Hollywood can be rented in the same Soundstages for years or even decades.
Los Gatos-based Netflix Inc.’s programming budget, which leans heavily on original productions but also includes acquisitions of existing content, has grown to $17 billion annually these days, roughly double its total content budget for 2016.
FX Networks, a basic cable television channel operator, now counts well over 500 big-budget, scripted prime-time TV series annually, compared to just 182 series in 2002. FX Network annually reports industry TV series output figures.
Those numbers are global, but Los Angeles gets a big chunk. On the streaming side, this includes streamed TV shows like Star Trek: Picard on Paramount+ and American Horror Stories anthologies on Hulu that are locally produced. Soundstages are also used to produce music videos, commercials, and industrial films.
Private equity firms – purely financial investors – are spearheading the construction and refurbishment of sound stages, attracted by an industry with solid demand for production leasing but inadequate infrastructure. They also take into account the fragmented operators of the industry and the expectation of an easy exit when one or more players buy competitors to expand.
The biggest for Los Angeles appear to be Hackman Capital Partners and MBS, which own Culver Studios, Radford Studio Center, Television City Studios, MBS Media Campus, Raleigh Studios, Saticoy Studios and Sony Pictures Animation Studios. New York-based Square Mile Capital Management is partnering with Hackman on studios. Earlier this month, Hackman completed a $1.6 billion capital raise for its HCP Studio Fund from a diverse group of institutional investors. HCP Studio Fund has a global focus but will be locally affiliated with Radford Studio and Saticoy Studios.
Last year, Hackman unveiled a $1.25 billion investment to modernize Television City, a facility acquired in 2019 previously owned by broadcaster CBS.
Despite chronic underinvestment in infrastructure, Los Angeles is still well positioned to maintain its leadership in television and film production. That’s because the industry’s ecosystem is anchored in the Hollywood region, led by the five major film studios: Walt Disney Studios and Warner Bros. in Burbank; Paramount Pictures in Hollywood; Sony Pictures Entertainment in Culver City; and universal images.
Their own physical studio handles many in-house productions and also provides hands-on logistical support for their TV and film projects, which are made in nearby sound stages. When a production requires a hands-on inspection, executives don’t have to fly to the set.
Another magnet is California’s financial stimulus program, which offers hundreds of millions of dollars annually in tax credits, which is approved through 2025 and likely to be extended. California created the program in 2009 to combat financial baiting from other states.
“There are three legs of the stool: incentives, crew and infrastructure,” said Hollywood finance executive Joseph Chianese. “LA obviously has the crews. The infrastructure is modernized. As for the incentives, the state and governor have clearly improved the programs and it has had bipartisan support.”
Chianese is Senior Vice President and Practice Leader of Production Incentives at Entertainment Partners, a Burbank-based production finance, management and business services firm.
While the entertainment and streaming industry has plenty of positive economic momentum, some in the industry are complaining that the government is putting up unnecessary barriers. There are complaints that state and local governments are more interested in supporting other projects, such as affordable housing, than in helping big employer Hollywood fight government bureaucracy. Additionally, the state of California sporadically considers legislation that undermines the exclusivity of talent in employment contracts and in the gig economy for part-time workers, angering many in the industry.
The production boom is driving up wages, and Hollywood is now talking about bringing rising content costs under control.
In terms of content-rich spending, Netflix has reportedly spent $465 million on Daniel Craig’s current crime thriller Glass Onion: A Knives Out Mystery (and the rights to the sequel), after its predecessor for just $45 million US Dollar had been rotated. Elsewhere, Amazon Studios spent a
reported $465 million for his mini-series Lord of the Rings: Rings of Power, double that of a glossy Hollywood sci-fi blockbuster. And streamers routinely hire expensive theatrical talent for streaming productions, like the $170 million Martin Scorsese-run mafia film The Irishman with a star-studded cast. But the competitive pressures driving spending remain high, and Ari Emanuel, chief executive officer of Beverly Hills-based Endeavor Group Holdings Inc., which owns talent agency WME, said at an investor conference in September, “I don’t see it.”
Emanuel said the cost of an untitled streaming show WME was working on reached $17.5 million per episode, about four times the spend on a typical hour-long cable or television series.
“The last time I checked, it was more,” Emanuel said dryly.
In Hollywood, however, there is real cost-cutting. Major studio owner Warner Bros. Discovery is pursuing post-merger cost cuts, but spot cuts are exceptions to the larger trend of escalation.
Philip Sokoloski, FilmLA’s VP of Integrated Communications, sees the current sound stage boom as critical for the region to maintain its leadership position. A FilmLA analysis found that certified sound stage square footage in the Los Angeles area has increased by just 4% since 2019, versus 34% in the UK and 43% in Toronto/Ontario, Canada.
“If we don’t invest in modern stage infrastructure, we won’t attract the kind of projects that we want,” Sokoloski said. “We require them to be globally competitive.”