California Film Industry Faces Critical Challenges

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The California film industry is facing significant challenges that threaten its future.

News Summary

California’s film and television industry is at risk, according to a Milken Institute report. High production costs, complex permitting, and a declining competitive edge threaten the state’s status as a film hub. Recommendations include increasing the film tax credit and simplifying the permitting process to restore local production activity and job creation.

California is facing a significant challenge in its film and television industry, according to a new report from the Milken Institute. The document, titled “A Hollywood Reset: Restoring Stability in the California Entertainment Industry,” warns that the state is losing its competitive edge due to high production costs and outdated processes. The authors, Kevin Klowden and Madeleine Waddoups, suggest that without substantial reforms, the decline of California’s filmed entertainment could become irreversible.

The report details several factors contributing to the industry’s struggles, including California’s surging cost of living, a complex film credit application process, and a convoluted permitting system. Specifically, the permitting fees in Los Angeles are the highest among peer cities, with an application fee of $3,724, substantially higher than fees in New York City, London, and Atlanta. In addition to the initial permit application cost, filming in Los Angeles incurs additional expenses for drone use and public safety personnel, further driving up production costs.

A portion of the high permitting costs stems from the independent nature of FilmLA, the organization that oversees film permits in the Los Angeles area, which operates without municipal funding. The report also criticizes California’s film credit program as being overly complex, highlighting a tight three-day application window and requiring applicants to provide job creation analyses.

Production activity in California has seen a sharp decline, with only 20% of shows for North American audiences now filmed in the state, a notable drop from earlier years. Factors contributing to this reduced production volume include not only high costs but also a strong U.S. dollar, which has made international production more appealing for U.S. companies. As a result, many have relocated their work to countries that offer subsidized healthcare and lower costs.

The report proposes several recommendations aimed at revitalizing California’s film industry. It suggests increasing the film and television tax credit program budget from $330 million to $750 million while raising the base incentive rate from 20% to at least 30%. Furthermore, it recommends allowing production companies to apply for tax credits on a rolling basis and expanding the eligibility criteria to include unscripted projects and shorter television episodes. Local governments are also urged to reevaluate FilmLA’s structure to streamline the permitting process and reduce costs.

Another significant issue highlighted in the report is the fragmented labor contract system in California, which encourages studios to move projects abroad, limiting local job creation. High labor costs, rising living expenses, and the complicated film incentive structure have prompted many industry workers to leave the state altogether. In Los Angeles, production numbers have dropped by over 30% in the past five years, with 2024 projected to have one of the lowest shoot day totals in decades.

The ongoing contraction of the global film industry, coupled with the recent writer and actor strikes, has further aggravated production declines in California. Unions representing various segments of the entertainment workforce are actively lobbying the state government, emphasizing the importance of prioritizing film incentives for local employment opportunities. However, there is criticism regarding the efficacy of film tax credits, with some experts arguing that they often fail to generate enough economic activity to justify their costs. Furthermore, some California lawmakers are advocating for reallocating funds from film industry subsidies to essential social services in light of the state’s budget crisis.

The economic implications of film and television production in California are significant, with studies indicating that every dollar spent on the California Film Commission generates $24.40 in economic activity. The Milken Institute report underscores the urgent need for reform to maintain Hollywood’s status as the epicenter of the entertainment industry.