Studios’ Expansion Plans Could Make California Tax Incentives a Tougher Sell

The boost to office space and facilities create an illusion of growth

Studio Construction Hobbling Incentives

As Los Angeles lawmakers, unions and studios prepare to make the case that California needs to beef up production incentives, they are apt to be met with an obvious counterargument: Fabled Hollywood backlots aren’t exactly shuttered and full of tumbleweeds.

In fact, some are already at capacity, and others are preparing for what are ambitious, generation-long expansions.

In late August, the Walt Disney Co. received the greenlight from Los Angeles County to effectively build a whole new studio lot — up to 12 soundstages on ranch property it owns near Santa Clarita. Earlier last year, NBC Universal got the go-ahead for a 20-year expansion plan for its Universal City lot, moving forward on an ambitious proposal that will upgrade its facilities. Paramount, the only major studio still based in Hollywood, is in a key planning phase to improve its historic Melrose Avenue lot.
So what gives?

On one hand, there is a runaway production “emergency,” to use L.A. Mayor Eric Garcetti’s word, one that will require a savvy appeal to Sacramento lawmakers to remake or expand the state’s existing production incentives. On the other, studios are planning significant investments in their facilities, even after abandoning, as NBCU did, previous proposals to transform chunks of property into residential development.

“It certainly shows a commitment by the major studios to keep their headquarters here,” says Amy Lemish, executive director of the California Film Commission. However, Lemish maintains that the pressure from locations outside the state to spirit away production hasn’t eased. “We are facing tremendous competition,” she warns.

Garcetti says he was happy to see studios investing and expanding in Los Angeles, but notes that the city can’t take anything for granted. “Other cities, states and countries are spending billions to take production out of L.A.,” he says, “and we must be aggressive about fighting back.”

Los Angeles City Councilman Mitch O’Farrell, whose district includes Hollywood, welcomes the expansion, but notes that big parts of the plans are for office space, or to upgrade existing facilities, as opposed to adding production space. Paramount, for instance, badly needs to upgrade facilities on its lot, he says. “They are updating in good ways, but not in the ways where we can say, ‘The industry is thriving.’ ”

There’s no doubt that studio expansion plans signal a commitment to the future on the part of three major conglomerates — contradicting rhetoric that, without action, L.A. is on the cusp of becoming Detroit with its abandoned auto factories. But supporters of expanded production incentives say that critics miss the point.

“While the investment is a clear positive, I am less certain about how many new productions this will lead to,” says Kevin Klowden, managing economist at the Milken Institute and director of the California Center.

NBCU’s plans, for instance, enable it to build some 1.45 million square feet in production facilities, studio support space and offices. A U spokeswoman says that exact percentages — how much square footage will be set aside for offices and how much for production — will depend on market conditions.

The first phase includes new rehearsal space, dressing rooms, post-production facilities and other upgrades to production space, but the most ambitious project is the construction of a new attraction for its theme park, the Wizarding World of Harry Potter.

The company also has been moving some production off NBC’s Burbank lot, including “The Tonight Show,” which relocates to Manhattan for when Jimmy Fallon takes the reigns on Feb. 17. Additionally, NBC’s news division is exiting Burbank for a new facility on the northwest corner of the U lot.

In contrast, Disney’s plans are notable because they represent an increase in the number of soundstages, not just space allotted for offices and other support services. There is some speculation, however, that when the space is eventually built out, the company will consolidate production of local shows from elsewhere, such as independently owned lots.

This past summer, Richard Ballering, vice president of production operations for Disney’s ABC, declined to specify the company’s plans, but noted that Disney was “planning for our future and ensuring that we are controlling our destiny.” Translated, that probably means: Better to own, not rent.

Disney’s master plan had been in the works for years, and had emphasized the project’s prospects for bringing jobs to the region even before the flurry of state incentive programs that began to steal production from California. But Disney, too, has indicated that market conditions will dictate exactly what will get built and when, and has not announced a groundbreaking.

Sam Nicassio, president of Los Angeles Center Studios, says that his stages have been full for the past five years with shows like AMC’s “Mad Men” and several Disney productions.

And of Disney’s plans, he notes that the studio has been among the most aggressive in moving productions out of the state. “So this is a clear positive,” he says.

But Nicassio also questions what types of productions would occupy the new space, and whether it would be used merely to move shoots that otherwise would have inhabited non-Disney-owned lots nearby. He adds that he hasn’t heard from the Mouse regarding any plans to lease space on his lot.

According to figures from Nicassio’s company, soundstage occupancy across the region has fallen from 97% in 2011 to 93% this year. That may not sound like a wild swing, he says, but it represents the loss of hourlong drama productions, which provide steadier employment than feature films, and require bigger crews than sitcoms and reality shows.

As for Paramount’s plans, Nicassio notes that they may be less about a dramatic production spike than about making long overdue improvements to its lot. The soundstages at Paramount are among the smallest in Hollywood, he says. “I’ve had a few industry veterans comment that the change is as much about making the space more versatile — being able to handle visual effects even in TV shows — (as about) increasing the total number of productions the studio can handle at one time,” he adds.

Indeed, based on a schematic drawing of the plans for the lot, some of the new offices and stages at Paramount will replace smaller, older soundstages. The plans call for five new “technologically advanced soundstages,” as well as improved traffic circulation and parking, and production base camps. For neighbors, the most striking feature may be the plans for new office buildings along Melrose Avenue. A Paramount spokeswoman declined to comment on the project, which still needs approval from the city of Los Angeles.

The mixed message of construction crews building up backlots with offices instead of production facilities doesn’t make things easier for proponents of expanded tax incentives, which include crew members who have been hammering politicians over the fact that they are increasingly forced to trek to other states to find work.

Assemblyman Mike Gatto, who is working on legislation to expand California’s production credit, says he is prepared to argue that incentives offer a return on investment that has more to do with individuals than buildings.

The notion that everything’s fine overlooks the fact that the issue is not about the studios, he says. “This is about the regular, workaday people who make a living from production.”