When President Donald Trump turned the spotlight on Hollywood last month with talk of a protective tariff, he drew attention to a challenge of rising urgency for California: the ongoing exodus of its vaunted film and TV production industry to other states and nations.
The Golden State has a deep well of talent – from writers and makeup artists to grips and agents – but faces steep competition from a global marketplace for production. And in Los Angeles in particular, an identity as the entertainment capital of the world is at stake.
That identity is worth fighting for, says Colleen Bell, executive director of the California Film Commission, which administers a tax credit to incentivize production. A newly passed state budget expands those incentives for the industry.
Why We Wrote This
Hollywood, an American cultural icon, is seeing TV and film production flee to places offering better deals. Now, politicians are weighing in with efforts to preserve its identity as the entertainment capital of the world.
“Creativity flourishes when people feel free. That’s one of our greatest values here in California,” she says. From Hollywood to Silicon Valley and the exploration of AI, the world’s fourth-largest economy is built on creativity. “It’s all intertwined and it continues to deliver economic rewards and cultural rewards.”
Why does it matter where productions take place?
In the early 1900s, movie studios established themselves in Hollywood, which was annexed into Los Angeles in 1910. Over time, studios fanned out to other parts of Los Angeles and adjacent cities, but Hollywood remains synonymous with moviemaking.
The motion picture industry is a small percentage (1.4%) of the state’s economic output, but California still leads the country in entertainment employment. Los Angeles is also the industry’s business center.
LA has a unique ecosystem of everyone and everything needed for a successful production. “I just have to call and they don’t have to move,” says Sanjay Sharma, who teaches entertainment finance at the University of Southern California. It’s important to preserve the ecosystem, he says, because it works.
The skilled crafts that underpin entertainment are also at risk of being lost, says David Offenberg, an entertainment finance professor at Loyola Marymount University. “Below-the-line” workers, like costume designers, set decorators, and sound engineers, can make or break a production.
Encouraging local production, he adds, keeps those crafts alive. “And if we lose that craftsmanship we may never get [it] back.”
What are the incentives being offered in California?
California’s tax incentives are capped at $750 million per year statewide, more than double the previous cap thanks to a budget plan passed June 13. The state uses a formula based on job creation to grant the credits, and excludes the highest-paid, “above-the-line,” positions such as lead actors, producers and directors.
It’s about “jobs, jobs, jobs,” says Ms. Bell.
Those jobs peaked in 2022, when streaming companies like Netflix and Warner Bros. Discovery were creating content to feed pandemic viewing and entice new subscribers. But revenue didn’t keep pace with production, which eventually slowed.
Then in 2023, writers and actors went on strike for nearly four months, bringing production to a halt. The resulting wins for the unions increased production costs, which were already higher in Los Angeles, where the cost of living and labor exceeds that in most of the U.S.
Those jobs have yet to bounce back. An analysis of California’s creative economy finds employment in the film and TV industry is 25% below its 2022 peak despite adding 15,000 jobs in the past year. And between 2010 and 2023, California’s share of industry employment went from 54% to 46%.
At the local level, LA Mayor Karen Bass aims to encourage production in the city with a recent executive order that reduces red tape and lowers costs.
Gov. Gavin Newsom has made tax incentives a priority during his administration, pushing for the just-passed boost. Critics say the tax credit is a misplaced priority when the state faces a steep funding shortage, along with LA County’s wildfire recovery and entrenched issues like homelessness and the high cost of living.
The film commission cites its own 5-year study that found each tax credit dollar generates at least $24.40 in spending. The state’s nonpartisan Legislative Analyst’s Office calls the tax credit a “valid tool for protecting Hollywood’s market share” but says there is “weak evidence” it will benefit the state’s overall economy.
How has the president weighed in on Hollywood?
President Trump took office with Hollywood on his agenda. In January, he appointed Oscar winners Jon Voight, Sylvester Stallone, and Mel Gibson as “Special Envoys,” he posted, “for the purpose of bringing Hollywood, which has lost much business over the last four years to Foreign Countries, BACK…”
Tariffs were one of the envoys’ recommendations, which included federal tax incentives and subsidies for production companies.
The tariff idea met quick blowback from entertainment insiders who denounced them as unenforceable and out of touch with the globally networked way that movies are produced and viewed. And Governor Newsom leaned into it, suggesting a collaboration with the president for a $7.5 billion federal tax credit. President Trump later said there were no final decisions and all options are being explored.
Even if they don’t agree with the tariffs, Hollywood insiders welcome the help. “For better or worse, whatever Trump is thinking, I applaud that he’s saying, ‘OK, Hollywood should remain intact,’” says Dr. Sharma.
How are other states and countries luring film production?
Countries like Canada, Hungary, Australia, and the U.K. have been luring film and TV production away from California for decades. So have other states, like Georgia, North Carolina, and New Jersey. Tax incentives are a big draw.
“They’re all talking about rebates,” says Alvin Lieberman, executive director of the Entertainment, Media, and Technology Initiative at New York University’s Stern School of Management. “You know, come to Malaysia, come to Nepal, come to India. And so they’re all offering it,” he says, describing what he saw in Cannes, France, where he attended the eponymous film festival.
The United Kingdom, for instance, offers a 25.5% tax rebate on 80% of a production’s expenditures in the UK, with higher rebates for animated and independent films. Qualifying expenses include above-the-line talent. According to the British Film Commission, U.S. investment in UK productions went up 83% from 2023 to 2024.
More than half of U.S. states offer tax credits, ranging from 20% to 40% of qualifying expenses. Another 10 states offer other incentives. Georgia’s program is one of the most successful. The Peach State allows a 20% tax credit plus an additional 10% if the production makes qualified references to the state. It is more straightforward than California’s and has no cap.
The production ship has not yet sailed, says Professor Sharma, although its tethers are fraying.
LA still has what he calls the two Es: It’s effective and efficient. Along with a third, “evil E”: It’s expensive.
Any incentive that helps bring down the production costs will help, Professor Offenberg says. “People want to shoot here,” he says. “It’s just the cost difference is so big right now.”
