Why production has left Hollywood

There was a time when Hollywood simply referred to a neighborhood in the central region of Los Angeles.

These days, “Hollywood” has come to represent the entire domestic entertainment business — and it’s at a crossroads.

Its namesake area is no longer the bustling production hub it once was, as studios have chased tax benefits and lower labor costs overseas. It’s more expensive than ever to make a movie or television series, especially after the pandemic and the writers and actors strikes which reshaped how creatives are paid in the new streaming economy.

Many in the industry have sought to rectify the movement of thousands of jobs to other domestic filming hubs — like Georgia, New York, Texas, New Mexico and North Carolina — and international locations including Canada, the United Kingdom, Ireland, Hungary, Croatia, Romania, Australia and New Zealand.

In July, California Gov. Gavin Newsom increased the state’s total film and TV tax credit to $750 million, nearly doubling the previous cap, to try to encourage more productions to film in Los Angeles.

President Donald Trump put a spotlight on the issue again Monday when he reiterated tariff threats on films made outside of the United States.

“Our movie making business has been stolen from the United States of America, by other Countries, just like stealing ‘candy from a baby,'” he wrote in a post on social media, adding that he would impose a 100% tariff on “any and all movies that are made outside of the United States.”

Trump made similar comments in May. Then as now, it is unclear how he plans to implement these duties, who they would target and who would foot the potential bill. Actor Jon Voight, who Trump appointed as “special ambassador” to Hollywood, said tariffs would only be implemented in “certain limited circumstances,” and the administration would focus on developing federal tax incentives, revising the tax code, creating co-production treaties with other countries and offering subsidies for infrastructure.

As Trump revives his threats, there are still numerous unanswered questions about how the U.S. could put a tariff on movies — and whether the move would really help bring production back to Hollywood.

“Since movies aren’t goods, they’re services, it remains unclear how a tariff could be placed on a service, but should some logistical loophole be found and enforced, it’ll cause chaos within the entertainment industry,” said Mike Proulx, vice president and research director at Forrester, in a statement Monday. “Then the question becomes what’s next? Where’s the line between a movie and a limited time series? What about the ad industry that saves money by shooting commercials outside the US?” 

The production of film and TV isn’t always simple. Some productions will shoot parts of a film internationally and pieces of it domestically. Would films be taxed based on the percentage of the film that was shot outside the U.S.? What would that mean for foreign films seeking release in the the country?

“What if the primary studio is in the U.S., but the film has to shoot on location, because the … story takes the … characters on a journey. Is there a threshold?” asked Alicia Reese, analyst at Wedbush. “There are just too many questions.”

Industry experts also worry about how the duties, if they are even enforceable, could affect relationships with other countries. Hollywood relies on international box office sales to recoup lofty film budgets. China has already limited the number of Hollywood-made movies it will showcases on screens. Other regions could retaliate and do the same.

“I strongly support bringing movie making back to California and the U.S.,” Democratic Sen. Adam Schiff of California said in a statement Monday. “Congress should pass a bipartisan globally-competitive federal film incentive to bring back production and jobs, rather than levy a tariff that could have unintended and damaging consequences.”

At the end of the day, Hollywood’s productions woes all come down to one thing — money.

Budgets are getting tighter. Streaming fundamentally changed the media landscape, fewer people are going to movie theaters and studios are no longer generating significant revenue from DVD sales. So studios have to grip their purse strings tighter or face the wrath of investors who are still trying to calculate what the dissolution of linear TV, and its lucrative ad revenue, means for media titans like Disney, Universal, Warner Bros. and Paramount.

Even before the pandemic and the dual labor strikes, Hollywood was filming movies and television in other parts of the U.S. and internationally.

In some cases, this was because the script dictated a specific international city or naturally occurring landscape to suit the story being told. It would have been difficult, for example, to film the Lord of the Rings franchise or “Game Of Thrones” entirely on the backlot of a Los Angeles studio.

The crux of the issue comes down to the sound stages.

Part of the exodus from Los Angeles is also the result of the development of domestic production hubs that offer better financial rewards, like tax credits and cash rebates, than what is available on the West Coast. Over the last two decades, 38 states have shelled out more than $25 billion in filming incentives, according to a report from The New York Times.

These incentives have allowed states like Georgia to develop infrastructure for big-budget productions and build out a skilled workforce of local crew members, craftsmen and technicians. Georgia offers these monetary perks as a way of not only creating jobs in production, but bolstering economic growth in the communities around those filming locations. Hotels, restaurants, lumber yards, vehicle rental companies and even gas stations get a bump from having projects produced locally.

International production hubs are the second piece of this puzzle. Sites outside the U.S. not only offer enticing film incentives, but also cheaper labor and even health care. In fact, Los Angeles ranked as the sixth-best location for filming according to a survey of studio executives published in January by ProdPro, a company that tracks production trends. Toronto, Canada; the U.K.; Vancouver, Canada; Central Europe and Australia all ranked higher than Los Angeles.

Canada, known as Hollywood North, has been the home of Hollywood film and television production for decades. Shows like “Riverdale,” “Suits,” “Supernatural,” “Once Upon a Time,” “Schitt’s Creek” and “The Handsmaid’s Tale” were all filmed just north of the border from Los Angeles. On the movie front, “Mean Girls,” “Twilight,” “My Big Fat Greek Wedding,” “American Psycho” and “Scream VI” are some of the titles that were shot in Canada.

Like Georgia, Canada offers an enticing tax credit for stateside studios, but has also has developed a top-notch workforce of industry talent in front of and behind the camera.

And competition abroad is heating up. More countries have bolstered their filming infrastructure, and increased their generous tax incentives. Many nations also have looser rules on what kinds of projects qualify for the financial benefits. New Zealand, the U.K., Ireland, Iceland, Australia, Norway, Italy, Hungary, Germany and the Czech Republic are all jockeying for productions — and they are taking share, according to data from ProdPro.

For example, Australia and New Zealand saw a 14% increase in the production of projects costing $40 million or more between 2022 and 2024. Meanwhile, the U.S. experienced a 26% decline.

“People are still going to have to film on location,” Wedbush’s Reese said, noting that the industry is not going to completely shift the kinds of stories being told to adhere to filming locations only available in the U.S. “There are plenty of pieces of that movie, or parts of that movie, that are filmed on a sound stage and that sound stage could just as easily exist in the U.S. as it could anywhere else.”

“And that’s where the question lies: how do we get the sound stages?” she continued.

Reese noted that Los Angeles has already made moves to encourage studios to use its existing infrastructure with Newsom’s new tax incentives.

“We need to create a better tax structure to encourage more productions, the base of the production, the sound stages, to be located in the U.S.,” she said.

Disclosure: Comcast is the parent company of Fandango and NBCUniversal, which owns CNBC. Versant would become the new parent company of Fandango and CNBC upon Comcast’s planned spinoff of Versant.