Gov. Gavin Newsom’s proposal to more than double the size of California’s film and television tax credit program won’t solve all of the Golden State’s problems when it comes to the staggering decline in entertainment production here.

But this signals an important… although late — attempting to tackle one of the key factors that pushed much of Hollywood’s economy toward regions with more generous government incentives.

Newsom announced plans Sunday to increase the amount of the annual tax credit to $750 million, up from the current total of $330 million, my colleagues Samantha Masunaga and Christi Carras reported. That would exceed the annual cap for New York, where the incentive program is limited to $700 million. But it’s important to note that Georgia, another huge production hub, has no cap.

It’s not exactly an immediate solution to California’s production crisis. If approved by Parliament, this measure would come into force from July 2025 and would last for five years. But it’s an action that industry leaders are calling for with increasing intensity as Los Angeles continues to lose ground to other localities nationwide and internationally.

Industry leaders and experts who spoke to the Times Overall, they welcomed the proposal, seeing it as a necessary step, while cautioning that much more remains to be done.

FilmLA, the organization that manages movie permits and tracks on-location production in the Los Angeles area, said in a recent study that California’s share of the global film and TV production market television fell to 18% in 2023 compared to 22% the previous year, measured in terms of projects launched during this period. Manufacturing activity in Greater Los Angeles is at an all-time low, falling 5% in the third quarter, according to the nonprofit’s latest report.

This is a problem that cannot be fully illustrated by data. People come to Los Angeles for careers, but end up having to leave their families for weeks to take a job in New Mexico, Hungary or elsewhere. This is not ideal.

The reasons for the decline in production in recent years have been many and varied. This is largely due to studios’ attempts to halt financial losses after overspending to compete with Netflix in the streaming wars. During and after the 2023 writers’ and actors’ strikes, entertainment and media conglomerates took the opportunity to cut spending, leading to canceled shows and tens of thousands of layoffs.

The United States, and California in particular, bore a disproportionate share of the suffering. Global manufacturing activity fell 17% in the third quarter compared to the same period a year before the 2022 strikes, according to the tracking company. ProdPro. However, the United States suffered a much steeper decline, with volumes falling 35%. In contrast, Canada saw a 1% increase over the same period.

Why is California lagging behind? Many cite the high costs of doing business in Los Angeles, as well as the lure of government incentives in filming hot spots like Georgia, New York, Canada and the United Kingdom.

Some studio executives have begun to blame new contracts struck by entertainment industry unions. Outgoing CEO of Sony Pictures Tony Vinciquerraspeaking last week at the Mipcom international television market in Cannes, warned that the higher costs of last year’s deals are part of what is forcing studios to seek cheaper locations.

Vinciquerra also criticized California for not responding to “what’s happening in the world of incentives.”

“The cost of doing business in California is so high that it’s very difficult to estimate the price of a movie,” he said.

SAG-AFTRA National Executive Director, Duncan Crabtree-Ireland, strongly rejected in a press releaseaccusing Vinciquerra of peddling a “false narrative” about guild contracts. “Threatening the offshoring of American jobs is a cynical attempt to manipulate workers while obscuring the industry’s business failures,” Crabtree-Ireland said.

Regardless, Newsom’s action could help improve California’s competitiveness.

The National Film and Television Tax Credit program was created in 2009 to prevent the flight of film and television production.

At that time, the credit was limited to $100 million per year, a limit that was raised to $330 million a few years later, granting studios tax credits covering up to 25% of production costs eligible. Last year, Newsom extended the program for another five years. Starting in 2025, awards will be “refundable,” meaning studios will be eligible for cash payments when their credits exceed their tax obligations.

But in its Sunday announcement, the governor’s office essentially acknowledged that gaps in its incentive program had led productions to go elsewhere. Projects that failed to qualify for California tax credits were moved elsewhere, with “approximately 71% of rejected projects subsequently rotating out of state,” Newsom’s office said.

There have been many debates about the usefulness and effectiveness of public cinema and tax incentives. Industry-funded studies and reports from organizations such as the Los Angeles Economic Development Corporation have touted tax credit programs for creating jobs and boosting economic activity in their respective states. Production supports employment directly and indirectly – by keeping prop makers, caterers and other businesses busy.

However, others question the ultimate yield of such programs, saying their benefits are exaggerated and amount to a race to the bottom among states. A report commissioned by the New York Department of Taxation and Finance said the state’s film production credit program “does not provide a positive return to the state” in taxes, generating 15 cents in revenue direct taxes for every dollar invested. The same report claimed that some of the tax-advantaged productions likely would have been filmed in New York anyway.

Likewise, a study from Georgia State University estimated a tax return of less than 20 cents on the dollar for the Georgia program.

Critics of these programs also suggest that taxpayer dollars would be better spent on housing, education and other pressing issues, rather than effectively subsidizing entertainment studios.

That’s fair enough, but if California wants to maintain its status as the cradle of the entertainment industry, it has no choice but to increase its giveaways for productions. Additionally, a lot has changed since 2009. Other states and countries have set up infrastructure and film crews, reducing what was once Los Angeles’ competitive advantage. The film and television industry is nomadic and goes where it can get the best deals.

“Some of the intrinsic advantages of Los Angeles have been eviscerated,” Jody Simon, a partner at Fox Rothschild, told the Times. “I believe there is still an underlying preference to shoot in Los Angeles, so hopefully that will bring back more production.”

And the state program still has major limitations. Others cover a larger percentage of eligible expenses. For example, unlike competing programs elsewhere, California’s incentives do not cover costs related to paying actors, directors and other “above the line” personnel, who contribute largely to film and television budgets. Newsom’s latest proposal changes nothing. Yes, in California, giving a studio a tax break on Tom Cruise’s salary is still a bridge too far.

Stuff we wrote

A local LGBTQ+ nightclub was denied COVID-19 relief. Its owner fights back. Club Cobra, a Latino LGBTQ+ nightclub in North Hollywood, is one of many businesses fighting for grants from shuttered venue operators.

Will teenagers save films? Here’s what a surprising new study says about youth and Hollywood. A UCLA study found that teenagers would rather go see a movie on opening weekend than any other form of entertainment, including sports.

Disney is doubling its cruise ship fleet. What this says about company strategy. While the future darkens Walt Disney Co.’s lucrative theme park business, one bright spot remains its cruise line.

ICYMI:

Judge refuses to reopen Baldwin manslaughter case
CNN faces defamation lawsuit over Afghanistan report
Former “Jeopardy!” » employees file discrimination complaints

Number of the week

Endeavor announces it is selling Professional Bull Riders, the IMG sports-focused company and live events business On Location to publicly traded TKO Group Holdings, which Endeavor controls. THE $3.25 billion deal is another move by Ari Emanuel, who runs both Endeavor and TKO, to reinvigorate his sports and entertainment empire.

TKO was created from a deal Emanuel made to combine mixed martial arts league UFC with professional wrestling giant WWE. The move was widely seen as a play on the growing sports media rights sector. Endeavor, owner of talent agency WME, is set to go private after struggling in the public market.

Finally …

Albany, NY-based post-hardcore band Drug Church have released an excellent new album called “Prud”. The song “Demolition man» gives a pretty good idea of ​​what to expect.