Last year, New York distributed $124 million in tax credits to various Paramount Global companies as rewards for ten projects filmed in the state. These productions – including a number of feature films, television series and even a talk show, including Clifford, the big red dog, Blue Blood And The Drew Barrymore Show – has invested nearly $425 million in the region in labor and other costs.
In California, meanwhile, Paramount Global spent just $71 million on films approved to shoot in the region in 2023. That figure is a far cry from the $295 million the company spent on projects that received incentives three years earlier. It’s the latest development in a trend that sees productions turning away from the Golden State and turning to other jurisdictions that are steadily expanding their tax break programs to attract Hollywood money.
Although California remains considered the world’s leading production hub, it is steadily losing its appeal as a top travel destination. While Los Angeles still has the largest share of the U.S. film and television economy, its lead is shrinking. According to an Otis College report, the region saw 27 percent of employment in the sector in 2023 – an indication of its share of domestic production – compared to 35 percent the year before.
The report does not take into account production in the UK, Canada and Australia, all of which became filming locations in the last decade thanks to tax incentive programs with less stringent restrictions and limitations than California. It reflects the decade from 2013, the birth of the streaming era, to 2024, after Hollywood’s historic double whammy that immediately followed austerity measures by studios focused on the profitability of their streaming businesses.
The findings are consistent with a report from FilmLA that found a sluggish return to filming in Los Angeles after production was decimated by the work stoppages. The main reason for the sluggish recovery: a double-digit decline in television shoots in the three-month period from January to March. Filming in that category – long a region’s go-to location – fell more than 32 percent short of its five-year average. A subsequent report from the Film Bureau found that overall production from April to June was down about 12 percent from the same period last year and more than 33 percent from the five-year average, even taking into account low activity during the strikes.
Jaclyn Philpott, chief executive of the Association of Film Commissioners International, says the organisation is focused on “bringing the industry closer to our film commissions and their regions” in order to “evolve” the sector. “Disruption is nothing new,” she adds. “Our aim is to take on challenges to find solutions and a major digital transformation project is underway.”
Tax incentives play a key role in the erosion of California’s production share. The state’s film commission, which declined to comment, offers a 20 percent base credit for feature films and television series — less than in most other jurisdictions vying for Hollywood dollars, including New York, New Mexico and the United Kingdom — and has set a $330 million cap on the program.
“Filming in California depends on a number of factors, such as location, talent wanting to shoot there and whether the story is connected to the region,” says Ian Brereton, a lawyer who advises production companies on tax incentive design. “If not, California loses some of its competitiveness with other jurisdictions due to weak market incentives and labor costs.”
By comparison, Georgia, which has the same base incentives as California but offers a 10 percent premium for displaying the state logo on the project, has paid out $2.6 billion in credits to 273 productions in fiscal year 2024. The program has no cap on the amount of tax breaks it gives productions annually. Kelsey Moore, executive director of the Georgia Screen Entertainment Coalition, stresses that the state has “solidified its reputation as a globally recognized production hub” and now “easily competes with Los Angeles and New York.”
Crucially, California is the only major production location that excludes any portion of above-market costs, such as salaries for actors, directors and producers, from receiving grants. The UK has exploited this peculiarity to attract big-budget films, and in recent years it has become one of the most important destinations for feature films.
Films set to be shot there in 2024 include Jurassic World 4 (Amblin Entertainment, Universal Pictures), the next Mission: Impossible Rate (Paramount), The Fantastic Four: First Steps (Disney) and Wake Up Dead Man: A Knives Out Crime Mystery (T-Street Pictures, Netflix). These productions will receive a cash rebate on the salaries of Scarlett Johansson, Tom Cruise, Pedro Pascal and Daniel Craig, among others, provided these costs are incurred in the UK. The country has a very broad definition of qualifying expenses, so payments to non-UK residents can be taken into account when calculating the incentives, although the tax relief is capped at 80 percent of the costs. The British Film Institute has estimated that spending on films and high-end television shows reached about £4.2 billion in 2023, with almost a third of this going to feature films.
Some of the films shot in the UK are also expected to receive incentives for doing visual effects and post-production work in other countries. Canada and Australia, for example, offer the most generous tax breaks for the sector, says Sarah Westman-Liu, head of incentives at payroll company Entertainment Partners. “You get between 30 and just over 40 percent of the total spend in Canada back,” she observes, pointing out that the country has favourable exchange rates as an added bonus. “In Australia, the rebate is even higher now” when you add together the 30 percent rebate for productions doing post, digital and visual effects in the region (up from 16.5 percent in July) with the 15 percent credit offered by individual states.
Studios are not left out of the race for the incentives either, but are using the opportunity to influence legislation. In March, the UK announced a five per cent increase and the removal of the 80 per cent cap on visual effects costs in the country in a bid to remain competitive in the VFX and post-production sector. After “carefully listening to views from companies such as Pinewood, Warner Bros and Sky Studios, we will give eligible film studios in England a 40 per cent reduction in their gross business tax until 2034,” Chancellor of the Exchequer Jeremy Hunt said in a statement. Studio space in the country has doubled in the past three years, and Comcast-owned Sky Group is planning a major expansion of its sound stages outside London.
Then on Tuesday, Warner Bros. Studios Chief Operating Officer Simon Robinson unveiled plans to allocate half a billion dollars annually to productions in Nevada — on the condition that the state passes a measure raising the cap on its film and television tax incentive program by nearly tenfold, from $10 million to $95 million. Warner’s expansion into Nevada would mirror Netflix’s growing presence in New Mexico, which last year increased the maximum amount of its tax breaks for the entertainment industry.
And a troubling sign for LA production: Reality TV filming in LA has fallen sharply in the second quarter of 2024 after a rocky start to the year. FilmLA’s latest report found that on-location filming was down nearly 57 percent compared to the same period last year. This dragged down the entire TV category, which has long been an anchor of production in the region. “In general, unscripted TV is a location-heavy format that generates significant permit volume,” says Philip Sokoloski, vice president of integrated communications at FilmLA. “The employment impact of reality production is lower than scripted TV, and projects are not eligible for funding in the state of California. It remains an important part of LA’s production economy.”
As competition makes increasingly attractive offers for unscripted titles, production of these projects in the region may not return to the same levels as before the strikes. In June, Illinois Governor JB Pritzker signed a law expanding the state’s tax credit program to include games, national talk shows, competition shows and other reality TV shows. Georgia already allows the format.
Even Asian countries, which in the past have largely dispensed with tax breaks for film and television productions, now want to join the competition. Last year, Japan introduced an incentive program that provides reimbursement of up to 50 percent of eligible expenses in the country, with a ceiling of 6.4 million dollars. It has already been exhausted. Snake Eyes: The Origins of GI Joe and the second season of Tokyo Vice. Thailand, where the upcoming season of White Lotus filmed, has also approved program extensions.
But despite efforts by other places to attract films and television series, California remains the center of production. Brereton notes, “This is still where the magic happens.”
This story appeared in the Aug. 21 issue of The Hollywood Reporter magazine. Click here to subscribe.
