Hollywood's Slow Poststrike Bounce Back Takes Studios By Surprise

After a long, dry summer in 2023 devoid of productions as a result of dual labor strikes, Hollywood thought it would be back in business by now. That also goes for studio owners and analysts who follow them.

“The recovery from the potential strike of the Teamsters [earlier this summer] and the two strikes last year is really slow — I think much slower than expectations were coming into this year,” said Green Street analyst Dylan Burzinski, who covers studio owner Hudson Pacific Properties.

Any buffer that soundstage owners may have had is getting stretched to the limit as the entertainment industry’s rebound from strikes has come up against an industrywide reconsideration of what shows will be made and how much will be spent to make them. 

On-location Los Angeles-area filming declined 12.4% year-over-year from April through June, according to FilmLA, a nonprofit that serves as the film office for the city and county of Los Angeles. Although there was a significant increase in the filming of scripted TV dramas, commercial productions, feature films and reality TV all saw declines in the second quarter compared to the same period last year, FilmLA found. 

“This is a retrenchment by the entire industry, and where we are now is where we think it will hold for some period,” FilmLA President Paul Audley told Bisnow. 

Although advocates for the industry say Los Angeles and California could be doing more to attract productions, they also acknowledge that the decline in filming has been seen from LA to New York to Georgia and other budding film hubs across the country and the globe. 

Last week alone, major media companies Warner Bros. Discovery and Paramount Global took multimillion-dollar write-downs amid struggles to navigate the changing media landscape. Streaming services that raced to find studio space are also reconsidering their content-creation strategies, in turn potentially jeopardizing their use of studios.

“What we don't know is whether other of the smaller streamers will continue to fall out of production and close up shop and whether that will encourage the bigger streamers to do more,” Audley said. 

There was so much growth from many content companies prestrike, but picking up where they left off has been stymied by the fact that now “a lot of those companies are looking at their content budgets and maybe reevaluating how they want to grow that side of the business,” Burzinski said. 

Hudson Pacific, one of the few publicly traded companies with a meaningful amount of studio space in its portfolio, captured the uncertainty in its most recent earnings call on Aug. 7.

“We currently lack the visibility to assess with reasonable certainty how and when our studio operations will normalize, but they will normalize,” Hudson Pacific CEO Victor Coleman told investors on the call. 

Other studio and entertainment-focused real estate owners, such as Hackman Capital Partners, are privately owned, limiting visibility into how they are weathering the climate for soundstage and production-related properties. 

Major players like NBCUniversal, Paramount, Hulu and Amazon owned 35.5% of certified stage space in Greater LA, according to FilmLA research from 2023, leaving the remainder independently owned. 

Hudson Pacific’s in-service stages were 78.1% leased in the second quarter, a decline from 79.4% in Q1. Stages owned by its production services acquisition Quixote saw a slight boost and were 32.8% leased, up from 22.9% in Q1, thanks to increased occupancy at a property north of Los Angeles, Hudson Pacific President Mark Lammas said. The firm’s studio revenue grew 8% compared to Q1, Lammas said. 

But the drop in active shoots in LA is likely to have ripple effects for studio owners.

Coleman estimated that there are only about 80 productions at work in Los Angeles, and there were about 100 in the second quarter. 

Both those figures are well below the roughly 120 shows that Los Angeles had in 2019 or 2022, when Lammas said neither a pandemic nor the threat of strikes  loomed over the industry. 

HPP attributed the drop to fears that another strike was on the horizon, as labor negotiations with unions representing film and television crew workers wrapped up in late June and July. 

“While we expect some level of increased production through the balance of the year, to what levels remain unclear beyond the strikes. Consolidation, cost-cutting and shifting content mix are altering not just show counts but also production type, number of episodes and budgets,” Coleman said, adding that all those factors influence the demand for the more than 90 stages and production services that HPP offers globally.

While some leasing indicators are heading in the right direction, the uncertainty about how long a recovery will take is only growing with every quarter. And the longer it takes, the more of a drag this sector could be on the books of the real estate companies that own soundstages and media real estate. 

In Q2, studio real estate and the production operations business, such as rentals and transportation services, generated $1M in net operating income for HPP. Before the strike, in the third quarter of 2022, that same segment of the business brought in $16.5M for HPP.  

“Even though it is a smaller portion of the overall business, it obviously does have an impact on [financial] results,” Green Street’s Burzinski said, referring to the fact that the vast majority of HPP’s business is from office properties, not studios.

HPP executives emphasized that peak levels of occupancy and business don’t need to return for this part of HPP to become profitable again. If show counts reach 115 or 120, the Quixote business could reach a net operating income of $45M or $50M, Lammas said.

Coleman expressed optimism that while the timeline for normalization was still unclear, the company anticipates at least a slight pickup. 

“We believe that by the fourth quarter, production should start to get better, even as new content investment remains cautious and more globally distributed,” Coleman said.