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Forget tax incentives. Here’s why Netflix is investing in Hollywood.

Reema Khrais Apr 12, 2017
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Netflix CEO Reed Hastings delivers a keynote address.
Ethan Miller/Getty Images

For a long time, it seemed like Hollywood was becoming more a state of mind than the center of entertainment industry.

Year after year, states offering sweet deals to movie producers lured away hundreds of millions of dollars in business from Los Angeles.

Some shows, like “Lucifer” and “Legion,” have relocated to Southern California. It’s an up-and-down game, though. After a solid 2016, on-location film production in Los Angeles County fell 36 percent in the first quarter of 2017 compared to the same time last year, according to a report out this week from Film LA, which tracks production.

So, it was big news this week when Netflix, which will produce around $6 billion worth of original content this year, said it’s going to increase its infrastructure investment in California rather than chasing tax credits in other states.

“Incentives have become a key aspect of every production,” said Joe Chianese, who heads up production service company Entertainment Partners. “Producers today, when they’re budgeting a movie, they do about six to sometimes 10 budgets based on different locations.”

A decade ago, nearly every state offered incentives to lure productions that might have otherwise set up shop in Hollywood. Now, that number is closer to 35.  

“Some states economically couldn’t afford to maintain their programs,” Chianese said. “Other states decided they wanted to allocate their funding to other places.”

Netflix’s decision to concentrate production in California could cost the company, even though the state expanded its tax incentives in 2015. But Vicki Mayer, communications professor at Tulane University, said Netflix will benefit from creating its own studios.

 “They have the infrastructure, they have the equipment, they have the crews that they can fund,” she said.

Staying in Hollywood could also give Netflix a competitive advantage with Hollywood actors and directors, who won’t have to leave their families for long periods of time to shoot on location.

Still, Hollywood shouldn’t be giddy just yet, said Nancy Rae Stone, director of the California Film and Television Tax Credit Program.

“We certainly are still losing productions to other locales. Georgia and Louisiana are very popular, and certainly New York,” she said.

The Walking Dead,” for instance, is among dozens of productions that have been lured to Georgia with rich tax credits — sometimes up to 30 percent.

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