Streaming Wars: Filming and Content Creators Could Spark LA’s Recovery
Every sector has been affected by the economic shutdowns, but the successful streaming companies that have invested in infrastructure are in a better position to survive and capture the market.
The economic shutdowns spurred by the coronavirus outbreak have devastated the film and content creation industries. But the stage is set for steaming services and studio space providers to put action back into Southern California’s economy once cameras start rolling again.
For the past two months — since the week actor Tom Hanks announced he contracted the coronavirus, bringing the gravity of the crisis into sharp focus for many Americans — movie theaters have been shut down, and filming has been put on hold across the country. With no set timeline to return, Hollywood remains closed while studio executives and content creators scramble to delay blockbuster premiers and manage a backlogged production schedule.
Some West Coast lawmakers are slowly relaxing shelter-in-place restrictions, but most Americans remain at home with no new sports or live entertainment to watch. They can’t go to movie theaters, the gym, music venues, bowling alleys or restaurants to fill the time, and in many cases, they also don’t have work to keep them busy.
But, they do have wifi, a screen, and more time to spare — creating perhaps the largest potential audience of all time.
Enter: “Tiger King.”
Netflix (NFLX)’s documentary, featuring fascinatingly salty figures like Joe Exotic and Carole Baskin, has been a surprise hit thanks to its release landing shortly after stay-at-home orders were enacted. “Tiger King” grabbed much of the nation’s attention and demonstrated how the unprecedented social distancing regulations created a massive opportunity for the streaming companies.
Some films were forced to delay their premieres, like “No Time to Die” — the next James Bond movie. But major streaming programs like “The Last Dance” — ESPN’s documentary about Michael Jordan — pushed up their release dates to take advantage of the homebound, sports-starved audience.
Streaming time jumped 85 percent in March compared to the same month last year, according to Nielsen. Netflix alone added a record 15.8 million new subscribers worldwide in the first three months this year, including more than 2.3 million in North America. In a letter to investors, the streaming giant said it is “acutely aware” its service is “even more meaningful to people confined at home.”
Netflix is set to spend $17 billion on original content in 2020, and forecasts another 7.5 million new subscribers in the second quarter. But “given the uncertainty on home confinement timing,” it’s “mostly guesswork,” the firm said.
Michael Hackman, CEO of Hackman Capital Partners, was one of the new consumers hooked by “Tiger King.” Despite managing a prominent portfolio of studio properties throughout L.A. County, including CBS Television City and a Culver City development for Amazon (AMZN) Studios, Hackman said he never used streaming services prior to the pandemic.
“Since COVID-19 hit, my kids said, ‘Oh, you’ve gotta watch this show, you’ve gotta watch that show.’ But the only show that I watched — and I literally could not believe it — was ‘Tiger King.’ I was just amazed,” Hackman said. “But by going through that, I was so impressed with the offerings that Netflix and Amazon and Disney have available. The pandemic created an opportunity for me to, all of the sudden, become enlightened to what everyone else already knows about these streaming platforms.”
He said every sector has been affected by the economic shutdowns, but the successful streaming companies that have invested in infrastructure are in a better position to survive and capture the market.
“I think they’re going to be in great shape,” Hackman said. “I think every streamer probably anticipates there will probably be some obvious falloff after people go back to work, but in the meantime, they’ve been able to hook them onto shows, and a whole group of people have rediscovered what’s available on demand.”
Hudson Pacific Properties operates one of the region’s premiere office and studio portfolios with tech and media tenants like Google, Netflix, Amazon, HBO and ABC on its roster. The firm reported that it didn’t see any material shift in deal terms during the first quarter, including on rents, lease length, or concessions. Hudson’s CEO Victor Coleman said that those tech and media tenants “stand to do quite well in the current environment,” during the firm’s earnings call in May.
Hudson collected 95 percent of its office and studio rents in April, compared to 38 percent for retail storefronts, according to the firm’s president, Mark Lammas. Hudson granted deferrals for just 0.3 percent of total April rent from small office and studio tenants despite a closed economy. Lammas said that number highlights the underlying credit of studio tenants, and that any impact from a prolonged shutdown “will most likely be seen in production-related revenue, not rent.”
Lammas said they believe when shelter-in-place restrictions are lifted, they will see a normalization in production-related revenue, and “perhaps even an acceleration, as studios look to catch up with content demand.”
“Something to do”
Movie theaters that were already struggling may not come out alive after stay-at-home orders are relaxed, and box office revenues are expected to take a major hit this year. The theaters that do survive, as well as restaurants and sports and music venues, will likely be stifled by residual consumer fear and continued social distancing protocols that limit capacity as the economy is slowly reopened.
With almost every other form of entertainment in limbo, it has created a massive void and a chance to get everyone’s attention.
“Everyone is at home looking for something to do, and something to watch. No basketball. No baseball. No hockey. No concerts. No plays. No going out with friends for dinner or drinks. Very limited travel. This is a very opportune time for these streaming companies,” said Craig Peters, an industrial broker who represents sound stage landlords for CBRE (CBRE). “I actually watched a replay of the 2004 National Spelling Bee the other day for no apparent reason. So the need for new content is immediate.”
New streaming options are on the way, with HBO Max launching later this month, and Comcast’s Peacock in the summer. And the appetite for content probably won’t be limited to the pandemic; streaming services are expecting a larger audience for the foreseeable future, even after the economy reopens. The fevered demand could help ignite L.A.’s recovery and be a hinge point for streaming services.
Hackman said there’s “tremendous pressure on the market right now” to get back into production, because after the economy reopens, demand for streaming content will persist as society-wide changes reshape behavior.
“I see nothing but continued growth for streamers right now,” he said. “Even when the recovery comes, a lot of people will still be spending more time at home. These companies need to get back into production, they need to make new content.”
Eric Willett, CBRE’s regional director of research, said the 86 streaming service tenants in L.A. and the studio owners and developers will be more adept compared to other office assets to survive the downturn and benefit in the near-term.
“Undoubtedly, the unique nature of this crisis so far has proven to be a boon for streaming companies,” he said. “As a result, streaming companies are one of a number of tenant categories that are entering the recession from a position of real strength.”
Other industries are transforming for employees to work from home following the pandemic, and they are deciding how much office space they still need. But creators like Netflix and Amazon, and landlords like Hudson Pacific, know the demand for content will persist, and that filming will eventually resume with a fury.
“It’s going to be beneficial for us, and the waterfall of production will absolutely proliferate because of the fact that Netflix and all the others are running out of content,” Coleman said. “Our team has been reached out to by virtually every production company saying we need office space and we need studio space. … The demand is going to be voracious.”
Coleman said Netflix is working to change all location shoots to be studio shoots, and they’re working to get approval to go from three-to-four days per week to seven-days per week for filming.
The “streaming wars” have been building for years as creators push for increased production, leading to a crunch for studio space. For the past four years, studio occupancy in L.A. has been above 90 percent, and the gap in production is expected to bolster demand for sound stages once social distancing restrictions are lifted, according to FilmLA, the nonprofit group that handles permits for the county.
Streaming firms have a 3.9-million-square-foot footprint in L.A., which has more than doubled since the beginning of 2018, according to CBRE.
“Streaming platforms have had a growing local footprint for several years, and the current crisis is likely to accelerate that trend, with those companies solidifying their position as power players in the media space,” Willett said. “The current pandemic is illustrating the growing demand for online content, and simply put, more content requires more space.”
Willett also said media companies are rearranging filming schedules and looking to secure scarce space for rescheduled productions.
“As social distancing regulations are relaxed, demand for the region’s sound stages looks likely to become even more competitive,” he said.
West Coast Best Coast
Greater L.A. has at least 334 certified sound stages and a combined 5.7 million square feet of production space, according to FilmLA. That is almost as much as the market’s top five competitors combined.
Exact timelines are still unclear, but when filming does resume, it will start in L.A., according to landlords and content creators. For example, according to Hudson, all of Amazon’s domestic filming is moving to L.A., and Hackman is seeing productions return as well.
“One of the interesting aspects of the COVID-19 pandemic is that a lot of companies that were producing overseas or going into other markets to get lower costs or tax credits are reconsidering, and they’re trying to bring that production back here to L.A. where it’s closer to home,” Hackman said.
Hudson executives said L.A. will be the top initial shooting location as talent and employees might not be able or willing to travel for a while.
“We expect L.A. will be the first major studio market to resume production, bringing a surge in demand for our stages, particularly as shows and films look to curtail travel for the foreseeable future,” Lammas said.
Harout Diramerian, Hudson’s CFO, said the firm has ample liquidity and enough dry powder to pursue new opportunities at some point. Hackman also said his firm is in a good position to weather the storm and will “have pretty significant dry powder” to buy more properties.
CBRE’s Peters said after mid-April, the brokerage started to see an increase in inquiries and property tours from production companies, locations scouts and studio operators who are looking for ready-to-occupy industrial buildings for potential stage space.
“It appears the industry is hoping to gear up in June, so the key is to be ready to occupy functional warehouse space, offices and restrooms,” he said.
The Show Must (Safely) Go On
Filming has continued in controlled environments in places like South Korea, Japan and Iceland, and streaming executives and studio owners say production will continue in the U.S. soon. But it will look very different.
Hackman said production companies are trying to collaborate on the best ways to get back into the studios with safe environments.
“With COVID-19, it became much more desirable overnight to have very large projects and properties where you have self-contained campuses,” Hackman said. “On a campus, you can control who gets on and off the property and you can control your environment a lot better. I think a lot of larger companies now will start to look at larger properties so they can create those environments of safe campuses. And we’ve seen that.”
Typical productions involve people working closely together on set, behind the camera, and in the preparation leading up to filming, and much of that process is expected to be modified.
“The challenge right now is getting productions back up and running,” Hackman said. “It’s just a question of working out the guidelines and the protocols in a manner to create a safe environment so that production can ramp up in Southern California.”
Unions, industry leaders and health officials are creating plans to ensure the safety of the cast and crew, with mandates for social distancing, wearing masks and gloves, and coronavirus testing. Hudson’s CEO, Coleman, is also co-chair of Mayor Eric Garcetti’s working group to help handle reopening office space.
“Production in itself will be different,” Coleman said. “There’s already a roadmap by which [content creators] are doing that. They’ve already made the determination that they’re going to be filming more on set than on location, because on location, they still have parameters by which they can’t control. On sets, they can.”